Britain had sought to change its original allocation of pollution rights to allow industry to pump out an additional 20 million tonnes of carbon dioxide (CO2), the main gas blamed for global warming, in the 2005-2007 period.
The EU emissions trading scheme is its key instrument to fight climate change and meet commitments under the environmental treaty known as the Kyoto Protocol.
Britain’s attempt to allow its industry to pollute more came at the same time as Prime Minister Tony Blair put the fight against climate change at the top of the agenda of Britain’s presidency of the EU and G8 group of rich nations last year.
When the European Commission rejected the changes, Britain went to court. The EU’s Court of First Instance sided with Britain, saying it wa? entitled to revise the plan.
The Commission said it had studied the court’s ruling and decided that Britain had missed a September 30, 2004 deadline to submit any changes.
"Since the UK amendment was notified after this deadline, the Commission has passed today’s decision rejecting the amended plan on the grounds of late submission," it said.
The Commission said it took note of the court’s ruling that it had to consider changes as long as they are notified on time.
Britain said it was studying a range of options in response, including further legal action.
"We are looking at the ruling and considering what to do next, including the case for any legal challenge," a spokesman for Britain’s Department for Environment Food and Rural Affairs said. "The legal possibilities exist for a challenge."
The government accused the Commission of hiding "behind procedure" with its ruling.
ENVIRONMENT, INDUSTRY RIFT
The setback for the UK comes as British government departments squabble over the level of CO2 limits it will impose on industry during phase two of the trading scheme (2008-2012).
EU governments must submit their emissions plans for the second trading period by June 30.
Britain’s power industry, which faces the toughest CO2 limits under the EU scheme, said it was disappointed with the Commission’s decision and would look for ways to fight it.
"We are extremely disappointed, we will be considering what steps we might now take," said David Porter, chief executive of the London-based Association of Electricity Producers.
He said the decision could cost the power industry 350 million pounds ($609.8 million) a year as companies would have to buy extra CO2 allowances.
Traders said the Commission’s decision was bullish for the price of CO2 allowances as it meant the market would not receive an extra 20 million tonnes.
"The market firmed up last night and this morning ahead of the decision, but it was widely expected, it has been largely factored into prices already," said a London-based trader.
The UK’s original plan has been in place since last year despite the legal wrangling.
Under the EU scheme companies buy or sell rights to pollute, based on limits set by national governments and approved by the Commission. It covers high-polluting factories like power stations, oil refineries, steel mills and cement plants.