* EU says protecting environment
* U.S., China, India, say EU has breached sovereignty
* U.N. body to debate issue Nov. 9
* EU to start sending out bills to airlines in April
By Barbara Lewis and Valerie Volcovici
BRUSSELS/WASHINGTON, Nov 4 (Reuters) - U.S. airlines, through industry group A4A, will lobby the United States' newly-elected president as soon as he takes office on an issue that has triggered threats of a trade war.
All year, an international row has raged over the European Union's decision to include all airlines using its airports in its Emissions Trading Scheme (ETS), designed to curb planet-warming pollution.
The European Union says it is protecting the environment. U.S. opponents say it has breached sovereignty to try to fill its empty coffers. Both houses of the U.S. Congress have passed rare blocking legislation - yet to be signed by a president - to counter the EU law.
This week, the U.N.'s International Civil Aviation organization (ICAO), based in Montreal, is expected to take another stab at moving towards a negotiated solution.
The European Commission, the EU executive, has said it can change its law if the ICAO comes up with a robust global framework to limit airline emissions.
The problem is almost no-one thinks the ICAO can deliver in time, if at all, prompting warnings of rounds of retaliation.
Meanwhile, the airlines are campaigning for a dispute procedure, referred to as Article 84, which would stall the ICAO process, perhaps for years.
"We are spending our time pushing Congress to pass legislation that addresses this issue and urging the White House to move past diplomacy and toward legal action with an Article 84," Sean Kennedy, top lobbyist at A4A, told Reuters.
"There's no brinkmanship here. It's not a question of if an Article 84 is filed, it's just a question of when," he said.
ICAO dispute procedures, used on rare occasions when nations disagree over the body's practices, are extremely lengthy, in an organisation generally renowned for its slowness.
They have to be brought by member states, meaning A4A has to pressure the U.S. Administration, f ollowing this week's presidential election. Whether Democrat or Republican it could be receptive on an issue that has won unusual bipartisan support in Washington.
The European Commission, the EU executive, said it only agreed its law after more than a decade of inaction at the ICAO.
Last year, the European Union's highest court, the European Court of Justice, found the law to be valid, rejecting a case brought by U.S. airlines.
To hasten the quest for a global alternative, officials from the European Union - which as a bloc is only an observer at the ICAO - are working with the U.N. body.
The aim is to get enough positive signals to avert a crisis when airlines receive their first emissions bills in April after a slow phase-in of the EU law finalised in 2009.
"The question is how to get past April," one diplomat said on condition of anonymity. "If we get into rounds of retaliation, it will be much harder to find a solution."
The EU law applied to all airlines using EU airports - not just EU carriers - from Jan. 1 this year.
From April, airlines will have to turn in allowances bought on the EU ETS, after emissions for 2012 have been calculated.
Those that do not comply face fines. Repeat offenders could find their aircraft impounded.
Although the United States is the biggest opponent, China and India also missed an interim deadline for submitting data. India has threatened that the issue could derail international climate talks in Doha later this month.
European Climate Commissioner Connie Hedegaard at the end of October reiterated her hopes the ICAO will do enough.
"We think that there is a will on the part of the leadership of ICAO and we have people up there now seeing how much progress can be achieved this November, paving the way for substantial decisions to be taken at next year's ICAO general assembly," Hedegaard told Reuters.
The general assembly takes place once every three years, with the next scheduled for November 2013 - the earliest date for a solution to be finalised under ICAO procedure.
Between the April deadline and next November, lawyers say EU flexibility could cool tempers even if rhetoric still flies.
"I think the EU will not execute (the fee collection) right away, nor will they impound aircraft. However, they could allow the fines to keep accruing, and then, if there is a solution in November 2013, the fines could be waived as part of the settlement," Renee Martin-Nagle, visiting scholar at the Environmental Law Institute, who also served as general counsel to Airbus America, said.
"This would be a graceful, face-saving way out of the impasse."