Agora Strategy Executive Briefing on EU climate industrial policies Executive Summary The geopolitical context with an incoming tariff-wielding US administration and a sluggish-but-combative China as well as domestic politics in member states require the EU to combine decarbonization with competitiveness and security. Within 100 days after assuming office on December 1, the European Commission is expected to present a “Clean Industrial Deal” to harmonize current climate and energy policies with competitiveness, industry and growth objectives. The fragmentation of the single market, high energy prices, the far-right backlash on climate policy, as well as potential tariffs from the US put at risk Europe’s economic model and its current decarbonization path. Implications for International Business Several EU measures and investments will incentivize clean tech industries such as offshore wind, semiconductors, electrolysers, electric vehicles (EVs), and heat pumps, and support other sectors to decarbonize like steel, cement and aluminum. The planned ‘Clean Trade and Investment Partnerships’ to secure supply chains relevant to the green transition, such as for critical raw materials, is likely to include investment opportunities, in particular with producer countries. Given the prospect of increased US tariffs, European firms should prepare for a more politicized, regionalized and protectionist international market environment. Rather than looking for special deals, they should advocate for an EU response that respects rules-based trade to benefit the overall European economy. State of Play From European Green Deal to Clean Industrial Deal Under the umbrella term of the European Green Deal, the EU passed a number of policy initiatives over the past five years to reach its climate target of “net zero” by 2050. These included the Fitfor55 legislative package, a reform of the Emissions Trading System (ETS), and new emission standards for cars. The EU has also ‘greened’ trade through instruments such as the Carbon Border Adjustment Mechanism (CBAM) and the EU deforestation regulation (EUDR). This approach is here to stay: European climate law is legally binding, and decision-makers at the highest level – including re-elected Commission President Ursula von der Leyen – have vowed to continue the EU’s decarbonization path.   What will change, however, is that EU climate policy will adapt to the geopolitical context and to alleviate current economic woes. Member states governments have little to no appetite for ambitious new initiatives, due to populist pressure, high energy prices driving up the cost of living and decreasing competitiveness, and security issues, especially Russia’s continued war in Ukraine in conjunction with the potential withdrawal of the US security umbrella in Europe. In addition, external climate tools, such as EUDR and CBAM, have been heavily criticized by developing countries for stymying trade with the EU.   Therefore, both the outstanding implementation of existing legislation and any new proposals will focus on making the green transition more compatible with Europe’s global competitiveness and need for “strategic autonomy”. Within the first 100 days, the Commission will present a Competitiveness Compass, to include proposals on boosting innovation to close the gap with the United States, the Clean Industrial Deal, and economic security initiatives, such as international Clean Trade and Investment Partnerships. This package will tackle vulnerabilities in supply chains and rebalance the Green Deal’s initial supply-side tilt. It also aims to deepen the single market and strengthen competitiveness, as suggested in the EU’s most recent reform reports. Key Issues Finance and market prospects of clean industrial policy The Clean Industrial Deal is expected to propose a range of policy initiatives, starting with a reform of carbon pricing and energy market design. It will also promote more electrification through a scheme called Carbon Contracts for Difference, a stronger integration of energy markets, and measures to support the clean tech sector. A single market for CO2 should help to decarbonize basic industry sectors like steel and cement. The Commission is further likely to introduce local production requirements in public procurement contracts to incentivize companies to manufacture in Europe. On the funding side, the Clean Industrial Deal is likely to include a new European Competitiveness Fund to complement existing tools such as the European Investment Fund or Important Projects of Common European Interest.   Two main obstacles stand in the way of such a policy: First, member states tend to protect national industries, such as Berlin wanting to produce green steel in Germany, even though this would be more cost efficient in Southern Spain or Sweden. A temporary abrogation of state aid rules during the Covid-19 pandemic mostly benefitted the bigger member states and has led to a detrimental fragmentation of the single market, which the incoming Commission will seek to rectify. It will also overhaul EU competition policy, which primarily focuses on the single market and does not sufficiently consider unfair competition from outside. Instead, it will have to balance support for strategic sectors – e.g. infrastructure, semiconductors, defence, energy and clean tech sectors – while ensuring fair and healthy competition within the single market. Second, funding will be controversial. The Commission is likely to try to leverage new debt after the successful NextGenerationEU package of 750 bn EUR in 2020, which runs out in 2026. So, national governments have to decide about giving the EU enough fiscal leverage to strategically invest in the European economy. Three elements are to be considered: The upcoming negotiations for the next EU budget (2028-34); increasing the EU’s own resources (despite political standstill over the past two years); and the establishment of the capital markets union in order to raise private capital for the transition. Despite these hurdles, the Competitiveness Compass could prove essential to keep key innovations, technology, industries and jobs in Europe as the continent expects to be ‘squeezed’ by the increasing rivalry between the US and China. Geopolitical issues and implications As China heavily subsidises green-tech industries such as wind, solar panels and EVs, the US started to massively invest in its green transition under the Inflation Reduction Act (IRA). These industrial policies have distorted the global level playing field and created unfair advantages for American and Chinese businesses, to which the Clean Industrial Deal aims to provide a commensurate response. Beyond such strategy, however, both China and the US will be less friendly trading partners. Chinese overcapacity is already flooding markets, while the next US President is expected to impose a randomly chosen tariff on EU-made goods, possibly even on specific member states (in disregard of, but with effects for, the single market). Domestically, he promised to extend the tax credits of his first term and to subsidise fossil fuel companies. While foreign-owned companies, including European ones, had access to the IRA until now, the subsidy splurge per se is protectionist in nature and therefore disadvantageous to the European economy. Firms should also be wary of potential pressures from the US administration on data protection and privacy rules in the EU.   In terms of free trade agreements (FTAs), the EU will try to conclude still open negotiations, most importantly with Mercosur, but also with India, Indonesia, or the Philippines. After successfully adding climate concerns to the draft FTAs, it is now domestic populist instrumentalization that risks blocking EU trade deals in the future – as French and Polish opposition to the EU-Mercosur agreement shows. The new Clean Trade and Investment Partnerships will regroup certain existing instruments, for instance on critical raw materials. However, they are not legally binding and have to chime with the EU’s diplomatic and development tools, especially Global Gateway, to secure long-term access to relevant raw materials and technology and to strengthen supply chains.   Lastly, businesses should prepare for the application of the CBAM and the newly reformed ETS, which will include buildings and road and transport in the coming years. Moreover, a simplification of the rules and cutting of red tape is in the offing, without implying deregulation and less standards. In addition, firms are advised to also follow the national implementation, as governments often add administrative burdens to the initial EU legislation, a practice known as ‘gold-plating’. This was the case for funds within the Common Agricultural Policy and the Corporate Sustainability Reporting Directive and is likely to happen again with the Corporate Sustainability Due Diligence Directive.

