The European Union's top court ordered Thursday that changes be made to the bloc's emissions trading system, finding that ceilings for allowances had been set inappropriately.
The system, known as ETS, is supposed to be a key plank of the 28-country EU's climate-change strategy, by forcing companies in the bloc to buy emission allowances giving them the right to pollute.
But the system has faced a number of problems, including an excess of allowances that drove down their price and weakened the incentive to cut emissions.
The European Court of Justice also ruled on Thursday that the European Commission, the EU's executive, had not correctly taken into account national data when calculating the maximum yearly amount of free allowances that can be given to companies through 2020.
The Luxembourg-based court ordered the commission to establish a new amount, saying in a statement that the ceiling could be "higher or lower" depending on information provided by EU countries.
To avoid "serious repercussions," the court said that past allowance allocations will not be called into question. It also gave the commission 10 months to implemented changes so as not to create a "temporary legal vacuum" that would undermine the ETS.
The WWF environmental organization called on the EU to completely phase out free allowances, which energy-intensive companies receive to prevent them from relocating to countries outside the EU with less stringent climate policies or from losing out to competitors there.
"The EU ETS needs to be reformed in order to make polluters pay, rather than paying polluters," WWF representative Imke Luebbeke said in a statement.