IAA provisions should rest on clear sector choices, WTO-safe criteria and FDI screening that welcomes value-adding investment.
The Industrial Accelerator Act (IAA), proposed by the European Commission in March 2026, is intended to boost demand for European Union-made, low-carbon steel, cement, clean technologies and electric vehicles. It sets a target for manufacturing to contribute 20 percent of EU GDP by 2035 and introduces ‘Made in EU’ (or trusted partners) and low-carbon preferences into public procurement and support schemes, along with conditions on foreign direct investment (FDI).
The IAA could potentially impact billions of euros in annual subsidies and public procurement spending. Because of this, it is important that policymakers address three shortcomings when finalising the law. First, the 20 percent manufacturing target lacks an economic rationale and distorts resource allocation. Second, origin-based content rules in support schemes risk delaying decarbonisation, raising costs for firms and consumers, and inviting challenges at the World Trade Organization. Third, the choice of sectors covered by the IAA has not been justified transparently and does not account for industry’s need to adapt to new competitive challenges.
To turn the IAA into an effective instrument of clean industrial transformation, EU policymakers should drop the 20 percent GDP target, provide rigorous justification for the selection of strategic sectors, replace origin-based content rules with existing sustainability and resilience criteria, ensure reciprocal market access rather than blanket exclusions, apply FDI screening in a way that does not block value-adding investment and remain open to green energy-intensive intermediate inputs.
Economic competitiveness and building the resilience of domestic industry are priorities for the European Union. The EU Clean Industrial Deal, a plan proposed by the European Commission in early 2025, is intended to accelerate decarbonisation while securing the future of manufacturing in Europe through measures including electrification to cut energy costs and increasing investment in large green industrial projects (European
Commission, 2025a). At the heart of this effort lies the need to boost demand for clean products in Europe.
In March 2026, the European Commission proposed a regulation that aims to achieve this: the Industrial Accelerator Act (IAA; European Commission, 2026a)1. The proposed approach is controversial because of disagreement over the degree to which the EU should introduce protectionist measures to shield domestic industry from foreign competition. Nevertheless, the IAA matters for three reasons. First, it proposes to attach conditions to billions of euros in annual subsidies and public procurement spending. Second, it contains the first proposal for a regulatory ‘Made in EU’ (sic) standard and may become a template for future initiatives in other sectors, such as digital and biotech. Third, alongside trade measures, it is Europe’s response to the competitiveness challenge posed by Chinese dominance of clean technology and other industrial value chains2.
In this Policy Brief, we describe the IAA proposal and place it into international and historical contexts. In section 4, we make an economic assessment of the plan. In section 5, we make recommendations on how the IAA can be strengthened ahead of its final adoption3.
The IAA is built upon an explicit industrialisation objective: that the share of the EU economy devoted to manufacturing should grow from 14 percent today to 20 percent by 2035. To get to this objective, four ‘pillars’ are set out (Table 1).
The first is the introduction of mandatory ‘Made in EU’ and low-carbon requirements for public procurement – such as a government purchasing steel to build a bridge or a local council leasing a bus fleet – and support schemes targeting certain goods. Support schemes might cover, for example, electric vehicle subsidies or auctions to connect new solar and battery plants to the electricity grid. The IAA second pillar is the application of conditions to some foreign investment in the EU. The conditions would be triggered when three criteria are met: the investment is in manufacturing, the investment exceeds €100 million and the investment is in a sector in which more than 40 percent of global production capacity is controlled by the country from where the investment comes. The third and fourth pillars involve the speeding up of permitting for industrial projects and designation by national governments of industrial-acceleration areas to attract low-carbon investment.
