By Braden Reddall and Rory Carroll

NEWARK, California (Reuters) - Vacant industrial land near salt marshes and a derelict rail bridge seem like an odd setting for the beginnings of a lifestyle revolution in scenic California, but planners in the San Francisco Bay suburb of Newark view it as just that.

With an eye on the state's new land-use laws to cut carbon output, Newark's city council just voted to convert 200 acres owned largely by chemical companies into a development that should set the trend for a state bent on decarbonizing its economy, the world's ninth largest.

The marshes could be turned over to birds, satisfying environmentalists, or paved over with single family homes, like most of the Bay Area.

Newark planners envision something different, which might satisfy both - or neither: 2,500 new homes, mostly townhouses and apartments, built within walking distance of stores and schools and connected by a new train to jobs across the Bay.

That trip would put commuters right in the heart of Silicon Valley, where 1950s suburbs with two-car-garage homes grew out of orchards to create a California dream that has endured decades.

California's success in reshaping that dream, leaving behind big convertibles cruising past strip malls, will determine its future. The state population has doubled in four decades to nearly 38 million and may hit 50 million by 2050.

The state that invented the freeway often looks like a parking lot at rush hour, and not just in the biggest cities.

"The way we developed in the last few decades is definitely not sustainable," said Hasan Ikhrata, executive director of the Southern California Association of Governments, the largest metropolitan planning organization in the country.

"The future is going to be single-family homes in smaller lots, multi-family homes and a more urban style of living," he said. "We are going in a totally different direction now."

CLIMATE CHANGE FIGHT

The state has become a global champion in the battle to stop climate change, adopting a raft of laws and regulations to reduce planet-warming greenhouse gas emissions to 1990 levels by 2020, then by an additional 80 percent by 2050.

That's an extremely tall, if not an impossible order.

A study by energy consultancy Enduring Energy calculates California must generate 90 percent of its electricity from carbon-free sources like wind and solar; retrofit existing power plants with as unproven carbon capture technology; and move virtually all its cars to electric power to hit its 2050 goal.

"It's a re-engineering of our society," said Bryan Hannegan, the vice president for environment and renewables at the Electric Power Research Institute.

How California lives and how it builds is a big part of the solution. While industry, from factories to refineries, get the most attention from climate change foes, cars and buildings are top polluters, California has found.

Transportation accounts for about 40 percent of the state's carbon output, while commercial and residential buildings account for a quarter - more if construction is included.

So developments like the one in Newark tackle carbon emissions by creating smaller, better built houses with conveniences so close no one will need to get in a car.

"We're trying to be a post-suburban community," said Terrence Grindall, Newark's community development director.

The cornerstone of California's pursuit of a low-carbon economy is a 2006 law, known as AB32, which set the 2020 target.

After years of cajoling local authorities to build more homes near public transit - including a lawsuit to enforce one city to do so - the state in 2008 passed SB375, which requires its 18 metropolitan planning organizations to show how they will meet greenhouse gas reduction targets through integrated land use, housing and transportation.

"Going forward, state and federal transportation dollars can only be dedicated to projects that are consistent with the sustainable communities plan," said California Senate President pro Tem Darrell Steinberg, author of SB375.

"I call it a hard carrot. It's a carrot, but if it hits you, it might sting," he said, adding that California is now the leader in sustainable development in the country.

'PACKED LIKE SARDINES'

The profile of the typical new home in California is being flipped on its head. Between 1985 and 2010, 61 percent of all houses built in the state were single-family homes and 39 percent were multi-family ones, such as condominiums and apartment buildings.

Between 2010 and 2035, Southern California planners project, 68 percent will be multi-family and 32 percent single family.

There is ample room for skepticism. California's exurbs mushroomed during the last economic boom, turning now-bankrupt Stockton into a Bay Area suburb with an hour and a half commute in each direction.

Building high-density communities will only alienate buyers, said Joel Kotkin, a professor of urban development at Chapman University in Orange, California. "You'll end up in a situation where we have housing that people don't want," he said.

Tea Party activists nationally have campaigned against sustainable development, seeing it as a threat to property rights. Continued...