EU Industrial Accelerator Act: Focus on Green and Important Details to be Negotiated

The proposal for the EU’s Industrial Accelerator Act (IAA) formally published on 4 March and reveals a shift in industrial policy priorities, including first steps towards ‘Buy European’ in government procurement that totals over 2 trillion EUR and represents 14% of entire EU GDP.

In the most recent behind-the-scenes negotiations, the focus shifted away from high tech sectors like AI, quantum and semiconductors (now excluded from the scope) and the proposal now zeroes in on decarbonizing heavy industry such as steel, base metals, and clean tech manufacturing by mandating buying clean and local. A key sector expected to feel the impact is automotive as a user of the impacted inputs and due to specific provisions on battery electric vehicles.

Newly introduced foreign investment rules are designed to establish review mechanisms and a set of criteria to enhance EU’s industrial capacity and know-how. These are proposed to apply across the identified strategic sectors as well as to “extraction, processing and recycling of critical raw materials”.

The Act also introduces “Buy European” rules for public procurement and public interventions. EU member states and third countries continue to lobby heavily on the key decision yet to be made: what is “European” in terms of public procurement and public intervention. While earlier drafts attempted to narrow geographical scope, the final proposal takes an inverted approach: content from all EU FTA countries and all WTO GPA members is deemed to be of EU origin, unless the Commission, at any moment, excludes a jurisdiction under a justification of that country failing to provide national treatment to the EU, avoiding dependencies on that country or developments that threaten security of supply.

Negotiations on the proposal now ensue in the European Parliament and among EU member states, who look for balance between competitiveness of their own manufacturing, decarbonization, and fair international trade. Companies need to look closely at their supply chain – from both emissions and localization perspectives – and their public procurement and intervention exposure to align the future outcome with their interests. Non-EU governments continue to be engaged heavily, including the U.S. that has signaled a strong dismay with the concept.

Background

The IAA is part of the EU’s response to global industrial and climate challenges. Europe’s manufacturing sector has been losing ground (down to ~14% of EU GDP in recent years) and faces high energy costs, foreign competition, and pressure to cut emissions. To counter de-industrialization and meet climate targets, EU leaders announced this Act as a pillar of a “Clean Industrial Deal.” Initially, many expected the IAA to broadly bolster cutting edge tech industries (AI, chips, etc.) under the umbrella of strategic autonomy. However, the final proposal shows a shift in priorities. Influenced by persistent industrial decline and the success of rival initiatives like the U.S. Inflation Reduction Act, the Commission’s draft leans into demand side support for green industrial goods and stronger home market protections.

Strategic Focus Shift – Narrower Scope

The final proposal narrows the list of “strategic sectors” (Annex I). Earlier discussions suggested the Act would include various high tech and “critical” sectors, but the new draft focuses on heavy industry and clean tech manufacturing sectors. Specifically, the draft designates:

• Energy Intensive Industries: manufacture of paper and paper products, coke and refined petroleum products, chemicals and chemical products, rubber and plastic products, non-metallic minerals, and basic metals like steel, pig iron, and non-ferrous metals.
• Net Zero Technology manufacturing: e.g. production of batteries, solar panels, wind turbines, hydrogen equipment, consistent with the EU’s push for clean tech self-sufficiency.
• Automotive manufacturing: given its importance to Europe’s economy and its central role in the electric vehicle transition.

By contrast, tech-driven sectors (AI, quantum, advanced chips) are no longer explicitly listed. This marks a notable refocusing and suggests the Commission opted to concentrate on industrial decarbonization and import dependence issues rather than general tech competitiveness in this Act.

That said, we are yet to see the EU’s Chip Act 2.0 expected to be published mid-April within the Tech Sovereignty Package.

Another notable inclusion is a clause that limits certain state aid strictly to EU-based producers in these strategic sectors. In other words, under the IAA’s framework only manufacturers located in the EU would be eligible for specific public subsidies or contracts in the designated sectors. This is a significant policy shift, essentially ring-fencing industrial support for “EU champions” and underscoring the Act’s proactive industrial protectionism.

“Made in Europe” Rules – Low Carbon and Local Content Requirements

The core of the IAA is a set of “Buy Clean” and “Buy European” requirements aimed at creating a home market for greener industrial goods. The draft regulation would mandate that public authorities (and publicly funded projects) use minimum proportions of low carbon materials and products with yet to be negotiated origin. Key provisions include:

