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The European Union (EU) is trying to regulate non-EU airline greenhouse gas emissions at airports and in the skies of non-EU countries, attorneys for the Air Transport Association of America (ATA), United Continental Airlines and American Airlines argued Tuesday before the European Court of Justice. The so-called “extra-territorial effect” of the ETS as it applies to aviation violates established principles of customary international law, so the directive stipulating that the ETS apply to all flights into and out of European airports is invalid, according to ATA’s oral submissions to the court.

“It is astonishing that a U.S. airline must acquire an EU license to cover its emissions at a U.S. airport, or in U.S. airspace, but that is precisely what the ETS requires,” according to a copy of its testimony provided the trade group. ATA and its members maintain that “the only way of ensuring a coherent framework for reducing emissions from aircraft is through multilateral agreement, rather than through unilateral and piecemeal regulation, which can only lead to chaos at the international level.”

An EU official insisted after the hearing that including aviation in the ETS is “fully consistent” with international rules and that the EU is “”optimistic” it will prevail in the case.

The EU presented several arguments defending its legislation, including that the cost associated with the ETS is not a levy or tax, which would be outlawed, but an incentive system that enables airlines to benefit when they beat pollution targets or pay more when they do not. Moreover, they argue that the issue of extra-territoriality does not apply because the legislation affects only flights departing from or flying into the EU, as well as intra-EU operations.

But the U.S. carriers said that on an international flight, such as San Francisco-London Heathrow, the ETS would impose a levy and may also impose an excess emissions penalty for the entire flight despite the fact that only 9% of that flight’s total emissions would take place in EU airspace. “The levy, and any excess emissions penalty, will be imposed because of conduct—releasing greenhouse gas emissions—taking place outside EU jurisdiction, and that conduct will be measured by standards imposed by EU legislation, rather than by local law or international agreement,” ATA said.

The environmental groups who intervened in the case, which started with an ATA, American, United and Continental complaint filed in a U.K. court, brushed aside the carrier claims. “The American airlines have a long history of actively seeking to disrupt any and all measures to cut climate-changing emissions,” Bill Hemmings of Transport & Environment said in a statement released after the hearing. “This legal case is another cynical attempt to derail a modest and cost-effective climate initiative that would add little more than €6 [$8.65] to the price of a transatlantic flight.”

Effective Jan. 1, 2012, all airlines flying into and out of the EU will be brought into the EU’s cap-and-trade-based ETS, which seeks to reduce industrial greenhouse gas emissions. Launched in 2005, the EU ETS already covers power companies, oil refineries, steel works and other industries.

The next step in the legal battle over aviation’s inclusion in the ETS is expected by Oct. 6, when the advocate general of the European Court of Justice is expected to issue her opinion on the matter. Although that verdict is not binding, the European Court of Justice often follows the opinion. The final judgment is due about six months after the October opinion is issued.

In addition to the EU and ATA, several non-government organizations also presented arguments in the case.