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The trade group representing the largest U.S. airlines has called on the Obama administration to take action against the European Union in a bid to end the bloc’s carbon-trading market.

The Airlines for America lobbying group dropped its own lawsuit against the EU and called on the administration to bring a case through the International Civil Aviation Organization, a branch of the United Nations.

The move came as the EU commissioner for climate action, Connie Hedegaard, arrived in Washington for talks with government and airline officials amid an escalating diplomatic row between the bloc and its biggest trading partners.

The U.S. has said it would take “appropriate action” if the EU continues its approach, while other nations are said to have already started retaliatory moves, with Airbus maintaining that China is holding up billions of dollars in aircraft deals.

Chinese authorities haven’t confirmed the move, but like a number of other nations they have raised the possibility of retaliation.

Ms. Hedegaard said in an interview that China is overreacting to the new requirements, and she cited external estimates that the country’s airlines face a bill of just €1.9 million ($2.5 million) this year to comply with the carbon program.

“To trigger a trade war for €1.9 million, if you’re China…” she said, adding that the parties involved should keep in mind the “proportions” of money at stake. People who can afford long-haul flights between China and Europe “can also afford to pay for their pollution,” she added.

Opponents of the EU scheme have long discussed bringing action through ICAO, and the EU’s reluctance to shelve the scheme despite widespread criticism has encouraged them to make the legal challenge now.

“The U.S. has been very clear in its opposition,” said Nancy Young, vice president for environmental affairs at Airlines for America. “We think the most appropriate action is a challenge under Article 84 of the Chicago Convention,” she added.

The State Department declined to comment, but members of Congress have pressed the administration to take concrete action. The House Transportation Committee has scheduled a hearing on the emission plan for Wednesday.

The 1944 Chicago Convention lays down many of the ground rules for the international airline industry, including restrictions on what governments can do that affects airlines from other countries.

Opponents of the EU’s carbon-dioxide Emissions Trading System, which was extended to include airlines on Jan. 1., maintain it exceeds the bloc’s authority by imposing costs on international carriers.

The system requires all airlines, including those on international flights, to buy permits to cover the CO2 emitted by aircraft landing and taking off from airports in the region.

The ETS is the central plank of the EU’s environmental policy, which is focused on putting a price on carbon-dioxide emissions and capping their number. It aims to encourage companies to invest in clean technologies to reduce emissions over the long term to avoid having to buy more permits to emit more carbon dioxide.

An allowance traded on the ETS gives the holder the right to emit one metric ton of carbon dioxide.

The EU has said it has no plans to suspend the ETS for airlines, though Ms. Hedegaard wrote to U.S. Secretary of State Hillary Clinton earlier this year, saying the bloc remains open to exempting U.S. carriers if they become subject to other emission-reduction measures.

Ms. Hedegaard said Tuesday that the EU would welcome an industry-driven plan to slash emissions, under the auspices of ICAO, but she criticized airlines for foot-dragging.

“Fine, let’s create a global scheme, but it cannot take 100 years to get it done this time,” she said.

The Wall Street Journal, 27 March 2012