Proposed EU Industrial Accelerator Act Aims to Shore Up Declining EU Manufacturing Sector

On March 4, 2026, the European Commission proposed the Industrial Accelerator Act (IAA), a draft regulation that aims to reverse the decline of the EU’s manufacturing sector while supporting the adoption of cleaner technologies. The proposal introduces “Made in EU” and low-carbon requirements in public procurement and public support schemes, to create lead markets for European industrial products. The proposal also seeks to increase value creation in the EU and bolster the EU’s economic security by setting conditions for major foreign direct investments (FDI) in strategic sectors.

This client alert is the first in a three-part series dedicated to the IAA. In this alert we will provide an overview of the draft regulation; our second alert will take a closer look at the new FDI conditions; and our third and final alert will focus on the IAA’s implications for the automotive industry.

Background

From 2000 to 2024, the share of manufacturing in total EU GDP declined from 17.4% to 14.3%. This decline poses significant risks to long-term economic growth, social cohesion, supply chain resilience, and strategic autonomy. Meanwhile, the EU manufacturing sector is facing enormous challenges, including high energy prices, global overcapacities, high decarbonization costs, and regulatory hurdles.

With the IAA, the Commission aims to reverse the downward trend and increase the share of manufacturing in EU GDP to 20% by 2035. To achieve this ambitious goal, the Commission proposes measures targeting certain strategic sectors (see below), which, despite accounting for only 15% of EU manufacturing output, play a disproportionately important role.

In line with the Clean Industrial Deal, which we discussed in a previous alert, the IAA aims to reconcile competitiveness with decarbonization. According to the Commission, the transition to a clean economy is an opportunity to strengthen the EU’s industrial base. The Commission believes that maintaining industrial competitiveness and resilience can go hand in hand with achieving the EU’s climate goals, provided the Union acts strategically to ensure the climate transition becomes an engine for industrial growth.

Overview

The draft IAA targets three strategic manufacturing sectors of the EU economy:

• energy-intensive industries, including steel, aluminum, cement, rubber, plastics, chemicals, coke, refined petroleum products, and paper manufacturing.
• net-zero technologies, including batteries, solar, heat pumps, wind, hydrogen, biogas, carbon capture, nuclear, and hydropower,
• the automotive value chain, including vehicles and components.

The draft IAA provides four main sets of measures:

• streamlining permitting procedures for manufacturing projects,
• Union origin and low-carbon requirements for public procurement and public support schemes,
• conditions for foreign direct investment (FDI) in the strategic sectors, and
• industrial acceleration areas that cluster activities in those sectors.

1. Streamlining permitting

Member States would be required to establish a digital one-stop shop procedure based on a single application covering all permits required for industrial manufacturing projects. They would also have to set up a national access point to serve as an interface between project promoters and all relevant authorities. This single access point should facilitate the exchange of data between competent authorities and the reuse of data and documents already held by public authorities.

The draft IAA extends the streamlined permitting provisions of the Net-Zero Industry Act (NZIA) to energy-intensive industry decarbonization projects. These projects are considered strategic, meaning they benefit from accelerated environmental assessment procedures and tacit approvals at intermediate stages if authorities do not respond within set deadlines.

2. Union origin and low-carbon requirements in public procurement and public support schemes

A central pillar of the draft IAA is the creation of “lead markets” through targeted Union origin and low-carbon requirements in public procurement and public support schemes. 

The IAA would apply Union origin and low-carbon requirements to the following:

• Certain products from energy-intensive industries that are intended for use in buildings, infrastructure and vehicles for civilian use. This includes steel, aluminum, concrete and mortar, as well as products derived from these materials.
• Electric vehicles.
• Certain net-zero technologies.

Economic operators that are owned or controlled by entities from third countries that lack reciprocal procurement access would be excluded from public procurement procedures involving the supply of these products.

Access to public procurement and public support schemes for the above-mentioned products from energy-intensive industries would be subject to a combination of Union origin and low-carbon requirements, except for steel and steel products, which would only be subject to a minimum low-carbon content requirement (see the table below). This must be seen in the context of the Commission’s proposal to cut tariff-free steel quotas by nearly half and double the tariff on imports exceeding the quota to 50%, effective July 2026 (read more about this proposal here).

 

Type of product	Union origin and low-carbon requirements
Steel	≥ 25% volume must be low-carbon.
Concrete and mortar	≥ 5% volume must be low-carbon and of Union origin.
Aluminum	≥ 25% volume must be low-carbon and of Union origin.

Access to public procurement procedures and other public support schemes for new electric vehicles (EVs) would be subject to “Made in EU” requirements. The third client alert in this series will discuss the requirements for EVs and their components, including batteries.

Regarding net-zero technologies, the IAA would introduce Union origin requirements in public procurement for battery energy storage systems, solar photovoltaic technologies, heat pumps, wind power (onshore and offshore), and nuclear fission. The requirements are tailored to suit each separate technology. The requirements for batteries will be introduced gradually.

The IAA would also extend these requirements to renewable energy auctions for battery energy storage systems, solar photovoltaic technologies, hydrogen electrolyzers, and onshore and offshore wind.

What does it mean for a product to be of Union origin or low-carbon?

