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BRUSSELS/LONDON (Reuters) - The European Union is set to extend the exclusion of foreign airlines from its emissions trading system to give a United Nations-brokered global deal time to come into effect, two EU sources said.
The move would be welcomed by the airline industry which wants a single, global emissions trading system (ETS) for aviation as opposed to a patchwork of national and regional schemes.
The European Union had ordered foreign carriers to buy credits under its ETS in 2012 but backtracked when countries said it violated their sovereignty and China threatened to cancel plane orders to Airbus Group SE.
It granted airlines operating flights into and out of the EU an exemption until 2016 to give the International Civil Aviation Organization (ICAO) time to craft a global system.
The United Nations body clinched a deal in October, raising hopes that the EU executive would prolong the extension beyond the end of this year when it automatically expires unless the law is changed.
"Expectation is it will be extended," one of the sources said.
The proposal by the EU executive, the European Commission, will be adopted at the end of January, two sources said.
Another EU source said the proposal was very sensible and would create predictability for operators.
The ICAO deal will be voluntary from 2021 to 2026 and mandatory from 2027 for states with larger aviation industries, prompting criticism from the European Parliament who had called for something more ambitious.
The exemption for foreign carriers could be extended until it is clear the ICAO system is working, one of the sources said.
Another said extending it to 2020-2021 would be a "good start".
EU lawmakers have said they would push for foreign carriers to be included in the ETS once again if the ICAO deal does not go far enough to curb pollution from airlines.
The EU ETS is a "cap and trade" system in which emissions are capped at certain levels. The deal reached by ICAO in Montreal allows carriers to increase emissions without limit as long as they offset them by purchasing carbon credits from designated environmental projects.
Aviation was excluded from the Paris accord to fight climate change, though the industry produces about 2 percent of carbon dioxide emissions, an amount larger than generated by some industrialized nations.
Editing by Keith Weir