The court ruled against a group of US airlines that had challenged a law requiring that all airlines flying to and from European Union airports will have to buy permits under the EU's emissions trading system (ETS) from 1 January.
The initial cost is expected to be minimal but would rise to an estimated €9 billion by the end of 2020.
“We continue to have strong legal and policy objections to the inclusion of flights by non-EU air carriers in the EU ETS,” Krishna R. Urs, a top State Department official, said in a statement.
“We do not view the court's decision as resolving these objections.”
In its ruling yesterday, the European Court of Justice in Luxembourg said applying the six-year-old ETS to aviation “infringes neither the principles of customary international law at issue, nor the open-skies agreement."
The ruling was expected after a senior advisor to the court issued a preliminary opinion in October that found the EU legislation did not infringe other states' sovereignty and was compatible with international accords.
The US government, which has warned it could take "appropriate action" if the EU didn't reconsider this aspect of the ETS, said it was dismayed by the ruling, and reiterated that it wanted the issue addressed by the International Civil Aviation Organization (ICAO).
“The United States strongly supports the goal of combating climate change and reducing GHG emissions from international aviation,” said Urs, the State Department’s deputy assistant secretary for transportation affairs.
“We urge the EU to work with its international partners in the International Civil Aviation Organization to address the valid concerns that have been raised by the international community.”
Airline associations were also swift to react.
US airline industry body Airlines for America, a plaintiff in the case, said it was reviewing its legal options, but meanwhile would "comply under protest".
"The US government and dozens of others around the world are increasing pressure on the EU to come back to the table to consider a global sectoral approach," it said in a statement.
US industry objections
A case against the EU was initially brought to the London High Court of Justice by industry group, American Airlines and United Continental, but the London court referred it to the Luxembourg court.
Critics of the EU rules, agreed in June 2008, have argued that under the 1997 Kyoto climate pact, countries pledged to address aviation emissions jointly through the UN's aviation body, ICAO.
More than a decade on, talks at ICAO have not yielded significant progress, and the ECJ said the EU was within its rights to take unilateral action.
But the United States, where environmental legislation has become a focus of disagreement between Democrats and Republicans, has angrily rejected the EU plan.
Draft law in the US Congress, if passed, would make it illegal to comply with the EU legislation.
In a letter sent to EU officials last week, Secretary of State Hillary Clinton and US Secretary of Transportation Raymond LaHood 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," they said in the letter.
Lawyers and some environmentalists said the next logical step would be for ICAO to come up with a global solution soon.
"The EU's leadership is really significant. This is a first step. What we need now is a broad-based system from ICAO," Pamela Campos, an attorney at US lobby group the Environmental Defense Fund, said.
The ruling by the ECJ, Europe's highest court, is final, although there is some flexibility in how the regulation may be applied.
Industry prefers a global policy
Depending on airlines' decisions on how much to pass on, the European Commission has calculated costs per passenger could rise by 2 to 12 euros, much less than the 100 euro per allowance penalty it would impose on airlines that do not comply.
Airlines, which have given much higher assessments of the cost, have called for a global, rather than a piecemeal approach. The EU has said it fully agrees with that but has run out of patience with efforts to find a worldwide solution.