Table 1: Proposed measures in the IAA
| Headline target: industry = 20% of share of GDP | |||||||||
| Speeding up permitting | Create lead markets for certain strategic sectors | Conditions on FDI in strategic sectors (meet 4 out of 6) | Industrial acceleration areas | ||||||
| Single access point for permitting | Stricter deadlines for permit granting | (i) Union origin requirements (ii) Low-carbon requirements | (i) investments > €100 million (ii) when a single third-country supplier > 40% of global manufacturing capacity (iii) for batteries, EVs, solar panels, critical raw materials | Facilitate finance, research, energy grid, skills, permits in such areas | |||||
| In public procurement | In public support schemes | 1&2 minority owned or minority joint venture | 3 hiring more than 50% Europeans | 4 investing 1% of asset revenue into R&D | 5 creating a website to detail local content approach | 6 licensing intellectual property | |||
Source: Bruegel. Note: see the annex for further detail.
The European Commission has defined the strategic sectors to which these
provisions would apply. They include energy-intensive industries, net-zero technologies and automobile manufacturing. In this context, energy-intensive industries are steel, cement and aluminium production, while net-zero technologies are the production of batteries, electrolysers, heat pumps, wind and solar power equipment. The selected sectors account for 15 percent of EU manufacturing production according to the draft IAA (European Commission, 2026a).
The provision that has attracted the most pushback inside the Commission4, from European industry5 and governments is the definition of ‘Made in EU’ (Wunnerlich and Drumm, 2026). The Commission uses the term ‘Made in EU’ in its public communications, but the proposed IAA defines both ‘content of Union origin’ and ‘content equivalent to Union origin’. The definition of ‘content equivalent to Union origin’ is not uniform across the different provisions of the IAA, which introduces complexity.
In particular, for public procurement, product content that comes from countries with free trade agreements (FTAs) or in a customs union with the EU, or which are parties to the World Trade Organization Government Procurement Agreement (GPA), is considered equivalent to EU content. This excludes China. Countries with FTAs are also excluded if the FTA includes no procurement commitments – this is the case for India, for example. But for public support schemes, the definition includes all countries that have concluded an FTA or a customs union with the EU, which notably excludes both the United States and China. For the special case of electric vehicles, the draft implies that only EVs assembled in the EU, excluding FTA partners, would qualify6. In addition, a disproportionate-cost clause means that ‘Union origin or equivalent’ requirements can be sidelined if the associated cost increase is above 20 percent to 30 percent, depending on the measure and product.
Importantly, the proposal would give the European Commission powers to withdraw equivalency, fully or partly, on grounds of reciprocity in case a third country does not apply equivalent national treatment to EU firms in a sector covered by the IAA, or on economic-security grounds in case of excessive dependence on a single third-country supplier.
For the covered clean-technology sectors, the IAA would oblige governments to allocate 40 percent of their support budgets to ‘Made in EU’ production. For corporate EVs, 100 percent of support must flow to ‘Made in EU’ production.
These requirements would affect billions of euros in government money spent annually to build solar plants and wind farms and to connect batteries to the electricity grid. In 2023, European governments allocated €63 billion to support renewable energy sources (European Commission, 2025b).
The IAA, as proposed, is potentially transformative in proposing low-carbon product shares for public procurement of steel, aluminium and cement. These sectors account for around half of the EU’s industrial greenhouse-gas emissions, and public procurement can provide much-needed demand for early green investors. The IAA
proposes that, by 2029, at least 25 percent of the steel and aluminium, and 5 percent of the concrete, bought by governments via public procurement or under public support schemes that benefit households or companies to support the construction or renovation of buildings or automotive vehicles must be low-carbon. In addition, ‘Union origin or equivalent’ requirements are included for aluminium and cement, but not for steel.
Many European countries offer consumer subsidies for EV purchases and EU law requires these schemes to apply resilience7 and sustainability conditions. The IAA would require national public-procurement procedures and government subsidy schemes for EVs to include EU-origin or equivalent requirements for the battery and 70 percent of the non-battery components, including items such as electric motors, power electronics, semiconductors, chassis and interior sound systems.
