European Preference and Competitiveness under the Industrial Accelerator Act

The EU Industrial Accelerator Act (IAA) raises an important policy question: how can Europe strengthen industrial resilience without weakening the competitiveness of the companies that must deliver it? This report assesses the implications of introducing Union origin requirements — or “European preference” — in public procurement and public support schemes. The objective of reducing harmful dependencies is legitimate. However, the design of any such measure must be judged against its impact on costs, competition, supply-chain flexibility and long-term value creation.

The analysis indicates that European preference would create clear economic trade-offs. Restricting sourcing choices can increase production costs, reduce companies’ ability to use established global value chains and limit access to the most competitive technologies and inputs. It may also weaken competition in procurement markets by reducing the number of eligible suppliers. These risks are particularly relevant in sectors where supply chains are international, technologically specialised and difficult to reorganise quickly, including solar PV, batteries, wind turbine components and electric buses.

The estimated cost impacts are significant. Moving production from current non-Union suppliers to the EU27 could increase costs by 10–20 per cent for solar PV modules and components, 20–30 per cent for wind turbine components, 30–40 per cent for battery components and cells, and 30–40 per cent for electric buses. In absolute annual terms, the largest effects are expected in batteries and solar PV, where the combination of high import exposure and sizeable production-cost gaps creates the greatest risk of additional costs for companies, public buyers and taxpayers.

The wider implications go beyond direct production costs. Higher input prices may be passed on through European value chains and reduce the purchasing power of public budgets. If procurement and support schemes become more expensive, the same level of public funding may deliver fewer projects or less installed net-zero capacity. A narrower pool of eligible suppliers may also reduce competitive pressure, strengthen incumbents and redirect investment towards compliance-driven production stages rather than activities that generate the highest long-term value, such as innovation, advanced engineering, software and R&D.

The policy conclusion is therefore clear: European preference should not be introduced as part of the IAA or other future legislative initiatives. If such measures remain on the table, they should be narrowly targeted, evidence-based and used only where a strategic high-risk dependency has been clearly demonstrated. Any framework must preserve openness towards trusted partners, avoid regulatory overlap, minimise administrative burdens and provide predictable conditions for business.

Policy recommendations:

1. Apply European preference only where there is clear evidence of a strategic high-risk dependency and where it is demonstrated to be the most appropriate policy tool.

2. Limit European preference to clearly identifiable products and avoid unnecessary complexity.

3. Avoid duplication and overlap with existing regulatory frameworks.

4. Maintain broad partner-country coverage and safeguard openness towards trusted partners.

5. Approach reciprocity requirements with caution and in their broader trade-policy context.

6. Ensure legal certainty, transparency and predictable framework conditions.

7. Regularly assess the economic effects of European preference.