Wood Mackenzie Cross-Sector Analysis Finds EU Industrial Accelerator Act Lacks Binding Force to Achieve 20% Manufacturing GDP Target by 2035

Wood Mackenzie's cross-sector analysis found the European Union's Industrial Accelerator Act will likely stem the pace of industrial decline but lacks the comprehensiveness and binding force required to achieve its stated goal of increasing manufacturing to 20% of EU GDP by 2035.

The legislation represents the EU's most comprehensive attempt to reverse two decades of manufacturing decline. European manufacturing's share of global GDP fell from 17.4% to 14.3% between 2000 and 2024 as lower-cost imports challenged key sectors including steel, automotive, and chemicals. Adopted by the European Commission on 4 March 2026, the IAA introduces "Made in EU" requirements across public procurement, restricts foreign ownership in strategic sectors to 49%, and establishes streamlined permitting systems for industrial projects.

However, Wood Mackenzie's assessment across macroeconomics, carbon policy, power and renewables, hydrogen, chemicals, metals, and battery supply chains identifies a consistent pattern. Ambitious headlines, but implementation choices water them down.

The core issue: "Made in EU" extends to any country with which the bloc has a free trade agreement. The Union has 40 such agreements covering more than 70 partners, many of whom are significant producers of commodities the IAA was meant to ringfence. In doing so, the legislation primarily provides protection against China while maintaining broad import exposure elsewhere.

Combined with cost waiver thresholds, this fundamentally alters the Act's impact. When European-made alternatives prove more expensive—and they routinely do—local content mechanisms become voluntary rather than binding. The three-year implementation gap presents another critical flaw. In fast-evolving sectors like solar cells and battery technology, this timeline risks Europe building yesterday's manufacturing capacity to compete in tomorrow's market.

Key cross-sector findings:

• Solar PV: EU-origin requirements for cells and inverters anchor 30 GW annual demand by 2030. Three-year delay risks leaving Europe one technology cycle behind China
• Wind Power: Local origin rules support existing European component manufacturing. Cybersecurity provisions create barriers to Chinese turbine OEMs.
• Hydrogen: Waiver provisions allow exceptions when EU equipment costs 20% more than alternatives. 100-MW Chinese electrolyser costs US$30 million versus US$115 million for Western equivalents
• Steel Production: Of 50+ million tonnes (Mt) announced direct reduced iron capacity, approximately 12 Mt cancelled or paused with only 11 Mt reaching construction. 25% low-carbon procurement requirement lacks EU-origin mandate
• Aluminium: 25% low-carbon Union-origin requirement more restrictive than steel. Primary consumption forecast to grow at 1.2% annually over next decade
• Battery Supply Chain: Corporate fleet requirements covering 85% of new EV registrations mandate EU assembly and cells. Three-year delay for cathode active material requirements and 49% foreign ownership caps risk discouraging investment
• Critical Raw Materials: 30% local sourcing requirement negated by cost waiver if sourcing increases manufacturing costs by more than 25%

European industrial production remains 4.3% below its October 2022 peak as of December 2025. The IAA does not address underlying cost competitiveness issues: energy prices, capital market fragmentation, raw materials availability. Carbon pricing on cement and steel products is expected to reach around US$160 per tCO2e by 2034 as free allocations are phased out under the EU Emissions Trading System and the Carbon Border Adjustment Mechanism is phased in.

"The Industrial Accelerator Act tackles Europe's competitiveness crisis with permitting reforms and demand guarantees, but implementation choices consistently dilute the policy's bite,” said James Willoughby, Senior Analyst at Wood Mackenzie. “With investment decisions made today facing potential technological obsolescence by 2030, the three-year runway risks building yesterday's technology for tomorrow's markets, particularly in solar where Chinese manufacturers are advancing toward tandem architectures."

Willoughby continued: "Cost waivers that trigger when European equipment runs 20-30% more expensive—a threshold routinely exceeded today—transform binding requirements into voluntary preferences. The legislation will likely stem the pace of decline in select segments, but without addressing structural cost disadvantages in energy and capital access, the 20% GDP target looks increasingly out of reach."

The IAA is not without merit. Permitting acceleration, if implemented effectively by member states, could meaningfully reduce project delivery timelines. The cybersecurity framework raises legitimate barriers to high-risk suppliers in critical infrastructure. Procurement mandates create guaranteed demand segments for some European manufacturers.