Washington (Platts)--28Mar2012/257 pm EDT/1857 GMT

A trade group representing US airlines withdrew from the UK High Court late Tuesday a lawsuit that challenged the European Union's aviation carbon regulations.

The decision by Airlines 4 America, which represents US commercial airlines, ended, at least for now, litigation over the EU Emissions Trading System for aviation, which went into effect January 1.

Now, A4A CEO Nicholas Calio said the US should bring a formal claim against the EU ETS in the International Civil Aviation Organization, the international body that oversees aviation issues.

"There is a clear path for the United States to force the EU to halt the scheme and protect US sovereignty, American consumers, jobs and international law," Calio said in a statement.

Although the aviation portion of the ETS began this year, airlines will not be required to pay for emissions allowances until 2013. But if no compromise is found before then, observers, including the US airline industry and the Environmental Defense Fund, have warned the ETS dispute could bloom into a trade war.

Supporters of the EU carbon regulations, including EDF, said airlines withdrew their suit because they had already lost two earlier rounds of the litigation and did not want to lose a third time.

"Although we are pleased this avoids a pointless legal challenge in the UK, it is disappointing that US airlines are refusing to accept the ECJ ruling, and may simply be moving the battlefield elsewhere," EDF said in a statement.

In a US House of Representatives Transportation and Infrastructure meeting Wednesday, A4A Vice President for Environmental Affairs Nancy Young pressed US lawmakers to challenge the EU carbon regulations at ICAO under Article 84 of the Chicago Convention on international aviation.

"In our view, that's necessary to get the EU member states to the table," she said.

If ETS opponents were to win such a challenge, EU nations would face the loss of voting rights at ICAO and their airplanes could be denied the right to operate in the airspace of other ICAO nations.

But ICAO will have to weigh the same legal arguments as EU courts, which have repeatedly upheld the aviation ETS, Annie Petsonk, international counsel for EDF, said Wednesday in an interview. "Procedurally it's different, but the legal arguments are the same," she said.

And even if the EU loses a vote at ICAO, it can appeal to the International Court of Justice, which likely will take into account decisions by the EU courts, Petsonk said.

--Keith Chu, keith_chu@platts.com