In difficult times, old orthodoxies change quickly. At the moment, this is particularly true in Europe. Shocked by Russia’s war in Ukraine, left vulnerable by the “America First” policies of a second Trump administration, and outcompeted by China’s state-led export machinery, Europe is increasingly willing to experiment with new policy tools.
The Industrial Accelerator Act (IAA) is a case in point. The proposal, to be published by the European Commission on the 26th of February, though media reports indicate it could be delayed for the third time, marks a clear departure from traditional liberal free-market principles. State aid restrictions have already been softened, but now the Commission is reportedly proposing local content rules, the creation of lead markets, and new conditionalities for foreign direct investment, including potential technology transfer requirements.
My discussions with European and Finnish officials and businesses repeat the same message: “In a perfect world, we would not prefer this. But something needs to be done.”
From a climate perspective, the debate revolves around three main issues:
- European markets are being flooded with low-priced, high-carbon products that gain additional competitive advantage from unfair practices outside the EU.
- European cleantech industries fear a new “photovoltaics moment”, where thriving and innovative European industries are rapidly undermined by unfair, state-subsidised competition.
- Demand for European low-carbon industrial products remains limited. Producers face high investment and production costs and lack industrial-scale efficiencies, while buyers are often unwilling or unable to pay a green premium.
The Commission’s starting point appears to be that European public money should support European industries. Public procurement in its various forms account for roughly 15 percent of the EU’s GDP. The Commission is proposing a more strategic use of procurement to create demand for low-carbon materials, first focusing on steel, cement, aluminium and plastics. The IAA would mandate the use of low-carbon materials in public works, such as transport infrastructure projects, where steel and cement account for a large share of embedded emissions.
Low-carbon requirements are expected to go hand in hand with the so-called “Made in Europe” rules, meaning local content requirements not only for these materials but also for net-zero technologies such as solar panels, batteries and wind turbines. The main objective is to retain manufacturing capacity and supply chains for strategic clean energy technologies within the EU. For example, in the case of batteries, the IAA may require certain key components to originate within the EU.
CLC supports the idea of establishing lead markets for strategically important low-carbon materials and net-zero technologies. Insufficient demand has been one of the main barriers limiting the growth of low-carbon markets. There is also a legitimate need to protect emerging European cleantech companies from unfair competition. Over the past decade, local content rules have proliferated across major global markets.
However, important questions remain.
The latest leaked versions of the IAA appear to focus more on “Made in Europe” protection than on robust low-carbon criteria. This is concerning. Without a strong decarbonisation driver, the IAA risks becoming primarily a protectionist instrument rather than a tool for the clean economic transition.
Further questions arise regarding scope. Should lead markets extend beyond construction materials to sectors such as chemicals, fertilisers and bioproducts, as well as plastics used outside construction? Should private demand also be included, for example through low-carbon requirements for placing certain products on the market?
In preparing the final proposal, it must be ensured that the IAA does not slow Europe’s transition towards net zero. “Made in EU” requirements could increase costs and potentially delay the deployment of technologies that are essential for the transition.
For small, open economies such as the Nordic countries, the IAA carries additional risks. It may disrupt globalised value chains and trigger trade backlash from key partners. The IAA must support industrial decarbonisation and the transition to low-carbon economies. It should not become a tool for protecting legacy industrial structures in larger Member States.
