* EU member states will have to endorse Commission plan
* EU flights will still have to comply with EU ETS scheme
* Non-EU flights get breathing space for 2013
* EU carbon market rises ahead of draft proposal to bolster market
By Barbara Lewis
BRUSSELS, Nov 12 (Reuters) - The European Union will freeze for a year its rule that all airlines must pay for their carbon emissions for flights into and out of EU airports, the EU executive said, following threats of international retaliation.
Flights by all airlines within the European Union will still have to pay for their carbon emissions under existing rules. The year-long exemption will apply to flights linking EU airports to countries outside of the bloc.
The United States, China and India have put intense pressure on the European Union. Debate in the U.S. Congress is set to resume this week on legislation to counter the EU rules.
Climate Commissioner Connie Hedegaard said she had agreed "to stop the clock" to create a positive atmosphere for international talks on an alternative global plan to tackle airline emissions.
"But let me be very clear: if this exercise does not deliver - and I hope it does - then needless to say we are back to where we are today with the EU ETS. Automatically."
EU member states still have to formally endorse the Commission's proposed freeze. Hedegaard said she had informed representatives of all 27 member states of the Commission's plan but could not specify how long the EU approval process might take.
Airline associations welcomed Monday's announcement, although they said that for the duration of the moratorium EU carriers operating flights within the European Union could be at a competitive disadvantage.
Environment campaigners said the European Union was giving up too much too soon.
But that meant negotiators could no longer blame the EU for any lack of progress at the U.N.'s International Civil Aviation Organization (ICAO), which is seeking to come up with an alternative global deal.
"The Commission, with today's decision, has moved further than necessary given the little progress made so far at ICAO level," Bill Hemmings, programme manager at campaign group T&E, said. "There is no excuse for inaction left."
DECADE OF DITHERING
The European Union agreed on its law after more than a decade of talks at the ICAO failed to find a way to curb aviation emissions. It always said it would modify its legislation if the ICAO could deliver an alternative.
At a meeting in Montreal on Friday, Hedegaard said the ICAO had made good progress.
Efforts have intensified since the start of this year, when the EU's requirement for all airlines to buy carbon emissions began to take effect.
The law is being phased in slowly, which means the first bills would only be despatched in April next year after the calculation of this year's emissions. Any airline that does not submit carbon allowances by then would face stiff fines.
The proposed year-long waiver - meaning no bills before April 2014 for international flights - gives the ICAO until its general assembly late next year to reach a global solution.
The Association of European Airlines (AEA) said the ICAO was the appropriate body and that now the onus was on it to get an agreement.
"In their opposition to EU ETS, countries such as the USA, Russia, China and India have repeatedly stated that the issue should be dealt with in ICAO. Now they have the chance to show that they mean it," Athar Husain Khan, acting secretary general of the AEA, said.
The cost of the EU's aviation law is minimal at around 1 or 2 euros per passenger, given the weakness of the EU Emissions Trading Scheme, which has slumped under a glut of surplus permits following the region's economic slowdown.
International opponents of including aviation in the EU scheme say it is a question of principle. They argue the European Union is imposing an extraterritorial tax, although the Commission says its market-based mechanism is not a tax.
The EU ETS is expected to get stronger, and the Commission is expected to publish at 1900 GMT draft legislation to temporarily withdraw some of the surplus allowances.
On Monday, the EU ETS rose nearly 9 percent to just above 9 euros.
Hedegaard on Monday told members of the European Parliament the surplus of allowances was heading towards 1.5 billion.
"The surplus of almost 1 billion allowances end of last year will have grown soon to 1.5 billion by the end of this year. I think that really underlines that swift action is needed," she said.