In the Agora Strategy geopolitics podcast “The Future of Power”, Dr. Timo Blenk (CEO) invites decision-makers from diplomacy, business, politics and the military to discuss current geopolitical developments on a monthly basis. The core of this project is to provide information about the influences of these developments and to create a sound basis for decision-making. This month's guest was Dr. Elli Pohlkamp, Head of the Agora Strategy Institute and Director at the Agora Strategy Group! In the 25th episode of our podcast, Dr. Blenk and Dr. Pohlkamp discuss the question “Is Autocracy winning?”. They shed light on the geopolitical risks that companies should keep an eye on in 2025 and why CEOs need to develop a “geopolitical mindset”.   The most important topics of the month Big picture and global shifts Big Tech, Elon Musk, Donald Trump Energy & climate change China vs. the USA Geopolitical flashpoints Populism and other topics  House announcements All further episodes of the podcast Agora Strategy in the web Agora Strategy on LinkedIn Current projects & events of the Agora Strategy team Agora Strategy Risk Report 2025 Agora Institute Executive Membership Dean's Comment: Dr. Peter Ammon zu Trumps Comeback For English subtitles please find our podcast on youtube: https://www.youtube.com/watch?v=bPMTA2Vmoi8

In this episode, Roberta Randerath from Agora Strategy talks to space security policy expert Andrea Rotter from the Hanns Seidel Foundation about the strategic importance of space in the context of geopolitical rivalry.

