The European Union is taking significant steps to bolster its industrial base with the upcoming **Industrial Accelerator Act (IAA)**, now scheduled for release on **February 25, 2024**. This legislative proposal aims to reverse a troubling trend: between **2000 and 2020**, the EU’s share of global industrial output plummeted from **20.8% to 14.3%**. The declining figure reflects a shift of capital towards regions with lower energy costs, such as parts of China and the American South. The IAA represents a marked shift toward protectionist policies, a move that would have seemed unlikely in Brussels a decade ago.
The **European Commission** has drafted the IAA to create a “lead market” in Europe, effectively mandating that government purchases of green technology adhere to strict “Made in Europe” requirements. The draft proposes that domestic production goals range from **60% to 80%** for government contracts. Should a local government wish to procure a battery system, it would need to ensure that it is assembled within the EU within **12 months** of the Act’s implementation. In just two years, these requirements would tighten further, demanding that the battery cells themselves be produced in Europe.
This move aims to enhance the demand for EU-made low-carbon products, but the reality remains that **China** currently dominates the battery supply chain, producing nearly **75%** of the world’s lithium-ion batteries. Despite announcements regarding new “gigafactories,” Europe continues to rely heavily on imported minerals and specialized components essential for manufacturing. By imposing local content mandates without establishing the necessary infrastructure, the EU risks creating significant supply-side bottlenecks.
Another critical aspect of the IAA involves foreign direct investment (FDI). The draft stipulates that any investment exceeding **€100 million** in strategic sectors must adhere to conditions that prioritize European-made components and labor. This regulation serves as a strategic signal to global investors, particularly American and Chinese firms, indicating that their investments will only be welcomed if they directly contribute to the European industrial framework. This approach is largely a response to U.S. President **Donald Trump**’s tariffs and the aggressive subsidies outlined in the **Inflation Reduction Act**.
The IAA also places heavy emphasis on nuclear power and hydrogen as pillars for future energy strategies. The document suggests that new nuclear projects must prioritize EU-sourced technologies to achieve long-term European sovereignty. However, the reality is that the European nuclear supply chain currently faces significant challenges, as evidenced by delays in projects like **France’s Flamanville 3** and **Finland’s Olkiluoto 3**.
While the Commission argues that resilience in these sectors relies on sourcing components from within the EU, many manufacturers are grappling with high production costs and a lack of firm orders. Mandating local content before the industry achieves cost-competitiveness may hinder the very decarbonization efforts the Commission seeks to promote.
The IAA proposes voluntary labeling schemes for “Made in the EU” low-carbon products, targeting industries like steel. A proposed label would categorize steel based on carbon intensity, aiming to allow “green” European steel to command a premium over imported alternatives. However, as steel is a commodity, the potential for significantly higher costs could inflate infrastructure project expenses, raising concerns among nations like **Sweden** and the **Czech Republic** about the impact of “buy local” rules on competitiveness.
In an unprecedented move, the IAA may alter how state aid is managed within the EU. A significant concession suggests that member states will be exempted from notifying the European Commission when funding decarbonization projects. This change could undermine the “level playing field” that the **European Single Market** was designed to protect. Wealthier countries like **Germany** and **France** could potentially allocate billions to support their industries without oversight, leaving smaller states at a competitive disadvantage.
The IAA aims to expedite the permitting process for energy-intensive industries. Yet, technical and local frictions remain. New chemical plants must navigate complex regulations and local protests, leading to significant delays. The draft’s suggestion to introduce resilience and sustainability criteria may inadvertently add bureaucratic hurdles rather than streamline processes.
The most ambitious claim in the document predicts that steel and cement could contribute **20%** of the EU’s economic output by **2030**. To meet this target, the EU would need to replace aging infrastructure with hydrogen-ready plants at an unprecedented pace. Achieving this would require more green hydrogen than the global market currently produces, raising significant questions about feasibility.
As the delay of the IAA to **February 25** indicates, the Commission is grappling with internal challenges. It is attempting to reconcile the necessity for a green transition with the reality that Europe is becoming an increasingly expensive manufacturing location. If the EU prioritizes sovereignty over cost, it must brace for potential inflationary pressures. The Industrial Accelerator Act represents an effort to regain control over local manufacturing, but in a global market, the time for decisive action is rapidly diminishing.
