Climate Economics with Arvid Viaene

#11 Dr. Jos Delbeke - The History of the EU ETS: Key Turning Points, Challenges and Policy Lessons

• Arvid Viaene

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On paper, climate policy sounds simple: you put a price on carbon. Either you tax it, or you cap it and let firms trade. In practice, doing that for one of the world’s biggest economies — as the first mover — is anything but simple.

This episode looks at 20 years of the EU Emissions Trading System (EU ETS): how it started, the challenges, the lessons, and where it’s going next. The ETS is the world’s first major carbon market, and it has helped drive CO₂ emissions in covered sectors down by more than 50% since 2005. 

My guest is Professor Jos Delbeke. Jos is the former Director-General for Climate Action at the European Commission and one of the key architects of the EU ETS. He now holds the EIB Chair on Climate Policy and International Carbon Markets and served as the Commission’s lead climate negotiator in the run-up to the Paris Agreement. 

We cover:
• Why the EU chose cap-and-trade over a carbon tax — and why that wasn’t just an economic choice, but a political one. Taxation in the EU requires unanimity, and that was never going to happen, while industry was more open to a trading system than to a tax. 
• Phase 1 as a “pilot”: building the monitoring, reporting, and verification (MRV) system so anyone could actually trust the emissions data. That early data work is what let the system mature. 
• The early overallocation problem and the first carbon price crash — and why that was a necessary wake-up call. 
• Windfall profits in the power sector, the political fight over free allocation, and why auctioning allowances to power producers became the rule. That shift also created revenue streams for things like the Innovation Fund and Modernisation Fund. 
• The 2008–09 crisis, the flood of international credits, and the massive oversupply that pushed prices down. We talk through how the Commission responded by tightening access to external credits and designing the Market Stability Reserve (MSR) to effectively “put surplus allowances in the fridge.” Prices moved from ~€5–6 to €25–30 in a matter of months once that reform landed. 
• How repeated reforms gradually “Europeanised” the ETS: from nationally driven allocation and fragmented rules to a more harmonised, EU-wide carbon market with common auctioning rules and a single registry. 
• The psychology of carbon pricing: once CEOs realised pollution had a cost, they started planning around a carbon price — sometimes even using internal shadow prices of €50–100/ton to guide long-lived investment decisions. 
• The next 20 years: ETS2, decarbonising heavy industry instead of just shutting it down, CBAM (the Carbon Border Adjustment Mechanism, due to enter into force in 2026), and whether the MSR is ready for a world of higher prices, tighter caps, and more volatile geopolitics. 

If you want to understand how real climate policy gets made — not on a whiteboard, but in actual law, markets, and boardrooms — this is the episode.


If you have any advice on how to improve the podcast or advice on future guests or episodes or ideas, please let me know. I’d love to hear from you.


For questions, comments or suggestions, you can contact me at arvid.viaene.ce@gmail.com

SPEAKER_00:

Welcome to another episode of the Climate Economics Podcast. And today's episode is focused on the creation and development of the European emissions trading system. This is the world's first carbon market and a major achievement of EU climate policy. And every European can be rightly proud of this. However, the road to a well-functioning ETS was not an easy one. There were many challenges along the way. However, the Commission and member states learned from those challenges and kept making improvements. And today I have the honor of talking to Professor Josdel Beke, an economist who was closely involved in its creation and development. Professor Josdel Beke holds the first EIB chair on climate policy and international carbon markets. He joined the European Commission in 1986, and he was previously Director General of the European Commission's DG for Climate Action from 2010 to 2018. He was involved in setting the EU's climate and energy targets for 2020 and 2030 and in developing EU legislations on the emissions trading system. Cars and fuels, air quality, emissions from big industrial installations, and chemicals. Furthermore, he developed Europe's international climate change strategy and was the European Commission's chief negotiator at the United Nations Framework Convention on Climate Change, playing a key role in the EU's implementation of the Kyoto Protocol and in negotiations on the Paris Agreement. And he also holds a PhD in economics from the KU Leuven. So, Jos, welcome to the podcast.

SPEAKER_01:

My pleasure to be with you today.