In an earlier draft of the proposal leaked two weeks before its publication, “Union origin” was defined as content originating from the EU and the European Economic Area (i.e., Norway, Iceland, and Liechtenstein). However, the final proposal defines it as content originating from the EU and “content equivalent to Union origin”. This notion covers content from third countries with which the EU has a customs union or free trade agreement (FTA), and, in the case of public procurement, third countries that are party to the WTO Agreement on Government Procurement (GPA). The country of origin is determined according to the rules of origin established in the Union Customs Code (with no reference to the country of control).

It is worth noting that the EU has a customs union with Turkey, and has concluded FTAs with more than 80 trade partners, including the United Kingdom, Canada, Switzerland, Vietnam, and Singapore. Other third countries, including the United States, are parties to the WTO GPA. Therefore, the definition of “Made in EU” under the draft IAA is a rather broad term that covers much more than content of strictly EU origin.

The Commission may exclude third countries whose products would normally benefit from Union origin equivalence in the following cases:

• The third country has failed to provide national treatment related to EU products or entities under the aforementioned trade agreements, in the sectors covered by the IAA.
• Exclusion is justified to avoid dependencies or other developments that could jeopardize the security of the Union’s supply of the products in question.
• The exclusion is justified under any other exception under the applicable agreement.

The definition of Union origin is expected to give rise to considerable debate during the legislative process, as Member States have already expressed different views on what they think should be considered “Made in EU”. France has advocated for a stricter approach (that was reflected in the leaked draft), to ensure that public funds directly support EU production and jobs. In contrast, Germany has advocated for the approach reflected in the final proposal that opens “Made in EU” to trusted third countries, in order to avoid supply chain disruptions.

Steel, concrete and aluminum will be considered low-carbon if they comply with the requirements set out in delegated acts adopted under the Construction Products Regulation (when used for construction) or the Ecodesign for Sustainable Products Regulation (in all other cases). As the relevant delegated acts have not yet been adopted, the low-carbon criteria currently remain undefined.

The draft IAA also empowers the Commission to establish a voluntary classification system based on the greenhouse gas (GHG) intensity of industrial products when they are placed on the EU market. Methods for calculating GHG intensity will rely on existing GHG accounting frameworks: the EU Emissions Trading System (ETS) for domestic products and the Carbon Border Adjustment Mechanism (CBAM) for imported products.

3. Foreign Direct Investment Conditions

The draft IAA introduces conditions for major foreign direct investments (FDI) in “emerging strategic manufacturing sectors”, to ensure that they create genuine value within the EU. Investments exceeding EUR 100 million will require approval from national investment authorities where a third country controls more than 40% of global manufacturing capacity and the investor is a national of that country.

The “emerging strategic sectors” include: battery technologies, electric vehicles, solar photovoltaic technologies, and the extraction, processing, and recycling of critical raw materials.

Each Member State must designate an investment authority to review and approve investments fulfilling the appropriate criteria. The investment authorities may subject approval to conditions, including capping foreign ownership of the EU target or asset concerned, undertaking the investment through a joint venture with one or more EU entities, licensing intellectual property rights and know-how for the benefit of the target, directing a minimum share of revenues toward R&D spending in the EU, or sourcing a minimum share of inputs from the EU. In addition, at least 50% of the workforce across all categories must be EU workers.

The FDI conditions, the notification and review procedure, and the enforcement system will be discussed in more detail in the second client alert in this series.

4. Industrial acceleration areas

Each Member State must designate at least one “industrial acceleration area”. These areas are intended to cluster activities in strategic sectors and facilitate access to financing, energy, and a skilled workforce.

For each designated industrial acceleration area, Member States must prepare and issue an aggregated, area-wide baseline permit. This permit covers the authorizations commonly required for industrial manufacturing activities in the area but excludes installation-specific permits. Project promoters will be required to obtain additional permits only for activities that fall outside the baseline.

Practical implications for companies

Streamlined permitting procedures and designated industrial acceleration areas should reduce the administrative burden on promoters of manufacturing projects in the covered sectors, especially those concerning net-zero technologies and the decarbonization of energy-intensive industries.

The proposed IAA creates clearer demand signals for low-carbon products for manufacturers in energy-intensive industries (steel, cement and aluminum). In this way, the IAA complements the ETS and CBAM.

However, lead market requirements in public procurement and public support schemes may restrict third-country manufacturers’ access to EU markets, especially in the construction and automotive sectors. (The impact on the automotive industry will be discussed in greater detail in our third client alert in this series.)

Third-country investors in the “emerging strategic sectors” may find that the new FDI conditions make deal design and approval planning more complex. They may be prevented from acquiring control over EU targets or assets in these sectors. However, the 40% of global capacity threshold seems calibrated to capture mainly Chinese investors.

Timing

The draft IAA will now go through the ordinary legislative procedure. The co-legislators – the European Parliament and the Council – will negotiate and potentially amend the text before adoption. This process can easily take more than a year.

According to the draft text, the IAA will enter into force the day after its publication. As a regulation, it will be directly applicable in all Member States.

The permitting provisions will apply from one year after entry into force. The Union origin and low-carbon requirements in public procurement will apply to procedures launched on or after January 1, 2029. Investment authorities must be designated within one month from the IAA’s entry into force and Member States must designate at least one industrial acceleration area within 12 months of its entry into force.