RWEOY Rwe Ag (PK)

BRUSSELS—The European Union's top court on Wednesday ordered the U.K. to make a Welsh power plant reduce emissions to comply with EU environmental rules, testing how British authorities will respond to EU orders following Britain's June vote to leave the bloc.

The European Court of Justice ruled the U.K. was wrong to grant an exception from emission limits to RWE AG's coal-burning Aberthaw Power Station, which is located west of Cardiff. The decision could force the plant to reduce its purchases of Welsh coal, affecting the region's struggling mining industry.

The ruling, along with a probe the EU launched earlier this week into the legality of subsidies an English city granted a local shipping company, highlights the awkward politics between the bloc and Britain while the nation plans its EU exit.

The U.K. remains subject to EU law and has yet to trigger formal negotiations to exit the 28-country union. Those talks could last two years or more.

On Wednesday, the U.K. took a nonconfrontational stance.

"We're still a member of the EU…and we will remain bound by EU law until the withdrawal agreement comes into force," a spokesman for the U.K. government said. The Welsh government, under whose jurisdiction the Aberthaw plant falls, said it would comply with the judgment.

The European Commission, which had taken the U.K. to court, said it would accept a plan by British authorities and RWE to ensure the Aberthaw plant meets EU emission limits by 2020. At that point, the U.K. will likely have left the EU.

Aberthaw has been operating since 1971 and has the capacity to generate electricity for around 1.5 million households. RWE said the plant was designed specifically to burn Welsh coal from local mines.

The U.K. granted Aberthaw a permit to continue emitting 1,200 milligrams of nitrogen oxide per normal cubic meter of emissions (a normal cubic meter is a unit of measurement that controls for temperature and pressure). The U.K. said that because Aberthaw was designed to use Welsh coal, which is relatively low in volatile matter, it qualified for an exception in the EU law for plants burning coal with a volatile matter content below 10%.

After the commission inquired about the plant, the U.K. government said that coal used at Aberthaw between 2008 and 2011 had a volatile matter content of less than 10% on only seven occasions. RWE says around 60% of the coal it uses a year comes from Wales.

The U.K. argued that the plant should still be exempted because the directive in question didn't say plants had to "only" or "exclusively" use coal with a low volatile-matter content.

The court struck down the U.K.'s objections and ordered it to pay the commission's legal costs.

Had the U.K. decided not to comply with Wednesday's rulings, it could have faced more legal action from the commission and, eventually, fines for every day that the Aberthaw plant continued to emit nitrogen oxide above the EU limits.

RWE said it was disappointed by the ruling. "Compliance with this ruling, under continuing difficult market conditions for coal generation, will have a wider cost," said Richard Little, the manager of the Aberthaw Power Station. "It will mean our ability to use large amounts of Welsh coal is reduced somewhat earlier than might otherwise have been necessary."

Another case testing the uneasy balance between the U.K. and EU arose Monday, when the EU launched an investigation into whether the city council of the southern English city of Portsmouth granted unfair aid to MMD Shipping Service Ltd., which it has owned since 2008. State-aid investigations can drag on for many years and are often followed by legal battles to recover unfair subsidies. If the U.K. wants to maintain access to the EU's market, it will likely have to accept restrictions on subsidies that distort competition.

A spokesman for the U.K. department of transport said the government was aware of the investigation but added it would be inappropriate to comment further.

Monica Houston-Waesh in Frankfurt and Nicholas Winning in London contributed to this article.

Write to Gabriele Steinhauser at gabriele.steinhauser@wsj.com

(END) Dow Jones Newswires

September 21, 2016 20:55 ET (00:55 GMT)

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