The Prime Minister met Arnold Schwarzenegger, the Governor of California, to lay the groundwork for a new transatlantic carbon trading system intended to encourage companies to reduce emissions.

Frustration with the President’s refusal to cut carbon emissions has driven Britain to risk the wrath of the White House and do business with states on climate change.

The deal with California, which was to be signed after a summit in Los Angeles, came only hours after Mr Blair defied the White House publicly and called for extra investment into stem cell research.

Downing Street hopes the two new agreements will end criticism that Mr Blair is slavishly loyal to President Bush. The Prime Minister’s official spokesman even abandoned the doggedly loyal language used about the White House when discussing the two agreements. Asked if Britain risked antagonising Mr Bush, he said: “It is important that we can work with people who are like-minded and have the same perspective on things.”

Privately, Mr Blair is furious that Mr Bush has refused to engage on climate change.

The US Administration not only withdrew from the Kyoto Protocol but has since tried to cast doubt on the science of global warming, saying it had not been proved that climate change was a man-made phenomenon. It has also refused to put emissions limits in place.

Stem cell research is another point of policy differences within the “special relationship”. President Bush used his veto recently to block federal funding for stem cell research on embryos. But at a meeting with the biotechnology industry in San Francisco Mr Blair said that research was vital to advance medical science.

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