SAN FRANCISCO – Gov. Arnold Schwarzenegger on Tuesday called for a market-based approach to reducing industrial emissions of “greenhouse” gases, endorsing a plan to combat global warming that faces opposition from business and Republican leaders.

Speaking at a climate change summit at San Francisco City Hall, Schwarzenegger said he supported creating financial incentives to curb the release of carbon dioxide and other greenhouse gases and requiring companies to report their emissions.

“Let's work together to create the world's best market-based system to limit and slash emissions,” Schwarzenegger said. “We know we cannot reach targets to reduce greenhouse gases unless we measure our progress. So let's work together to create a mandatory reporting system for our carbon emissions.”

Schwarzenegger said he backed ideas in a report released last week by the administration's Climate Action Team, which listed ways to curb emissions from power plants, oil refineries and factories operating in California by 25 percent by 2020.

Schwarzenegger's appearance in San Francisco was the first of a weeklong series of events designed to highlight his stewardship of the environment – a salient issue among the Democratic and independent voters he needs to win back this year to get re-elected in November.

During Tuesday's speech, he about his administration's work to protect marine ecosystems, boost energy efficiency, promote solar power, conserve forests and develop hydrogen fuel technology.

“We are showing everyone that we believe nothing is more important than protecting the environment,” he said. “We can lead the world both in the environment and job creation.”

Schwarzenegger broke ranks with the Bush administration on global warming last June, when he announced an ambitions plan to drastically reduce California's emissions of greenhouse gases over the next 50 years.

Last week, the Climate Action Team released its report detailing ways to meet those goals. Its recommendations include capping greenhouse emissions; using economic incentives such as pollution credits and offsets; requiring companies to report emissions; boosting energy efficiency goals; and funding a public education campaign.

On the same day, Assembly Speaker Fabian Nunez and Assemblywoman Fran Pavley, D-Agoura Hills, introduced legislation to cut emissions from commercial sources to 1990 levels by 2020, and give authority to the Air Resources Board to determine how to meet those goals.

“Democrats have led the fight for years on global warming, and we're pleased that the governor is joining us,” Nunez, D-Los Angeles, said in a statement. “The governor can make a real commitment to reducing greenhouse gases by signing our bill.”

Schwarzenegger did not mention the Assembly bill, but said he looked forward to working with lawmakers on developing legislation to curb global warming pollution.

Environmental groups praised Schwarzenegger and the Legislature for taking action on climate change.

“This really puts California on a path to being a leader in dealing with the most important issue of our time,” said Karen Douglas, who directs the California Climate Initiative at Environmental Defense, which is co-sponsoring the Nunez-Pavley bill.

But industry groups said increased regulation could drive businesses – as well as greenhouse gas emissions – out of California, which already has some of the nation's highest electricity costs.

“We are at risk of losing some manufacturing, but the biggest risk is we won't get any expansion of current manufacturing,” said Dorothy Rothrock, vice president of the California Manufacturers and Technology Association. “You're not solving the problem. You're just moving the greenhouse gases to another location.”

After his speech, Schwarzenegger participated in a panel where environmentalists, business leaders and government officials discussed ways to reduce global warming pollution. He told the panelists the state must find a way to curb emissions without damaging California's economy.

“I think the trick is to find a happy medium – to make businesses successful here ... and at the same time take care of the environment,” Schwarzenegger said.

While some business leaders worried about the financial impact of capping greenhouse gas emissions, some entrepreneurs said it would create a market for clean, renewable energy.

“It will create new jobs and businesses in California that will be exported around the world,” said Bob Epstein, who heads the nonprofit Environmental Entrepreneurs.