Aviation is not the world's biggest carbon polluter but it is the fastest-growing source of carbon emissions.

EU stands firm on aviation carbon tax.

The European Union says that's why it imposed a carbon tax at the start of this year on all airlines using its airspace. Brussels insists the legislation is good for the environment and legally sound.

Isaac Valero-Ladron, EU Climate Action spokesman, said, "Our law breaks no principal of international law, it's not extra-territorial and it does not breach the principle of sovereignty".

Non-European airlines and governments disagree. Airlines are not just being asked to pay the tax in European airspace, but also for anywhere else in the world as long as the plane takes off or lands in the EU.

And that's where a regional climate action policy suddenly becomes an international trade issue, with allegations of protectionism for the trading bloc's carriers.

Many countries including China, the US, Russia and India are threatening or have already taken action. European aircraft maker Airbus warns the dispute could escalate into a trade war. The Association of European Airlines wants the matter settled at the highest level.

Victoria Moores, general manager of Association of European Airlines, said, "What we want to see is this resolved through the ICAO which is the UN specialist body for aviation".

The carbon tax is only paid until the first touchdown or takeoff outside the EU. The aviation industry warns this will make tickets cheaper and therefore more attractive on flights with a stopover, which will have unintended consequences.

Victoria Moores said, "This basically incentivizes the creation of more emissions which wasn't what the commission was aiming for".

Europe is so far standing its ground and warns it will impose heavy fines and block airports to carries that refuse to comply.

Isaac Valero-Ladron said, "We are confident that companies and their shareholders will comply with the legislation, because the penalties for compliance are basically much higher than compliance with the legislation".

The International Air Travel Association forecasts that airline profits will likely be halved this year as a slowing global economy and high fuel costs erode earnings.

Making the new tax even more contentious - In light of the unexpected international uproar EU officials say they are still willing to discuss the new carbon emissions tax with disgruntled governments but has no plans to scrap or even modify the levy.

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