Brief description of the Mechanism for Adjusting the Carbon Border 4.6.24

1. Brief description of the Mechanism for Adjusting the Carbon Border (CBAM) In Agile Advisors as a Carbon Border Adjustment Mechanism, As proposed by the European Commission, a Carbon Border Adjustment Mechanism (CBAM) would help reach climate neutrality by 2050. It would respond to the dangers of "carbon leakage" brought on by the EU's higher climate commitment in concert with the other policy instruments in the "Fit for 55" package. The hypothetical scenario known as "carbon leakage" refers to European producers competing in global markets, shifting their output and emissions to nations with laxer or no climate regulations to reduce the cost of compliance. With time, carbon leakage mitigation strategies such as the EU Emissions Trading System's free emission allowance distribution will give way to CBAM. For a limited number of items, it guarantees a carbon price equal to domestic and imported production. It would also incentivize trading partners to lower their emissions in this way. As Agile Advisors' Carbon Border Adjustment Mechanism, to import products made outside of the EU into the EU, businesses must buy certificates that reflect the number of emissions those products produce. The price of CBAM certificates will be determined by the European Commission using the average weekly price of ETS auctions as a guide. This implies that the ETS will be the basis for CBAM certificates. This will maintain the system's manageability for the administrative authorities while guaranteeing that the cost of CBAM certificates is as close as feasible to the cost of ETS allowances. Businesses that import products into the EU must get CBAM certificates and turn over the necessary cash each year to pay the associated emissions. An importer is not prohibited from acquiring an unlimited quantity of CBAM certificates to prevent trade restrictions’ certificates, in contrast to ETS allowances, are neither bankable nor tradeable, guaranteeing that they consistently reflect the evolution of the ETS price. Our role as an Agile Advisors Carbon Border Adjustment Mechanism, any divergence could result in price differences that are so great as to reduce the incentives for decarbonizing local and imported

2. commodities. On CBAM certificates, the only "transaction" permitted is repurchasing. Up to one-third of the total certifications acquired the previous year may be resold by an importer to the appropriate body. This should maintain flexibility and allow importers to maximize their profit margins without lowering prices or creating a speculative environment. CBAM will first include the direct emissions (scope 1) of the following industries: electricity, cement, aluminum, iron and steel, and fertilizers. The greenhouse gas emissions that the CBAM regulates are the same as those that are included in Annex I of the EU ETS, which provides for carbon dioxide (CO2) and, if applicable, nitrous oxide (N2O) and perfluorocarbons (PFCs). To help you as Carbon Border Adjustment Mechanism, Scope 2 emissions, or indirect emissions, will not be included in the first phase but may be added after the transition period and following additional evaluation by the European Commission (details below). The industries chosen are an excellent place to start, but to have the most significant influence on the climate, certain additions would be helpful. The CBAM should strive to achieve the most critical emissions reductions as a tool for climate policy. Fertilizers have been added, which is excellent, but other bulk chemicals—like plastics—are not and ought to be covered by a CBAM. One of the leading and most polluting aspects of the plastics industry is bulk chemical manufacturing. Over the past ten years, emissions from this industry have stayed stubbornly high. We believe as a Carbon Border Adjustment Mechanism, A CBAM would provide financial incentives to move to greener manufacturing methods and discover other, more ecologically friendly solutions instead of free allocation. Another significant omission in the current proposal is the exclusion of indirect emissions. The emissions produced during the manufacturing process of the electricity utilized in creating commodities, like in the aluminum industry, are referred to as indirect emissions. Their inclusion in the CBAM would encourage importers to develop renewable energy sources to power them and cleaner production techniques, which would have a more significant overall positive impact on the environment. Indirect emissions would also more accurately represent European industry's carbon cost, given that the electricity sector is subject to the EU ETS and must buy all of its emission allowances through auctions.