The CBI attacked the decision and said that it would increase business costs by £350 million because the Government had failed to raise its original emissions allocation to allow Britain to pump out an extra 20 million tonnes of carbon dioxide.

Rejection of the bid had been expected because the Government missed a deadline of September 2004 to submit changes.

The Commission said: “Since the UK amendment was notified after this deadline, the Commission has passed today’s decision rejecting the amended plan on the grounds of late submission.”

The Environment Department said that there were “legal possibilities” for a challenge.

Matthew Farrow, of the CBI, said that the decision would cost business £350 million. He said: “UK companies are making significant strides in cutting carbon emissions, but, with hard-pressed companies and households struggling with high energy prices, the £350 million cost of covering this misguided shortfall in the UK’s carbon emissions allowance is unaffordable.”

The latest setback came after Britain had challenged the previous rejection. The European Union’s Court of First Instance backed Britain’s amendment, but the Commission insisted that Britain had missed the deadline.

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