The EU has already introduced, after concluding anti-subsidy investigations, countervailing duties ranging from 10 percent to 40 percent on EVs produced in China8. The European Commission has also proposed, separately from the IAA, weakening a 2035 target for phasing out new polluting cars, reducing a requirement for all newly registered cars and to be zero emission to a 90 percent emissions reduction9, because of weaker-than-expected consumer demand for EVs. Together with subsidies, these measures are intended to provide support for European producers but there is no recognition that such support should be temporary and intended to provide breathing space to adjust to the reality of Chinese competition. The risk of shielding domestic industries from foreign competition over the long term is that innovation will be disincentivised and prices for consumers will be raised.
The proposed IAA text is unclear on how the ‘Union origin or equivalent’ principle would apply to EV assembly, and whether only EVs assembled in the EU, excluding FTA partners, would qualify. The European Commission should clarify this point urgently: a restrictive interpretation would be contrary to the EU’s WTO and FTA commitments.
It is also unclear if small EVs manufactured by FTA partners would qualify for favourable treatment, as applied to EU EVs, for the purposes of emission calculations10. This prompted reaction from the EU’s main trade partners. Japanese business has noted, for example, that certain Japanese products might be considered equivalent to European products, but others not11.
The proposed IAA’s industrialisation objective is framed as domestic production, irrespective of ownership. Alongside encouragement of domestic manufacturing, the IAA would introduce new requirements for foreign companies investing in the EU. These conditions would apply to investors from third countries that have global manufacturing capacity shares of more than 40 percent in the identified strategic sectors (Figure 1).
In practice the threshold is binding only for China for batteries, solar PVs and certain critical raw materials. Chinese investment would have to comply with four out of six other criteria: entering into minority ownership or a compulsory minority joint venture, Europeans making up more than 50 percent of the personnel in the facility or plant that is the subject of the investment, investing 1 percent of asset revenue in R&D, creating a website detailing the local-content approach and licensing intellectual property related to the asset that is the subject of the investment.
Importantly, the IAA would impose an EU-origin (and EU-only) requirement for products and components, and the exclusion of high-risk suppliers, as conditions for foreign investors to receive state aid for the construction and manufacturing of net-zero technologies. EU countries would be able to derogate from these requirements if they are practically infeasible or too costly (more than 25 percent cost surcharge). This would be an additional hurdle for Chinese FDI in the EU, which is often supported by state aid granted by host countries.
Unsurprisingly, China has criticised the IAA and threatened countermeasures on the basis that the proposals discriminate against China and include some WTO-inconsistent elements12. China has said local content requirements, mandatory transfer of intellectual property and technology, and restrictions on public procurement should be removed from the proposed IAA. Chinese opposition raises the risk that Chinese investment in the EU could be frozen, going against the objectives of favouring partnerships between EU and Chinese companies and attracting more value added investment.
Traditionally, green subsidies in Europe have supported clean industries irrespective of where products are produced. For example, solar support schemes beginning in the 2000s offered fixed payments for the electricity generated from a solar power system connected to the grid, with the origin of the solar panels considered irrelevant (Kuntze and Moerenhout, 2013). The logic is that growing green industries is good for the climate transition, regardless of the source of the good, and that European consumers benefit from access to competitive green goods.
In 2024, the EU broke from this approach when the Net-Zero Industry Act (NZIA, Regulation (EU) 2024/1735) entered into force. The NZIA introduced mandatory ‘sustainability and resilience’ criteria, either as a requirement or as an award criterion, for clean-tech public procurement, auctions and consumer schemes. For public procurement, countries must include non-price sustainability and resilience criteria for 30 percent of auctioned volumes. These criteria must be taken into consideration alongside price and quality criteria. In 2025, Italy was the first country to run an auction including such criteria, awarding 1.1 gigawatts of solar installed capacity to projects excluding Chinese components (cells, modules and inverters)13.
