EU court slaps down Brussels attempts to lower eastern CO2 emissions

"We are extremely disappointed and we are studying the ruling with a view to a possible appeal," said commission environment spokeswoman Barbara Helfferich.

"The commission is studying the judgment carefully with a view to a possible appeal," she continued.

"The commission will take all possible action in order to protect the integrity of the European-wide market for allowances and minimise the legal uncertainty created by these rulings."

Under the EU's emissions trading scheme, the bloc's main pillar of its climate policy, major carbon emitters must submit annually a number of emission allowances to their government that are equivalent to their CO2 emissions for that year. If they do not release as much carbon as their allocation, they can sell on their surplus allowances. If they exceed their carbon allowances, they are obliged to purchase extra.

The main fault with the ETS however has been that member states, responsible for emissions allowance allocations, have over-allocated allowances.

As a result, from 2012, the emissions allowances will be centralised in the hands of the commission, ending the system of national allocation plans (NAPs).

Until then, the commission has the power to review these plans. But the court found that in limiting the NAPs of Estonia and Poland, it had surpassed the boundary of its authority.

"The court finds ... that by specifying a specific quantity of allowances ... and by rejecting the national plan of the Republic of Estonia," one ruling read, "the Commission has exceeded the limits of its power of review."

A similar judgement was offered after Poland's complaint. Both submissions were backed by other eastern European member states: Bulgaria, the Czech Republic, Hungary, Latvia, Lithuania and Romania.

The court said that the commission was "encroaching on the exclusive competence [of] the member states."

The EU executive has two months to lodge an appeal.

Meanwhile, the Czech Republic, which had recently given notice that it intended to withdraw its own, similar complaint, on Wednesday signalled that it will continue with the court case.

Following the ruling, the price of carbon skidded, as markets worried that if the judgement is upheld by the European Court of Justice, member states will increase the allocations in their emission plans, a move that could see the price of carbon crash.

The decision comes at an awkward time for Brussels, with the EU holding up its track-record on climate change as the most ambitious amongst industrialised powers in the lead-up to the UN climate conference in Copenhagen in December.

Sanjeev Kumar, the emissions trading scheme co-ordinator for conservation group WWF told EUobserver: "I've never seen a ruling as direct and aggressive."

"But at the same time in the end it's a lot of fuss about nothing. The ruling only applies to phase two of the ETS [until 2012], after which allocation is centralised."