California’s plans to establish one of the world’s largest carbon markets have been dealt a serious blow, after a judge ruled last week that state regulators must put the plans on hold until they have formally examined alternative means of cutting greenhouse gas emissions.

San Francisco Superior Court judge Ernest Goldsmith issued a decision requiring the California Air Resources Board (CARB) to take no further action towards implementing its planned emissions cap-and-trade scheme until it has explored alternative mechanisms for ensuring California’s legally binding emission reduction targets are met.

The decision follows a ruling last month in which the judge accused the board of failing to adequately assess alternative emission reduction mechanisms, such as emissions standards or a carbon tax.

The ruling is the result of legal action brought by the Association for Irritated Residents, an environmental group that alleges the cap-and-trade scheme could actually damage air quality in some parts of the state.

A CARB spokesman told Bloomberg news agency that the board would launch an appeal against the decision this week.

However, the ruling represents a major blow to California’s plans to introduce a carbon cap-and-trade scheme similar to the EU’s emissions trading scheme – the first phase of which is scheduled to begin next January.

The scheme, which will impose a price on carbon for the state’s most carbon-intensive businesses, is also the primary mechanism the state intends to use to meet its legally binding goal of returning emissions to 1990 levels by 2020.