The NZIA requirements clash with the longstanding prohibition under EU law and competition policy of local-content requirements (LCRs), in line with the EU’s traditional commitment to open trade. Other major economies have been less cautious: the United States built local-content rules into the 2022 Inflation Reduction Act (Kleimann et al, 2023) for a range of clean technologies, and is further strengthening them for wind power and iron14. China has used LCRs throughout its industrial development, especially in clean technologies. Canada has introduced LCRs into EV subsidies15. A points system for weighting electric vehicle subsidies in Japan takes into account domestic production, locally sourced batteries and supply-chain resilience16.
In line with the NZIA sustainability and resilience criteria, France’s bonus écologique for EVs incorporates a carbon-footprint requirement that de facto excludes several foreign-built vehicles17. This shows that NZIA sustainability and resilience criteria can deliver the de-risking objective the IAA pursues with explicit ‘Union origin or equivalent’ content rules, but without the risk of breaking WTO rules or the competitiveness costs of an origin-based regime.
While the mooted IAA procurement conditions appear consistent with WTO and FTA obligations, the proposal to link consumption subsidies or other incentives to ‘Union origin or equivalent’ conditions entails a serious risk of legal challenge at the WTO by countries that are not party to an FTA with the EU. Exceptions to the General Agreement on Tariffs and Trade (GATT) national treatment obligation (Article III, requiring equal treatment of imported and domestic products) are unlikely to justify the exclusion of certain countries on the grounds that they have not concluded an FTA with the EU.
China has already signalled that it regards some of the IAA provisions as explicitly discriminatory and has threatened countermeasures if the EU adopts the legislation (see section 2.5). Not all Chinese claims are justified and the EU should react firmly to threats of retaliation but it is nevertheless important to avoid WTO-inconsistent aspects of the proposal that, if maintained, would allow China to prevail in a WTO dispute-settlement case. WTO dispute settlement remains fully applicable between the EU and China, and failure to implement a WTO ruling would seriously harm the EU’s international reputation.
The traditional production of steel, cement and aluminium involves substantial greenhouse gas emissions. Large capital investments are required in alternative production processes to reduce emissions. Low-carbon product shares for public procurement, as proposed in the IAA (see section 2.3) are potentially an important tool for fostering such green transformation, offering support to companies that make early-stage investments in clean steel, cement and aluminium facilities (Sapir et al, 2022; Mähönen et al, 2023).
This proposed support comes at an important moment. Emissions from industrial sectors, including steel, cement and aluminium, have been covered by the European emissions trading system since the 2000s but generous free allowances have been given to domestic producers to allay the risk of unfair competition with foreign companies that do not pay a carbon price. The 2026 introduction of the EU carbon border adjustment mechanism (CBAM; Regulation (EU) 2023/956) changes this. CBAM levies a charge at the border on the emissions embedded in certain carbon-intensive imports that have not been subject to carbon pricing. Because foreign producers will have to pay for their carbon emissions when they export into the European market, free allowances for domestic production will be phased out. The consequence is that the cost pressure for heavy industry to reduce emission-intensive production will increase.
However, CBAM does not create a price premium that rewards European producers that invest in deep decarbonisation; it merely prevents imports from undercutting them in terms of carbon costs. Low-carbon product requirements in public procurement can act as the demand-pull complement: they convert the supply-side carbon cost imposed by CBAM and the EU emissions trading system into a willingness to pay for low-emission steel, cement and aluminium. The two instruments are therefore complementary.
The pipeline of clean-tech manufacturing investment in the EU, often supported by subsidies provided either by the EU or by member states, is sizeable (Table 2).
