The European Commission has published a proposed regulation to boost Europe’s clean tech manufacturing. Known as the Industrial Accelerator Act (IAA), it would give priority to low-carbon and EU-made products in projects reliant on public funds.
Aiming to limit reliance on third-country supply chains, the IAA covers strategic sectors including raw materials (steel, cement, aluminium) and clean-tech products (such as solar power and electric vehicles).
Published in March, the proposal points out that China is home to 80% of global battery and solar power manufacturing, while EU wind power tech is “experiencing cost pressures from low-priced Chinese imports”.
China’s commerce ministry responded on 27 April, describing the proposal as “serious institutional discrimination” which would damage fair competition.
“The significance of the IAA isn’t in the specific rules, but in how it signals a shift in the EU’s thinking on industrial policy,” said Joseph Dellatte, head of energy and climate studies at Institut Montaigne, a French think-tank.
He told Dialogue Earth that previously the EU used general policies such as carbon markets and emissions standards to help reduce carbon. The IAA is the first time the EU has introduced binding EU-origin and localisation requirements in procurement to build up supply chains, he said.
But can the EU build industrial security and capacity without significantly raising the cost of its green transition? And how will this change the routes Chinese companies take to access European markets?
Low-carbon and EU-made
At the core of the IAA are low-carbon and EU-made requirements for public procurement and projects receiving government support.
According to the proposed regulation, 25% of steel and aluminium products in public procurement must meet low-carbon standards, though the steel does not have to be of EU origin. However, 25% of the aluminium and 5% of the cement must be both low-carbon and EU-made.
The IAA’s requirements for clean tech industrial chains have drawn particular attention. To reduce reliance on overseas supply chains in public procurement, no more than 50% of the value of a clean-tech product, and no more than 50% of the value of a product’s key components, can come from a single third country.
Some key technologies and components, such as those found in battery energy storage systems and solar power, must be of EU origin. Specific requirements are to be implemented over time.
Behind the proposal is a slide in manufacturing, which fell from 17.4% of the EU’s GDP in 2000 to 14.3% in 2024. The aim is for the IAA to increase that to 20% by 2035.
Julia Metz, director of Agora Industry, a think-tank based in Germany, told Dialogue Earth: “The positive significance of the IAA is that it expands the EU’s policy focus beyond downstream clean technologies to include the decarbonisation of energy-intensive basic materials production – an important step towards addressing emissions in heavy industry where structural change is most needed.”
Kevin Mo, principal of the Institute for Global Decarbonization Progress (iGDP), a think-tank headquartered in Beijing, told Dialogue Earth that the global division of labour has seen production allocated to the cheapest and most efficient regions. Global procurement has allowed the EU to transition to clean energy more cheaply, he said. The IAA, though, introduces another approach: local industrial capacity and market share should be secured, even if it costs more. Mo said the question is whether the EU can really rebuild entire industrial chains.
The cost of compromise
The proposed IAA now needs to be passed by both the European Commission and the European Parliament, a process that will take months, potentially years and very likely involve amendments. The act as it stands is already considered to be full of compromises.
Take the steel sector. The IAA does not clearly define what is meant by “low-carbon steel”. The European Steel Association (Eurofer) had originally hoped to use public procurement to promote development of local green steel production, but ultimately only required “low-carbon”, with no made-in-Europe rule.
According to Joseph Dellatte of Institut Montaigne, producing green steel in the EU would be a real challenge because energy costs are high and producing hydrogen is difficult. “The removal of the requirement for steel to be made in the EU was pragmatic and the bloc has sped up work on low-carbon steel standards,” he said.
Kevin Mo said the IAA is a rebalancing of interests within the EU. Upstream producers of steel, cement and aluminium generally welcome policies requiring local production – it means more orders and more protection. Buyers of those products, though, are less keen – higher raw material costs increase their own costs and reduce competitiveness on export markets.
Julia Metz has a similar view: the design of the legislation integrates various priorities across sectors, supply chains and member states, such as the relevance of Germany’s export markets. The proposal now strikes a fine balance between strengthening the European market and retaining a free trade approach, she said.
That process of balance and compromise was a constant during the drafting of the bill. The proposed regulation was originally called the Industrial Decarbonisation Accelerator Act, with “decarbonisation” removed at the end of 2025. Publication of the text was delayed three times, perhaps allowing time for lobbying efforts to weaken ambition, suggested InfluenceMap, a think-tank headquartered in London.
How much will the cost of decarbonisation go up?
The biggest controversy is over the IAA’s impact on the cost of the EU’s green transition.
