The British Government has been fighting to add 20 million tonnes to the amount of carbon dioxide that UK industry is allowed to emit each year. It won a court case in November, which forced Brussels to look again at the issue.
Last week Mr Mandelson, Europe's trade commissioner, intervened on Britain's side, but he has been seen off by his environment counterpart, Stavros Dimas. It is understood that Mr Mandelson found himself "completely isolated" on the issue among Europe's commissioners.
Brussels will declare today that it is sticking by its decision to give Britain a quota of 736 million tonnes, rather than the 756 million it sought. The allowances can be bought and sold on Europe's emissions trading system, designed to help the region meet its obligations under the Kyoto protocol on global warming. A spokeswoman for Mr Mandelson said: "It is regrettable that this is to happen, especially as the UK was a key supporter of the [emissions trading] scheme."
The British Government will now be forced to start a new legal challenge, if it is to continue to pursue the extra allowances.
David Porter, the chief executive of the Association of Electricity Producers, said: "The generating industry will take this [loss] very seriously. You're looking at perhaps £350m-worth of allowances."
It is thought that for individual electricity generators the difference between the two quota figures means a financial hit as big as £50m.
The dispute between the UK and Brussels over the allocation arose last year when the British Government initially asked the Commission for a national allowance of 736 million tonnes, saying it was a provisional figure. The UK, under heavy lobbying from business, then changed its mind and went for 756 million tonnes. But it made the request for the higher figure after the deadline for making submissions had passed, and Brussels would not review the case.
Europe's Court of First Instance ruled in Novemberthat Brussels was wrong not to consider the proposed increase and the Commission had to look at Britain's case. Officials have now completed that process and decided to reject the request for a greater allocation.
Mr Mandelson was able only to delay the decision, after he told fellow commissioners that Britain had made its original submission as a provisional one, in good faith. It is understood that Mr Mandelson, the former trade and industry secretary in the British government, felt that the UK "had been hard done by".
Ironically, some European countries, including Greece, Mr Dimas's home nation, missed the deadline for making any kind of submissions and they have still not finalised their national allocation plans.Reuse content