What do geopolitics and financial strategies have in common? More than you might think, says our new Senior Partner Prof. Dr. Kai Andrejewski in an interview with Dr. Timo Blenk. What motivated you to change industries (from SIXT SE to Agora Strategy)? In my role as CFO of SIXT SE, one of my main responsibilities was to develop the company's equity and debt story - in other words, the capital market story. In the process, points of intersection repeatedly arose that made it clear to me that a well-founded geopolitical analysis is the basic prerequisite for this. Therefore, the move to Agora Strategy was a further development in terms of content. Furthermore, I am personally convinced that it is always exciting to develop new perspectives professionally. SIXT is also a very innovative company, so in this regard, not much has changed. In your experience, what geopolitical factors influence the financial strategies of international companies? A company's capital market strategy must take geopolitical conditions into account. This starts with differences in regulation in the USA and Europe. More importantly, however, every financial policy decision has geopolitical implications. For example, can an IPO in the USA go hand in hand with a Chinese-dominated supply chain? What role does geopolitics play in investment decisions today? For one, there are extensive regulatory interdependencies here. For European companies, the focus is even broader. Profit maximization must be reconciled with the restrictive European rules. In addition, geopolitical risks and opportunities must also be taken into account. For example, a differentiated tax and customs regime in the USA can also offer arbitrage opportunities. How do you develop resilient financial strategies in uncertain times? The “little basics” in terms of liquidity and performance remain fundamentally unaffected. However, globally active European companies must bear in mind that the capital market is not unconditionally global. They should therefore focus on internationalization on both the debt and equity side. This starts with a differentiated banking landscape and extends to location and tax optimization. Which geopolitical trend currently has the greatest influence on global markets? The effect of a changing global rule-based order to a multipolar environment is not stopping at the global markets, but especially not at the financial markets. The feedback loops that have not yet received much attention will be particularly interesting here. To what extent can American investors continue to invest in European companies that put sustainability targets before profitability targets? And how can European companies stay competitive against american companies, especially if the U.S. moves faster toward deregulation?

In the Agora Strategy Group geopolitics podcast “The Future of Power”, Dr. Timo Blenk (CEO) invites decision-makers from diplomacy, business, politics and the military to discuss current geopolitical developments on a monthly basis. The core of this project is to provide information about the influences of these developments and to create a sound basis for decision-making. In this 23rd episode, Dr. Timo Blenk and Prof. Dr. Kai Andrejewski, both Senior Partners at Agora Strategy Group, address your questions, analyze current developments and discuss practical measures that companies should take now. The episode was moderated by Christina Schäfer, Consultant at the Agora Strategy Group.   The most important topics of the month (see description) From A for automotive industry to Z for cohesion in Europe: all-round geopolitics & companies The transatlantic relationship in transition: Trump 2.0 - challenges & opportunities European priorities: Defense & common priorities Keeping an eye on: India, satellite technology, water, demographics & financial crises   House announcements All further episodes of the podcast Agora Strategy in the web Agora Strategy on LinkedIn Current projects & events of the Agora Strategy team Agora Institute Executive Membership Dean's Comment: Dr. Peter Ammon zu Trumps Comeback New publication by Dr. Elli Pohlkamp - Südkorea & Japan For English subtitles please find our podcast on youtube: https://www.youtube.com/watch?v=neqLZROCf0E

In the Agora Strategy geopolitics podcast “The Future of Power”, Dr. Timo Blenk (CEO) invites decision-makers from diplomacy, business, politics and the military to discuss current geopolitical developments on a monthly basis. The core of this project is to provide information about the influences of these developments and to create a sound basis for decision-making. This month's guest was Mr. Stefan Kornelius, head of the political section of the Süddeutsche Zeitung! In the 24th episode of our podcast, Dr. Blenk and Mr. Kornelius talk about the background to the current headlines!   The most important topics of the month USA - Great power without direction? Self-denial, transactional politics and the exhaustion of liberalism. The future of the EU: Between criticism of bureaucracy, the challenge in the East and beyond, and a crumbling promise. Media in upheaval: News fatigue, atomization and the role of AI - how journalism is changing. Germany 2025: Between personnel and coalition issues.  House announcements All further episodes of the podcast Agora Strategy in the web Agora Strategy on LinkedIn Current projects & events of the Agora Strategy team Agora Institute Executive Membership Dean's Comment: Dr. Peter Ammon zu Trumps Comeback New publication by Dr. Elli Pohlkamp - Südkorea & Japan For English subtitles please find our podcast on youtube: https://www.youtube.com/watch?v=HNYbun-ORPY

Dr. Elli-Katharina Pohlkamp is Director at the Agora Strategy Group and Director of the Agora Strategy Institute. She is also a Visiting Fellow of the Asia Program at the European Council on Foreign Relations.   Previously, she worked as a Japan analyst in Munich, as a policy fellow at the Progressive Center Berlin, as a research assistant and Forum Ebenhausen fellow at the Stiftung Wissenschaft und Politik (SWP Berlin) and as a project officer in the Europe and International Affairs Department of the Hessian State Chancellery in Wiesbaden. She holds a doctorate from the University of Tübingen and was a doctoral candidate at the German Institute for Japanese Studies in Tokyo. Her areas of expertise are Japan's foreign, economic and security policy, EU-Japan, Japan-Korea and China-Japan relations, as well as geostrategies in the Indo-Pacific. Expertise Politics and economy of East Asia, Japanese foreign relations, security and defense policy, strategies in the Indo-Pacific region, relations between the EU, Germany and Japan, China-Japan relations. Auswahl an Publikationen und Podcasts What Europe can learn from Japan’s approach to the global south The new central front: Japan’s special role in the West’s strategic rivalry with China Agora Strategy Podcast The Future of Power - Die Rolle Japans als geopolitischer Akteur The weight of history: Why the recent thaw in South Korea-Japan relations may not last Setting the course: Japan's new security strategy

