EUROPEAN COMMISSION

Brussels, 4.3.2026

SWD(2026) 71 final

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT REPORT

Accompanying the document

Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

establishing a framework of measures for the acceleration of industrial capacity and decarbonisation in strategic sectors and amending Regulations (EU) 2018/1724,


(EU) 2024/1735 and (EU) 2024/3110

{COM(2026) 100 final} - {SEC(2026) 70 final} - {SWD(2026) 70 final} - {SWD(2026) 72 final}

Table of contents

1    Introduction: Political and legal context    

1.1    Political context    

1.2    Legal and policy context    

2    Problem definition    

2.1    What is the problem?    

2.2    What are the sub-problems and their drivers?    

2.3    How likely is the problem to persist?    

3    Why should the EU act?    

3.1    Legal basis    

3.2    Subsidiarity: Necessity of EU action    

3.3    Subsidiarity: Added value of EU action    

4    Objectives: What is to be achieved?    

4.1    General objective    

4.2    Specific objectives    

5    What are the available policy options?    

5.1    What is the baseline from which options are assessed?    

5.2    Description of the policy measures    

5.3    Options discarded at an early stage    

6    What are the impacts of the policy options?    

6.1    POLICY OPTION 1    

6.2    POLICY OPTION 2    

6.3    POLICY OPTION 3    

7    How do the options compare?    

7.1    Effectiveness    

7.2    Efficiency    

7.3    Coherence    

7.4    Proportionality/Subsidiarity    

8    Preferred option    

8.1    REFIT (simplification and improved efficiency)    

8.2    Application of the ‘one in, one out’ approach    

9    How will actual impacts be monitored and evaluated?    

Annex 1: Procedural information    

Annex 2: Stakeholder consultation (Synopsis report)    

Annex 3: Who is affected and how?    

Annex 4: Analytical method    

Annex 5: Competitiveness check    

Annex 6: SME Check    

Annex 7: Sectoral analyses    

Annex 8: Interplay with other legislation and policies and baseline scenario    

Annex 9: Overview of policy measures    

Annex 10: Extended information on the problem section    

Annex 11: Extended information on the impacts (Section 6)    

Annex 12: Development of a low-carbon product label for steel    

Annex 13: Overview of third countries conditionalities for FDI    

Annex 14: Extended information on the scenarios in the LEAD_VC cost absorption    

Annex 15: Sensitivity analysis: costs and benefits    

Annex 16: Net-Zero Technologies    

Glossary

1Introduction: Political and legal context

1.1Political context 

The European Union (EU) manufacturing sector employed around 30 million persons and generated EUR 2.5 trillion of value added in 2023, making it the largest sector of the EU’s business economy for its contribution to employment (18.7%) and value added (23.6%). 1 However, the EU’s share of global industry gross value added declined from 20.8% in 2000 to 14.3% in 2024. 2 Industrial investment in the EU is lower than in other regions. 3  EU energy prices continue to be higher than our trade partners’ and are forecasted to remain so in coming years. Europe still faces commercialisation obstacles and regulatory hurdles. 4 Furthermore, a major structural challenge for some EU industries 5 is state-subsidised overcapacity at global level, which distorts global prices and international markets.

Manufacturing industries account for about 26% of the EU’s total greenhouse gas (GHG) emissions. Energy intensive industries (EIIs), on their own, represent 22% of the EU’s total GHG emissions or more than three quarters of all industrial emissions. 6  For the purpose of this impact assessment, EIIs include the following industrial sectors: chemicals, steel, pulp and paper, plastics, refineries, cement, non-ferrous metals, glass and ceramics, as first identified in the European Commission’s Annual Single Market Report 2021 and consistently used in subsequent policy frameworks. 7  

Decarbonisation and industrialisation are two sides of the same coin, as decarbonisation should be delivered with a strong and resilient European industrial base. Achieving the EU's climate neutrality goal without negatively affecting industry’s performance depends on a strong business case for decarbonisation. Without a healthy decarbonised industrial base, the EU will not achieve its objectives of economic security, competitiveness and decarbonisation as outlined in the Competitiveness Compass. 8  

The global market for net-zero industry technologies 9 is projected to nearly triple by 2035. 10 While deployment in the EU is progressing, the Union’s global market share is declining, and domestic manufacturing capacity remains limited. Production is highly concentrated, with mainland China controlling over 90% of solar photovoltaic (PV) and battery manufacturing capacity, and more than 90% for battery anodes and solar wafers. 11 Strengthening EU clean tech manufacturing is therefore essential. 12  

The Antwerp Declaration 13 calls for a European Industrial Deal to complement the EU Green Deal and safeguard quality jobs in Europe. The Declaration calls for urgent action to restore the business case for investments in Europe.

