If I consume all the clean energy your country can produce with my data center, explain how cap and trade blocks a country from using other sources - I don’t think anyone will like news stories of people freezing to death in the winter.

That's the CAP part. The annual co2 emissions of electricity production and industries is capped to X gigatons per year. If a datacenter buys all clean electric production of the country, electric companies will have to either have to make up the gap by building more new clean energy or tell other customers "sorry all sold out".

Of course, would the latter happen, political actions would be done before people freeze. It will be unpredictable what the would be - allow fossil fuels "temporarily" or order datacenters to shut down during dunkelflaute? Interesting times (I would prefer less interesting times).

Generally speaking cap and trade is the most sure way to reduce emissions (emissions drop exactly at the pace the CAP drop annually) and the most cost-effective way also - the TRADE part ensures emissions are cut first by those who it easiest, while hard-to-decarbonize sectors have most time to sort their plan.

The only problem is "carbon leakage" where co2 emissions simply move to asshole countries like USA and China that do not utilize cap-and-trade. That should be dealt with hefty carbon tariffs. Oh wait, even china is building their own cap-and-trade system. Well, anyways, tariffs against the climate assholes.

The EU has a large problem with carbon leakage from electricity generation to oil and gas use.

For example, gas heating is exempt from the EU carbon trade, so people are encouraged to use that rather than electric heating. In countries like Germany, gas heating is popular largely for tax reasons.

Gas heating is a pre-existing issue in Germany. While there is handful on anecdotes of someone switching back to gas, the big trend is opposite. Majority of heating refurbishments are gas/oil -> heat pumps, and almost every new build is heat pumps.

carbon leakage is mostly industrial and data centers (why do so many europeans run code at us-east-1 ?)

If you study the heat pump adoption in various European countries, you will quickly notice that it's connected to the price ratio between electricity and gas.

The EU has a carbon tax on electricity but not gas. This pushes people towards gas heating. Germany has much higher taxes on electricity, although it does at least have a carbon tax on gas.

If a carbon tax on electricity makes people use gas heating, that's carbon leakage.