BRUSSELS China has threatened retaliation against French planemaker Airbus EAD.PA if the European Union goes ahead with plans to include international aviation in its carbon market, three sources said on Friday.
From January 1 next year, the EU will require all airlines flying to Europe to be included in the Emissions Trading Scheme ETS.L, a system that forces polluters to buy permits for each tonne of carbon dioxide they emit above a certain cap.
But China's aviation authority opposes the measure, saying it will cost Chinese airlines 800 million yuan in the first year and more than triple that by 2020.
"We're taking this threat very seriously," said a diplomat from one EU country involved in the dispute.
"We met about two weeks ago with some Chinese officials, and they clearly told us that if nothing is done to ensure their airlines would not be hurt by the ETS system, then there would be some direct consequences for our airline industry and for Airbus," the diplomat said on condition of anonymity.
China said last week that Europe should adjust the ETS to reflect the differences between rich and poor countries.
U.S. airlines also oppose inclusion in the ETS, but some of Europe's biggest airlines say the move is preferable to leaving airlines out, which would make them vulnerable to different environmental taxes from national governments.
The U.S. industry group Air Transport Association of America is challenging the move in EU courts.
France, Germany and Britain in particular are trying to find a compromise with China, the diplomat added.
That compromise could involve using provisions in the ETS rules to exempt the airlines of any country that can prove it is taking equivalent steps to cut emissions from aviation.
One industry source said China had voiced its complaints to Airbus directly and threatened to take retaliatory measures.
A third source said it was likely China would punish European airlines before it took action against Airbus.
European Commission spokesman Isaac Valero declined to comment but said the Commission would look at whether China's plans to cut aviation emissions would be enough to exempt its airlines from the ETS.
"To date, China has not presented those measures to the Commission for analysis," he said. "The definition of equivalent measures is very broad. We are extremely open to considering this."
EU officials argue that they took the step of including aviation in the ETS after years of fruitless debate within the United Nations about how to curb emissions from aviation.
During that time, carbon markets were widely recognised as the cheapest way to regulate emissions from aviation, and the International Air Transport Association (IATA) estimated it could be as much as 75 percent cheaper.
Lufthansa (LHAG.DE) Chief Executive Christoph Franz said on Thursday that he had been warned of "retaliatory measures" during a visit to China this month.
He said the extension of the ETS to international flights would cost Lufthansa up to several hundred million euros, and he urged that the scheme be delayed or shelved.
But the European Low Fares Airline Association (ELFAA), which includes easyJet (EZJ.L) and Ryanair (RYA.I) among its members, says the ETS is a fair way to tackle greenhouse gas emissions and is preferable to a host of national green taxes that they might otherwise face.
(Additional reporting by Victoria Bryan, editing by Rex Merrifield and Jane Baird)