The new law took effect on January 1, drawing dire warnings from governments, airlines and planemakers that it could trigger a global trade war and damage the aviation industry.

The suit was originally brought to the London High Court by the Air Transport Association of America, American Airlines and United Continental (UAL.N), but the court referred it to the European Court of Justice ECJ.L in Luxembourg.

On December 21, the ECJ gave unreserved backing to the law, and the case was due to return to the London court on Thursday. However, Airlines for America, the Air Transport Association of America under a new name, said it had dropped the suit.

A court spokeswoman confirmed that the matter had been withdrawn and the Thursday hearing cancelled.

Airlines for America said opposition to the EU law was now so widespread that it was appropriate to drop the lawsuit and let governments take the lead. Despite the failure of its action at the ECJ, the organisation said it had been useful in setting the agenda for those opposed to the law, known as the European Union Emissions Trading Scheme or EU ETS.

"Our legal action was critical in bringing to light that the EU ETS violates international law and is an exorbitant money grab, which are now key points in the governments' unified opposition to the scheme," said Airlines for America President and CEO Nicholas Calio in a statement.

"There is a clear path for the United States to force the EU to halt the scheme and protect U.S. sovereignty, American consumers, jobs and international law," he said.

EU Climate Commissioner Connie Hedegaard is in Washington this week to discuss the issue.

The disputed law has a long lead time, so none of the airlines face a bill until next year, after their emissions have been calculated. The law requires all airlines flying to and from EU airports to buy permits under the bloc's complex emissions trading scheme.

The initial cost is expected to be minimal but would rise to an estimated 9 billion euros by the end of 2020. The levy would apply to the entire length of an aircraft's journey to an EU airport, including the section outside EU airspace.

As well as the United States, China and India have complained that the EU went ahead with a scheme that applies to their airspace, while the EU says it was forced to act after years of international inaction on air travel pollution.

(Reporting by Estelle Shirbon; Editing by Mike Nesbit)

• A Permanent Economic Emergency