SPEAKER_00:

As I said in the introduction, I think we can all as EU citizens be proud of it. Just to start off, if people took nothing else away, what would you really want to tell about the EUTS and its history?

SPEAKER_01:

Well, it started as a splendid economic idea. Economists want to make a contribution to climate change and they make a plea for economic instruments, and there weren't many blueprints. But having a blueprint is one thing. Having it implemented in real life is another thing because the world is changing. You have to make changes and you have to adapt the system. And you can also not have a system entirely sketched out in the beginning in all its details. So it has a gradual development, and that's why we had different phases. Every five years, more or less, we were reviewing the legislation, and that was very beneficial. So the build-up of a new element in climate policy took time to mature. But I think today we can say the system is there and works fairly well. We have a good price and we are reducing the emissions with more than 50% today compared to when we started in 2005. So I think we are now going into the next phase and in to another discussion because we have the war in Ukraine, we are moving out of gas as much as possible. We are having big changes in the field of energy, and we have our industry that still needs to decarbonize. So the landscape within which the EU ETS is functioning is again changing and requires again a review and a rethinking.

SPEAKER_00:

So thanks for that. And one thing I think this episode will also show is like you say, there was a lot, there's a blueprint that gets created, but then a gradual implementation and revision. I think people sometimes have the expectation it will just go from scratch, which it's it's hard to do ex ante because, like you say, there's a lot of uncertainties. Could you then maybe give us a broad overview of the different phases of the EUTS?

SPEAKER_01:

Um, indeed, and I think getting started was the most difficult point. So if other people internationally are asking me, you know, Brazilians, the Turkish, you know, they are developing their own uh emissions trading system, uh, my advice is to get started and get started with those sectors on which the monitoring reporting verification, the MRV question, is the most easy to develop. And that was a very important choice that we did at the beginning to concentrate on the energy sector and manufacturing industry. Now we are going to go with ETS2 into households, etc. But you know, at the time we deliberately were making a choice for the big polluters because the administration that you require to get the emissions tracked, emissions trade uh traded, you know, is one element only, you have to have a good compliance system. And so uh that was and still is a quite demanding job to do. So there we started with energy and industry. And uh the other problem we uh normally have in the European Union is the competence issue. You know, how far member states let you go? And um, we started with economic instruments and economic incentives as uh the economists were contributing to the debate, and we started with a tax, because that's the most obvious way to go. But matters of taxation are decided with unanimity. Now, unanimity in the EU is a very, very challenging route, you know, to uh make materialize and to implement. And so after you know, less somewhat a decade of trying out a combined carbon and energy tax, we switched around the thinking. And instead of defining the price, we defined the quantity, the maximum quantity to be emitted. And that quantity, of course, the cap you know, goes down over time and allows flexibility to economic operators. And that flexibility was very important because uh businesses had to come on board, and businesses were not on board spontaneously, but they hated a tax. They were prepared to go for an economic instrument for economic incentives, everything but a tax. And so we could ride on that, you know, involvement of uh businesses that were engaging in the climate agenda, that were willing to do something. And something that was very dear to industry was cost effectiveness, you know, reducing the emissions at the lowest cost possible. And so the emissions trading system was the perfect thing to go. And we got a good dynamic with the Commissioner Wallström at the time, who immediately picked up the ETS. She was a Swedish commissioner, she was open to economic incentives, and she was convinced that we had to start during the period that she was commissioner. So it was uh decided that we had to start with the system in 2005, because many political projects are getting started, but then fall um off the table, you know, when a new commissioner or a new commission comes in. And she was a clever politician, and she uh said, yes, we go for it, and it must start before I leave this office. And uh so we had a very clear timetable to get started, and that helped as well to um have a dynamic, you know, with businesses, with NGOs, with member states, with all those involved. And uh that's how we started in 2005, which is before the Kyoto Protocol uh was entering into force, because the entry into force of the Kyoto Protocol was 2008. And that helped us, because there were so many uncertainties around, to describe phase one, 2005-2008, as a pilot phase. As a pilot phase in which there would be no banking of allowances from you know phase one that ended in 2008, into the next phase that would start in 2008 until 2012, the first period that we were committing emissions reductions under uh the Kyoto Protocol. Um, and that helped a lot um in having that pilot phase because you have to make an estimate of the CAP, and the member states did not want to leave that estimate entirely to the European Commission to do that. Um, so there was a little bit of a difficult exercise to get the CAP defined, uh, but the fact that there was no banking was a relief uh to many of us, and we concentrated on the MRV question.