Table 2: Investment and subsidies in clean technologies in the EU (2016-2026)
| Technology | Investment (€ bns) | Subsidies (€ bns) | Ratio (%) |
| Battery and EVs | 138.10 | 10.50 | 7.6 |
| Solar | 9.87 | 0.61 | 6.1 |
| Wind | 3.09 | 0.37 | 11.8 |
| Green steel | 37.13 | 6.09 | 16.4 |
| Total | 188.19 | 17.57 | 9.3 |
Source: Bruegel Dataset (2025). Note: subsidies comprise EU-level funding, state aid, European Investment
Bank funding and are expressed in gross granted equivalent (ie aid instruments are recomputed to be compared
to cash grants).
It is important to recognise that foreign companies also contribute to EU domestic manufacturing value chains. For clean technologies, foreign investors are very significant for Europe’s developing domestic industrial manufacturing value chain. As of 2026, South Korean companies operate more than three-quarters of operational battery cell capacity in the EU. Chinese companies are responsible for more than two-thirds of currently under-construction battery cell facilities in the EU (Figure 1). European governments, notably Hungary, Spain and Poland, have provided public support in the form of state aid to Chinese EV and battery companies investing in the EU.
Figure 1: European battery cell manufacturing capacity by company, region of HQ and operational status (as of Q1 2026)
Source: Bruegel Dataset (2025).
If the European objective is an energy transition at the lowest cost, nothing should be done to impede Chinese clean-tech imports FDI screening has historically been a national competence. The EU introduced only in 2019 coordination of screening at EU level on security grounds with the Foreign Direct Investment Regulation (Regulation (EU) 2019/452), which has applied fully since October 2020. It has established a cooperation mechanism between the Commission and the member-state recipient of the investment. In addition, the 2022 EU Foreign Subsidies Regulation (Regulation (EU) 2022/2560) is intended to tackle foreign subsidies that cause distortions and undermine the level playing field in the internal market.
The green industrial policy objectives of decarbonisation (delivering the EU 2040 climate target at least cost), competitiveness (preserving the price and innovation performance of European industry in open markets) and economic security (reducing strategic dependencies) are often complementary but, in some cases, conflict. Measures that improve resilience by reducing dependence on foreign suppliers may increase costs and slow clean-technology deployment, while policies focused solely on least cost decarbonisation may deepen strategic dependencies (Agora Energiewende and Agora Industry, 2023).
These trade-offs are most visible in relation to China’s dominance of clean-technology supply chains. If the sole European objective is an energy transition at the lowest cost, then nothing should be done to impede the flow of Chinese clean-technology imports. However, such a strategy would raise concerns about domestic manufacturers facing unfair competition and economic security18.
For example, welcoming cheap Chinese solar panels and EVs would accelerate decarbonisation and reduce costs for European consumers, but increase strategic dependence on the EU’s main supplier and its state-sponsored industry. Countervailing duties on Chinese EVs and tariffs on steel might buy time for domestic industry to develop competitive products, but at the cost of higher consumer prices and slower deployment of clean technology (which in turn prolongs the exposure of the EU to fossil fuels).
The intervention rationale must then be that for a particular product, any disruption to domestic industry or security concerns trumps the affordability benefit. The policy question is not whether intervention is justified in principle, but whether the benefits of intervention outweigh the associated ‘security premium’ for sectors.
The proposed IAA is broadly justified on the grounds of economic security, and that rationale has real foundations. The EU economic security strategy (European Commission and High Representative, 2023) already states that economic-security measures should be grounded in an assessment of risks and should be proportionate, while a plan on strengthening EU Economic Security (European Commission and High Representative 2024) highlights Europe’s dependence on third countries in batteries, solar panels and EV components.
However, the draft IAA does not pass the test of offering consistent policy measures that are proportionate and grounded in evidence. Economic-security concerns may justify the disallowing incentives for imports from countries that dominate overall production if there is a risk that EU dependency in these sectors will be weaponised. But there must be a clear acknowledgement of the ‘security premium’ associated with such measures, and who pays it.
