* Issue has stirred trade war threats
* ICAO moving towards a solution, EU is working with it
* ICAO expected to discuss global scheme at March meeting
By Barbara Lewis
BRUSSELS, Feb 28 The EU will respond to any retaliation over its law imposing carbon charges on all flights but is working with the United States and the International Civil Aviation Organization (ICAO) to find a solution, a senior Commission official said.
The EU's requirement that all airlines buy carbon to offset flights that use the bloc's airports has stirred threats of an international trade war, with the potential to disrupt global air traffic.
A meeting in Moscow last week of the so-called "coalition of the unwilling" agreed on a basket of counter-measures that countries could activate in response to the EU scheme.
"Retaliation cannot happen, and if it happens we will act immediately and appropriately," Commission Director General for Climate Action Jos Delbeke told a European Parliament committee in Brussels on Tuesday.
But he said there had been glimmers of a more positive mood at the Moscow meeting, which had left open the possibility the U.N.'s ICAO could resolve the issue.
A Moscow declaration was signed by only 23 nations, not the 26 signatories of previous unofficial meetings of governments opposing the EU, which include the United States, China, India and Russia.
"We are fully committed to working with ICAO. We are contributing fairly actively behind the scenes," Delbeke said, adding any ICAO scheme would have to be convincing.
He said "pro-active discussions" had taken place with major aviation partner the United States, although talks with China and India were still struggling to resolve the issue of extraterritoriality.
MATTER OF PRINCIPLE
"The economic impact is very limited. We are talking about a couple of euros on a flight between the EU and Beijing," Delbeke said. "It's a problem of principle, the principle of extraterritoriality."
In December last year, the EU's highest court found the EU was not breaching any international law, Delbeke noted.
The European Union said it resorted to including all airlines in its EU Emissions Trading Scheme (ETS) to curb carbon emissions only because more than a decade of debate at ICAO had not decided on a way to limit rising airline pollution.
At the time its law was debated, Delbeke said airlines had backed a market-based scheme, rather than a tax.
The European Union's executive has repeatedly said the bloc would modify its law if a global scheme existed.
International indignation over the EU's law on aviation has helped to accelerate progress at ICAO, which Delbeke said was expected to meet in March in Canada to debate measures, which should be elaborated before the end of the year.
"We need to encourage ICAO to stick to this timetable," Delbeke said.
He added the U.N. body had some room for manoeuvre, because although the EU law took effect from Jan. 1 this year, no airlines would receive a demand to surrender carbon allowances until April 2013. (editing by Jane Baird)