After Texas, California is the nation’s largest emitter of heat-trapping carbon dioxide.

The California Air Resources Board (CARB), which the state legislature designated to regulate the plan, says it will cover more than 600 large industrial operations including power plants and oil refineries.

Companies who cannot meet increasingly stringent emissions targets will be able to purchase and sell pollution allowances. What percentage of allowances will be auctioned and given away is still under discussion at CARB.

Governor Arnold Schwarzenegger’s administration estimates a cap-and-trade system could raise as much as $4bn a year in revenue from industrial polluters.

The cap-and-trade plan will cover roughly 20% of California’s pollution and will complement other state programs aimed at reducing vehicle tailpipe emissions and the motor fuels’ carbon content.

Also included in the cap-and-trade plan are diesel, gasoline and heating oil transport companies.

There will be a public comment period before plan regulations are finalized in fall 2010. Businesses and Schwarzenegger have disagreed over the plan's cost, with some companies arguing it will drive up expenses and make them less competitive in overseas markets.

The Regional Greenhouse Gas Initiative, or RGGI, which comprises 10 Northeastern and Mid-Atlantic states, is a trading system that covers CO2 emissions from power plants. The mandatory program will require a 10% reduction in emissions by 2018.