He also backed a recommended strategy to develop "market-based solutions" like buying and selling emissions credits to give industries financial incentives to cut pollutants.

"Let's work together to create the world's best market-based system to limit and slash emissions," he said.

Such programs are used extensively by electricity producers in Europe. They allow greenhouse gas producers to buy and sell emissions credits. Companies that exceed emission levels, for example, can buy credits from producers who have reduced their pollutants.

The carbon reporting program would cover the state's largest polluting industries -- oil and gas extraction, oil refining, electric power, cement manufacturing and solid waste landfills.

Schwarzenegger spoke in San Francisco at the first of a series of summits to be held around the state to discuss a California climate report and recommendations of his environmental advisors with legislators, business executives, government regulators, economists and environmentalists.

The advisors recommended a series of new clean-air programs last week, and Democratic lawmakers also introduced a bill to reduce emissions by 25 percent by 2020, a goal Schwarzenegger proposed last year.

The report said the emissions reduction target for 2020 "should be the basis for an emissions cap in the development of the program."

Schwarzenegger said mandatory reporting of carbon pollution will help lawmakers and regulators decide if the state needs caps but cautioned: "I don't want to scare businesses to leave the state to go to Nevada or Oregon ... we need to find a happy medium."

Some business groups and utilities support parts of the climate strategy but others like the California Manufacturers and Technology Association oppose emissions caps, saying they would harm California's economy.

Peter Darbee, president and chief executive of utility PG&E Corp. said in an interview before the summit that details need to be worked out before caps are decided.