The starting position the IAA is intended to correct is well known. EU clean-tech policy has pushed strongly on decarbonisation but left the European market exposed to a wave of subsidised Chinese imports, with little attention paid to supply-chain resilience, or to the competitiveness of domestic producers. The result was rapid deployment of clean technologies alongside rising harmful dependencies and mounting pressure on EU industry (Resende Carvalho et al, 2025).
The proposed IAA’s ‘Made in EU’ requirements, broad resilience criteria applied across entire technology categories, and a cautious stance on inward Chinese investment together prioritise resilience and domestic industrial protection at the expense of both decarbonisation and external competitiveness. They slow clean-energy deployment and raise input costs for EU industry without targeting the specific dependencies that genuinely threaten economic security. And these costs will ultimately be paid by European customers and taxpayers.
The IAA proposes local content requirements for a subset of industrial activities. The general economic case against local-content requirements (Hufbauer et al, 2013) is that they raise input costs, reduce productivity and reward incumbents at the expense of consumers and downstream industries. Domestic firms are forced to use higher-cost domestic inputs, rather than the most competitive globally available inputs, raising prices and lowering competitiveness. Such intervention benefits some sectors while penalising others. For example, some carmakers welcome ‘Buy Europe’ provisions for cars, but argue that the extension of these provisions to the inputs or components they must buy for production will increase costs and destroy their competitiveness19. EU car-part makers, meanwhile, are satisfied that automakers will be incentivised to buy their intermediate products20.
True competitiveness extends beyond domestic markets and hinges on the ability of European firms to compete globally, both on innovation and cost-efficiency. Excluding Chinese imports from incentives supports direct competitors but also raises economic concerns: relying on more expensive domestic or other third-country products would raise production costs for European manufacturers (energy, equipment) and hence prices paid by consumers and downstream industries, posing a threat to broader industrial competitiveness and risking the loss of export markets21.
The challenge is to strike the right balance, but the IAA as proposed lacks an evidence-based assessment of why the chosen sectors are strategic, of the specific chokepoints that justify import de-risking and ultimately of European industry’s capacity to remain internationally competitive. Industrial policy is justified when market failures can be identified through sector-level evidence (Juhász et al, 2024), and import de-risking should be confined to the few product categories for which the cost of supply interruptions would be unquestionably large (Pisani-Ferry et al, 2024). Targeted exclusion of Chinese products could, under narrow conditions, reduce exposure to genuine chokepoints. But applied broadly, it shields EU producers from the competitive pressure they need to adjust to, slowing the energy transition, raising electricity prices and prolonging dependence on imported fossil fuels without delivering economic-security gains.
For solar PV, the strategy of excluding Chinese solar cell imports is not justified by available evidence: the Commission’s own impact assessment for the IAA estimates that doing so would more than double the price European governments pay for solar panels, while supply chains would still depend on polysilicon imports from China (European Commission 2026b). The proposal is likely to reduce domestic solar industry jobs because cheaper Chinese panels accelerate deployment, sustaining downstream installation and maintenance jobs in Europe. More expensive solar panels will increase future wholesale electricity prices and harm broader industrial competitiveness.
For electric vehicles, tariffs have already been placed on Chinese production. Meanwhile, the European Commission has proposed a weakening of a 2035 target for phasing out new polluting cars (section 2.4). Further blanket exclusion through subsidies risks raising consumer costs without commensurate benefit. It also risks prolonging the dependence of European consumers of petrol and diesel cars, for which fuel costs are under pressure from the ongoing conflict in Iran and soaring oil prices.
Another illustration of the same trade-off can be drawn from the financing side: requiring EU-funded clean-tech projects to source key components from EU or trusted-partner suppliers will raise the cost of capital for those projects because it narrows the pool of eligible equipment vendors and lengthens delivery times. As the cheapest available solar modules, batteries and electrolysers in 2025 were typically supplied by Chinese firms (Bjerkan-Wade 2026), content requirements that exclude them mechanically will transmit this financing gap into an increased cost of clean-energy projects financed under the IAA, and ultimately into the support envelope required to make those projects bankable.
