Those that exceed their limits must buy credits to cover the difference, while those that produce less carbon dioxide can sell the surplus credits.
The partnership is the first step in creating a system that helps California's largest manufacturers comply with stricter environmental regulations. Industrial corporations and utilities in the state must cut their emissions by about 25 percent by 2020, as part of a landmark global warming law.
Linking California to the Northeast program could help California plants meet their obligations under the state's new law.
``Our cooperation can be a model to the rest of the states and to other countries, actually," Schwarzenegger said after he and Governor George E. Pataki of New York toured a building in lower Manhattan touted as one of the country's largest ``green" residential high-rise buildings.
Pataki said a ``market-driven cap and trade system" would benefit industry and the environment.
In an effort to make the cap workable for businesses, Schwarzenegger has advocated setting up a market system that could enable the state's companies to buy, sell, and trade emission credits rather than making their own reductions.
The Northeast system involves seven states -- Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, and Vermont. Maryland is expected to join in June 2007.
Schwarzenegger has urged the governors of Western states to join California in a regional trading system.
