TORONTO - A court challenge to the Liberal government's controversial wind energy program was dismissed Thursday by the Ontario Divisional Court, but the applicants said they're not discouraged.

Ian Hanna, a small business owner from Prince Edward County, took the government to court, claiming there was no medical evidence to say a 550-metre distance between homes and industrial wind turbines was actually safe.

The three judges who heard arguments in late January issued their decision Thursday, dismissing Hanna's application.

However, the judges noted they had little jurisdiction in this case because there was no evidence the government regulation was passed without authority or was unconstitutional.

"The court's jurisdiction is therefore quite circumscribed," wrote the judges.

The judges also agreed the 550-metre setback and other regulations under the government's Green Energy Act can be challenged in court.

"It's not the outcome we've been hoping for, but the situation is not bleak either," Hanna said in a telephone interview.

"We're quite encouraged by ... the fact the court has really left it open for the Environmental Review Tribunal to rule on the appropriateness or efficacy of the 550-metre setback. We don't see this as a loss or a negative so much as it is a shifting of where that determination has to be made."

Hanna's lawyer, Eric Gillespie, also applauded the judges' ruling that the Environmental Review Tribunal is the "appropriate" place to decide on the 550-metre setback for the giant turbines.

"No one that we're speaking to is all that unhappy with the decision," said Gillespie.

The ruling allowing all environmental regulations contained in the Liberal's Green Energy Act to be challenged in court is "absolutely" precedent setting, added Gillespie.

"There are many other aspects of that legislation that have raised concerns," he said.

"All of those are now matters that can be brought before the courts."

The Liberals had a different take on the court's ruling Thursday.

"I see this as good news for the vast majority of Ontario families who see wind turbines as a vivid symbol of a clean, healthy and prosperous future," said Energy Minister Brad Duguid.

"My read is that it verifies that science-based evidence was used and included in the review that took place setting the standards that we've set, which are among the most aggressive in North America."

The court ruling was "a significant decision," said Environment Minister John Wilkinson.

"Ontario's rules for wind are based on peer-reviewed science that protects human health and the environment," he said.

The Canadian Wind Energy Association, an industry lobby group, also welcomed the court's decision.

"We're obviously pleased at the decision to uphold the current regulations on setbacks for wind turbines," association president Robert Hornung said in an interview.

"We'd stated from the outset that this application before this court had no merit and shouldn't have been brought before the court."

If the decision had gone against the government, the wind energy industry would have been left reeling, added Hornung.

"Obviously, if the decision had gone the other way it would have introduced a tremendous amount of uncertainty for the industry and for investors," he said.

"In that sense this decision is an important signal of policy stability, which is important. Any decisions that create uncertainty (and) increase risks are decisions that essentially increase costs for investors."

The Liberal government recently imposed a moratorium on offshore wind energy projects -- similar to a moratorium it imposed just before the 2007 election and then lifted after the vote.

It said there's not enough scientific evidence on the impact of the giant turbines in fresh water, but added there's plenty of evidence to show the land-based windmills pose no threat to human health.