* U.S. airlines make court challenge to EU carbon market
* Airlines charge that EU rules breach U.S. sovereignty
LUXEMBOURG, July 5 U.S. airlines stepped up their campaign against European Union climate policy on Tuesday, challenging the EU in its highest court over the right to regulate their greenhouse gas emissions.
The EU aims to lead the world in fighting climate change, and says it needs to put a price on carbon dioxide emissions to guard against future climate impacts such as crop failures, droughts or flooding.
From January 2012, airlines flying to or from Europe will have to buy permits from the EU's Emissions Trading Scheme (ETS) for 15 percent of the carbon emissions they produce during the entire flight. They join 11,000 factories and power plants already in the scheme.
China criticised the scheme on Tuesday , adding to fears of a brewing trade war.
The Air Transport Association of America (ATA) mounted its challenge to the EU on two main fronts -- that its climate regulations breached U.S. sovereignty, and secondly that they comprised an illegal charge under the main international treaty on air travel, the Chicago Convention.
"The EU does not have competence to regulate third country airlines in third country airspace," Derrick Wyatt, a lawyer for ATA, told the European Court of Justice in Luxembourg.
"It is astonishing that a U.S. airline must acquire an EU licence to cover emissions at a U.S. airport."
On a typical San Francisco to London flight, just under 9 percent of emissions occur in the EU, compared to 25 percent over the Atlantic, 37 percent over Canada and 29 percent over the United States, he added.
EU lawyers said the cost of emissions permits for a transatlantic flight amounted to little over 6 euros per passenger, most of which the airlines would be granted for free.
They said the bloc had only chosen to include aviation in its carbon market after airlines themselves chose the scheme in preference to other tools such as eco-taxes or charges on jet fuel.
"A market-based system is the system that IATA and the airlines have always been urging -- a system that is the most economically efficient, as they recognise themselves," said European Commission lawyer Eric White.
"The claimants seem to think that extra-territoriality equals illegality -- of course that's not the case," he added.
Other EU lawyers also made the point that many valid laws have an indirect impact in third countries, such the need for travel visas or U.S. demands for the personal data of arriving air travellers, but that does not render them illegal.
As a further example, European road safety laws prevent truck drivers from driving more than nine hours in a day, even if the first part of the journey takes place outside the EU, argued Sam Wordsworth, on behalf of the British government.
Airlines say their emissions should only be tackled in U.N. bodies, such as the International Civil Aviation Organization (ICAO), which have clear rules to prevent countries imposing illegal charges on each others' airlines.
EU lawyers countered that ICAO had already ruled that the ETS was quite distinct from, and preferable to, other charges such as eco-taxes or jet fuel levies.
Environmentalists said global talks to find a solution to aviation's emissions had dragged on for 14 years, and airlines should not attack the only meaningful piece of regulation.
"Instead of flying planeloads of lawyers to Europe, the aviation industry should face up to its future and get on with the job of cutting emissions," said Bill Hemmings of green transport campaigners T&E. (Reporting by Pete Harrison, editing by Rex Merrifield and Anthony Barker)