Victoria's Supreme Court has thrown out a case against the environmental regulator following allegations it had breached climate change legislation.
The court on Wednesday dismissed Environment Victoria's request to review an Environmental Protection Authority decision to alter the mining licences of three coal-fired power stations without imposing new restrictions on greenhouse gas emissions.
The conservation group said the EPA failed to consider Victoria's 2017 Climate Change Act in its licence reviews of the Yallourn, Loy Yang A and Loy Yang B stations.
Justice James Gorton ruled the EPA didn't act unlawfully in making its decision.
EPA Victoria CEO Lee Miezis welcomed the judgment.
"We have already taken steps to strengthen our processes and ensure climate change is demonstrably considered in all our regulatory decisions," Mr Miezis said in a statement.
"As an organisation, EPA is committed to raising the bar in environmental protection.
"Scrutiny from organisations like Environment Victoria can only make us better."
Environment Victoria CEO Jono La Nauze was disappointed by the decision and questioned whether the state's climate change and pollution laws were up to task.
"If the Climate Change Act doesn't require limits to pollution from coal power stations - the biggest single source of emissions in the state - then it's not really doing what the community expects and needs to be fixed," Mr La Nauze said.
The court was satisfied the EPA had considered climate change issues when it amended the licences, and that the legislation didn't apply to the regulator's decision not to impose restrictions on the energy companies.
The Australian Energy Council welcomed the court's decision and said operators already worked to meet stringent licence requirements.
"The amended licences were the result of an exhaustive and independent process," an AEC spokesman said.
"They drew on historical compliance records, air modelling and technical information."
The AEC said reducing carbon emissions required stable, economy-wide policy and were not a matter for local environmental licences.
Yarragon general practitioner Malcolm McKelvie told AAP air pollution had exacerbated chronic conditions including asthma, respiratory disease and heart disease in the Latrobe Valley, the heart of Victoria's coal operations for more than a century.
"If there were greater pollution controls, then better air quality, better health, less dust and stuff on people's washing, windowsills and entering into homes as it's been doing for the last 100 years," he said.
Loy Yang B senior operator and more than four-decade coal industry veteran Tony Wolfe told AAP that tougher regulation could have extended operations at the three power plants.
"It potentially would have made the existing power stations a bit more viable to continue longer if they had been forced into into some more reductions," Mr Wolfe, who is also vice chair at Gippsland Climate Change Network, said.
EnergyAustralia has slated Yallourn power station to close in 2028, while Loy Yang A and B are expected to close in 2035 and 2047 respectively.
"We don't need sympathy, we need certainty on these closure dates on what's going to take over from it so that we can start planning," Mr Wolfe.
