Fears of an aviation trade war eased on Thursday after the European Union offered to abandon attempts to apply its rules for curbing emissions outside its airspace in exchange for international co-operation to set up a global scheme.

A provisional deal at the governing council of the United Nations’ aviation body on Wednesday was seen as a diplomatic breakthrough after more than year of tensions between the EU and a broad front of critics led by China and the United States.

China has suspended billions of dollars’ of purchases of Airbus jetliners from Europe over the row and airlines have warned of chaos caused by other possible retaliatory measures, such as restrictions on foreign airspace.

But the airline industry sounded an upbeat note after the draft deal, while experts warned key details must still be hashed out at a full assembly of the Montreal-based International Civil Aviation Organization (ICAO) later this month.

“We are optimistic that the Assembly will make progress, provided they keep focused on achieving an agreement on a global scheme,” said Anthony Concil, communications director of the International Air Transport Association group of 200 airlines.

The new compromise would require countries to make a decision on finding a “market-based mechanism” for reducing airline emissions by 2016.

It would allow regional mechanisms, such as the EU’s emissions trading scheme, to continue forcing global airlines to pay for their emissions on flights to European airports but it can only charge for emissions over EU airspace.

That sets the stage for a change in the EU’s law in return for other countries signing up to a global deal to cut airline emissions from 2020.

The deal heads off the immediate threat of Europe finding itself isolated in a global carbon trade war, but experts said the outcome was still a diplomatic blow for the EU.

“You could call it a defeat for Europe,” said Christian Egenhofer, senior fellow at Brussels-based think tank the Centre for European Policy Studies.

“I would not draw too much meaning from this for climate change, but I think you can draw much more meaning from this in terms of the quality of European diplomacy. They should have had a feeling of the likely heat from this, but they obviously did not,” he told Reuters.

Give and Take

EU climate chief Connie Hedegaard described the move as “not perfect but progress” on her Twitter account.

“This is not about winning or losing. This is a multilateral negotiation where you have to give and take,” her spokesman Isaac Valero-Ladron added in an emailed statement.

Environmental groups are likely to oppose the agreement, which falls short of the EU’s original objectives.

The EU’s efforts to reach a compromise are a far cry from its defiant stance before the law took effect at the start of 2012.

During a meeting of EU Commissioners in July 2011 to discuss Washington’s growing opposition to the aviation law, some recommended offering “a face-saving negotiation exercise with the U.S.” while making it clear that the EU would not back down.

But faced with legal challenges from U.S. lawmakers and airlines as well as the suspension of Chinese orders for up to 45 Airbus jets, some European governments broke ranks and the bloc was forced to suspend its charges on international flights to and from Europe.

Under the draft compromise, international flights would be covered to the extent they use European airspace.

For a flight from London to New York, for example, the airline would have to declare its emissions inside European airspace. Once the aircraft left EU airspace to cross the Atlantic, its emissions would no longer be counted.

Under the EU’s original law, CO2 emitted throughout the journey would be covered by the trading scheme, sparking protests from countries such as China that the EU was interfering with the sovereignty of their airspace.

The deal follows weeks of intense negotiations which sped up after global airlines buried their own differences at an IATA industry conference in June, putting pressure on governments to reach a broader settlement.

India, whose state airline joined Chinese carriers in opposing the IATA scheme, has indicated it will oppose the deal.

Photo Credit: The Senate Commerce Committee holds a hearing on the European Union's Emissions Trading System (ETS) in June of 2012. John D. Rockefeller / Flickr