Dr Cornelius Adebahr is Senior Fellow and Editor of the Agora Strategy Institute. In addition, he works as a political analyst and consultant based in Berlin and Rome. His expertise is on foreign and security policy, in particular regarding Iran and the Persian Gulf, as well as on European and transatlantic affairs. His clients encompass political institutions, businesses and civil society organisations as well as international think tanks.   Adebahr is an adjunct faculty at the Hertie School in Berlin. Previously, he taught at Georgetown University in Washington, DC, Willy Brandt School of Public Policy in Erfurt, and Tehran University in Iran. He frequently publishes in, and is cited by, international media such as New York Times, Washington Post, POLITICO, BBC, CNN, Euronews, and Al Jazeera. Expertise Geopolitical challenges, Strategic Foresight, European Union and USA, Iran and the Middle East Auswahl an Publikationen und Podcasts Agora Strategy Podcast The Future of Power - Schattenspiele im Nahen Osten – Der Iran und seine geopolitische Agenda If this is Israel’s 9/11, it must not make same mistakes the US did Why AI will Change the Core of Foreign Policymaking Wofür lohnt es sich zu kämpfen? Why water scarcity in Iran is a source of domestic and regional instability. Trump’s ‘virtual reality’ foreign policy Towards a New Balkans Diplomacy The Rewriting of Global Rules, as Seen from India

