A looming trade war between China and the European Union over the latter's carbon pricing scheme is the least that the world needs at this time, with major economies already reeling from the effects of the widespread debt crisis in the euro zone, according to the head of the International Air Transport Association (IATA).

The EU has started charging additional fees on global airlines operating in and out of Europe based on the Emissions Trading Scheme (ETS) that took effect January 1.

The measures, according to EU officials, were meant to protect the environment, which the regional body added has been long delayed by non-cooperation displayed by countries like the United States.

EU officials added that implementing the ETS as soon as possible will prove crucial in reversing the damaging effects of the global climate change.

China, however, baulked at the idea of additional charges being levied against Chinese airlines especially at a time that the industry faces numerous challenges that further reduce airline operators' margin of profits.

Airlines around the world have complained of high fuel prices that eat away their income and with the distressing effects of the euro financial crisis, industry groups warned the possibility of airline companies being driven out of business.

In order to protect its domestic airline industry, China ordered Chinese airlines last week not to cooperate with EU's enforcement of the ETS, reiterating its earlier opposition to the new EU regulation, which also drew criticisms from the United States and India.

The impending stand-off between these major powers and the EU could degenerate into more serious trade issues, IATA officials said.

"The Chinese move to prevent its airlines from taking part in the Emissions Trading Scheme is a very bold move and it pushes the Chinese carriers very much into the front line of this particular dispute," IATA director general Tony Tyler told Reuters on Sunday.

Tyler noted that Beijing adopted a tougher stance on the issue just a week before the summit in China on Feb. 14, where the world's second largest economy is expected to pitch in its share to ease the burden of Europe's sovereign debts.

He admitted that China may prove a hard sell to extend its assistance in light of its expressed opposition to the ETS provisions.

With China's assistance getting out of the picture, the recession predicted by economists to revisit Europe this year could be accelerated and send down the drain the projected profit of $3.5 billion this year for the global airline industry.

Instead, the industry could absorb more than $8 billion in losses by the end of the year in the event of another financial downturn, Tyler said.

But all is not lost as IATA argued that the United Nations' International Civil Aviation Organization (ICAO) may step in to arrange an amicable agreement between the parties caught in the ETS implementation.

Tyler said that the European Commission appears to softening its stand on the issue, with one senior EU official hinting "that we are willing to review our legislation in the light of agreement on market-based measures being agreed in ICAO.

That should open the door for all parties concerned to consider a multilateral discussion, Tyler said.

"I very much hope that the EU and all its member states will work hard with ICAO to come up with a global solution. It is not going to be easy," Tyler told Reuters.

"This is an intolerable situation which clearly has to be resolved; it cannot go on like this. I very much hope of course that we are not seeing the beginning of a trade war on this issue and eventually wiser counsels will prevail," the IATA chief added.