Economic security has become a central pillar of the EU’s industrial policy since the adoption of a European Economic Security Strategy. 14 In October 2023, the Commission adopted a Recommendation 15 identifying ten critical technology areas that are essential for Europe’s security and competitiveness. These technologies underpin the green and digital transitions but also expose the Union to strategic dependencies and supply chain risks.

The European Commission presented in February 2025 the Clean Industrial Deal 16  as Europe’s new growth strategy to accelerate decarbonisation, increase competitiveness and ensure productivity growth for European industry. On the financing side, this included the Clean Industrial Deal State aid framework adopted in June 2025, an Industrial Decarbonisation Bank planned for 2026 and the European Competitiveness Fund. The Commission also presented an Action Plan for Affordable Energy to decrease energy costs across the EU.

EU leaders adopted the Budapest declaration 17  highlighting the urgent need and determination to make the EU more competitive through a new European competitiveness deal. In March 2025, the European Council reaffirmed its commitment to strengthening Europe’s competitiveness. 18  The European Parliament Resolution on Energy Intensive Industries 19  calls on the Commission to develop solutions for speeding up decarbonisation projects and for the creation of lead markets for clean and circular European products, via non-price criteria in EU public procurement in line with the EU’s international commitments.

It is in that context that the Clean Industrial Deal announced a new regulatory initiative to address permitting bottlenecks, introduce resilience and sustainability criteria to create lead markets for the development of European clean and resilient industrial technologies and products and develop a label on the carbon intensity of industrial products, starting with steel. The European Steel and Metals Action Plan 20 and the European Chemicals Industry Action Plan 21 reiterate the commitment to include resilience and sustainability criteria to support the demand for EU-made clean products. The Automotive Action Plan 22 states that to boost the European production of key vehicle components, any public support benefitting the automotive industry will be made conditional on resilience and sustainability criteria to be proposed under this initiative. It also calls on it to address European content requirements on battery cells and components in EVs sold in the EU, in line with the Union’s international legal commitments. Based on these previous commitments, the 2025 State of the Union Address announced a proposal of an Industrial Accelerator Act (IAA) to boost demand for clean and Made in EU products in key strategic sectors and technologies.

1.2Legal and policy context 

A range of EU policy and legal instruments govern how the manufacturing industry operates in the EU, covering areas such as GHG emission reductions for manufacturing sites in the EU, energy markets, energy efficiency, conditions to operate in the Single Market and compliance with environmental and climate legislation. In particular, the EU Emissions Trading System (ETS) Directive 23 is the main climate policy instrument to incentivise GHG emissions reduction. It provides the main price signal for industries to invest in decarbonisation, and the Commission is preparing its proposal for a review to ensure the instrument is adjusted to promote cost-effective emissions reductions in line with the climate neutrality target. The Carbon Border Adjustment Mechanism (CBAM) is the instrument protecting some ETS sectors from the risk of carbon leakage, while ensuring that domestically produced and imported goods face the same carbon costs in the internal market. A comprehensive review of CBAM, accompanied by an anti-circumvention strategy, has been adopted at the end of 2025. The Net Zero Industry Act (NZIA) 24 , as well as the Batteries Regulation 25 , also provide incentives for clean tech and resilient industrial manufacturing in the EU. Industrial decarbonisation is also supported by policies and legislation on the demand side, aiming at decarbonising downstream end-use sectors. This includes for instance recent legislation on the building and construction sectors, and aviation and waterborne transport or most notably the automotive package, with the revision of CO2 standards and the introduction of low-carbon steel credits. It also includes products legislation, such as the Ecodesign for Sustainable Products (ESPR), which aims at improving the environmental sustainability and circularity of products placed on the EU market. Permitting and access to energy infrastructure is also covered by other recently adopted Commission’s initiatives, namely the grids action plan, the electricity market design, the grid tariff and grid anticipatory investment guidance implementation, the Grids package on infrastructure planning and permitting and the Environmental Omnibus, to simplify administrative burden in environmental legislation. Annex 8 presents the list of relevant initiatives and a detailed explanation of how they relate to IAA.