• Green Public Procurement Quotas: Beginning in 2029, any large public construction or infrastructure project in the EU must source a certain percentage of its key materials from low carbon producers, with a specific origin requirement for some materials. For example, at least 25% of the steel used must qualify as low carbon steel, and at least 5% of cement/concrete and 25% of aluminum must be not only low carbon but also produced in jurisdictions that are not excluded from the scheme. Many observers had expected an explicit quota for steel as well, a contentious omission that has already prompted some lawmakers to urge its inclusion. By contrast, the U.S. requires 100% American-made steel for federal projects; the EU has thus far stopped short of such a hard requirement for domestic content in steel.
• Green Subsidies Conditionality: The same thresholds (25% low carbon steel, 5% low carbon EU cement, etc.) would apply to public funding programs. From 2029, any government grant or subsidy for projects in relevant sectors (e.g. building renovation funds, clean tech investments) could be accessed only if the materials used meet the new low carbon /specific origin ratios. This ties financial incentives to the use of cleaner, European made inputs, ensuring taxpayer money directly supports EU industry and climate friendly products.
• “Buy European” Rules for Zero-Emission Vehicles: The IAA extends local content policy to public procurement of electric vehicles. Once the Act is in force, public authorities buying EVs, or offering consumer incentives for them, must ensure those vehicles are substantially made in Europe. The proposed criteria require final assembly to be done in the EU, as well as at least 70% of the vehicle’s (non-battery) components by value originating from the EU and a significant portion of the battery manufactured in Europe. These thresholds become more stringent three years after entry into force (e.g. higher local content in battery cells and critical materials will be required by around 2030). This measure, reminiscent of U.S. EV tax credit rules, was anticipated and effectively favors European automakers and suppliers for any publicly funded EV fleets or rebate programs. However, even though the sector stands to benefit, the Commission’s own impact assessment projects a €291 million short-term drop in gross value added for the EU auto sector by 2030 due to the cost of compliance.

In addition, the proposal also defines the “Made in the EU” criteria for small battery electric vehicles that are to yield super-credits for individual manufacturers under the fleet CO2 emissions performance standards which is currently being renegotiated within the automotive package proposed in December last year. These criteria are final assembly in the EU and either at least 70% EU non-battery components or battery, including the cells, largely made in the EU.

• Exceptions and Adjustments: The proposal does allow limited flexibility. One notable change in this version is the easing of the so-called price gap exemption for the Buy European obligations. If compliant EU made options are significantly more expensive, public buyers can procure foreign or higher carbon alternatives. The threshold for this exemption was lowered to a 25% cost difference (from 30%), making it slightly easier for authorities to bypass the local preference when needed. This tweak likely reflects concerns about excessive cost burdens on public projects.

These measures were expected in broad strokes, but the fine print of the draft surprised many observers. In particular, the omission of a mandatory EU-source percentage for steel (despite strong political pressure to include it) and the relatively moderate starting quotas (25% rather than, say, 50%) suggest the Commission is trying to avoid overly burdening industry initially. At the same time, the sweeping inclusion of “EU-only” eligibility for state aid and the tight EV content rules underscore the EU’s growing willingness to favor domestic products in pursuit of its green and industrial ambitions.

Another notable aspect is the IAA’s plan to impose conditions on foreign direct investment in these strategic sectors. Any non-EU investment exceeding €100 million in an emerging strategic industry is proposed to trigger specific review requirements. Member States are to establish Investment Authorities, and in certain circumstances, those transactions can be reviewed by the Commission. Investment Authorities will only be able to approve direct foreign investment that contain a number of measures from a menu of preferences in favor of  the EU, including for example sharing critical technology or intellectual property, and sourcing locally and hiring EU workers  This is a surprising departure from the EU’s past openness to investment: it effectively means large foreign greenfield projects or acquisitions in, say, the EU steel, critical raw materials or battery sector would come with strings attached to ensure they bolster EU industrial capacity and know-how. Policymakers view this as a safeguard against other countries dominating key EU industrial assets, but many did not anticipate such explicit joint venture and tech-transfer mandates in EU legislation. These new foreign investment rules will not apply to investors established in countries with which the EU has an economic partnership or free trade agreement.

Streamlined Permitting and “Acceleration Areas”

On the supply side, the draft confirms expected measures to speed up industrial projects:

• It mandates faster, simplified permitting for facilities in strategic sectors, building on concepts from the 2024 Net-Zero Industry Act. Companies planning new plants or retrofits (e.g. a low carbon steel mill or battery factory) would go through a one-stop permitting process with statutory time limits, reducing delays.
• It encourages Member States to create “industrial acceleration areas” – designated zones where strategic projects get priority treatment (fast-track approvals, easier grid connections, etc.). This wasn’t unexpected, but the scope may be broader than assumed: it could apply to clusters of heavy industry, not just clean-tech hubs, to facilitate regional industrial revitalization.

These steps, while less headline grabbing, promise a more predictable timeline for investments in Europe.

Next Steps

The European Commission proposal will undergo the EU’s ordinary legislative procedure, requiring negotiations with, and approval of, both the European Parliament and the Council. This process usually takes months. Companies should watch for any amendments during this phase such as a local steel content requirement or attempts to alter thresholds, as well as sectoral and geographical scope.

Once adopted, the Regulation will be directly applicable across the EU. Key timelines in the current draft: the public procurement and funding quotas for low carbon materials kick in on 1 January 2029, and the EV local content rules apply from roughly mid-2027 (with tougher criteria by 2030). The foreign investment conditions and permitting reforms would take effect as soon as the Act enters into force.

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