This comes as a big relief for Indian carriers. In fact, India and 22 other countries, including Russia, China and the US, had in February this year decided to retaliate with a series of measures, including imposition of heavy costs on European airlines and plane manufacturers.
Indian carriers that fly to Europe - Air India, Jet Airways and Kingfisher - may have ended up paying millions of dollars annually on this count as it required them to pay 15 per cent of the cost of compensating for the CO2 (carbon dioxide) emitted during landings or take-offs from Europe.
However, flights within the European Union will still have to pay for their carbon emissions.
The year-long exemption will apply to flights linking EU airports to countries outside the bloc, a move welcomed by US and Asian officials.
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 (emissions trading scheme). Automatically."
"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," said Senator John Thune, who led efforts in the US Senate to block the law.
"China always maintains that under the multilateral mechanism, such as the UNFCCC, ... international cooperation should be carried out to tackle climate change," Chinese Foreign Ministry spokesman Hong Lei told reporters in Beijing.
"We should oppose unilateral measures."
EU member states must still formally endorse the Commission's proposed freeze. Hedegaard said she had told representatives of all 27 member states of the plan but could not say how long the EU approval process might take.
German Environment Minister Peter Altmaier said the decision was justified. "It made clear that the EU is holding on to its view, but at the same time it is also in the position to stick to its international commitments and actions," he said.
"GUN ON THE TABLE"
Some airline associations welcomed Monday's announcement, but said the moratorium meant EU carriers operating flights within the bloc could be at a competitive disadvantage.
"The implied threat of an automatic snapback in a year's time means that the EU will still be seen by some as negotiating with a gun on the table," Herdman said in a statement.
Environment campaigners said the European Union was giving up too much, too soon. But they said opponents could no longer blame the European Union for any lack of progress at the U.N.'s International Civil Aviation Organization (ICAO), which is seeking 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," said Bill Hemmings, programme manager at campaign group T&E. "There is no excuse for inaction left."
Herdman also said the ICAO was the right forum for a global agreement. "The alternative would be disastrous -- a patchwork of overlapping national schemes and punitive taxes."
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.
Hedegaard said the ICAO had made good progress at a meeting in Montreal on Friday.
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 sent out in April 2013 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 carbon payments before April 2014 for international flights -- gives the ICAO until its general assembly in late 2013 to reach a global deal.
The cost of the EU's aviation law is minimal, at 1 to 2 euros per passenger per flight, given the weakness of the EU Emissions Trading Scheme, on which the carbon price has sunk under a glut of surplus permits following the region's economic slowdown.
The cost to aviation, though, is expected to rise. On Monday, the Commission also published draft legislation to temporarily withdraw some surplus allowances.
(With inputs from agencies)