Starting Jan. 1, airlines using airports in the European Union must comply with the six-year-old Emissions Trading System which allows polluters to buy and sell permits for carbon dioxide emissions, The New York Times reported.
China's air transportation regulator said China's airlines are banned by the Chinese government from taking part in the program.
Isaac Valero-Ladron, a spokesman for the European Commission, said, "We're not backing down in our legislation. We'll apply this to companies operating in Europe."
Some fear the policy could end up in a trade war. "We're concerned also about retaliatory measures taken by non-EU governments against EU carriers," said Antony Tyler, the director general of the International Air Transport Association, which represents the airline industry.
The U.S. House of Representatives has approved a bill that would mirror China's response, banning U.S. airlines from participation. The Senate has yet to take up a matter, although a bill has been introduced in that chamber.
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