Airlines project that carbon trading will cost the global industry around $7 billion a year from 2020, from when the sector has pledged to grow without adding to greenhouse emissions.

The International Air Transport Association, which represents 230 airlines, agreed at a board meeting that it would achieve carbon neutral growth from 2020 through a combination of investment in technology, biofuels and economic measures such as carbon trading.

Aviation is likely to be included in any global pact to replace the Kyoto Protocol to cap emissions from 2013, meaning caps on emissions that will make airlines buy credits to exceed those limits.

IATA board member Willie Walsh, chief executive of British Airways, told Reuters on Tuesday that the association, in working out its carbon neutral pledge, had forecast a cost of $6.5 billion to $7.5 billion a year from 2020 because of carbon trading, based on a carbon price of $65 a metric ton in 2020.

This will cost us. There's no free lunch, Walsh told aviation executives at the IATA annual general meeting in Kuala Lumpur, in a talk about the industry's environmental goals.

But executives told Reuters the costs were likely to be borne by passengers, given the industry's poor money-making record. IATA forecasts global airlines will lose $9 billion this year.

You've heard what IATA has said about losses -- it will have to be passed on to customers, Chew Choon Seng, chief executive of Singapore Airlines, said.

Executives said the added cost could hurt demand, given higher air fares. When asked if carbon neutral growth meant slower growth, Walsh nodded.

It will have an impact on demand and this has been factored in, he said.

Walsh said the forecast for carbon prices, much higher than the current benchmark price for European carbon credits of around 13 euros ($18.12), was based on the idea that prices were likely to rise with greater demand in a future world market.

At the moment European Union countries, Japan and Australia have targets to cut emissions under Kyoto, but other major emitters such as the United States and China, and other developing countries, do not have to cut emissions.

Airline executives at the event railed against a patchwork of rules, given Europe now has mandatory carbon trading but other regions do not.

Some of the world's largest airlines called on Tuesday for the industry to set global emissions targets. Airlines account for about 2 percent of global emissions and that share is forecast to rise.

I am not against emissions trading. But it has to be a level playing field, said Akbar al-Baker, chief executive of Qatar Airways.

($1=.7174 Euro)

(Editing by Clarence Fernandez)

Climate change