SPEAKER_00:

We knew that you define the MRV question.

SPEAKER_01:

Well, the tracking of emissions, you needed to create an obligation to companies to trace their uh emissions, and and uh we needed to set up a verification system so that whatever companies were putting in their report on emissions was verified by a third party. And that verification process, of course, needed to be done, you know, from the start. Otherwise, if there is no trust in each other's data, you don't get the market uh running. And so we were concentrating on the essentials, you know, on which players were we having the most confidence, on which elements, you know, are we having the most confidence to make the reporting of the emissions and the verification that needed to take place? Now the member states wanted to do most of the job, and uh and they did. And um, you know, they were having a big say on the cap and on the allocation process. The allocation was mostly done for free, there was no auctioning platform, and so the member states you know had a hidden concern to protect their industries, and there was an inherent tendency to inflate the overall cap. And we were well aware of that. Where we were not aware of is that after year one, the overallocation was so clear that the prices tended to zero, and um that was a major wake-up call to all involved, to the businesses, to the member states, to the commission, that when we started all over in 2008, we had to have much better data. And how did we get the better data? By getting started, because the monitoring, the reporting, and the verification system was in place due to phase one and was the better pace, the better place, the perfect point of departure for the second period 2008-2012. And from that period on, we allowed banking because we had a much bigger site on who was emitting what precisely. We had a perfect database. I think that very many environmental regulations, you know, that were developed at the time as well, taken the field of waste or water or air quality, you know, were just envying us that the database with which we started the second phase in 2008 was that much better compared to many other pieces of legislation. So we used the pilot phase to set up the essentials of the system. And uh in phase two, then we got, of course, a much more political debate about the CAP and the allocation process. And uh, you know, perhaps we can go into that in the in the next uh phase of our discussion. Yeah.

SPEAKER_00:

Thank you. And I think one thing is that I definitely find worth emphasizing is 2005, it's 20 years ago now. Yeah, and you know, technology in IT also was not at the state it is now. I feel like there's been also a lot of development. So going back in time, it was just a much bigger challenge. I recently talked to someone about the new clean air markets in India, but technology has has grown since then. So it's it must have been a huge effort, I think, to get this. And it sounds you really use this phase one to get the measurement and verification problem right so that all the rest which is built upon it can follow.

SPEAKER_01:

So yeah, absolutely. That was the orientation of phase one and phase two started about real emission reductions. And the biggest amount of emission reductions realized starting in 2008 until today, has been in the power sector. And um, in the power sector, at that time, we had a lot of coal-fired power generation, and we substituted that gradually through gas-fired power generation. And I think the fuel switching from coal to gas was supported a lot uh through the carbon market and also through decisions that CEOs were making, because there was one psychological variable that does not need to be underestimated in this discussion is that as soon as there was an agreement on the ETS, CEOs knew that a price for their pollution would have to be paid. Nobody knew how high the price would be, but that the price would have to be paid was sinking in in the boardrooms of companies. And so the psychological element you have in the future, you will have to pay for your pollution, was having a very important impact. And that's also why in the first period the prices were not too bad. The prices were around 20-25 euros, uh, which was much better compared to what we got later on when we were facing the realities of the economic recession following the banking crisis of 2008 primarily. So I think that psychological variable was a very useful one. And companies, in particular in the energy sector, saw a way out, which was the switching away from coal to gas. Or when we decided about power stations, no longer to go for coal, but to invest straight away into gas. So the gas dependency of Europe, you know, was encouraged through the uh ETS system because uh, you know, gas is a much less fossil intensive, if you will, compared to coal.

SPEAKER_00:

Yeah. It sounds like you're describing CEOs were becoming aware they would have to have this price, like this awareness of the incentives, they can start making plans, they can start preparing for what we can do, how can we switch, as like this realization like this is happening.

