Under the plan being worked on, New York, New Jersey, Connecticut, Delaware, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont would cap carbon dioxide emissions at 150 million tons a year -- roughly equal to the average emissions in the highest three years between 2000 and 2004.

Starting in 2015, the cap would be lowered, and emissions would be cut by 10 percent in 2020.

Each state legislature would have to approve the caps, said Dennis Schain, a spokesman for Connecticut's Department of Environmental Protection.

"This is a process that would be an agreement among states and to really implement it and have a firm commitment, the states will each have to approve legislation and regulations to meet these conditions," he told Reuters.

The draft is being circulated among industries, power companies and environmental groups for feedback, he said. The group hopes to reach a final agreement in September.

Phil Cherry, policy director at Delaware's Department of Natural Resources, also confirmed details of the pact.

Scientists believe carbon dioxide and other greenhouse gases cause global warming that is affecting coastal areas, icebergs and wildlife. Around 40 percent of US carbon dioxide emissions come from fossil fuel power plants.

The United States is the world's largest emitter of carbon dioxide. The Bush administration wants cuts to be voluntary and resists mandatory measures it says would hurt economic growth.

Many international leaders have criticized Bush's refusal to sign Kyoto, which is meant as a first step toward braking a rise in global temperatures from a build-up of gases from fossil fuels emitted by power plants, factories and cars.

In the absence of national control on emissions, Schain said: "This seems to be the appropriate course of action."

The so-called Regional Greenhouse Gas Initiative would explore a market-driven cap-and-trade system where businesses must trim emissions under set limits or buy credits from companies that have complied with the limits.

Environmentalists praised the proposed plan.

"It moves the United States further toward doing something about the problem," said Kert Davies of Greenpeace in Washington, D.C. "That eventually allows us back into the global solving of this problem."

The deal was brokered by New York Republican Gov. George Pataki, who is weighing a White House run in 2008.

Pataki spokesman Andrew Rush said no final deal had been reached but, "We've made a lot of progress and we look forward to reaching a final agreement."

Political experts note such a plan brings Pataki national attention. "This is another clear signal that George Pataki is positioning himself on the national stage to run for president," said political strategist Hank Sheinkopf.