The EU Emissions Trading System is facing its greatest test yet. European leaders and companies are sounding the alarm, warning that high carbon prices are undermining the bloc's industrial competitiveness and threatening to drive manufacturing offshore.

In this episode of Energy Evolution, host Eklavya Gupte examines what's driving the turbulence in Europe's carbon market and what it means for the bloc's energy transition.

First, Irina Breilean, carbon price reporter at S&P Global Energy Platts, explains how political pressure from member states has dragged EU Allowance prices down by almost Eur30/mtCO2e in recent months.

The conversation then turns to Julia Michalak, EU policy director at the International Emissions Trading Association, who breaks down the ETS reforms now under consideration: extended free allocations, the modified Market Stability Reserve, and why industrial competitiveness concerns are dominating the climate policy debate in Brussels.

Eklavya also speaks with Pedro Barata, associate vice president for carbon markets and private sector decarbonization at the Environmental Defense Fund, who offers a perspective on the political economy of carbon pricing and how the EU's Carbon Border Adjustment Mechanism is evolving from a climate tool into an instrument of industrial policy -- with major implications for global trade.