The European Union and China have frequently clashed over climate policy and Beijing has flouted EU law requiring all airlines using European airports to pay for their emissions through the EU's Emissions Trading Scheme ETS.L.

At the same time, the two sides have maintained an uneasy dialogue, including an EU-China summit in Brussels this week.

EU Development Commissioner Andris Piebalgs and Chen Deming,

the Chinese commerce minister, signed a financing deal promoting the transition "towards a low-carbon economy and a reduction of greenhouse gas emissions in China", the Commission said in a statement.

The Commission wants partnerships with other emissions schemes as part of efforts to boost its own ETS, on which the price of carbon has sunk far below the levels required to spur green investments.

Last month, it agreed to link its ETS with Australia's scheme by 2018.

EU Climate Commissioner Connie Hedegaard said the Chinese financing deal was "an important step for an ever closer cooperation towards a robust international carbon market".

"Needless to say that it makes a significant difference when now also China wants to use carbon markets to reduce emissions cost-effectively and boost low-carbon technologies," she said.

Piebalgs said the European Union had "solid experience" in fighting climate change, and it would share that with China.

Analysts said the announcement was a small step towards a global carbon market and could help to head off arguments that Europe's efforts to tackle climate change are futile unless the biggest emitters make progress.

Sam Van den Plas, policy officer at environmental campaigning group WWF, said Europe had to ensure other developers of carbon markets avoided its mistakes, such as allocating too many permits to pollute.

"It's part of an ongoing process. Europe has first-mover advantage. It's very useful that this is shared with other regions and in the longer term to link other schemes," he said.

FINANCIAL, TECHNICAL HELP

The European Union will contribute 25 million euros and technical assistance over a four-year period to three carbon-reduction projects.

Apart from helping with the design and implementation of emissions trading schemes in China, the other projects are to assist Chinese cities to be resource-efficient and to cut water and heavy-metal pollution and implement sustainable waste treatment policies.

China's embryo trading schemes are years away from reaching the stage to include aviation emissions.

The EU's decision to include aviation in its Emissions Trading Scheme has drawn international criticism and threats of a trade war.

The United States is debating blocking legislation that would shelter its airlines from respecting the EU law, although it has so far grudgingly complied, while China and India missed a deadline earlier this year to submit data.

All sides are looking to the U.N.'s International Civil Aviation Organization ICAO.L to come up with an alternative global scheme to curb airline emissions, which the EU says would enable it to drop its requirements.

The international Kyoto system for cutting greenhouse gas emissions does not include aviation and progress has been slow in trying to extend the lifetime and scope of the Kyoto Protocol.

At climate change talks in Durban last year, the European Union led efforts to get a tentative deal, bringing in all emitters, including China, which had previously been excluded as an emerging nation.

(Additional reporting by Nina Chestney in London; editing by Rex Merrifield and Anthony Barker)

• A Permanent Economic Emergency