A federal appeals court struck down Bush administration policy allowing some power plants to exceed mercury emission levels, ruling Friday that the government failed to consider the effect on public health and the environment.

More than a dozen states sued to block the regulation, saying it would allow dangerous levels of mercury into the environment. The toxic metal is known to contaminate seafood that can damage the developing brains of fetuses and young children.

The U.S. Court of Appeals for the District of Columbia Circuit negated a rule known as cap-and-trade. That policy allows power plants that fail to meet emission targets to buy credits from plants that did, rather than having to install their own mercury emissions controls. The rule was to go into effect in 2010.

"This three-judge panel has done the world a favor and helped save lives," said Connecticut Attorney General Richard Blumenthal, one of many attorneys general who joined a lawsuit originally brought by New Jersey.

The three-judge court unanimously struck down the cap-and-trade policy and the Environmental Protection Agency's plan to exempt coal- and oil-fired power plants from regulations requiring strict emissions control technology to block emissions. Before instituting the new regulation, the court held, the government was required to show that emissions from any power plant would not harm the environment or "exceed a level which is adequate to protect public health with an ample margin of safety."

The EPA argued it was not required to follow that rule, a stance the court held was "not persuasive."

The agency defended the rule, saying it represented the nation's first attempt to control such emissions and that it would reduce mercury emissions by 70 percent.

"Keep in mind, the U.S. now has no national mercury emissions regulation for these plants," EPA spokesman Jonathan Shradar said, adding that the EPA would consider whether the cap-and-trade policy could be resurrected under a different regulation. "It's good for America and it's good for the environment. We want to be a global leader on this issue," he said.

Industry organizations strongly supported the plan.

"The court's decision represents an major setback for federal efforts to establish clear mercury regulations for coal-fired power plants," said Dan Riedinger, a spokesman for Edison Electric Institute, an association of power companies. "Now EPA has to go back to the drawing board, pushing mercury regulations far off into the future."

Mercury is a powerful neurotoxin. The National Academy of Sciences estimates that 60,000 newborns a year could be at risk of learning disabilities because of mercury their mothers absorbed during pregnancy. About 8 percent of U.S. women of childbearing age have enough mercury in their blood to cause concern for a future pregnancy.

New Jersey Environmental Protection Commissioner Lisa P. Jackson applauded the ruling as "a tremendous victory that will result in a healthier environment for New Jersey's residents — especially our children.

The states argued that the cap-and-trade system would endanger children near some power plants that pollute but use credits to do it legally.

"This means the EPA is going to have to go back and do a real job of regulating all the toxics coming out of these plants," said attorney James S. Pew, who argued the case on behalf of several environmental organizations that filed documents in the case.

Joining New Jersey in the lawsuit were: California, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Mexico, New York, Pennsylvania, Rhode Island, Vermont and Wisconsin.