Schwarzenegger thinks the federal government will follow suit
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California's Governor Arnold Schwarzenegger has signed a law which sets targets to reduce the state's greenhouse gas emissions.
Becoming the first US state to impose such limits, California is aiming to reduce its emissions by 25% by 2020.
Details on how the state will achieve the cut have not been worked out, but it seems inevitable that businesses will face tougher emissions limits.
While good news for the environment, critics argue that firms may relocate.
In addition to companies simply moving outside California, opponents of the Global Warming Solutions Act of 2006 say California's move will fail to make a meaningful reduction to US greenhouse gas emissions unless other states follow suit.
'Global echo'
The new Californian law has been backed by UK Prime Minister Tony Blair, who addressed the bill signing ceremony by video link.
"This will echo right around the rest of the world," said Mr Blair.
Mr Schwarzenegger's move puts him into conflict with the White House, as President George W Bush has long agued that forced reductions in greenhouse gases would damage the US economy.
Yet Mr Schwarzenegger, who like Mr Bush is a Republican, thinks Washington will eventually follow California's lead.
"We begin a bold new era of environmental protection here in California that will change the course of history," he said.
"Also our federal government will follow us - trust me."
While Mr Schwarzenegger says his environmental credentials are real, his opponents say he is trying to steal the thunder of Californian Democrats.
Yet Mr Schwarzenegger also signed another law on Wednesday that prohibits California utilities from signing long-term contracts to buy electricity from out-of-state, coal-fired power plants.
Mr Schwarzenegger has already called on airline industry to do its bit for reducing emissions.
'Work together'
His comments came the same day as Virgin Airways boss Richard Branson asked for the same thing.
Sir Richard said the aviation industry had to start working together to tackle climate change.
Up to 25% of the world's aviation carbon dioxide emissions could be cut if airlines, airports and governments worked together, the Virgin boss said.
Sir Richard last week pledged Virgin profits worth $3bn (£1.6bn) towards renewable energy initiatives.