Emirates Airline expects to pay as much as US$1 billion (Dh3.67bn) in carbon taxes over the next decade because of an EU environmental scheme the carrier believes holds little merit.
"Our position is clear, we are very compliant, but we do so under protest," said Andrew Parker, the Emirates senior vice president for public, industry, international and environmental affairs.
"We have a strong disagreement with this unilateral emission trading scheme." To be introduced in January, the EU carbon emission trading scheme (ETS) aims to cap emissions of the aviation industry at 97 per cent of 2005 levels and at 95 per cent from 2013 onwards.
Although the scheme does make allowances for current operations, the huge growth plans of Middle Eastern carriers such as Emirates mean they will have to invest heavily in carbon credits to offset increased emissions.
Emirates puts the cost of the EU scheme at between $500 million and $1bn up to 2020.
Airlines face a penalty of €100 (Dh522) for every tonne of carbon they emit above their allowance.
"There is merit in a global scheme, but we have a problem when one group of countries decides that it will have a regional tax scheme that has a very significant impact on Emirates," said Mr Parker.
He added the "single biggest concern" with the EU programme was that billions of euros and pounds will be raised, but none of the money will go to programmes reducing carbon dioxide emissions.
"It will pay for roads and schools but has nothing to do with aviation," he said.
About a quarter of all Emirates flights go through Europe and will therefore be affected by the EU scheme.
Etihad also estimates it could pay up to €500m for carbon credits between next year and 2020 to be compliant with the ETS.
Countries around the world are suing the EU over the legality of the ETS and Emirates says it is waiting to see the outcome of these cases.
The airline has not yet entered the carbon trading markets, but its finance team is assessing the best time to do so given the current market volatility.
"We are doing a lot of work in analysing our requirements and meeting obligations under ETS and looking at other options," said Mr Parker.
The airline yesterday released its first annual report studying the environmental impact of its business.
Given the high cost of oil in the market and the fact jet fuel is the airline's biggest cost, it is now looking at ways to reduce flight times and the amount of fuel it uses.
According to the new independently audited report, the airline's fuel efficiency is 25 per cent below the industry average.
Despite this fact, Emirates has started to look at different, quicker flight routes around the world, including between the UAE, Australia and South America.