Europe's highest court will on Wednesday deliver a final ruling in a case over airline emissions that has triggered tit-for-tat legislation in the U.S. Congress and drawn a threat from U.S. Secretary of State Hillary Clinton.

Under EU law, from January 1 all airlines using EU airports will have to buy permits under the European Union's emissions trading scheme to help offset the carbon emissions of European flights.

A case contesting the legislation was brought to the London High Court of Justice by the Air Transport Association of America, American Airlines and United Continental, but the London court referred it to the European Court of Justice (ECJ) in Luxembourg.

ECJ Advocate General Juliane Kokott delivered a preliminary opinion in October, in which she said EU legislation did not infringe the sovereignty of other states and was compatible with the relevant international agreements.

Typically a preliminary opinion is a very good gauge of the final court ruling by the ECJ's judges, but Commission officials said they were not complacent.

SLOW INTERNATIONAL PROGRESS

Critics of the EU rules have argued that under the 1997 Kyoto climate pact, countries agreed to address emissions from aviation jointly through the U.N.'s aviation body, the International Civil Aviation Organization (ICAO).

More than a decade on, talks in that forum have not yielded significant progress and Kokott said the EU was within its rights to take unilateral action.

The EU already sets a cap on the level of emissions allowed from factories and power plants. Emitters exceeding their quotas must buy carbon permits, while those within their limits can sell any unused allowances.

Peter Liese, a German Christian Democrat who led discussions in the European Parliament on the law, said that including airlines was a modest proposal, which had won unanimous support from the European Council of ministers.

I cannot imagine a situation where the European Parliament amends legislation just because of pressure from China or the United States, he said.

We (in Europe) represent 500 million people and the biggest market in the world.

But the United States, where environmental legislation has become a focus of disagreement between Barack Obama's Democrats and the Republicans, has reacted angrily.

Proposed legislation in Congress, if passed, would make it illegal to comply with the EU law.

Secretary of State Hillary Clinton last week wrote to European officials, urging them to reconsider and saying the United States was prepared to take unspecified action.

As Europe's highest court, the ECJ ruling is final, although there is some flexibility in how the EU's regulations may be applied.

Airlines initially would only be required to pay for 15 percent of the carbon they emit and would be allocated free allowances to cover the other 85 percent.

The law also allows for equivalent measures, meaning incoming flights to Europe would be exempt if the nation from which they came had measures in place to offset the international emissions of the route.

Last week's letter, signed by Clinton and U.S. Secretary of Transportation Raymond LaHood, said equivalent measures were not enough.

It urged the EU to reconsider this current course and re-engage with the rest of the world.

Absent such willingness on the part of the EU, we will be compelled to take appropriate action.

(Reporting by Barbara Lewis; editing by Rex Merrifield)

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