LUXEMBOURG The European Union's second highest court on Thursday dismissed a Polish challenge against the European Commission over the allocation of free carbon permits to energy-intensive industry.
Poland has argued that the rules for free allocation of CO2 permits do not take into account its particular situation as an emerging eastern European economy with a heavy reliance on coal.
The General Court in Luxembourg disagreed.
"The Court rejects Poland's argument that the contested decision would decrease the competitiveness of companies in member states whose production is linked mainly to coal as a fuel," the court said in a statement.
In essence, the dispute comes down to whether countries in eastern Europe, which have had limited time since the collapse of Communism to overhaul their coal-dependent economies, should be given more leeway to pollute.
Poland has the right of appeal on points of law to the European Union's highest court, the European Court of Justice.
A verdict in Poland's favor would force the Commission to review the rules for all member states, throwing into question the underpinnings of the ETS system.
Carbon traders said Thursday's verdict was theoretically bullish, but the market remained preoccupied by the lack of progress on the more immediate term problem of trying to remove a surplus of permits that pushed the market to a record low of less than three euros per metric ton of carbon in January.
By 0913 GMT, carbon permits were trading at 1.4 percent lower on the day at 4.22 euros a metric ton.
(Reporting by Barbara Lewis; additional reporting by Nina Chestney; editing by Rex Merrifield)