SPEAKER_01:

That was indeed a very important one. And several companies um were using from that moment on an internal shadow price for investment decisions that they were making. You know, it was a wild guess where the price on the carbon market would go, on the ETS market would go, but they made their own guess, you know, their own benchmark. And several of them used 25 uh Euros or 50 euros. Later on, they use the benchmark and still use the benchmark of 100 euros, you know, to for their internal plans. So just as to have, you know, plans considered on a rational basis. And I think that is what the economists uh should realize that expectations are being formed. You know, everybody has its own expectation, but they these expectations were included into investment decisions that will last for 10, 15, 20, 25 years, the lifetime of a plant uh, you know, that is normally uh taking place.

SPEAKER_00:

Maybe that's then a transition to starting in 2008, when you know there was like the political discussion, as you said, what are our reduction targets and then the financial crisis also hitting. So could you maybe elaborate on those aspects?

SPEAKER_01:

Well, we had one guidance which was an important one at the time, and that is that we committed to an emission reduction under the Kyoto Protocol between 2008 and 2012. And that emission reduction defined the overall effort of the EU. And of course, the overall effort of the EU was partly the EU ETS covered sectors, industry and energy, and a lot of other sectors, you know, households, uh, heating, uh, transport, etc. So in the modeling, we were carving out which part of that cap needed to be secured by emission reductions and these covered sectors, and which ones or which part would be left for the member states to for addressing households, etc. Now that was much easier done in consultancy work and in analysis work, but that was not easily accepted by the member states. And the member states wanted to have a big handle in the allocation system, and in particular deciding on the rules for free allocation. And I think uh uh the first phase was a phase where auctioning did not yet exist. Uh, one or the other member state, I think we had one or two percent of auctioning because one or the other member state preferred to try out the system of auctioning. But at those, in those years, there became a huge criticism on the EU ETS, in particular on the power sector, because the power sector has no trading with um, you know, uh the trading uh outside with partners from outside Europe is marginal, it's one or two percent. Uh, and so it's the power sector is a truly European sector. And so the argument again behind free allocation was to cope with competitiveness disadvantages that our system may create for those exporting steel, chemicals, cement, etc., to world markets. So the free allocation argument worked much more for the industrial sectors, but not at all for the power sector. And what we observed is that the power sector was including into the price of electricity, the price of carbon allowances that they got for free. And so we got into a debate about the windfall profits. They pretended they had to pay for their carbon emissions, but they get uh the majority of the overwhelming majority of allowances for free. And so the debate on windfall profits was you know taking shape, and there was an agreement growing that in the next phase, auctioning for the power sector should become the rule. And I think that became the rule in phase three. You know, we could uh elaborate on that, and the system of free allowances was limited to the manufacturing sectors, and uh I think that was a major step forward, potentially because there were revenues raised that could be used in a wise manner. We created the innovation fund, we created the modernization fund, um, you know, and of course most of the revenues were going back to the member states. Um what we could not do at the time was condition the revenues, to condition the ways the revenues member states would spend, you know, on climate purposes. They were very jealous, you know, to uh do with the revenues of the ETS whatever they like to do. And it is only later in phase four that there was a requirement to use the revenues from the ETS for climate uh purposes, for climate policy purposes. You know, some used it for innovation, others for uh insulation of homes and all the rest of it. But uh, you know, the conditioning of the revenues came in later. We could not yet do that in phase two. The real thing was to get away from um uh from free allocation for the power sector, to get much more auctioning, and to have common rules for the free allocation for the manufacturing industry. And uh through that process, we gradually were Europeanizing the decision-making process on the EU ETS. In the beginning, it was very much dominated by the member states, but you know, auctioning is a process that is escaping to a large extent the attention of the member states, and uh, we were pleading in favor of a common auctioning platform that indeed later on, not in phase two, but later on we could realize the EEX in Leipzig is doing the auctioning of the allowances under the EU ETS. So that common auctioning platform was a long story before member states were letting that competence go, but you were reassured that they would get the money back without any other interference from the European Commission, except for the innovation fund and the modernization fund. So, and that worked well, and that reassured you know member states as well.