Executive Summary In the context of growing turbulence around the world, Latin America stands out as a region of low geopolitical risk, where most governments, including Brazil and Mexico, pursue a “multi-aligned strategy” that does not take sides. This helps to attract investors keen to diversify their portfolios and increase their resilience. Brazil positions itself as a key player in the global energy transition, both as a source of critical minerals and a destination of “greenshoring” investments. However, it is also massively ramping up oil production as is set to become the world’s sixth largest producer by 2030. Mexico gained from its long-standing open trade policy and solid manufacturing base, with the potential to hugely benefit from US nearshoring. It also made progress on reducing inequality, but faces major uncertainties from the US election, the risk of democratic backsliding, and continued domestic insecurity. Implications for International Business European firms have the opportunity to capitalize on both Brazil’s and Mexico’s push to diversify both their economies to retain strategic flexibility amidst the risk of a renewed trade war between the United States and China. Brazil and Mexico are promising business hubs, especially in trade, manufacturing, and renewable energy, though a fragile security situation is unlikely to be resolved. The ratification of the EU-Mercosur trade deal, increasingly likely by the end of 2024, would create the world’s largest free trade area of 780 million people and facilitate European investments in Brazil. State of Play Great power competition and global supply chains shape business opportunities in Latin America Latin American countries have more relevant economic ties outside the region than within, each engaging with China and the United States on their own terms. As Washington becomes less open and lacks a clear strategy vis-à-vis its southern neighbors, Beijing is advancing, creating new economic dependencies but without crowding out others. European trade and investment is largely seen as less politically fraught, while more unequal trade with China tends to elicit greater fears about deindustrialization.   Nearshoring and shifts in global supply chains are set to produce expansion and a competitive environment in Latin America across sectors such as manufacturing, electronics, automotive, renewable energy, and resource extraction, especially of critical raw materials. The US Inflation Reduction Act is a source of competition for investments in green energy and electric vehicles, particularly in Mexico and in mineral-rich countries. There is nonetheless an open path for European companies for greater engagement in the region, given stable and trusted EU-Latin America relationships, the region’s needs of diversification, and the new opportunity provided by the hoped-for conclusion of the EU-Mercosur free trade agreement this year. Key Issues Brazil: Multipolarity does not mean diversification Brazil maintains balanced foreign and trade relations while it seeks to benefit from a more diverse world economy, aiming to become an influential voice in the Global South. While its BRICS membership serves to advance a multipolar order which includes initiatives to seek alternatives to the dollar when trading with countries like China, it also cooperates with OECD countries on numerous fronts and has recently decided not to join China’s Belt and Road Initiative. Within the BRICS grouping, Brazil is, alongside India, the moderating force that opposes the more explicitly anti-Western faction led by Russia, China and Iran.    The Brazilian economy benefits from shifting global supply chains, particularly in the manufacturing and logistics sectors. The government under President Lula actively seeks foreign investment in infrastructure, among others through the New Growth Acceleration Program. It has also pushed through a historic tax reform, though concerns about fiscal sustainability remain. As Brazil strives to lead on environmental sustainability, Europe is an important partner for technology investments and export diversification.   Amid global concerns about food security, Brazil’s agricultural sector is expected to grow, providing opportunities for sustainable agriculture and agri-tech innovations. Already well-positioned in the Chinese market, there will be more diversification efforts to reduce overreliance on China’s demand for agricultural commodities. Total investments from the United States and EU countries, respectively, are larger than Chinese investments in Brazil, but increasing trade dependence on China explain a willingness to diversify and reduce strategic vulnerabilities. ESG initiatives can find opportunities in Brazil given its renewable energy sector and its global relevance in environmental sustainability. In tech, the country provides an increasing start-up network to be harnessed by foreign firms. Organized crime remains a continuous challenge and threatens to permeate political institutions, though murder rates have recently fallen. Mexico: Externally driven growth, democratic backsliding and uncertainty over US policy Amid high domestic insecurity, President Claudia Sheinbaum won a landslide victory promising to continue the previous government’s populist leftist policies. However, many of these – including unfunded social spending, weak human rights protection and the introduction of popular elections for justices – have been roundly criticized by the opposition and investors. Hailed by Scheinbaum as the possibility to build “the true rule of law”, the reforms may pose a risk to the independence of the judiciary and produce legal uncertainty for investors. A politicized judiciary that is vulnerable to criminal groups will make businesses more reliant on personal relations with the government and imply lower prospects of a fair trial, if required. The result of the first cycle of election for the Judiciary in mid-2025 may affect domestic and foreign investments, as will any other measures reflecting or deepening the executive’s uncontested power.   Still, the new government can be expected to be pragmatic, with a strong focus on bolstering Mexico’s role within the North American business sphere. This approach will be put to the test if Donald Trump returns to the White House. The softest baseline scenario includes strict national security measures permeating US economic policy, but more likely is a harsh protectionist approach including steep tariffs. At the same time, the USMCA trade agreement acts as an important constraint on Mexico building out its trade and relationships with China. This could be an incentive for the next US president to renew, possibly with some changes, the trilateral trade deal when it is up for review in 2026. While outgoing president Lopez Obrador doubled down on fossil fuels, Sheinbaum, a climate scientist, can be expected to boost investment in renewable energies and emphasize decarbonization.   As Mexico’s second-largest trading partner with an annual bilateral volume of around US$100 billion, China has an important presence as a supplier in electronics, automotive, and consumer goods. Nevertheless, Mexico offers a diversification destination for European companies, while the latter can help the country reduce its reliance on Chinese imports or investments. Shifting supply chains away from China has the potential to drive Mexico’s growth as a nearshoring hub for trade, manufacturing, and technology, with e-commerce and innovations in cross-border logistics on the rise. Prominent sectors for European firms are the automotive, electronics and aerospace, which benefit from these trends as well as cost-effective operations to serve not just the Mexican but also the US market.

Fabian Vetter is Partner and Chief Operating Officer at the Agora Strategy Group and in this role is responsible for the operational management of the company. In addition, he continues to supervise larger projects with a focus on international industrial companies and government mandates. Previously, he worked in the political department of the BMW Group in Munich, among others. Fabian Vetter holds degrees in politics, political economy and history from the universities of Heidelberg, Vienna and Oslo. In addition to a general focus on industrial companies, he specialises in strategy and transformation processes in the context of profound geopolitical change as well as foreign and security policy developments in Eastern Europe and the MENA region. Expertise Operations, Corporate Strategy, Industry Transformation, Geopolitics in Central/Eastern Europe, MENA-Region

Prof. Dr. Kai C. Andrejewski has been a Senior Partner of the Agora Strategy Group since November 1st, 2024. The long-standing Managing Partner and Regional Board Member at KPMG brings profound academic expertise as a university professor, as well as practical, operational expertise to his mandates as a supervisory board member, auditor and consultant of well-known Dax and M-Dax companies, as well as CFO of SIXT SE, a globally and dynamically active company.  With his extensive knowledge as a sustainability and financial strategist, the capital market expert advises CEOs and CFOs, supervisory boards and committees on geopolitical developments and questions of strategic action in increasingly complex global markets. He sees his task above all in making his clients resilient with tailor-made strategies and making use of their strategic opportunities. The so-called "G.E.T Model", which he developed as part of his work for the Think Tank Audit Committee Institute, the impact paragdima of geopolitics, ESG norms and technology development, is a blueprint for consulting and solution approaches.         Expertise Corporate Strategy, Internationalisation and Supply Chain Risk, Global Network Development.