Gov. Arnold Schwarzenegger and legislative leaders on Wednesday reached agreement on a landmark bill to require industry to curb greenhouse gas emissions.

The bill AB 32, by Assembly Speaker Fabian Nunez, D-Los Angeles and Assemblywoman Fran Pavley, D-Agoura Hills, requires greenhouse gas emissions to be reduced 25 percent by the year 2020. Assuming it is passed by the Legislature in the next 24 hours, California would become the first state in the nation to adopt limits on fossil fuel emissions.

Schwarzenegger has supported the concept of reducing these emissions, but said he wanted safeguards to protect against severe economic impacts if refineries, electric utilities, cement makers and other industrial facilities have to cut back production. He was responding to concerns from the state's major industries that caps on greenhouse gases would cripple key portions of the state's economy and raise fuel costs.

Under the compromise, which is expected to be considered Wednesday evening on the floor of the state Senate, the 2020 cap on emissions remains. But it allows the governor to suspend the law for up to one year in the event of an emergency or threat of significant economic harm. It also allows state regulators to draw up criteria for emissions trading, with special consideration for the economic impacts of reductions.

"We can now move forward with developing a market-based system that makes California a world leader in the effort to reduce carbon emissions," Schwarzenegger said in a statement announcing the agreement.

"Throughout the negotiations, my concern was that the Legislature passed a bill that provided the flexibility to address unforeseen circumstances. AB 32 (as amended) will ensure that the state can make adjustments throughout its implementation," Schwarzenegger added.

Nunez stressed the effect the legislation is expected to have in stimulating new technologies to combat global warming. "The Global Warming Solutions Act of 2006 takes the first bold steps needed to create the technology and regulations we need to reduce carbon emissions and slow global warming It is now up to our generation to solve this crisis," he said.

Major business groups criticized the legislation. California Chamber of Commerce chief executive Allan Zaremberg said it would jeopardize the state's economy and global competitiveness, while the California Manufacturers and Technology Association said passage was rushed.

"AB 32 was amended just hours before the end of the legislative session so legislators are being forced to vote for something without knowing the full effects," said Jack Stewart , president of the manufacturer's association.

However, at least one business group praised the bill. The president of Small Business California, which was formed to represent business suffering from high workers' compensation premiums, applauded the compromise.

"We also think this is going to create a huge industry and will provide opportunities for entrepreneurs to develop technologies to meet the demand that will be created by the cap. Small business will therefore be creating thousands of jobs, which is what we do best," said Scott Hauge, president of the group.

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