While Gov. Arnold Schwarzenegger celebrated President Obama's embrace of California's strict auto emissions standards, environmentalists said Monday they fear the governor and Democrats will approve GOP environmental rollbacks in exchange for tax increases.

Republican leaders have asked to relax diesel equipment rules, protect developers from greenhouse-gas lawsuits and give the governor's Business, Transportation and Housing secretary oversight in future California Air Resources Board decisions.

Environmentalists said the changes have little to do with the state's estimated $40 billion budget deficit. State leaders are trying to reach a compromise within seven to 10 days, Schwarzenegger said Monday, in order to ensure that California has enough cash to pay its bills.

Democrats generally have pursued a basic trade of spending cuts for tax increases. But Schwarzenegger and Republican leaders have demanded proposals that help businesses, on top of budget cuts, in exchange for supporting new taxes. Environmentalists are concerned because bill language began circulating last week ahead of a possible budget vote.

"Republicans are trying to use their budget leverage to achieve weakenings of environmental laws they could never achieve through the normal budget process," said Sierra Club California Director Bill Magavern. "We urge the legislative leaders and the governor not to acquiesce to this fiscal blackmail."

Republicans said their demands, some of which they aired publicly in December, would provide crucial relief to businesses in the state's economic downturn and are relevant because budget woes are economy-driven.

"It's about creating a job environment that's conducive to putting people to work and keeping them in good-paying jobs in this state, which we think is imperative right now with the economy doing what it's doing," said Senate Republican Leader Dave Cogdill, R-Modesto.

GOP leaders have asked for changes in environmental laws before, but they have significant leverage this year because leaders are desperate to reach a budget deal soon, which requires Republican votes. The few Republicans who have discussed breaking their no-new-tax pledge said they want relief for businesses and a cap on future state spending.

One proposal would allow farmers in the Central Valley and in certain coastal areas to use more pesticides than allowed under a court-authorized agreement the state made last year. Cogdill said the request involves "clarifying a court decision."

But environmentalists see it as an attempt to circumvent the judicial system.

"It's certainly an effort to water down what was achieved in the courts," said Brent Newell of the Center on Race, Poverty, and the Environment and the lead counsel representing local residents who challenged the state. "My clients had to go to court to make sure the state kept its promises … now the Republicans are trying to gut it."

Officials at the California attorney general's office have grown concerned about a GOP proposal to protect developers and other builders from litigation related to the state's 2006 greenhouse-gas reduction law, according to an internal memo. They also questioned a plan to give the Business, Transportation and Housing secretary power to analyze major air-board regulations for business impacts.

Another change would relieve construction firms and other businesses from having to meet a 2007 retrofit requirement for diesel off-road vehicles. Mike Lewis, senior vice president for the Construction Industry Air Quality Coalition, said contractors already have reduced emissions below targeted levels because the economic slowdown has reduced activity and firms have begun complying with new rules.

Under the air-board requirement, he said businesses would have to pay $1 billion to retrofit 35,000 particulate traps by next year: "The industry simply doesn't have a billion to do that."

Budget talks between Schwarzenegger and Democrats blew up during the holiday break in part because they disagreed over the governor's plan to waive environmental restrictions for specific highway projects.

Schwarzenegger said that he would not comment on specific proposals and that some "radical" ideas have been discussed. But he said, "We do not want to harm the environment. We want to always protect the environment."

Democratic Senate President Pro Tem Darrell Steinberg, D-Sacramento, said Monday that he would not comment on current negotiations, "but I believe very strongly that economic development and environmental protection go together. They're not mutually exclusive."

Kathryn Phillips, director of California transportation and air initiatives for the Environmental Defense Fund, said she is concerned because Democrats have consistently said "everything is on the table."

"My feeling is they shouldn't be putting public health protections already adopted on the table," Phillips said. "At some point, someone ought to stand up and say let's only put fiscal issues on the table."

Call Kevin Yamamura, Bee Capitol Bureau, (916) 326-5548.