SPEAKER_00:

So then maybe switching from allocation, which I think we can get back to later on carbon leakage and and then CMA, maybe, um, to the the topic that you raised earlier of the what are the emission targets? But as I understand it, in phase two they were still set nationally, and then in phase three they were EU-wide. Yeah, how was that a gradual process too? Where it because because you said in phase one there was this over-allocation, but everybody was a little bit off guard how much it was. What was then evolution then in phase two towards phase three?

SPEAKER_01:

Well, that was the realization that we had to implement the Kyoto Protocol commitment of uh 2008-2012, where we would uh reduce our emissions with a preset percentage. And so that was a common European-wide effort that we were committed to. And so we had to translate that towards the ETS sectors compared to the sectors that were directly managed by the member states, these households uh and transport in particular and agriculture. Uh, so the business sector, which is the power and the manufacturing industry sectors, you know, were subject of more and more European-wide considerations because we were opening the market, we were liberalizing the electricity market, we were opening the uh internal market for goods and services. So that these were the years of uh Jacques Delors and the following years, where creating the single market was the centerpiece of the uh European construction. And so we brought that in through the EU ETS as well, that we had a European-wide coverage in which the system would gradually become totally harmonized, implemented by the member states, but totally harmonized. And that improved, in my view, a lot the cost-effectiveness of the system, because you are chasing the lowest costs related to emissions reduction. And that the wider the scale was, the more you know, you were coming closer to realizing the goal of uh cost effectiveness. And I think the theoretical literature was confirming that uh because before the ETS started, the British started their debate on a carbon market, but you know, UK is a is a limited market compared to a very liquid and white market such as the EU. Uh, also Denmark had attempts to uh create its own uh uh Danish emissions trading system, but you know, Denmark is a small country compared to the liquid European market, and so we were winning that argument of a single market for carbon allowances, and that was creeping in gradually. Now, every time we were trying to put that into legislation, that was not easily, you know, uh put forward. It was easily put forward but not easily agreed. But uh, you know, in the end, you know, we got there. Yeah.

SPEAKER_00:

Maybe then we can use that to also discuss the financial crisis of 2008, which as I understand it, led to a drop in production and a drop in emissions, which caused an oversupply. I'm telling the story now in my own way to it, caused an oversupply, which then puts some downward pressure on prices. How was this experienced? Because if you set a if you set a cap, it's not necessarily per se bad that emissions go down due to some exogenous shock. So that's my framing to to say I I read a lot of like prices were low, there was an oversupply. What was kind of the perception, and then what steps did you try to take towards that?

SPEAKER_01:

