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.

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