Talks at the U.N.'s aviation body must bridge a deep divide between developed and emerging nations over airline emissions to avert the threat of a carbon trade war with the European Union.
After more than a decade of debate at the International Civil Aviation Organization (ICAO), there is little sign emerging powers China and India are ready to pay to pollute.
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Failure to get a deal would open the way for the European Union to resume international implementation of its own law that makes all aviation using EU airports buy carbon allowances.
The last time it tried to enforce the law over frustration at a lack of ICAO progress, the EU faced counter-measures and the suspension of Chinese orders for Airbus jets. Some orders are still frozen.
In response to claims it was breaching sovereignty, the EU suspended the law, but said it would re-impose it unless the ICAO found an alternative.
With time running short before the EU has to decide what to do, the ICAO will hold a preliminary meeting on September 4.
That in theory will finalize the ground work for an outline global deal at the triennial general assembly beginning on September 24 at the ICAO headquarters in Montreal. But still it would require further talks and only take effect in 2020.
Some EU officials say they are hopeful there will be convincing progress towards a global market-based mechanism.
"I'm optimistic, but it's difficult and we need political will from the United States, China and India," one EU official said on condition of anonymity.
Sources close to the talks said a compromise option was to limit carbon charges to national airspace, rather than the entire flight, a U.S. position that Europe initially opposed.
NEED TO CONVINCE PARLIAMENT
The EU needs a deal strong enough to convince its parliament, which would have to agree the new law by early next year to prevent an automatic resumption of existing legislation.
The year-long exemption only excluded intercontinental flights. EU flights must still buy carbon allowances, trade-able on the EU Emissions Trading Scheme, to cover their emissions.
"What is likely to occur is that the general assembly will try to find some sort of language which would allow the EU a face-saving way to retreat," said Paul Steven Dempsey, director of the Institute of Air and Space Law at McGill University, Montreal. "But if it continues down this path, it will spark a trade war."
The toughest opposition has come from China and India, which have refused to submit data on aviation emissions to the EU, raising the possibility their aircraft could be seized because they breach EU legislation.
The United States also agreed rare blocking legislation to shelter its aviation from compliance with the EU law.
In addition, industry has opposed the kind of market-based, cap-and-trade system favored by the EU and backed by scientists as the best way to curb emissions.
Paul Steele, executive director of the Air Transport Action Group, which represents the aviation industry, said the sector wanted ICAO to agree on a global scheme. [ID:nL2N0DU1XR] But he also told Reuters that "a global offsetting scheme is the most politically feasible option".
The European Parliament disagrees. "A system of carbon offsets put forward by the aviation industry would not be enough," Peter Liese, the German politician steering the relevant EU aviation law through parliament, told Reuters.
Offsets allow aviation to pay for carbon reduction via various projects to cut pollution across the world, but many have been discredited as doing nothing to lower emissions.
(Editing by David Evans)