When it comes to operating airliners with a biofuel blend, it is becoming difficult to find a name-brand airline that has not conducted a demonstration flight. The problem is, it may all be for naught.

Air France recently completed a trial, as have Lufthansa, KLM, Iberia and a raft of others. All tout the carbon dioxide savings these flights—or in some cases longer-running trials—are achieving.

But the air transport industry may be deluding itself if it believes biofuels are the panacea for carbon footprint reduction, at least for this decade and possibly beyond. High fuel costs as well as competing demand make it unlikely that biojet will deliver the promised carbon dioxide reductions within a desired timeframe.

Already, road transport's demand for biodiesel is growing so rapidly that it is not clear where the supply will come from to meet 2020 targets, says John Cooper, director of transport policy at BP. Availability of sufficient feedstock is “a major concern,” he notes.

What is more, many biofuels have a carbon footprint that is not much better than fossil fuels and, with regulators looking to impose an indirect land-use charge to account for the fact that food is not produced, the prospects for biojet are dimmed further. Cooper fears that vegetable oil-based biojet is likely “a blind alley.”

Fuels from waste products are more attractive, he says, but much of the work to commercialize those is not far enough advanced.

With biojet costs about double what airlines pay for kerosene, it makes more sense for carriers to simply purchase carbon credits in an emissions trading system (ETS)than spending money on biojet. At current prices, biojet use would equate to more than €300 ($410) per metric ton of carbon, far above the ETS market rate, which is currently below €12. Airlines are still betting on biofuel, though, in part to burnish their “green” credentials.

Efforts are under way in Europe to address the issue, principally the European Commission-backed biofuels flightpath that has as its goal production of 2 million tons of sustainable biofuel by 2020. However, there is some doubt that the cost curve can change significantly. In the case of many technologies it is difficult to see how costs will come down, Cooper says.

If airlines are serious about achieving carbon-neutral growth by 2020, it is all the more troubling, then, that their involvement in the European Union's emissions trading system is so precarious. The EU's decision to include all airlines that land in or depart from member states is not just garnering increasing vocal opposition from outsiders, but threatens to become a nasty international battle.

European airlines, despite their misgivings about elements of the ETS, would not want to see its total demise, because if this attempt at a cap-and-trade system fails it might be replaced with more draconian measures, such as additional taxes, warns British Airways' head of environmental affairs, Jonathan Counsell. “By taking too big a first step, it is taking us backward,” he says.

Even though a European legal authority has deemed the system legitimate—a formal verdict from the European Court of Justice and U.K. high court is still pending—opposition is mounting. Russia is considering legislation that would bar its airlines from complying, mirroring language proposed in the U.S. Congress.

Moreover, Indian officials are expected to bring a recently adopted resolution opposing the EU policy before the International Civil Aviation Organization's council, where 36 members convene; 21 are signatories to the Indian declaration against the ETS. The majority could force a vote and have ICAO formally adopt the declaration, although it is unclear what the next move would be if that happens.

There is a sense among ETS watchers that ICAO and the EU may try to impede a vote, fearful that it would expose deep divisions with the airline governing body.

ETS backers have stated that the international community is not negotiating in good faith. Tim Johnson, director of the Aviation Environment Federation, believes the ETS is a good deal for airlines. He argues that “It would be a lot easier for Europe to negotiate with countries outside its borders if they had a credible alternative in place.”

European carriers feel caught in the middle. “We are concerned about retaliatory actions,” warns British Airways CEO Keith Williams, adding, that is why “we are lobbying the EU and member states to find a solution.”

What will happen with the EU policy on airlines and ETS is far from certain. Italy has already presented a proposal to the EU council—where member states rule—proposing the measure be set aside until international issues are ironed out. The European Commission and parliament would have to agree, with opposition from the latter body seen as probable.

No specific compromise has been put forward, although limiting the extent of the carbon emissions airlines are required to account for in EU airspace-only is again being considered.

That could help placate some foreign airlines that are generally supportive of a cap-and-trade program. Under the current approach, passengers flying long-haul from Europe have a higher carbon bill when flying direct than connecting via a hub outside the ETS. That irks the likes of Cathay Pacific Airways, who believe the airline is put at a competitive disadvantage with its Middle East rivals, which route traffic via hubs in Dubai and Abu Dhabi, United Arab Emirates; and Doha, Qatar. Mark Watson, head of environmental affairs at Cathay Pacific, points out that a direct flight between Hong Kong and London is 16% shorter than flying via Dubai, but the carbon cost is 75% higher. Such distortions would be eliminated under a viable cap-and-trade plan.

The issues raging around the ETS will certainly not be settled this year, in part because the court process will not have been completed.

And 2012 will see the industry turning its attention, again, to the often-touted goal of a global approach. ICAO is developing a standard for commercial aircraft CO2 emissions, to be ready in 2013. As part of the process, using market-based measures to greater advantage is being examined.

Much work must be done by then though, because last year's ICAO general assembly meeting failed to resolve the global controversy.

A first step to reinvigorating discussions is due before year-end, when ICAO invokes a “de minimis clause.” This would exclude some carriers who hail from countries that contribute less than 1% of revenue passenger kilometers. The measure is an effort to protect aerospace in emerging nations.

But even that issue is not without controversy. Johnson warns that the exclusion level being proposed is too high, leaving carriers from only 22 countries in the system. What is more, airlines competing with excluded carriers also would likely seek exclusion on the grounds of a balanced competitive landscape.

Meanwhile, there are other methods airlines are working on to reduce CO2 output. The Air France demonstration flight this month between Toulouse and Paris, for instance, generated a large part of its savings through improved operations, including continuous descent approaches and optimized air traffic management. Those initiatives are gaining traction globally, as are efforts to shorten flight routes.

Given the debate roiling around biofuels and the ETS, other efforts will need to be sought, perfected and implemented ever more broadly and quickly.