WASHINGTON (Reuters) - A U.S. appeals court on Tuesday reinstated a Bush administration rule to reduce air pollution from power plants and help states downwind from the facilities meet federal clean air standards.

Smoke stacks are seen at Pacificorp's Huntington Power Plant in Huntington, Utah August 11, 2007. REUTERS/Danny Moloshok

A top broker in emissions allowances said trading in some pollutants soared on the news. One environmental advocate called the ruling a “holiday gift to breathers.”

Tuesday’s ruling reversed a decision the same court, the U.S. Court of Appeals for the District of Columbia, made in July to reject the so-called Clean Air Interstate Rule, known as CAIR.

The court found on July 11 that the U.S. Environmental Protection Agency went beyond its authority to create a trading scheme among utilities to cut emissions of sulfur dioxide and nitrogen oxides at power plants in the East and Midwest.

But the current ruling vacates that earlier decision and leaves the interstate rule in place while the Environmental Protection Agency fixes flaws in the plan.

The court said it was persuaded by arguments by the EPA and others, including environmental advocates, that “allowing CAIR to remain in effect until it is replaced by a rule consistent with our opinion would at least temporarily preserve the environmental values covered by CAIR.”

The earlier ruling effectively vacated the entire CAIR program, which regulates interstate emissions that contribute to acid rain and smog.

The original decision drew sharp criticism from the EPA, environmental groups and members of Congress who represent states that suffer from power plant pollution blown in from other states.

“Today’s order by the Court of Appeals should provide renewed market confidence in U.S. emissions trading,” Peter Zaborowsky, of the emissions brokerage firm Evolution Markets, said in a statement.

The spot market in sulfur dioxide responded immediately after Tuesday’s ruling, trading up from Monday’s $148 close to over $200; bid interest in annual nitrogen oxides allowances was evident for the first time since July, as the program comes into force on January 1, the statement said.

“This could prove a holiday gift to breathers,” Frank O’Donnell of the advocacy group Clean Air Watch said in an e-mail.

Vickie Patton of Environmental Defense Fund said the latest decision would enable power plants in the Eastern United States to reduce millions of tons of smog and soot pollution while the incoming Obama administration “fixes the mistakes made by the Bush administration.