In its impact assessment, the European Commission admits the policy would increase public procurement costs, but to a “manageable” degree. For example, solar panels from China cost less than half IAA-compliant ones sourced from the EU (EUR 0.087 per watt compared to EUR 0.19). But as panels make up only 25% to 30% of overall project costs, the actual increase in the cost of electricity to the consumer will be limited. The commission also argues that Chinese solar panels are priced artificially low, and benchmarks “sustainable” Chinese production at EUR 0.159 per watt.
Joseph Dellatte said the cost increases are manageable – but not evenly distributed. First, the regulation only covers public procurement and projects receiving public support. There’s also flexibility built in: the EU-origin requirement can be ignored if the EU product costs 25% more than the alternative.
Second, there will be significant differences in how sectors are affected. He thinks the wind power sector could cope with a premium of about 20%, as equipment is a relatively small part of overall costs for wind farms. The real pressure will be on the battery sector, where there is a significant cost gap between European and Chinese companies.
Cosimo Ries, a renewables analyst with Trivium China, is more cautious on costs. He thinks the EU may not be able to hold the line if the policy drives retail prices up significantly. He also warned that the policy resources may be too widely distributed: “There’s already overcapacity in solar manufacturing, and big investment in a complete solar supply chain may not bring the hoped-for returns. Resources should be focused on fields such as wind power and batteries, where there’s more potential to be competitive.”
Impact on Chinese businesses
The IAA’s rules on foreign investment will change how Chinese firms do business in Europe.
According to the proposed regulation, extra scrutiny should be applied to investments worth over EUR 100 million in emerging strategic sectors (batteries, EVs, PV solar and critical raw materials) from third countries with 40% of global capacity in that sector. Investors would need to meet at least four of six criteria, including caps on foreign ownership, the need for joint ownership with EU firms, technology transfers, R&D spending, local employment and local procurement.
The proposal does not name names, but as China has more than 40% of global manufacturing capacity for several clean technologies, it seems clear who the rules are aimed at.
Joseph Delatte explained that Chinese companies have been able to rely on strong supply chains at home to quickly capture European markets, but that this model is now facing a challenge. In the future, products alone won’t be enough to sell on the European market. Companies will need to manufacture locally, hire locally and build local supply chains.
Cosimo Ries thinks there are “echoes of Asia” in the IAA’s EU-origin and technology transfer requirements. Some analysis has found similarities between the IAA and the industrial policies of China in the early 2000s, when the country boosted its manufacturing sector with rules on joint ownership, local production and market access arrangements.
But Kevin Mo said the EU today is at a very different stage of development from China then. Opening up allowed China’s weak manufacturing sector to access new technology and form industrial clusters. The EU already has an industrial base but is trying to respond to a loss of competitiveness, industry and high energy prices. The similar policies will not necessarily have similar outcomes.
Some leading Chinese companies have already been preparing. Battery maker CATL has factories in Germany and Hungary, meeting European market demand with local facilities and offering local training.
But those firms also need to consider the costs: “High-cost locations aren’t good places for manufacturing,” said Cosimo Ries. He pointed to EV maker BYD as an example: the company is delaying planned mass production at a plant in Hungary, while getting a factory in Turkey up and running earlier than expected, in the hope of using a third country with an EU trade deal as a springboard, both meeting EU-origin requirements and maintaining competitiveness on cost.
Joseph Dellatte says the proposed regulations are “quite open”, to the point they could potentially be worked around. As countries with EU trade deals are treated as meeting EU-origin requirements, Chinese companies could, in theory, assemble products in places like Morocco and Turkey, then export from there to the EU, he said. But he also stressed the European Commission has reserved the right to exclude products retrospectively, leaving considerable flexibility in actual implementation of the policy.
Kevin Mo is optimistic about Chinese companies adapting. He thinks that rather than being put off by EU and US tariffs and stricter screening for foreign direct investment, they have continued to expand their reach by setting up in third countries and building factories overseas. This is particularly the case in the battery, energy storage and EV sector, he says. The strengths Chinese firms offer in terms of price and delivery mean they will not easily be replaced in the near term.
Dellatte says the current proposal is somewhat rough, and significant differences of opinion remain among EU member states. There is still some time before the legislation is finalised, passed and ultimately implemented, and this gives Chinese companies time to adjust their investments, he says.
Julia Metz says that many economies around the world are increasingly adopting new industrial policies in response to a changing international context. Yet climate cooperation continues between the EU and China, despite trade frictions. Moreover, the local-origin requirements of the IAA are specific to cases where public funds are being spent, rather than broad trade measures.
She stressed: “Climate cooperation goes a lot further than competing on trade and exports.” Metz thinks that despite disagreements over industrial policy, there is still scope for long-term cooperation, for example on emission-reduction technologies and the transition of heavy industry and green industrial infrastructure.
