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Airlines fail to block carbon law

US airlines have failed to block an EU law charging carriers flying to Europe for their carbon pollution.

The European Court of Justice in Luxembourg dismissed arguments that imposing the European Union's cap-and-trade carbon credits programme on flights to and from European airports infringes on national sovereignty or violates international aviation treaties. US and other non-European airlines had sued the EU, arguing that they were exempt from the law.

Environmentalists called the law a first step in controlling carbon emissions in a key economic sector, and EU officials said they expected airlines to comply.

But Fitch Ratings said the decision could deepen rather than quell the dispute, raised in a lawsuit brought by the trade organisation Airlines for America and several US airlines and supported by China, India and other countries with international carriers.

"We believe threats of trade retaliation over the EU's cap-and-trade system will pose growing threats to aviation market access in both developed and emerging markets next year," Fitch said.

Retaliation could come in the form of slot allocations at airports and authorising routes, especially in developing countries, Fitch said.

The US airlines said the regulation was tantamount to "an exorbitant tax" but the EU said the added costs would amount to a few dollars per ticket and would open the way for efficient airlines to make money rather than lose it.

The carbon trading programme, due to go into effect on January 1, is one of the widest-reaching measures adopted by any country or regional bloc to regulate emissions. It aims to make airlines accountable for their carbon emissions, which contribute to global warming. Although only 3% of total human-caused carbon emissions come from aircraft, aviation is the fastest-growing source of carbon pollution.

US airlines most affected are United Continental, Delta and American Airlines, all of which derive more than 20% of global revenues from transatlantic traffic, Fitch said. The US trade group said its members would comply with the EU directive "under protest" while reviewing legal options.

Connie Hedegaard, the European commissioner for climate action, said she was "satisfied" with the ruling and ready to work with the airlines on implementing it. All revenue derived by the EU from the programme will go towards fighting climate change.

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