When President Reagan endorsed the recommendation by special envoys in March 1986 for a $5 billion technology program to combat acid rain, Canadian Prime Minister Brian Mulroney hailed the endorsement as an "essential first step" in resolving an issue that has strained relations between the two nations for years.

Twenty months later, Canadians are still waiting for the second step. No projects have been undertaken or funded as result of the envoys' report.

How the report evolved is a principal focus of the federal trial of Michael K. Deaver. Prosecutors have charged that Deaver, while White House deputy chief of staff, pushed for the appointment of special envoys on acid rain, then lied to a grand jury investigating his lobbying activities after he left government.

Overshadowed by the revelations about White House politics is the story of an environmental initiative that was unveiled in the glow of summitry but faded after the klieg lights dimmed.

Last March, as he prepared for another meeting with Mulroney amid Canadian charges of bad faith, Reagan amended his budget to include the $2.5 billion government share of the program recommended by the envoys. But the president's failure to seek the funds earlier, and efforts by the administration to claim credit for unrelated programs, have prompted critics on both sides of the border to question his commitment.

Testimony at the Deaver trial has fueled the criticism. Former White House chief of staff Donald T. Regan acknowledged that the appointment of special envoys was seen as a chance to "pass the ball" and move the acid rain issue "off to the side" so as not to sour the March 1985 summit between Reagan and Mulroney.

According to Lynn McDonald, environmental spokesman for Canada's New Democratic Party, the envoy mission "was just a political gesture in lieu of action."

"It is now clear that it was nothing more than a public relations effort," said Sen. George J. Mitchell (D-Maine), a leading advocate of acid rain controls. He said the president moved to amend the budget only after his inaction became "painfully embarrassing" to Mulroney and it became necessary to "appease the Canadians."

Administration officials deny any weakening of commitment, saying that time was needed to study options for the costly program in an era of big budget deficits.

There was no such ambivalence when the special envoys -- Drew Lewis for the United States and William Davis for Canada -- called for a five-year, $5 billion U.S. program to develop cleaner methods of burning coal in power plants and factories.

The projects, which were to be financed jointly by government and industry, were to concentrate on technology that would result in "some near-term" reduction in transborder sulfur dioxide emissions from U.S. plants and that would be:Adaptable to existing plants. Geared to boilers that burn high-sulfur coal, the main source of acid rain today. Cheaper than current antipollution devices.

Ottawa has long complained that sulfur emissions from U.S. coal-fired boilers, chemically transformed in the atmosphere, fall on the Canadian side as acidic rain and snow, damaging lakes, rivers and forests and killing aquatic life.

At his March 1986 meeting here with Mulroney, the president said he fully endorsed the report, conceding for the first time that acid rain is a man-made problem. Until then, he had opposed all acid rain regulations, arguing that too little is known of the causes of the pollution to warrant costly control programs.

Mulroney, under pressure at home to gain U.S. concessions on acid rain, said that Reagan's endorsement showed "this is a front-burner issue."

But after Mulroney left Washington, the burner was turned off. There was no amendment to the fiscal 1987 budget seeking funds for the program. Indeed, the administration had objected to a $400 million, three-year Clean Coal Technology Program (CCTP) passed by Congress in December 1985. The program was designed to expand energy uses of coal by finding new ways to burn it cleanly -- a mandate much broader than the envoys' search for inexpensive controls to cut acid rain in the near term.

By September 1986, however, then-Acting Assistant Energy Secretary Donald L. Bauer was arguing that nine projects selected for the congressional program at projected costs of $960 million -- a third of it to be federal -- would "fulfill the requirements" of the Lewis-Davis report.

"If these projects are fully successful, there may be no need for additional federal activity," Bauer told a House Science and Technology subcommittee.

But environmentalists accused the White House of budgetary legerdemain, and the Congressional Research Service issued a report last January asking if the Energy Department was "squaring a circle." The CCTP "does not represent a major downpayment" on the envoys' $5 billion program, said the research service, concluding that only three of the nine CCTP projects valued at $52 million might meet the envoys' criteria.

While the envoys were seeking "a new initiative" by Washington to control acid rain, the research service said, "the administration's response to the report has been largely an effort to show that existing programs are achieving the envoys' goals."

In his fiscal 1988 budget, submitted in early January, the president called the $400 million CCTP "a first step in carrying out" the envoys' plan and proposed another $350 million for the program over five years for projects "targeted closely" to the envoys' report. Moreover, Reagan pointed out that public and private research efforts in clean coal (unrelated to the Lewis-Davis mission) will exceed $5 billion by 1992. Critics viewed the statement as another pass at double counting.

This time, Ottawa cried foul. Canadian Environment Minister Tom McMillan called U.S. clean-coal technology efforts largely "irrelevant" to the envoys' objectives and said that U.S. programs and policies would not result in significant reductions of pollution for 25 years.

When Vice President Bush visited Ottawa Jan. 21, he said that he "got an earful" from Mulroney on acid rain and other issues, but was unable to pledge more money for pollution control.

But two months later, as Reagan prepared for another meeting with Mulroney in April, he amended the fiscal 1988 budget, requesting the full $2.5 billion recommended by the envoys for the demonstration of "innovative control technologies."

Energy Department spokesman Robert C. Porter said that officials did not intend to misrepresent existing programs as responses to the envoys. They sought to sort out CCTP projects and consult with industry before launching a new effort, he said, adding, "Had we rushed out with a $2.5 billion program, there would have been an equal number of critics who'd say we're spending money without justification."

The program is still in doubt, however. The Senate approved $850 million to be spread over two years, and the House $350 million for three years. They will try to resolve differences in a conference.

Although the March amendment mollified the Mulroney government, it did not still criticism from politicians and environmentalists in either country. Many of them urged cutbacks in U.S. sulfur emissions as the remedy for acid rain, and they opposed the envoy mission in the first place as a distraction.

"The whole program is a sham, and the administration's commitment to implement the program is developing as a sham," said David G. Hawkins, senior attorney for the Natural Resource Defense Council.

Staff writer Bill McAllister contributed to this report.