Europe's highest court gave unreserved backing on Wednesday to a hotly contested EU law charging airlines for carbon emissions on flights to and from Europe, a decision likely to escalate tensions with the US and other trading partners.

All airlines flying to and from EU airports will have to buy permits under the European Union's emissions trading scheme from Jan. 1, the European Court of Justice (ECJ) ruled.

'The directive including aviation activities in the EU's emissions trading scheme is valid,' the court said in a statement.

'Application of the emissions trading scheme to aviation infringes neither the principles of customary international law at issue nor the open-skies agreement.'

Wednesday's ruling was in line with expectations after a senior adviser to the court issued a preliminary opinion in October finding the EU legislation did not infringe the sovereignty of other states and was compatible with international agreements.

The case was initially brought to the London High Court of Justice by the Air Transport Association of America, American Airlines and United Continental, but the London court referred it to the ECJ in Luxembourg.

Critics of the EU rules have argued that under the 1997 Kyoto climate pact, countries agreed to address emissions from aviation jointly through the U.N.'s aviation body, the International Civil Aviation Organization (ICAO).

More than a decade on, talks in that forum have not yielded significant progress and the ECJ said the EU was within its rights to take unilateral action.

The EU already sets a cap on the level of emissions allowed from factories and power plants. Emitters exceeding their quotas must buy carbon permits, while those within their limits can sell any unused allowances.

While emissions from most other sectors have been falling, those from airlines have doubled since 1990 and could triple by 2020, Commission figures show.

The EU carbon market pared losses immediately after the ruling, but stayed negative.

Modest proposal

Peter Liese, a German Christian Democrat who led discussions in the European Parliament on the emissions law, said that including airlines was a modest proposal, which had won unanimous support from the European Council of ministers.

'I cannot imagine a situation where the European Parliament amends legislation just because of pressure from China or the US,' he said. 'We (in Europe) represent 500 million people and the biggest market in the world.'

But the US, where environmental legislation has become a focus of disagreement between Barack Obama's Democrats and the Republicans, has reacted angrily.

Proposed legislation in the US Congress, if passed, would make it illegal to comply with the EU law.

In a letter sent to EU officials last week, US Secretary of State Hillary Clinton and US. Secretary of Transportation Raymond LaHood urged the EU 'to reconsider this current course' and re-engage with the rest of the world.

'Absent such willingness on the part of the EU, we will be compelled to take appropriate action,' they said in the letter.

As Europe's highest court, the ECJ ruling is final, although there is some flexibility in how the regulation may be applied. Airlines initially would only be required to pay for 15 per cent of the carbon they emit and would be allocated free allowances to cover the other 85 per cent.

The law also allows for 'equivalent measures', meaning incoming flights to Europe would be exempt if the nation from which they came had measures in place to offset the international emissions of the route.

Differing cost assessments

Depending on decisions by airlines on how much to pass on to customers, the European Commission has calculated that costs per passenger could rise between 2 and 12 euros ($2.66-$15.96), much less than the 100 euro per allowance penalty it would impose on airlines that do not comply.

Many airlines have given much higher assessments of the cost and said the EU was being unfair.

Singapore Airlines spokesman Nicholas Ionides said the EU was imposing its Emissions Trading Scheme unilaterally and called for a global solution.

'It could also cripple competitiveness as it offers carriers operating through hubs closer to Europe an unfair advantage,' Ionides said.

Qantas said the 'patchwork approach' was flawed, but its policy was to comply with carbon law wherever it operated.

A spokesman said it was still finalising policy, but anticipated costs would be passed on to customers. – Reuters