Spain approved a quota for carbon dioxide emissions it gives industry for free of 152.66 million tonnes per year, 16 percent less than the plan in 2005-2007, the trading scheme's first phase.

Industry will have to pay for any emission of greenhouse gases exceeding this level in the second phase of the EU carbon trading scheme.

"We believe that this plan is one of the most ambitious put forward by European Union countries," the vice president of the government, Maria Teresa Fernandez de la Vega, told reporters at the government's weekly press call.

But Spain will allow firms to buy a fifth of their pollution cuts from developing countries by exploiting Kyoto's flexibility mechanisms which allow countries to purchase carbon credits from overseas, the plan said.

Spain's carbon dioxide (CO2) output rose by more than a half between 1990 and 2005.