The initiative comes as studies suggest that climate change is taking a toll on the Western region of the U.S. and Canada. Scientists say that without dramatic cuts in the global burning of fossil fuels, Western states will suffer disproportionately from water shortages, severe wildfires, coastal flooding and species die-offs.

    The Western plan covers about 20% of the U.S. economy and more than 70% of the Canadian economy, affecting power plants, industrial facilities and transportation, among other economic sectors. The seven states are Arizona, California, Montana, New Mexico, Oregon, Utah and Washington. The Canadian provinces are British Columbia, Manitoba, Ontario and Quebec.

    The initiative calls for a cap on carbon dioxide and other gases that trap heat in the atmosphere and have been blamed for raising temperatures around the globe. Industries would be granted fixed numbers of permits to pollute under the cap, and they could trade the permits among themselves so that reductions would be achieved in the cheapest way.

    The European Union employs a "cap and trade" program for industrial and electrical plants. Later this week, 10 East Coast states in the U.S. will auction permits under a more restricted version limited to power plants.

    If the proposed Western carbon market materializes, it would be half the size of Europe's as U.S. financial markets are in turmoil. Some experts are predicting that the Wall Street meltdown will weaken support for a national cap and trade system because investment banks, which stand to profit from such trading, are among its strongest supporters.

    By including transportation, the largest source of greenhouse gases in Western states, the initiative would be broader than any other carbon reduction program in the world. It offers a model for a national program, which both presidential candidates say they favor.

    "This really ups the ante for Congress and the next administration," said Mary Nichols, chairwoman of the California Air Resources Board, which is in the final stages of designing California's climate program. "If all these states and provinces are saying they will actually cut emissions, where is the federal government?"

    Utilities, cement companies, refiners and other industries hope to ward off state rules until a national program is adopted. A regional plan, suggested Britt Weygandt, executive director of the Colorado-based Western Business Roundtable, would "shift costs from ratepayers in states like California, Oregon and Washington, that don't rely as much on coal for low-cost electricity, to those states that do . . . Utah, Wyoming, Colorado, Montana and New Mexico."

    "If this plan gets painted as a proposal to 'Californicate' the rest of the West, it will have a very difficult time being sold to voters and consumers," he said.

    Proponents, however, see the initiative as a way to discourage industries from relocating to avoid emissions rules. "It helps the competitive landscape," said Michael Gibbs, a California Environmental Protection Agency official.

    Environmentalists applauded the initiative as a good start in addressing global warming, but expressed strong reservations about several key elements.

    "We see no justification for handing out permits to pollute - a valuable asset - for free to big oil and power companies," said Bill Magavern, director of Sierra Club California.

    The Western initiative would allow states to distribute up to 90% of permits to industries for free in 2012. The ceiling would be raised to 75% by 2020. Europe and the Eastern states' program require industries to pay for most of their permits through auctions.

    California is moving toward auctioning a majority of greenhouse gas emission permits and using the money in part to promote energy efficiency and renewable energy such as solar and wind power. But officials involved in drafting the regional initiative said that allowing individual states broad discretion was a way to make the initiative more politically palatable in conservative areas.

    Another controversial aspect of the plan would permit industries to use "offsets" for up to 49% of the emissions they are required to cut. An offset, such as planting trees or capturing landfill emissions, could be cheaper than installing expensive equipment to cut fossil fuel burning or switching to cleaner power.

    Economists have expressed concerns that many offsets used in the European cap and trade program have proved to be bogus.

    "States and provinces should close the offsets loophole," said Erin Rogers of the Union of Concerned Scientists, an environmental nonprofit group. "Outsourcing half the effort would undercut the benefits of reducing pollution and make it difficult to achieve the region's long-term climate goals."

    Nonetheless, the plan has managed to make unlikely bedfellows: red states such as Utah and blue states such as Oregon, coal producers such as New Mexico and Montana, and hydroelectric-rich states such as Washington.

    "No one says the Western U.S. can solve the international climate crisis by itself," said Ned Farquhar, an Albuquerque staffer for the Natural Resources Defense Council. "Instead, the West is protecting its own interests . . . by moving ahead. Someday, there will be leadership in Washington."