Climate Economics with Arvid Viaene
A research-focused podcast on the economics of climate change and air pollution. Episodes are released every two weeks on Tuesday at 6 am CET. Episodes will be either expert interviews or solo explorations of key issues. Hosted by Dr. Arvid Viaene, a climate economist with a PhD from the University of Chicago. He has done research on the impacts of climate change on agriculture and mortality. His research on climate-related mortality has been published in The Quarterly Journal of Economics, and he has advised the European Commission on the impacts of climate policy on firm competitiveness.
Climate Economics with Arvid Viaene
#25 Dr. Edwin Woerdman - How the EU ETS Works: Coverage, Cap-setting, Allocation, and the Logic of Cap-and-Trade
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The EU Emissions Trading System is back in the spotlight. Permit prices have moved, energy prices are politically sensitive, and in 2026 the ETS is up for review. But in the public debate, a lot of the confusion comes from the basics: what does the ETS cover, how does it work, and what are the key building blocks?
In this episode, I’m joined by Professor Edwin Woerdman (University of Groningen), a specialist in carbon market regulation and EU climate law and economics.
This is Part 1 of a series on the EU ETS. We cover the fundamentals:
- What emissions and sectors the EU ETS covers today
- The two “efficiencies” of emissions trading: effectiveness vs cost savings
- How allowances are allocated: auctioning vs free allocation, and why carbon leakage matters
- Why the ETS moved from grandfathering to benchmarking (and what benchmarks do)
- The cross-sectoral correction factor (“the cheese slicer”)
- How auction revenues are supposed to be used
- Why the EU ETS has been effective at cutting emissions—and how targets tightened over time
- The linear reduction factor, and why “2039” shows up in the debate (it’s an arithmetic implication, not a symbolic target)
Next week (Part 2): we dive into the Market Stability Reserve, price volatility, and why the ETS is being tweaked in 2026.
Note that Professor Woerdman recently published a paper explaining a lot of what we cover in more detail. You can find the paper here: Woerdman, E. and Kotzampasakis, M., 'EU Emissions Trading System' (April 01, 2026), EU Climate Mitigation Law, Cheltenham: Edward Elgar Publishing, forthcoming 2027. Available at SSRN: https://ssrn.com/abstract=6633238 or http://dx.doi.org/10.2139/ssrn.6633238
For questions, comments or suggestions, you can contact me at arvid.viaene.ce@gmail.com