It is the first step in creating a system that helps California's largest manufacturers comply with stricter environmental regulations, a Schwarzenegger administration official said. Industrial corporations and utility companies must cut their greenhouse gas emissions by roughly 25 percent by 2020.

"Gov. Schwarzenegger wants to build a large, robust carbon trading market that will dramatically reduce emissions," said Schwarzenegger communications director Adam Mendelsohn. "The more robust the market, the more effective we will be."

The executive order "will now get the northeast states working with California to trade credits in the very near future," Mendelsohn said.

The Northeast system currently involves seven states that plan to reduce carbon dioxide emissions at power plants beginning in 2009. It allows power plants to trade emissions credits as a way to reduce overall greenhouse gas emissions in the region. Linking California to that program could help California power plants meet their obligations under the state's new global warming law."