BRUSSELS (Reuters) - The Aland archipelago, part-way between Finland and Sweden, is the wind-swept setting for a legal spat over green energy subsidies with implications for the European Union as a whole.

Europe's highest court, the European Court of Justice, has just begun examining arguments which feed into the politically-charged debate about the cost of subsidizing renewable power.

In dominant EU-member Germany, green subsidies are particularly sensitive in an election year, as industry complains it is at a competitive disadvantage because of high energy prices.

The European Commission, meanwhile, is pushing for cross-border sharing of renewables costs.

"Increased cooperation between countries will become more important for reasons of scale and cost-effectiveness," said Karla Hill, a director at non-profit environmental law organization ClientEarth. "The Alands islands case, now referred to the European court, is a test of how a national renewable scheme operates in practice in a cross-border setting."

Although part of Finland, Aland, pronounced orland, has its own parliament and is Swedish-speaking. Similarly, its link to the European Union is regulated by a special protocol.

In terms of electricity, its generation company Alands Vindkraft has a wind farm named Oskar and a grid connection to Sweden, but not to Finland.

Sweden, however, refused to award Oskar's green energy the subsidies it hands out as an incentive to domestic renewables.

Alands Vindkraft went to the Swedish courts, arguing Sweden was giving an unfair advantage to Swedish-produced energy and at the end of last year, the Swedish courts referred the matter to the European Court of Justice in Luxembourg.

Following translation of the case, the European Court of Justice has begun considering the arguments - a process expected to take more than a year, a court official said late last week. It will pass on its decision, which will be binding, to the Swedish court to make a ruling.

Gustav Ebena, head of the electricity certificate unit at the Swedish Energy Agency, told Reuters that Sweden had no issue with receiving Finnish power, but it would be unfair to Swedish customers if they were effectively paying to help Finland meet its renewable energy targets.

"That quite naturally should not be paid by the Swedish electricity consumer," Ebena told Reuters. "Our reasoning for this is we have no jurisdiction at all over Finnish windmills."

No-one from Alands Vindkraft was available to comment.

The Commission said it could not comment on ongoing cases.

(Reporting by Barbara Lewis; editing by Keiron Henderson)