India yesterday (11 April) formally barred its airlines from participating having earlier said it would boycott the scheme.
"For the environment ministry, for me, it is a deal-breaker because you simply cannot bring this into climate change discourse and disguise unilateral trade measures under climate change," Jayanthi Natarajan said.
"I strongly believe that as far as climate change discussions are concerned, this is unacceptable."
The minister leads India's negotiations at global climate change talks. It was not immediately clear if her comments reflected government policy in India.
A European Commission spokesman said the European Union was willing to cut emissions faster and more deeply than emerging nations, such as India - the third biggest carbon emitter after China and the United States.
"The EU has been asked to reduce emissions more and faster than developing countries. We are happy to do that," Commission climate spokesman Isaac Valero-Ladron said.
"I don't see why this should be a deal-breaker if both share the same objective, which is reducing global emissions."
Any airline that does not comply with the EU law faces fines of €100 for each tonne of carbon dioxide emitted for which they have not surrendered allowances. In the case of persistent offenders, the EU could ban them from its airports.
The cost of compliance is much less significant at only around €2 per passenger for a flight from Beijing to Frankfurt, for instance, and that can be fed into fares.
Critics, however, have said their concern is the extra-territorial scope of the EU's law and that it unfairly charges non-European carriers by making them pay for the entire route, not just the European stretch of the journey.
The European Commission has said it was driven to making all airlines pay for their emissions after more than a decade of talks at the United Nations' ICAO failed to find a global solution to rising emissions of greenhouse gases from aviation.
Since tensions have flared, efforts at the ICAO have gained momentum, although many environmental groups still question whether it can deliver a viable plan.
Outside the official ICAO framework, a so-called "coalition of the unwilling" bringing together more than 20 governments opposed to the EU scheme has held a series of meetings. The next is planned for Saudi Arabia around the middle of the year.
Before that, India wants talks with China and Russia to decide on a plan of action, a government official said.
"The onus is on them EU.L to stop a trade war. Once we meet China and Russia, it will be clear that there will be a wall between them and the rest of the world," a government source told Reuters.
EU Climate Commissioner Connie Hedegaard has repeatedly said the only reason for the EU to modify its law would be if the ICAO could come up with a global plan to curb airline emissions.
She has also said the Commission, the EU's executive arm, would take account of equivalent measures, which have not been clearly defined but would include other ways of reducing airline emissions, when considering possible waivers.
Asked if India could cite any climate change actions that would qualify, Natarajan said: "Why should we? I am saying this tax is unacceptable."
Critics of the EU law describe it as a tax, but the Commission says it is not and an advocate general at Europe's highest court agreed, saying the ETS was a mechanism based on supply and demand.
The European Court of Justice in a ruling in December also said the EU's law was consistent with international law.
At climate change talks in Durban last year, India was one of the most strongly opposed to signing up to a deal that would for the first time bring in all the big carbon emitters.
Hedegaard, who spearheaded the EU's drive to get an accord, was involved in last minute haggling with India to get a compromise agreement sealed.
Earlier this year, Hedegaard visited India to try to build on the tentative agreement. The next annual U.N. climate change summit will take place in Doha at the end of the year.