Yes, um, there was the perception was there that prices were very low, and uh there was a debate uh grumbling, you know, in the background. Does the EU ETS serve its purpose, you know, with such low prices? Uh now there were two, three things that I need to add to what you were saying. Indeed, the industrial recession created an oversupply of allowances compared to the cap we had set forward for the period. That's absolutely correct. But there was a second element, the Kyoto Protocol element, where we were agreeing under the Kyoto Protocol that a fair amount of carbon credits that were realized in uh foreign countries and developing countries could enter into the EU. Now we agreed to that, assuming that Russia, Australia, Canada, United States would play ball on that international carbon market or market for carbon credits. But in the end, they all bailed out. Uh, it started with the United States, and all these credits that were generated under the Kyoto Protocol came en masse to Europe. So we had an oversupply because of the economic recession, and on top of that, we had the import of carbon credits because even if the price was low, it was better to have a guaranteed price in the EU than nothing whatsoever in other places in the world. And uh, in the end, we imported 1.6 billion carbon credits over the period that uh, you know, we had uh that opening for the Kyoto Protocol. So we had to act on both elements. We had an oversupply, and we started in you know, asking the UN to tighten up the rules for carbon credits because there were scams and there were irregularities, you know, in the creation of these carbon credits, which they did not do. To my frustration, I was DG then. And so we initiated a process to close the carbon market, our ETS market, for carbon credits that came from uh foreign countries, from uh developing countries. So uh that is still leading uh to until today to a debate whether we should reopen the carbon market, our ETS market for such credits under the created under the Paris Agreement. Uh, but that's another debate. I think we should do that. But you know, at the time we had an oversupply, and um, one element in cutting down the oversupply was to no longer accept those credits coming from carbon credits. The second element to which, you know, it took a long time before we got it true, was to put the oversupply in the market into a fridge, a fridge which we call today the market stability reserve. It was a long story, you know. Uh uh, we uh we were trying to um bring uh or postpone a number of allowances, you know, that we would not bring to the auctioning platform and things like that. But only the market stability reserve really did the trick. And that is uh it's all about defining a rule, you know, and when too many allowances come on the market and they are not absorbed, then they go into a fridge and they can come back later. So the market stability reserve, a tool from the financial, you know, uh circuits, you know, worked um fairly well. You know, even the night that we had the agreement, prices started to move upwards from uh, you know, five, six euros we had at the time. And uh we were jumping to a price level of 25-30 euros in record time in a couple of months. You know, we left the low prices behind us. And then it came on top of that um the European Green Deal, and the European Green Deal changed the expectations about the future tight cap even more, and then we were growing uh with the price from a 30 euro level to 50, 60, 70, 80 with a even, you know, a record price of 100 euros in February of 2023. Um, but you know, the repair we had in the price level was partly done through closing down the market for international carbon credits. Of the market stability reserve, and then the expectations under the European Green Deal. Those three elements are very important three elements that can explain the price level we have today. We also have a little bit of a recession. Prices are around 75-80 euros, which is a decent price if we look back at where we are coming from. And decent price, the price works as a disincentive to pollute. And we see that the emissions are going down. So the incentive mechanism works, and that is a very important uh element that we have to consider. Uh, some would say the price needs to go higher, others uh complain about the price being too high. I think the price level we are having is doing the job, and that's the most important element.

SPEAKER_00:

And and with doing the job, you mean exactly incentivizing companies to most cost-effectively produce emissions among each other, among the EU pool.

SPEAKER_01:

Yeah, absolutely. There is, however, one dimension that we're now entering into is that after 20 years of the EU ETS, the cheapest emission reductions have been reaped, have been realized. And in the coming 20 years, the most expensive and most difficult emission reductions are be the ones that we have to realize. That means we will not only need a relatively high carbon price like we have today, but we also do not want to reach our climate targets simply by closing industry. So we want industry to invest in decarbonized equipment and investors' investments. And that is now the new challenge that is translated in the clean industrial deal, which is you know accelerating and motivating industries to go into decarbonized investment programs instead of importing more from foreign countries and close down economic activity. So that clean industrial deal uh thinking is fairly new. And it is not by accident, because most of emission reductions were realized in the power sector, and most of the work is done there with lots of renewables coming in, et cetera. But the big part of the job is how to decarbonize in the manufacturing sectors, and that is where the clean industrial deal investments, how to facilitate investments, how to have the clean technology you know used in our companies, mostly risky projects, which makes the question about guarantees that need to be developed, etc., for facilitating the investment decisions in the manufacturing industry.

SPEAKER_00:

Then maybe two follow-up questions there is as we've discussed, there's the blueprint that you have, then there's the reality, there's unexpected developments. There's a lot of learning by doing given that you've also talked to people from other regions, like the EU has experimented with policy and like you say repaired it along the way, learned. What lessons did you feel like other regions could have have learned from this that they now no longer have to do themselves, so to say, with experimentation?

SPEAKER_01:

