The government has forced the EU to consider less stringent limits on UK industry greenhouse gas emissions.
The government says the UK could still meet emissions targets
The European Court in Luxembourg ruled EU officials must consider the UK's proposal to increase its carbon dioxide limit by 20 million tonnes.
Ministers said the original 736 million tonne limit under the EU emissions trading scheme had been miscalculated.
Environmental groups said the government was trying to escape tough action against climate change.
Under the emissions trading scheme national authorities set emissions quotas to companies, and those exceeding their limit can then buy credits from others with emissions below target.
It was seven weeks before the scheme started that the UK sought to amend its 736 million tonne figure to 756 million.
But the European Commission said it had already worked out the figures and a change could destabilise "the good functioning of the trading market".
Designed to be a cheap method of achieving emissions cuts
Ensures the cheapest efficiency savings are made first
National governments allocate allowances to industry, in line with their Kyoto target
National plans vetted by European Commission
Allows participants to gain credits by financing clean development projects abroad
But the European Court of First Instance on Wednesday ruled the commission had failed to explain how the market might be destabilised.
It also pointed out that the increase represented just 2.7% of the UK allowance, and that at the time it was rejected the commission had still not taken a decision on nine other member states' quotas.
Friends of the Earth had backed the commission's stand, saying awarding fewer "pollution permits" to UK industry would benefit cleaner companies and encourage innovation.
BBC environment correspondent Tim Hirsch said with the UN climate conference taking place next week in Montreal, Canada, "this judgement could not have come at a more sensitive time".
The government's chief scientific adviser, Sir David King, on Sunday said the UK was unlikely to meet its own 2010 target of reducing carbon dioxide emissions by 20%.
On Sunday he said the government had not abandoned the goal but longer term targets were more critical.
"These things like building a new power station take many, many years to come through," he said.
The emissions trading scheme puts limits on 12,000 big industrial carbon dioxide emitters across the EU and is a key tool aimed at meeting the Kyoto Protocol's international targets.
If organisations exceed their limit, they have to buy credits from others with emissions below target.