Plans to extend the controversial EU Emissions Trading Scheme have suddenly been put on hold amid mounting criticism and fears of an international aviation trade war.

Under the European Commission’s proposals all airlines using EU airports would have had to participate in the ETS, requiring carriers to buy permits if they exceeded their allowance for greenhouse gas emissions.

Announcing plans to put ETS on hold, EU climate commissioner Connie Hedegaard said: “To create a positive atmosphere, we have agreed to stop the clock.”

She gave the International Civil Aviation Organisation (ICAO) 12 months to come up with its own scheme, warning the EU would resurrect the plans if the UN body failed to do so.

A British Airways spokesman, welcoming the decision, said: “We have repeatedly called for a global deal on aviation emissions, and we welcome the progress currently being made at an ICAO level to achieve that.”

But British Air Transport Association chief executive Simon Buck told the Daily Telegraph: “Any part suspension of the EU ETS must not result in different rules applying to different airlines dependent on the routes they operate.

“There is a potential for competitive distortion between airlines with this action which could be damaging.”

John Thune, a Republican member of the US senate and sponsor of a bill banning US carriers from co-operating with the emissions trading scheme, told the newspaper:

“While I am pleased the EU has temporarily suspended its efforts to unilaterally impose a tax on our airlines flying over US and international airspace, the EU’s announcement does not rule out future efforts to tax foreign carriers.”

Iata welcomed the suspending of the inclusion of international aviation in the EU ETS.

Director general and chief executive Tony Tyler said: “Commissioner Connie Hedegaard’s announcement that she has ‘stopped the clock’ on the imposition of the EU ETS on flights to and from non-EU countries represents a significant step in the right direction and creates an opportunity for the international community.

“The Commission’s pragmatic decision clearly recognises the progress that has been made towards a global solution for managing aviation’s carbon emissions by the ICAO.”

The details of how the pause in the application of the EU ETS will be administered at a technical level remain to be clarified, and the proposal still needs to go through the co-decision process with the EU States and Parliament.

Nonetheless, Commissioner Hedegaard has made it clear that the EU wishes to “create the space” for the ICAO process to succeed.

“The flexibility shown by the European Commission demonstrates that the ICAO process is working, and we look forward to seeing all parties working together to present positive proposals to the ICAO Assembly in September 2013,” said Tyler.

The move by the Commission came against a backdrop of threats of retaliation by the US, Russia, India and China if the scheme went ahead.

Airlines said it would cost them £11 billion over the next eight years to implement.