The regulation targets energy-intensive sectors including steel, cement and aluminium, alongside renewable technologies such as wind turbines, solar photovoltaics (PV), batteries and heat pumps.  

The IAA introduces conditions for foreign direct investment (FDI) exceeding £100mn in strategic sectors where a single third country controls over 40% of global manufacturing capacity. Such investments must license intellectual property (IP) to benefit the EU, employ a majority of European workers and comply with local content requirements.

As part of a ‘simplification agenda’, the Act mandates member states to establish a digital hub for industrial permitting. ‘This includes the introduction of a single digital “one-stop-shop" with clear time limits as well as the principle of tacit approval at intermediate stages of the permit-granting process for energy-intensive decarbonisation projects,’ the European Commission stated.  

Legal firm Norton Rose Fulbright flagged the potential significance of the change in a briefing document. It said: ‘Businesses inside and outside the EU will need to pay close attention, as the proposed rules, if adopted, could significantly reshape EU market access conditions and the framework for foreign investment.’

In terms of battery production, the IAA defines EU-made batteries as those with at least three components, including cells, produced in Europe, rising to five components by 2030.  

Green campaigning organisation Transport & Environment (T&E) praised the move. ‘This is a positive step for Europe’s battery industry as company cars will soon have to run on locally-made batteries,’ said Julia Poliscanova, Senior Director for Vehicles and E-mobility Supply Chains. The organisation estimates that from 2027, nearly two-thirds of electric vehicles (EVs) sold in the EU will require batteries produced within Europe. T&E noted that 70% of other EV components, excluding batteries, must also be produced in the EU, although the group criticised ‘loopholes’ regarding the eligibility for purchase subsidies of EVs produced in free trade agreement (FTA) countries.

Solar projects awarded through public auctions or support schemes must feature solar inverters and cells manufactured in the EU within three years of the Act entering into force.  

‘By focusing on made-in-EU solar inverters and cells, the European Commission has largely found a balance between reshoring production of the most strategic solar PV system components, while avoiding overly restrictive requirements too early,’ stated Dries Acke, Deputy CEO of SolarPower Europe.

However, the European Solar Manufacturing Council (ESMC) expressed disappointment, stating that limiting requirements to only two out of eight solar components (inverters and cells) would not bring the ‘entire photovoltaic value chain’ back to Europe. ESMC Secretary General Christoph Podewils said: ‘If the European solar industry has to wait another three years after the legislation is adopted, many companies will have disappeared in the meantime due to ongoing unfair competition from China.’

Solar Heat Europe complained about solar thermal being removed from the scope of ‘made in Europe’ public procurement provisions in a ‘last-minute change’ to the draft, stating that this ‘materially disadvantages’ the EU-based solar thermal industry and tilts the playing field toward cheaper imports.

Turning to wind power, ‘the EU has rightly identified wind energy as a strategic sector. Industrial leadership in wind is in Europe’s strategic interest,’ said Tinne van der Straeten, CEO of WindEurope. The Association stated that a ‘simple and harmonised implementation’ is required to avoid fragmented national regulations. Van der Straeten added that ‘trusted partners like the UK’ should be treated on a par with EU countries to ensure the success of the industrial strategy.

The proposal will now be negotiated by the European Parliament and the Council of the European Union. Stéphane Séjourné, EU Commissioner for Internal Market and Services, stated that the faster the proposal moves through lawmaking stages, the more stability the industry will have.

‘Facing unprecedented global uncertainty and unfair competition, European industry can count on the provisions of this Act to boost demand and guarantee resilient supply chains in strategic sectors. It will create jobs by directing taxpayers’ money to European production, decreasing our dependencies and enhancing our economic security and sovereignty,’ said Séjourné.