Europe's highest court will issue an opinion on the legality of including airlines in the EU's carbon trading scheme to fight climate change.

Although not binding, this latest legal stage will be very closely watched by the U.S. airlines that brought the case in England's High Court of Justice, as well as Chinese and Indian carriers.

They are all vehemently opposed to being forced from January 2012 to buy permits under the EU's emissions trading scheme (ETS) to cover emissions of all flights that land or take off in Europe.

The London court referred the question to the European Court of Justice (ECJ) last year in a case brought by the Air Transport Association of America, American Airlines and United Continental.

While not bound by its opinion, the London court is very likely to follow the recommendations of the Luxembourg-based ECJ, which is expected to deliver its final verdict early next year.

For both sides, the amount of money at stake is less significant than the principles being contested, analysts say.

They say the European Union is intent on establishing a global approach to limiting emissions, a point the airlines and more particularly the governments behind them do not wish to concede.

European Commission figures show emissions from airlines have doubled since 1990 and could triple by 2020, in contrast to emissions from most other sectors, which have been decreasing.

So far the EU's carbon trading scheme, launched in 2005, has not included aviation in its system of setting a limit on the total amount of certain greenhouse gases that factories, power plants and other installations can emit.

If they emit carbon above their cap, they have to buy carbon permits to cover these emissions, and if they emit less, they can sell spare permits from their emission allowances.

Airlines initially would only be required to pay for 15 percent of the carbon they emit, and would be allocated free allowances to cover the other 85 percent.

Depending on decisions by airlines on how much of the cost they pass on to their customers, the European Commission has calculated that would result in a cost per passenger of between 2 ($2.656) and 12 euros -- much less than the penalty it would enforce on airlines that do not comply of 100 euros per allowance.

The following explores possibilities for Thursday's court hearing.

EU PLANS ARE LEGAL

Advocate General Juliane Kokott's preliminary ruling could suggest the EU rules are compatible with international law. Many lawyers have said this is the most likely outcome, and that the Europeans sought expert legal advice before deciding to insist on the purchase of carbon permits.

In response, the airlines could try to take their legal challenge against the EU to another international body such as the World Trade Organization, analysts say.

To take an issue to the WTO, they would need to persuade their governments to take up their case as only countries -- not companies -- can take issues to the body that deals with the rules of trade between nations.

A government could bring the issue before the WTO at any stage, but might decide it would be best to wait until the court delivers its final ruling.

There is also a possibility of a tit-for-tat response in the form of U.S. legislation that would target European airlines landing in the United States, but some lawyers have dismissed this as unlikely.

"There is no interest for the tit-for-tat dispute," said Annie Petsonk, international counsel for the Environmental Defense fund, an environmental advocacy group.

"Economic and diplomatic relations would be strained."

EU Plans are Illegal

European officials have said they are optimistic they are within the law, but if they are not, they have no plan B.

It would be a serious blow to the emissions trading scheme, already smarting from a series of market scandals and permit oversupply that has driven the price of carbon allowances down to around 10 euros -- not high enough to be an effective deterrent to polluters.