Chinese airlines refuse to pay a European levy on carbon under the Emissions Trading Scheme (ETS), a national aviation industry group said Thursday.

"China will not cooperate with the European Union on the ETS, so Chinese airlines will not impose surcharges on customers relating to the emissions tax," Cai Haibo, deputy secretary-general of the China Air Transport Association (CATA), told Reuters news agency.

CATA represents the country's four major airlines: flag-carrier Air China, China Southern Airlines, China Eastern Airlines and Hainan Airlines.

Analysts fear the carbon dispute could harm trade between the EU and China

Europe's cap-and-trade scheme was launched in 2005 as one of the pillars of the bloc's efforts to combat climate change. It was extended to cover all airlines using EU airports on January 1, one month after the EU's highest court rejected a legal challenge brought by US carriers.

Under EU law, airlines that do not fully comply with ETS provisions can be fined 100 euros for each ton of untaxed carbon dioxide they emit. Airlines that persistently flout the rules may be banned from operating in the EU by the European Commission.

Fitch Ratings warned last month that possible retaliation from states opposing the ETS "will pose growing threats to aviation market access" in both developed and emerging markets. It said the dispute may affect future authorizations for flight routes and landing slots.

Let's talk

The Chinese government voiced clear opposition to Europe's inclusion of aviation in the ETS on Thursday and called on Brussels to take a more multilateral approach to carbon management.

"We hope the EU side will be prudent and practical and deal with this issue through consultations with all relevant parties," Foreign Ministry spokesman Hong Lei told the Associated Press.

Hong's comments echoed criticism from the International Air Transport Association (IATA), which represents 240 airlines comprising 84 percent of global air traffic.

The industry body has long argued that the EU should negotiate through the United Nations' International Civil Aviation Organization to reach a global agreement on the issue.

"Unilateral, extra-territorial and market distorting initiatives such as the EU emissions trading scheme are not the way forward," IATA said in a statement last month.

Air China is a major player in the Asian long-haul market

But the European Union says the International Civil Aviation Organization has been debating a one-size-fits-all framework to reduce carbon emissions for more than a decade, with little to show for it.

Pragmatic approach

Officials in Brussels say the ETS is the fairest way to tackle aviation's contribution to climate change in the absence of a global agreement.

EU climate action spokesman Isaac Valero-Ladron said critics from non-member states like China and the United States could circumvent the ETS by introducing their own alternative schemes.

"Our law gives all countries the choice to reduce aviation's carbon pollution differently. If they take equivalent measures, all incoming flights from these countries can be exempt," he told Reuters.

"Instead, some countries are basically saying: 'We don't like your approach, but we aren't going to do anything to reduce emissions.' Hopefully, these countries will quickly shift their attention to the need to take bold action at home."

Money matters

Brussels has been taxing carbon emissions from other industries for since 2005

IATA estimates the EU's new emissions rules will cost airlines up to 900 million euros ($1.17 billion) this year and rise to 2.8 billion euros in 2020.

The European Commission said the ETS will only see airfares increase by two to 12 euros per passenger. It added the impact on airlines would be gradual as 85 percent of this year's carbon allowances are being handed out for free. Bills will be due only next year after emissions are calculated.

Germany's Lufthansa, the world's second-largest long-haul carrier after Dubai's Emirates, warned passengers on Monday to brace for higher ticket prices as it decided to pass on costs to the travelling public.

Author: Sam Edmonds (AP, AFP, Reuters)

Editor: Andreas Illmer