The most important and the most difficult lesson of all this is that you need a good governance system. You need a good MRV, monitoring, reporting, verification, but you need also a good, you know, central authority to set the cap, to decide on a cap, and to impose the cap and to have sanctions in case there are cheating. Um, because you know, when emissions mean money, there is a risk of cheating, which we also had on cours de route in our ETS, there were some allowances stolen. We got the operators, they are in jail, they had to repair the damage, and that was giving a boost to the governance system, you know, and a boost to, for example, a central registry that the European Commission is holding. Because if you transfer allowances from person A to person B, you have to have a register where that change in ownership is uh is taken care of, you know, is it's accurately defined. And um, you know, that means the governance system that needs to be good, and that makes a complicated thing. And that explains, in my view, why uh only strong governments have been able to come forward with ETS systems. China has copied our system or made our system adapted to the Chinese circumstances, let's put it that way. Um, but others are now trying to do that uh as well. Turkey is fairly advanced, Brazil is fairly advanced, Indonesia. But of course, there are always hurdles, you know, on cours de route that needs to be cleared up. So establishing the system depends a lot on a good governance, a good central authority that can impose rules and that can make it work. So good governance, that's the first requirement. And then following from good governance is of course solid cap setting. You know, you have to have a good guess on how fast you would like to go. We live in a democracy. That rate of decrease of the cap is subject to democratic decision making. And there are always people who would like to go faster and always people who want to go slower. And that is uh the case in Europe and on the 2040 targets that we are currently discussing. But that's not different in other countries. You know, that the cap needs to be defined and needs to be clear uh to everybody. But good governance is what makes uh the whole thing essential to implement. Uh, but the major benefit of all that is that you you reduce emissions at the lowest cost possible and you create a business incentive for the take up of clean technologies. And I think that is the essence of what we can observe in the European system over uh say 20 years.

SPEAKER_00:

Awesome. And then maybe as the the final question, as you've mentioned, prices have become higher. We've we've done the lowest cost options in terms of you know reductions. Going forward, we've got the carbon border adjustment mechanism, we've got the EU ETS2. These are all to me very novel and innovative ideas that again the EU is pushing forward. Are there lessons from the process that are being incorporated? As in there was there was cooperation with the states, some things didn't go the way you know expected them to go, lessons were learned. Is there like things that go into that process now that you've observed?

SPEAKER_01:

Um, absolutely. You know, international competition carbon leakage is certainly a thing uh that is going to be very important as of the 1st of January 2026. We have the CBAM getting in real action. Uh, so it's going to be very important to assess what the impacts are, uh, how good it is functioning, where improvements have to be made, etc., etc. So international competition and carbon leakage is going to stay with us as an issue. Yeah. And that is related to the carbon price as well. You know, in the past we didn't need a CBAM, the prices were much lower. Now the prices are high, and the prices may go even higher because we are talking about uh emission reductions higher on the cost curve. And um, you know, there is a tendency to have more expensive prices. That creates the liquidity question and the uh question that some are discussing about volatility of carbon pricing or carbon prices. And um, you know, I think when one thing we have to consider is the functioning of the market stability reserve that functioned towards an over-liquid market, you know, and to address too low carbon prices, perhaps we have to have a complement to the market stability reserve, you know, uh considering phases or not enough liquidity and of price spikes. So uh the market stability reserve, in my view, um, you know, uh merits uh a solid um um assessment of how good it worked and how it can be revised in a following stage to address a system that is going for the remaining emission reductions that are going to be much more expensive and that is going to phase up also Europe into a number of questions to be sorted out in the trade dimension. You know, we have the trade dimension, China is dumping lots of clean technologies in in Europe and in the world. We have the Trump element at the United States. So we are in the middle of very important changes in the framework, in the geopolitical framework in which the ETS has been flourishing. Uh, but now we have big changes. Uh I mentioned uh you know the gas availability from Putin, uh, Russia, cheap gas, is out of the question for Europe as well. So the main swing switching away from coal to gas is now to be put in a completely different uh context. So the geopolitical dimension, trade in particular, trade in energy commodities, trade in energy intensive commodities, I think is uh going to become a uh a consideration that we have to uh you know address uh for sure in the next review of the ETS.

SPEAKER_00:

Thank you so much for for coming on. I really enjoyed this conversation and uh I found it very insightful.

SPEAKER_01:

Okay, well, uh welcome. And uh, you know, as you say, it's a fascinating subject because it's always the world around the ETS is changing all the time. So that's why I'm still following very closely what's happening and uh you know here and there inspiring you know those who are doing the work now with ideas and options uh you know of addressing one or the other elements.

SPEAKER_00:

And this will definitely do that. This is the end of the episode. I'd like to thank you for listening all the way to the end. And if you have any advice on how to improve the podcast or advice on future guests or episodes or ideas, please let me know. I'd love to hear from you. Thanks so much. Have a great day.