Natural Resources Minister John Efford said the pact proved that Canada was committed to the Kyoto Protocol on climate change and the auto industry, often derided by environmentalists, was serious about tackling global warming.

"I am particularly glad that we've reached this historic agreement voluntarily, which shows the automobile industry is prepared to do its part to address climate change," he said.

Joe Hinrichs, president and CEO of Ford Canada, said the auto industry was "dedicated" to environmental progress, and looked forward to a "brighter and cleaner" road ahead.

The Sierra Club, an environmental group, also welcomed the move, but pressed the Canadian government to carefully watch the industry's compliance.

"We must be vigilant and rigorous to ensure that industry lives up to the agreement," said John Bennett, Senior Policy Advisor on Energy with the Sierra Club of Canada.

The pact, which will result in a six percent cut in greenhouse gas emissions, was signed with all the major auto firms sending vehicles onto Canada's roads, including Ford and Mercedes-Benz.

But there were already stirrings of controversy, as the Wall Street Journal reported that pact could have political implications in the United States.

And Efford faced a rocky ride in parliament, as Jack Layton, leader of the left-leaning opposition New Democrats, accused the governing Liberal Party of handing over protection of the environment to the "biggest polluters."

Auto makers reached a deal with Canada even as they are suing the state of California over a law which requires a 30 percent cut in greenhouse gas emissions from vehicles by 2016, the paper said.

Greenhouse gases -- primarily carbon dioxide -- are suspected of contributing to a gradually warming climate, which some experts suggest will lead to turmoil in world weather, harm agriculture and melt the polar ice caps.

The Memorandum of Understanding, signed in Windsor, a Canadian city adjacent to US car manufacturing capital Detroit, commits the industry to offer fuel saving technologies.

A new generation of vehicles on Canadian roads will feature hybrid powertrains, cylinder deactivation technology and advanced diesel technology.

The Kyoto protocol, ratified by Canada in 2002, obliges the country to cut greenhouse gas emissions six percent by 2008-2012 from the 1990 level.

But the government has faced stiff opposition from industry which fears it will lose competitiveness from firms in the United States which do not face a bill for pollution cuts, as the Bush administration rejected Kyoto in 2001.

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