By Valerie Volcovici and Barbara Lewis
MONTREAL/BRUSSELS (Reuters) - The United Nations' civil aviation body has reached outline agreement on a global scheme to curb airline carbon emissions, casting a shadow over a rival EU plan to lower pollution from planes.
The executive committee of the International Civil Aviation Organization (ICAO) agreed late on Thursday on a roadmap to create the world's first global, market-based scheme by 2020.
The full assembly of ICAO delegates still has to vote later on Friday on the plan, which would also need agreement on further detail at the next ICAO general assembly in three years.
The European Union had sought a much more robust agreement as well as a framework to shore up its own Emissions Trading Scheme (ETS) which is central to its climate policy and requires all airlines using EU airports to pay for emissions.
Analysts say the European Parliament, which is opposed to a weak deal, could reject the Montreal package, risking an upsurge in trade war threats that pitched the European Union against the rest of the world last year.
The United States, together with emerging powers such as India and China, have been the most critical of the extension of ETS to airlines, saying it is a breach of sovereignty and a global alternative is needed.
U.S. climate envoy Todd Stern welcomed the Montreal deal.
"After some very challenging discussions, including compromises by all parties, ICAO has made a strong commitment in favor of taking multilateral action to tackle climate change," he said.
European Climate Commissioner Connie Hedegaard said the deal showed "the EU's hard work is paying off".
"We will now look at how to proceed up to 2020 with our EU ETS," she said in a statement.
Speaking on condition of anonymity, one EU official admitted its negotiating delegation in Montreal was bruised.
Analysts said the deal limited the ETS to intra-EU flights, reducing its coverage by about 60 percent, and risked more legal challenges to the scheme on competition grounds.
Low-cost airlines, operating almost exclusively EU flights, have already begun legal proceedings.
"It would appear that none of the EU red lines, spelt out unequivocally at the time of granting the 'stop the clock' derogation (suspension), will be met by the outcome," John Hanlon, secretary general of the European Low Fares Airline Association, told Reuters.
"The EU compromise offer of inclusion of emissions from international flights in EU airspace looks to be rejected in its entirety. This leaves intra-EU ETS totally ineffective environmentally, capturing only a fraction of EU aviation emissions of CO2."
TRADE WAR THREATS
When the European Union suspended its aviation law for a year, it said the requirement for all aviation, not just internal EU flights, to pay for emissions would be reimposed automatically unless the ICAO agrees a robust market-based measure.
The ETS, which covers big polluters such as power generators and heavy industry, as well as aviation, has sunk this year to record low levels under a burden of surplus allowances.
It was trading down 0.4 percent at 5.18 euros a tonne by 9:22 a.m. ET.
Traders said the market impact was modest because the aviation sector's inclusion in the ETS was already reduced, but it sent a very weak signal on any potential to extend the ETS.
The European Parliament will have to act quickly if it is to endorse any extension of the European Commission's decision to "stop the clock" on its law in time for an April 2014 deadline when the European Commission would resume demanding carbon allowances.
German Christian Democrat politician Peter Liese, who steered the original law through the European Parliament and led the debate on the "stop the clock" law, said he could not comment immediately on Friday.
(Additional reporting by Tom Koerkemeier in Brussels, Gerard Wynn and Ben Garside in London; Editing by Christopher Wilson and David Cowell)