In a rare display of election-year bipartisanship, Democratic and Republican members of the Commerce Committee and the administration's top transportation official called the EU standard that puts a price on pollution unworkable.

"The European Union acted because it believes it needed to make a bold effort to reduce greenhouse gas emissions and I understand why they did so. But, I believe that their unilateral action is likely not sustainable by international law," the panel's chairman, Jay Rockefeller, said at a hearing. "I support the goals, but I have to oppose the action."

Kay Bailey Hutchison, the committee's top Republican, said that she and Rockefeller "are in agreement" on the primary point.

"The European Union, with this emissions trading scheme, is acting outside of their prerogative and most certainly will have a negative effect on our aviation community," she said. "The EU needs to step back."

It was the most extensive comments from key Senate lawmakers on the issue that has some observers concerned that the dispute could trigger a global trade fight since the law applies to all airlines and a number of countries have spoken out.

Transportation Secretary Ray LaHood, testifying at the hearing, called Europe "The Lone Ranger" for unilaterally imposing the measure in January and said the administration again would "strongly urge" it to cease the law's application.

"We need to see real signs of flexibility from the EU," LaHood said.

The administration has threatened unspecified action if a compromise is not reached, but LaHood said no decision had been made on possible steps.

He said discussions within the administration, however, are centred on the possibility of the United States filing a formal complaint to the United Nations. That move would raise the diplomatic stakes and introduce sticky legal questions with no outcome guaranteed.

"We're debating that," LaHood said after Republicans and Democratic members urged the administration to pursue that route.

The law took effect in January and requires all airlines flying to and from EU airports to buy permits under an Emissions Trading Scheme ETS.L.

The issue is especially important to the United States, whose airlines have a mature and lucrative transatlantic business. American Airlines, United Airlines (UAL.N) and Delta Air Lines (DAL.N) are looking to grow international travel.

Moreover, lawmakers are concerned the aviation law could be a precedent for future unilateral European measures on the environment or other contentious issues.

The initial cost of the emissions law to industry globally is expected to be minimal but would rise to an estimated $12 billion (9 billion euros) by the end of 2020.

OUTRAGE

Airlines would not face any bill for carbon until next April, but the law's extraterritorial reach has stirred outrage, especially from the United States, China and India.

Jos Delbeke, director general for climate action at the European Commission, defended Europe's position at the hearing and vowed not to cave to pressure.

"There is no prospect of suspending the EU legislation," Delbeke said.

Delbeke said the EU favoured a global approach and is open to modifying it as part of a negotiated solution so long as market-based measures are similarly stringent, cover all airlines and include specific goals.

U.S. and European officials and other countries have held a series of meetings to try to defuse tensions and nudge the United Nation's International Civil Aviation Organization to establish a framework for negotiations.

"I believe they have the capacity to really begin the discussion," LaHood said. "There needs to be a starting point."

Separately, Senate lawmakers are weighing legislation that would give LaHood's office discretion to exempt U.S. airlines from complying with the EU law.

A similar measure cleared the House of Representatives last year.

The legislation's fate is unclear with other priorities demanding congressional attention. Airlines want Congress to take an aggressive stand and pass the bill, putting more pressure on the ICAO to come up with a plan.

LaHood said the administration had not taken a position on whether legislation is a good idea.

(Reporting By Valerie Volcovici and John Crawley; Editing by Eric Walsh and Sandra Maler)

• A Permanent Economic Emergency