The International Civil Aviation Organization (ICAO) plans to build an international carbon market in response to European regulations.

"I'm under great pressure because of the European Union Emissions Trading System," said Raymond Benjamin, secretary-general of ICAO. He added that the World Bank may also be involved in running a greenhouse gas permit trading market for the world's 50 largest countries. Such a program might replace part of the European Union's program by 2014 or 2015.

ICAO expects to lay out emissions control proposals to its 190 members in January next year and hopes to reach an agreement before the year's end, setting the stage for ratification in 2013, according to Benjamin.

Airline emissions currently make up 2 percent of the global total, but they are expected to rise, since passenger flights will likely double by 2020.

"No one wants a commercial war," Benjamin said. "For the moment, everybody is showing muscles." He said that some developing countries may counter Europe's carbon tax by closing off landing slots or capping flights from European countries, though "no country has formally announced retaliatory measures."

New airline standards will likely include increased biofuel use, improved flight planning and reduced overall energy consumption. "After a decade where nothing happened internationally, the reality is that the E.U. law finally makes ICAO move towards a global carbon market for aviation," said Connie Hedegaard, the European Union's climate action commissioner. "This is interesting news. I hope ICAO does not miss the opportunity this time."

Negotiations over the new regulations may be contentious. "ICAO may be jumping out of the frying pan and into the fire," said Matthew Cowie, an analyst with Bloomberg New Energy Finance. Developing countries may expect more flexibility in adhering to the rules, and other groups may argue over how money from carbon permits should be used.

The International Air Transport Association said airlines will try to pass permit costs to their customers, but they will likely be thwarted by the intense price competition in the industry (Vitelli/Carr, Bloomberg, Nov. 30). -- UI