The European Commission presented its long-awaited proposal for the Industrial Accelerator Act (IAA) in early March. The law is intended to strengthen demand for low-carbon technologies and products manufactured in Europe. Hydrogen benefits less from this than some had hoped.
The draft of the Industrial Accelerator Act (IAA) is finally on the table. The law is intended to strengthen European manufacturing and create jobs. The EU is introducing two types of requirements for public procurement, auctions and funding programs: “Made in EU” and CO2 requirements. These apply to strategic sectors such as steel, cement, aluminum, automotive and so-called net-zero technologies, including batteries, solar, wind, heat pumps and nuclear technology. According to the Commission, the framework can be extended to further energy-intensive sectors such as the chemical industry.
The proposal follows the recommendations of the “Draghi Report” by the former ECB President on EU competitiveness and is part of the Commission’s Clean Industrial Deal. It now enters negotiations between the European Parliament and the Council.
The state should buy low-carbon
One aim of the law is to strengthen demand for clean technologies. When public institutions commission buildings, infrastructure or vehicles, they will in the future be required under the IAA to give preference to steel with a low carbon footprint. However, there are no requirements for steel to be manufactured in Europe.
The precise definition of what qualifies as “low-carbon” will be established through delegated acts under the Ecodesign for Sustainable Products Regulation (ESPR) and the Construction Products Regulation (CPR). The Commission says it wants to give investors planning certainty. Hydrogen derivatives, fertilizers and e-fuels are not yet covered by specific demand-side measures in the regulation text. However, the IAA draft includes an empowerment provision that would allow the Commission to introduce such measures later via delegated act.
Funding only with local content
Hydrogen is explicitly mentioned in several places in the IAA draft, though not always on an equal footing with other net-zero technologies.
As with many pieces of legislation, the process is nested. Some key changes are, strictly speaking, amendments to the already existing Net Zero Industry Act (NZIA), which likewise aims to support both climate protection and European industry. New requirements are being inserted into the annex of the NZIA through the IAA.
For auctions allocating funding, the NZIA is set to include, through the IAA, concrete “Made in EU” requirements for electrolyzers. From one year after the regulation enters into force, electrolyzers must originate from the EU, with the stacks and at least one additional main component being of European origin. From three years after entry into force, the requirement increases to stacks plus two additional main components. The same requirements apply when member states use public funds to support the build-up of electrolyzer manufacturing capacity.
With the requirement to also manufacture electrolyzers in the EU, the Commission goes beyond earlier plans in order to “anticipate and mitigate potential future supply and market risks,” as stated in the regulation’s explanatory memorandum.
For funding programs targeting end consumers and businesses (so-called “other forms of public intervention”), however, no Made-in-EU requirements are formulated for electrolyzers.
The IAA stipulates that products from certain partner countries are treated as equivalent to the “Made in EU” requirements, meaning they are considered on a par with European origin. Which countries qualify, however, depends on the instrument. In public procurement, products from countries that have acceded to the WTO Government Procurement Agreement (GPA) are also recognized, including the USA, Canada, Japan, South Korea and the United Kingdom. For auctions and funding programs, by contrast, a narrower circle of so-called trusted partners applies, namely countries with a free trade agreement or customs union with the EU. In addition to the EFTA states, these include, for example, the key hydrogen markets of India, Japan, Turkey and the United Kingdom.
Faster permits and industrial clusters
The IAA provides for a simplification of permitting procedures. Member states are to establish digital one-stop shops with fixed deadlines. For decarbonization projects in energy-intensive industries, the principle of tacit approval for intermediate steps is to apply. Furthermore, the law introduces so-called Industrial Acceleration Areas. These are intended to promote industrial symbioses and facilitate the development of clusters for clean manufacturing. With the IAA, the Commission pursues the goal of increasing the share of manufacturing in EU gross domestic product from the current 14.3 percent to 20 percent by 2035.
Hydrogen Europe: More to be done
The European industry association Hydrogen Europe broadly welcomes the IAA’s focus on “Made in Europe” for hydrogen technologies such as electrolyzers and fuel cell vehicles. However, the association criticizes that the scope has been significantly narrowed compared to earlier drafts, especially for hydrogen derivatives, fertilizers and e-fuels, which practically benefit only from simplified permitting. Stronger demand-side measures are needed for genuine lead markets. Hydrogen Europe CEO Jorgo Chatzimarkakis believes the EU must close the gaps in terms of ambition, scope and clarity. “Europe must ensure that its industry can grow, be competitive and play a leading role globally in strategic clean technologies such as hydrogen.”
The proposed quota of 25 percent for low-carbon steel in public procurement is too low, the association argues. The fact that the definition of requirements has been deferred to the Ecodesign Regulation also sends the wrong signal to industry and investors. Hydrogen Europe further criticizes the differing definitions of partner countries for public procurement and auctions. This creates additional complexity and legal uncertainty, particularly for auctions, which are the most important funding instrument for the hydrogen sector.
“Made in Europe” divides opinion
For the hydrogen sector, “made in Europe” represents an opportunity, since there is currently still a technological lead that China, with ample state support, could soon close. However, the German Mechanical Engineering Industry Association (VDMA) is quite skeptical. VDMA Managing Director Thilo Brodtmann criticizes that the focus on local content distracts from problems such as high administrative burden, a weakened single market and Europe’s lack of technological leadership. “A ‘Buy European’ approach is justified when the EU’s security interests are concretely at risk and there is no other way to reduce or preemptively avoid dependence on strategically relevant technologies and critical raw materials,” he says. He welcomes the fact that the green steel requirement is limited to relatively few applications.
The added autonomy through “made in Europe” comes at a cost. The wind and solar industries already have experience with this problem. The topic is controversial within the value chain: European equipment manufacturers welcome the competitive advantage from local content requirements. Project developers protest against them. For them, local content means higher procurement prices, which ultimately translates into higher generation costs for solar and wind power.
By comparison, the hydrogen sector is at an earlier stage of industrial development. It still has a technological lead that could be secured in this way, experts emphasize. Local content could thus provide the impetus to achieve scaling and thereby better competitiveness. The hope is that this could keep a future technology in Europe and build long-term resilience.
Requirements no earlier than 2028
The European Commission’s draft now enters negotiations between the European Parliament and the Council. Experience shows that such a legislative process takes at least one to two years. If it becomes a regulation, as the Commission recommends, the IAA would apply directly in all member states after its adoption. Transposition into national law would not be necessary, but of course there are deadlines for the requirements.
The plan is for the “Made in EU” requirements for electrolyzers in auctions and for funding of electrolyzer manufacturing to take effect in a first stage one year after entry into force, with stricter requirements after three years. The digital permitting procedures are also set to start one year after entry into force. Adding up the timelines and deadlines, the first rules could take effect in 2028, if for once everything goes smoothly.
