A new industrial order: EU Commission’s Industrial Accelerator Act proposal explained

1. Background and rationale

Beyond technical adjustments, the proposed IAA reflects a fundamental repositioning of the EU’s industrial policy, forming part of the EU’s broader industrial strategy and directly following the recommendations of the Draghi report, which called for stronger demand‑side measures, accelerated permitting and greater resilience in strategic sectors. In this sense, the Commission openly acknowledges in the proposal that Europe is facing multiple simultaneous challenges, such as intense international competition, uneven global production capacities, pressing decarbonisation needs and investment flight.

The IAA aims to respond to these challenges and other risks, including geopolitical tensions, high energy costs, reliance on non‑EU clean technology suppliers and global overcapacities in batteries, solar photovoltaic supply chains and other net‑zero technologies, by seeking to generate more predictable demand for low‑carbon and EU‑origin products, while enabling cleaner industrial activity to be deployed more rapidly across the EU. The Commission proposes a regulatory shift centred on demand-side obligations, accelerated permit-granting, conditional foreign investment and the creation of industrial ecosystems.

In particular, the proposed IAA would require each Member State to establish a single access point for permit applications, with energy‑intensive industry decarbonisation projects designated as strategic so as to benefit from accelerated administrative processes and simplified environmental assessments.

2. Key features of the IAA

2.1 EU origin and low-carbon requirements

In order to use public demand as a lever to stimulate investment in clean-tech value chains and encourage the uptake of low-carbon industrial products, the IAA could introduce structured EU origin and low‑carbon requirements across a broad category of industrial products when used in public procurement procedures, public support schemes and renewable‑energy auctions. The nature of those requirements varies by product category:

• steel (automotive and construction sectors): low-carbon requirements only[1]
• concrete, mortar and aluminium: both EU origin and low-carbon requirements apply
• various net‑zero technologies,[2] and vehicles and components:[3] EU origin requirements only

The IAA would not set numerical thresholds but instead empowers the Commission to adopt delegated acts establishing minimum EU origin levels and low‑carbon content requirements for each product category. This would allow the regime to evolve in line with technological progress and EU production capacity.

Contracting authorities and competent bodies may depart from the EU origin or low‑carbon requirements only in defined circumstances, e.g. disproportionate cost increases[4] or significant delays.[5]

Interaction with EU State aid rules– With regard to public support schemes, these requirements would apply without prejudice to Articles 107 and 108 TFEU.[6] Member States must ensure that measures designed under the IAA comply with State aid rules and relevant compatibility frameworks. The addition of new eligibility conditions – particularly on origin and low‑carbon content – could create uncertainty as to how these criteria will interact with future State aid assessments, which is of particular relevance for third‑country investors.

2.2 Foreign direct investment in emerging strategic sectors

The proposed IAA includes a mandatory pre‑implementation approval regime for certain foreign direct investments (FDI) in emerging strategic sectors, namely:

• battery technologies and their value chains;
• pure electric vehicles, off‑vehicle charging hybrid electric vehicles and fuel‑cell electric vehicles (and related components);
• solar photovoltaic technologies; and
• extraction, processing and recycling of critical raw materials.

The regime would apply to investments exceeding EUR 100 million originating from a third country holding more than 40% of global manufacturing capacity in the relevant sector.

Such investments would need to be notified and cannot be implemented before approval is granted by the competent authority designated by each Member States, following coordination with the Commission. According to the proposal, approval is conditional on fulfilling at least four out of six value‑added conditions:

• one mandatory requirement: at least 50% of the workforce must be EU workers (across operational, technical, supervisory and managerial roles);
• at least three of the following five non‑mandatory conditions:

– foreign ownership cap of ≤49% of share capital, voting rights or equivalent interests;

– investment structured as a joint venture with one or more EU entities, with the foreign investor similarly capped at 49%;

– licensing of relevant IP and know‑how to the EU target;

– dedicating at least 1% of gross annual revenue to R&D in the EU;

– ensuring at least 30% of inputs used in EU‑marketed products originate in the EU.

Given that certain third countries, most notably China, one of the EU’s largest trading partners, have firms that are deeply embedded in European supply chains across several targeted sectors, the practical reach of this regime could be significant. China’s Ministry of Commerce has already expressed grave concern over the proposal, signalling that the IAA may become a source of trade friction.

Interaction with the EU FDI Screening Regulation – The IAA would not replace the EU FDI Regulation (2019/452). Both frameworks would apply in parallel, creating a cumulative review process:

• IAA: an economic‑value‑added assessment by the designated national authority, with Commission involvement;
• EU FDI Regulation: a security‑based screening conducted at national level under the EU cooperation mechanism. For Luxembourg, the competent authority is the Ministry of Economy.

The cumulative application of both regimes means that an investment may receive clearance under one framework but still be blocked under the other. Investors would therefore need to anticipate two separate assessments, each with its own timelines, substantive criteria and potential remedies: a prospect likely to extend review periods and add significant complexity compared to the current framework.

2.3 Industrial manufacturing acceleration areas

Each Member State would need to designate at least one industrial manufacturing acceleration area, aligned with sectors listed in Annex I. These areas are designed to cluster industrial activities, particularly in energy‑intensive industries, automotive supply chains and net‑zero technologies.

According to the proposal, acceleration areas combine several enabling elements, including tailored support for infrastructure development, improved access to financing, measures to develop and retain a skilled workforce, strengthened links to critical raw material value chains and coordinated support for research and innovation. Projects located within these areas would benefit from a baseline permit that would pre‑approve most common industrial authorisations and accelerate project deployment.

3. Next steps

The proposed IAA now enters the ordinary legislative procedure, meaning that the EU Parliament and Council of the EU must each establish their positions before engaging in trilogue negotiations.

Given the political sensitivity and technical complexity of the proposal, the legislative process is expected to take time and the final version may undergo substantial changes before formal adoption.

Newsflash authors: Philippe-Emmanuel Partsch, Ursula Bassoukou and Achet-Billa Saleh

[1] EU origin requirements are not imposed, in light of existing trade measures addressing global overcapacity.

[2] E.g. battery energy storage systems, solar photovoltaic technologies, hydronic heat pumps, onshore and offshore wind technologies, electrolysers and nuclear fission energy technologies.

[3] E.g. traction batteries, e‑powertrain components, main electronic systems and other listed vehicle components.

[4] Presumed where cost differences exceed 25% based on objective and transparent data.

[5] Presumed where delays exceed seven months based on objective, transparent and verifiable data.

[6] I.e. EU legal provisions prohibiting State aid distorting competition and setting out the procedure for notifying and assessing State aid.