THE emissions trading scheme (ETS) comes into force across the European Union (EU) next month.

It rewards, or penalises, airlines based on the amount of carbon emissions (CO²), or so-called "greenhouse gases" they are allowed.

It is proposed as an environmentally-friendly levy and the more fuel-efficient airlines, or those operating newer fleets, should pay less.

The levy has applied to various industries and sectors since 2005, but from next year it will now include the aviation industry.

At the end of each year, operators are required to account for their emissions from the past year and to surrender the matching number of allowances to the competent authority, which is proposed to be the country that granted the operating licence.

Depending on their actual emissions and their free allocation of allowances, operators have the flexibility to buy additional, or sell surplus, allowances.

Operators emitting more than their allocated amount of CO² will need to reduce emissions or - more likely - procure extra allowances.

The scheme will apply to all airlines, either passenger, cargo or private, flying to and from the EU.

It is estimated that ETS could cost the aviation industry about pounds 3bn a year.

Easyjet said it expects to pay out about pounds 14m under the scheme next year.

Airlines, while widely supportive of ETS, are, however, expected to pass the cost directly on to passengers through ticket price increases.

But this has been challenged in some quarters, with industry experts arguing that, while APD is a tax targeted at passengers, ETS is not an excise duty, but a levy that aims to reward or penalise airlines for exceeding or failing to meet carbon emission standards.

Therefore, some argue, it should not be "passable" to passengers because the penalties are meant for the airline, and not the passenger.