In summary, the IAA as drafted would necessarily entail some costs in terms of delayed decarbonisation. It does not include incentives for industry to adjust to the external competitive challenge since none of its support measures are time limited. Certain costs may be compensated for by reduced economic security risks, although such trade-offs should be clearly spelled out and limited to that part of the value chain for which there is risk of dependencies being weaponised. More fundamentally, the IAA should go together with a competition-based industrial policy that corresponds to the situation of the different sectors covered by the IAA and acknowledges the need for industry to adjust to structural changes in the global market, including intensive competition from China and the need to rely on competitive inputs from countries that are well endowed with renewable energies.
The proposed IAA target of a 20 percent industry share of GDP by 2035 is identical to one set by the European Commission in a 2012 industrial strategy for 2020 (European Commission, 2012) – a target that was not achieved. All developed economies have seen manufacturing shares decline as services substitute industrial activity (Rodrik, 2016). Even in China, the manufacturing share of GDP has declined by about 7 percentage points since the early 2000s (Figure 2).
The re-proposed 20 percent manufacturing-as-a-share-of-GDP target may be unwise in that it implies reallocation of public resources away from services regardless of the decarbonisation, economic security or competitiveness implications.
The objective seems to be intended to protect or increase industrial employment. This approach (protecting industrial employment by greenfield manufacturing subsidies) is similar to former US President Joe Biden’s Inflation Reduction Act, which triggered significant manufacturing investments (Ford in Tennessee/Kentucky, Hyundai in Georgia, Tesla in Texas) but neglected the fundamental reality that modern manufacturing plants, particularly in high-tech sectors, are highly automated and create relatively few jobs per dollar or euro invested22.
Figure 2: Manufacturing, value added (% of GDP)
Source: World Bank.
A green European industry embedded into international trade and investment flows will be more competitive and resilient than a system in which European industry is highly protected. Economic security is strengthened when Europe has multiple, diverse sources for critical green inputs rather, than concentrating all production within its own borders or relying on a single foreign supplier. A justifiable strategy to diversify sources
of supply should not be an excuse for limiting import competition.
For emerging green value chains, new comparative advantages will develop, and European producers will be more competitive if they integrate into international value chains. The clearest case is production of green energy-intensive products. Energy-intensive industries in Europe today import natural gas, coal and oil to support production because domestic fossil fuel extraction is prohibitively expensive. Future green value chains will depend not on fossil fuels but on the consumption of large volumes of renewable or clean electricity. Producing this electricity in Europe is likely to be prohibitively expensive (Hausmann and Ahuja, 2023). Therefore, the ability to import green energy-intensive intermediate products that have already ‘absorbed’ green energy will improve the competitiveness of European firms (McWilliams et al, 2025; IEA, 2026)23.
Over-strict rules requiring all phases of green energy-intensive production to occur in Europe risks harming competitiveness. For example, origin requirements for aluminium clash with the IAA’s own automotive ambitions: shielding the upstream aluminium sector from import competition would raise input costs for European car manufacturers, who depend on competitively priced low-carbon aluminium to remain globally competitive in electric vehicles24.
The same logic applies to investment flows. Attracting foreign investment is an important indicator of economic competitiveness. The potential tightening under the IAA of conditions on Chinese investment in batteries and EVs sits uneasily with the EU industrialisation objective. Foreign battery cells produced in Europe enable downstream EV manufacturing; restricting Chinese investment risks delaying capacity build-up. The 2026 share of South Korean firms in operational EU battery capacity, and Chinese firms in capacity under construction, shows that Europe’s emerging battery base relies on inward FDI (Figure 2).
5 Fixing the IAA: policy recommendations
In light of the analysis in this paper, we propose seven ways in which the IAA should be improved during the legislative process:
Source : Bruegel
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