Carriers joined the scheme, which covers carbon emissions from European and foreign airlines flying into and from EU airports, on Jan 1.

The scheme has triggered widespread anger among foreign governments and carriers because the cost is calculated on the emissions from the point of origin, not just in Europe.

This has led to accusations the European Union is exceeding its jurisdiction in a row that risks escalating into a full-blown trade war.

China this week banned its airlines from participating without its permission and, along with India and the United States, warned of retaliatory steps.

The latest analysis by Point Carbon, which provides market intelligence, news and advisory services, calculated the cost based on the price of EU emissions allowances traded as of Monday at 8.56 euros and the latest emissions forecasts for carriers. Each allowance represents a tonne of emissions.

The latest estimate is half Point Carbon's 1.1 billion euro forecast in September when EU carbon permit prices were 12 euros. In that analysis, Point Carbon forecast a total carbon cost to airlines of 10.4 billion euros by 2020.

EU carbon prices have plunged since then as the region's sovereign debt crisis cut industrial output and demand for the allowances.

Point Carbon analyst Andreas Arvanitakis said the top five Chinese airlines covered by the emissions trading scheme faced a total 2012 carbon cost of 8.5 million euros.

These were Air China (601111.SS), Cathay Pacific (0293.HK), China Eastern Airlines (600115.SS), China Southern Airlines (600029.SS) and Hainan Airlines (600221.SS). Together they face a bill for 990,000 tonnes of carbon dioxide.

This cost could be lowered to 7.9 million euros if the airlines bought cheaper U.N. offsets called certified emissions reductions, which are trading around 4 euros each, to help cover a portion of their 2012 carbon liability.

BENCHMARK

The China Air Transport Association CATA.L has said the scheme would cost 800 million yuan in the first year and more than triple that by 2020.

Under the scheme, 82 percent of allowances will be given for free to aircraft operators and 15 percent will be allocated by auctioning. The remaining 3 percent will be allocated to a special reserve.

The free allowances are given according to a benchmark that measures the activity of each operator in terms of the number of passengers and freight they carry and the total distance travelled, the European Commission says. The benchmark was set according to 2010 data provided by carriers.

The 2012 bill will only be calculated after each carrier's annual carbon output has been added up, with payment in 2013.

That gives the commission a bit of time to try to work out a resolution to increasing foreign anger over the scheme right at a time when Europe is seeking money from cash-rich nations such as China to ease the euro zone's debt crisis. Chinese and EU leaders hold a summit in Beijing next week.

A group of 26 countries vehemently opposed to the scheme will meet in Moscow on February 21.

(Reporting by David Fogarty; Editing by Nick Macfie)

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