Europe and the United States headed for confrontation Wednesday after the EU won key legal backing for its proposal to slap carbon emissions charges on all airlines in its airspace from January 1.

The European Union's top court threw out a bid by US and Canadian airlines to block the introduction of the scheme in a ruling that was warmly welcomed by the bloc but triggered an angry response from Washington.

Though not a party to the case, the US Department of Transportation said it "strongly objects, on both legal and policy grounds, to the EU's plan to impose its own policies on other countries".

The US airlines association that brought the case before the court said it would mull further action in the English High Court, but meanwhile would comply with the EU -- though "under protest."

North American carriers argued the decision was discriminatory and amounted to a backdoor tax.

But the European Court of Justice (ECJ) ruled that the EU's approach was valid, and that it "infringes neither the principles of customary international law at issue nor the Open Skies Agreement" covering trans-Atlantic flights.

The decision was welcomed by the European Union, which told US airlines to get ready to obey the law in the same way EU companies respect American regulations.

A threat of collateral damage hung in the air, however, after a warning of possible reprisals by US Secretary of State Hillary Clinton some days ago.

The judgment "risks unleashing a trade war between Europe and the United States," a high-ranking aviation source told AFP.

Despite Clinton's threat of "appropriate action," the Luxembourg-based judges said non-EU airlines could choose whether to make commercial flights to and from EU airports.

As a result, the EU system "infringes neither the principle of territoriality nor the sovereignty of third states, since the scheme is applicable to the operators only when their aircraft are physically in the territory of one of the member states of the EU."

The European Commission said after the ruling that the Emissions Trading System (ETS) would come into force as scheduled.

"A number of American airlines decided to challenge our legislation in court and thus abide by the rule of law," EU climate change commissioner Connie Hedegaard said.

"So now we expect them to respect European law."

In the US, Airlines for America (A4A) which took the challenge to the ECJ, warned that the "decision does not mark the end of this case."

The association "is reviewing options to pursue in the English High Court," it said while urging the EU to come back to the table.

"In the meantime, A4A members will comply under protest and will continue to operate safely and efficiently to Europe when the scheme takes effect Jan. 1."

Under the EU scheme, airlines would have to pay for 15 percent of the polluting rights accorded to them in 2012, the figure then rising to 18 percent between 2013 and 2020.

Clinton in her letter listed 43 nations from Argentina to Russia to Venezuela also opposed to the EU move.

"Halt or, at a minimum, delay or suspend application of this directive," she wrote. "Re-engage with the rest of the world.

"The United States stands ready to engage in such an effort. Absent such willingness on the part of the EU, we will be compelled to take appropriate action."

Krishna Urs, a top transportation official at the US State Department, said the International Civil Aviation Organisation, a UN body, would have been the appropriate proper arena to discuss airline emissions.

"The US has a number of options at its disposal that we will exercise as appropriate," Urs said. "While we can't speak to any particular action, we have not taken any options off the table."

A4A, formerly known as the Air Transport Association, argues that aviation greenhouse gas (GHG) emissions should be regulated on a global basis.

It also views the EU ETS as an exorbitant tax removing the very funds needed to invest in technology leading to emissions savings.

In October, the US House of Representatives passed a bill directing the US government to forbid US carriers to take part "in any emissions trading scheme unilaterally established by the European Union."

Chinese and Indian airlines said earlier this year they too could launch similar cases.

Underscoring the potential for a significant trade row, China reportedly blocked an order by Hong Kong Airlines for billions of euros worth of Airbus aircraft.

Airbus and rival US plane maker Boeing have locked horns in a seven-year-long battle over government subsidies at the World Trade Organization.