GM Generali

California officials said Monday they expect the U.S. Environmental Protection Agency to act quickly to reverse a Bush administration decision that blocks the state's tailpipe emissions law, adding that they believe auto makers have the tools to cut emissions.

President Barack Obama on Monday ordered the EPA to consider allowing California to regulate greenhouse-gas emissions from automobiles, a policy that could spur the development of new vehicles.

"The president's action is a great victory for California, around the nation and for generations to come," California Gov. Arnold Schwarzenegger said during a press conference in Sacramento. "I'm confident when the EPA completes its review California and other states can finally move forward" with their vehicle emissions regulations.

California state Sen. Fran Pavley, who authored the legislation, said that auto makers already have access to technology to meet the stringent requirements.

"Auto manufacturers can make these targets with technology" that is available "off the shelf," Pavley said, speaking at the press conference.

Pavley added that with 14 states having adopted the emission limits and four other states "poised" to adopt them, a critical mass of American consumers will require more fuel-efficient cars.

In March, the EPA had denied California's request for a waiver that would have allowed it to proceed with a tailpipe emissions law established in 2003. Under current law, California may make its own auto-emissions rules as long as it receives a waiver from the EPA. Other states may then adopt California's standards or choose the federal standards.

California officials last week asked the Obama administration to reverse the decision, over which the state has filed multiple lawsuits.

California Attorney General Jerry Brown said he thinks the EPA will act quickly to grant California's waiver.

"They may put some conditions on it, but it means the tough standards of California will eventually be the rule for more than 40% of the cars sold in America," Brown said.

He noted that California would withdraw its legal complaints after the waiver is granted.

New York Gov. David Paterson said he "applauded" President Obama's order.

"Motor vehicles are the largest source of carbon dioxide emissions in New York and throughout the Northeast, and only by limiting tailpipe emissions and increasing gas mileage will it be possible to address the negative impact of motor vehicles on our environment," Paterson said in a statement.

Vermont, which also has adopted California's standard, won a federal court case last year brought by auto makers over the regulations. Vermont Gov. Jim Douglas said he was grateful to see progress on California's request.

"President Obama has seized an extraordinary opportunity to take concrete and speedy action on his pledge to address climate change," Douglas said in a statement.

It was unclear whether auto manufacturers that have sued California, Vermont and other states over vehicle emissions law would continue with those actions.

General Motors (GM) said it was "working aggressively" on "advance technologies...to save energy and reduce emissions," but the company declined to provide details.

Brown of California said he hoped the Obama administration and Congress would require U.S. auto makers to abandon the lawsuits as part of the government's rescue package for Detroit.

"I'm confident that the president and Congress will rein in the auto companies as part of the bailout," Brown said.

But auto industry allies in Washington warned that the emissions regulations would exacerbate the auto industry crisis.

"There is no way to know how much money this will cost taxpayers and workers, but we can be certain that it makes a bad situation worse," Rep. Mike Rogers, R-Mich., said in a statement.

The government has already committed more than $17 billion in emergency aid to General Motors Corp. (GM) and Chrysler LLC to keep the companies afloat.

Rep. Sander Levin, D-Mich., called for a bipartisan effort to develop national standards on tailpipe emissions and fuel economy. "This consistency, as well as certainty going forward, is important as our domestic industry accelerates necessary efforts to restructure and retool to meet increasing fuel standards," Levin said in a statement.

The standards are designed to cut greenhouse gas emissions from cars by 30% by 2016, according to the California Air Resources Board. Cutting emissions from cars will go a long way toward cutting overall California and U.S. greenhouse gas emissions, 40% of which come from cars and trucks, said Linda Adams, California's environment secretary.

Schwarzenegger said California's emissions standard would have the equivalent effect of taking 6.5 million cars off the road.

Fourteen states plan to implement California's tailpipe emissions standard as soon as the waiver is granted. They include New Jersey, Connecticut, Maine, Maryland, Massachusetts, Pennsylvania, Rhode Island, Arizona, New Mexico, Oregon, Washington and the District of Columbia.

By rejecting California's request for a waiver under the Clean Air Act - the first time the agency has ever refused to grant such a waiver - the EPA effectively blocked any state from regulating vehicle greenhouse-gas emissions.

Earlier this year, Democratic senators asked the U.S. Justice Department to investigate whether former EPA Administrator Stephen Johnson made false statements to Congress when he testified that his decision to deny the waiver was made independently. A former EPA official said Johnson had planned to grant California's waiver, but changed his mind under pressure from the Bush administration.

-By Cassandra Sweet, Dow Jones Newswires; 415-439-6468; cassandra.sweet@dowjones.com

(Siobhan Hughes and Josh Mitchell in Washington contributed to this story.)

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary. You can use this link on the day this article is published and the following day.