California is to cap its greenhouse-gas emissions under a landmark plan that marks a break with the federal Government and which campaigners hope will become a national model.

Arnold Schwarzenegger, the state's Republican governor, called the agreement "an example for other states and nations to follow as the fight against climate change continues".

After weeks of difficult negotiations the plan was sent to the state Senate, which approved it last night by a 23-14 vote. If passed by the Democrat-controlled Assembly, which is expected, the Bill will then go to the Governor’s desk to be signed off.

"My main objective was getting a Bill that the environmental community can champion around the country and say, ’California did this, and you should be too.’ And we did that," said Fabian Nunez, the Democratic Speaker of the Assembly.

The Bill requires the state’s major industries, such as utility plants, oil and gas refineries, and cement kilns - to reduce their emissions carbon dioxide and other greenhouse gases by an estimated 25 per cent by 2020.

One of the key mechanisms designed to drive the reductions is a market programme that will allow businesses to buy, sell and trade emission credits with other companies.

"Today it feels as if the whole world is watching, and I hope they are," said Ann Notthoff of the Natural Resources Defense Council, one of the environmental groups involved in the negotiations.

The agreement was announced simultaneously by the Governor’s office and Democratic leaders in the Senate and Assembly. It gives Mr Schwarzenegger an important environmental victory as he seeks re-election in the autumn.

The Bill states that the California Air Resources Board - an 11-member panel appointed by the governor - must identify "market-based compliance mechanisms" that might be used as part of its plan to reach the cap.

The cap was praised by environmentalists as a step toward fighting global climate change. It was criticised by some business leaders, however, who say it will increase their costs and force them to scale back their California operations.

Some of Mr Schwarzenegger's fellow Republicans blasted the Bill, saying that the scheme would have little effect and make California an expensive place to do business. "This Bill is the road to economic ruin for California," said Senator Dennis Hollingsworth.

America’s most populous state - its 35 million residents are due to increase to 55 million by 2050 - is the world’s eighth largest economy and 12th largest emitter of greenhouse gases. It faces environmental and health disasters if global temperatures increase by only a few degrees.

In the absence of action by the federal US Government, much of the effort to combat climate change has been focused in individual states. More than 100 climate-related Bills have been held up in Congress, including one that calls for a national cap on greenhouse gas emissions.

California has led the country in reducing greenhouse gas emissions through its renewable energy policies, and a 2004 law reducing exhaust emissions from vehicles.

Ten other states are poised to enact California’s "auto rule", while more than 20 states have required utilities to eventually generate some power from renewable sources such as solar, wind and geothermal.

The bill includes a so-called "safety valve" sought by Mr Schwarzenegger, that would allow California’s governor to delay the emission-cap mandate if the state is hit with a natural disaster, terrorist attack or some other emergency.

In addition to the emissions cap, California lawmakers voted to approve related global warming legislation. That Bill, which has been passed by the Assembly and is now due before the Senate, would prohibit the state from entering long-term contracts with any out-of-state utility that fails to reduce its carbon dioxide emissions.

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