By Laurence Peter
Poland is trying to modernise its Soviet-era heavy industry
The European Commission is considering pursuing a legal fight with the EU's top court over management of the EU Emissions Trading Scheme (ETS).
On Wednesday the European Court of First Instance annulled commission decisions which sought to cut the CO2 emissions quotas of Poland and Estonia.
The court defended the right of EU states to set their own CO2 quotas.
"We are very disappointed and are studying the judgment with a view to a possible appeal," the commission said.
"Our actions will be guided by the need to protect the integrity of the carbon market and give legal certainty," a commission spokeswoman, Barbara Helfferich, told BBC News.
She said several other EU member states were challenging the commission over CO2 emission allowances: Bulgaria, Hungary, Latvia, Lithuania and Romania.
Meanwhile, EU governments are striving to reach a common position on CO2 targets ahead of the December global summit on climate change in Copenhagen.
The BBC's environment correspondent Roger Harrabin says the court ruling is another setback for the EU carbon markets, which are still in the "settling down" period.
He says it certainly does not bode well for the EU's effort to persuade the US into a global carbon market.
The commission had disputed the national allocation plans (NAPs) drawn up by Poland and Estonia for the 2008-2012 carbon trading period.
The commission said Poland's CO2 quota should be cut by 27% and Estonia's by 48%.
Roger Harrabin, BBC environment analyst
It is another setback for the EU carbon markets, which are still in the "settling down" period. It certainly does not bode well for the EU's effort to persuade the US into a global carbon market.
Carbon markets were forced on the EU by the US as part of their Kyoto climate treaty negotiation but America then pulled out, leaving Europe to develop the system.
There is currently strong opposition to carbon trading from several members of the US Senate. They say it benefits those who can lobby hardest for emissions credits.
Under the ETS, CO2 permits are traded, with heavy polluters buying extra permits from enterprises that pollute less.
The scheme, launched in 2005, is aimed at reducing carbon emissions across the EU, as part of the battle against global warming.
Former communist bloc countries in Central and Eastern Europe want more lenient CO2 allowances, arguing that they made significant emissions cuts in the 1990s and that they need to catch up with the more developed, older EU member states.
The court ruled that "a member state alone has the power, first, to draw up the National Allocation Plan (NAP), which it notifies to the Commission and... second, to take final decisions fixing the total quantity of allowances which it will allocate for each five-year period, and the distribution of that quantity amongst economic operators".
The ruling said the commission "has a power of review in respect of NAPs, a power which is very restricted".
It concluded that the commission had "exceeded the margin for manoeuvre conferred upon it" by the EU directive that set up the ETS.
Mrs Helfferich said there was now a need to "revise the allocation procedure".
She stressed that the carbon market would not now be "swamped with allowances" that Poland and Estonia were claiming.
She said it was the commission's duty to check the emissions data submitted by member states, which forms the basis of the NAP.
In its ruling, the court said the commission "cannot claim to set aside the data in the NAP in question so as to replace them at the outset by data obtained from its own assessment method".