The wrangle over the scheme, which could charge for carbon emissions from flights in and out of Europe, has also drawn ire from the United States and India. All three argue the EU is exceeding its legal jurisdiction by calculating the carbon cost over the whole flight, not just Europe.

Next week, Chinese and EU leaders hold a summit in Beijing, with the EU looking to China to dip into its huge foreign exchange reserves to help it tackle a debt build-up that threatens economic stability on the continent.

China's central government State Council, or cabinet, said on its website (www.gov.cn) all airlines were banned from taking part in the EU Emissions Trading Scheme ETS.L - unless they received government approval.

Beijing, which had already denounced the EU's law as a trade barrier, also prohibited all carriers from using it as a reason to raise fares or fees.

The European Union's executive body said Chinese carriers had already begun signing up and it was confident the scheme, which is the mainstay of the EU's efforts to tackle climate change, would survive.

"The Commission of course remains confident the Chinese airlines will comply with our legislation when they are operating through EU airports," Isaac Valero-Ladron, EU spokesman for climate action, told a regular briefing in Brussels.

He added that Chinese airlines had already taken steps to comply with the scheme and had applied for the free carbon allowances to which they are entitled.

SLOW PHASE-IN

In theory the EU legislation took effect from January 1, but no airline will face a bill until next year, after this year's carbon emissions have been calculated. Initially airlines will be handed allowances to cover some 85 percent of their emissions.

Europe's highest court, the European Court of Justice, last year ruled that the EU was fully within the law in seeking to impose carbon costs on international flights, dismissing a legal challenge brought by a group of U.S. airlines.

The EU maintains it was driven to act after more than a decade of inaction at the U.N.'s International Civil Aviation Organization ICAO.L, which has yet to find a global solution to tackling airline emissions.

The Commission spokesman said talks were ongoing with various nations to try to defuse the situation and the European Union has said it was open to accepting "equivalent measures".

These have not been clearly defined, but analysts have said they would cover other ways of reducing emissions in the airlines sector.

Analysts also said China had left some scope for flexibility with its caveat airlines were banned unless they received approval.

"China hopes Europe will act in the light of the broader issues of responding to global climate change, the sustainable development of international aviation and Sino-European ties, strengthening communication and coordination to find an appropriate solution acceptable to both sides," said an unidentified official from China's civil aviation authority, according to the announcement.

PENALTIES

Analysts say it is in the interests of all sides to resolve a row that potentially puts airlines in the near impossible situation of being in breach of one authority or another.

Any airlines that do not comply face European fines of 100 euros for each tonne of carbon dioxide emitted for which they have not surrendered allowances. In the case of persistent offenders, the EU has the right to ban airlines from its airports.

Apart from signing up for an EU registry opened a week ago, which will make airlines eligible for free carbon allowances, some carriers have already begun passing on the extra cost to their passengers through fare increases.

On Monday, the EU's Ambassador to China, Markus Ederer, said at current jet fuel prices, the per-ticket cost increase from the scheme on a one-way Beijing-Brussels trip would amount to about 17 yuan.

"Europe is a green leader in the world and we try to live up to our aspirations," Ederer told reporters at a news conference in Beijing. "Airplanes are an important source of emissions. They should be regulated."

Airline representatives have come up with much higher figures for the cost than the EU estimates.

The China Air Transport Association CATA.L, which last year urged China's airlines to refuse to take part, said the scheme would cost 800 million yuan in the first year and more than triple that by 2020.

A spokeswoman for Cathay Pacific (0293.HK) said the Hong Kong-based airline had fully complied with the EU programme, but under strong protest.

(Additional reporting by Barbara Lewis in Brussels, Michael Martina and Lucy Hornby in Beijing, David Fogarty in Singapore, Alison Leung in Hong Kong and Krittivas Mukherjee in New Delhi; editing by Rex Merrifield and Philippa Fletcher)

• A Permanent Economic Emergency