An official at Endesa declined to comment. The government released its proposals for plant-by-plant emission limits under a wider plan to meet the European Union's commitments to the Kyoto Protocol on greenhouse gases. The proposals are open for public comment for one week.

Endesa's rival Iberdrola is seen as better placed to deal with the Kyoto goals due to its greater reliance on hydraulic power and renewable energy

Iberdrola stock, already trading at premium to Endesa in part because it is less exposed to the plan, gained 0.9 percent.

"The government has assigned to coal plants fewer rights than were expected, and most of them belong to Endesa," a trader at broker BPI said.

Companies that exceed their emissions limits will have the option of paying a fine or buying emissions rights on a European market.

"Adding up the rights plant by plant means that they (Endesa) will have to reduce emissions by 10 percent a year. This is being read as clearly negative for Endesa," said a dealer at a foreign bank.

The plan calls for a limit of 55.4 million tonnes of coal-power emissions in 2005 that would be cut 10.4 percent to 49.6 million tonnes in 2006, according to a joint statement by the Industry and Environment ministries.

For 2007 the limit was trimmed a further 12.2 percent to 43.6 million tonnes. The plan also allows for an increase in emissions by combined cycle gas turbines that would grow from 46.8 million tonnes in 2005 to 61.5 million tonnes in 2006 to 76.8 million tonnes in 2007.

Power generators are spending billions of euros to bring these latest technology plants on line in the coming years.