2Problem definition

2.1What is the problem?

The overarching problem this initiative aims to address is to support the EU industry’s competitiveness and resilience in a context of increased global pressure, while accelerating the decarbonisation of its processes and products. The business case to invest in innovation and industrial decarbonisation in the EU needs to be improved, with particular focus on EIIs and clean tech manufacturing.

Lengthy and complex permitting procedures slow down projects, while limited access to affordable energy, infrastructure and key materials further constrains investment. These bottlenecks undermine industrial competitiveness and delay the clean transition.

Global pressures

The causes for the industry’s reduced competitiveness are multiple, and many depend on external macroeconomic factors beyond the scope of this initiative. 26  Energy inputs account for 7% to 9% of the production value in EU EIIs, and although gas and electricity prices in the EU have dropped from their 2022 peaks, gas prices are still about five times higher than on other global markets and electricity prices are approximately twice as high. The forecasts for 2030 indicate a continuation of Europe’s energy cost disadvantage. 27  

Most manufacturing industries operate in a global market shaped by increasingly distorted competition. These distortions are the result of a combination of state subsidies, global industrial overcapacity, tariff asymmetries, and the strategic deployment of foreign industrial policies that challenge Europe’s ability to remain competitive, while decarbonising. In the new world order, competitors like China are moving faster in developing their clean technology industries and supporting their competitiveness. In 2023, China accounted for 55% global steel production 28 , and above 60% for aluminium, solar PV, batteries, and electric vehicles (EVs). 29  

Beyond competitiveness pressures, the erosion of EU industrial capacity also creates growing economic security vulnerabilities. Several industrial value chains meet the criteria of high-risk dependencies, including heavy reliance on a single dominant supplier, exposure to non-market overcapacity 30 , and the increasing use of export restrictions or coercive economic practices. Such dependencies can be weaponised, creating systemic risks for the Single Market and undermining the Union’s ability to secure the inputs needed for clean technologies, critical infrastructure, and defence-related manufacturing. As EU production shrinks and import reliance grows, the likelihood and impact of supply disruptions, price manipulation or arbitrary restrictions increase accordingly.

Energy Intensive Industries in Europe: an industrial fabric at risk

Over the past decade, the EU EIIs have reduced their GHG emissions by 35% 31 , while their emissions intensity decreased by 25% since 2000. 32  In parallel, their competitiveness has been declining, more starkly since the energy crisis in 2021, as energy costs in the EU remain above those of many international competitors. Cost gaps with other world regions have widened and imports shares (in particular, for chemicals and metals) have increased. 33  

Figure 1 below illustrates how production volumes in EIIs have substantially declined, compared to production volumes in other manufacturing sectors. The current steel capacity utilisation rate is of approximately 65%, while to be market competitive the sector would need to run at above 85% capacity. 34 For the chemicals industry, production utilisation rates have stagnated at 74-75% range, significantly below the historical averages of 81.5%. 35  

In a decade, the EU trade balance for EIIs has steadily declined, getting close to deficit in 2022. 36 While this is the case for most energy-intensive sectors, the trend was largely driven by basic metals with a 36% drop, and chemicals with an 8.1% drop in exports and 15% increase in imports, amongst others. 37  

Figure 1: production volume and confidence indicators for EIIs, internal European Commission analysis

The Draghi report highlights that decarbonising industry requires a far-reaching transformation of assets and processes, which calls for substantial investment. The impact assessment for the 2040 Climate Target Plan estimates the investment needs to transform the iron and steel sector at around EUR 80 billion between 2031 and 2040 and EUR 100 billion between 2031 and 2050, while for the four largest EIIs together (chemicals, basic metals, non-metallic minerals, and pulp and paper industry) the investment needs are estimated at around EUR 287 billion over 2031-2040 and EUR 500 billion over 2031-2050. 38 , 39   While decarbonisation technologies are often more mature and more cost competitive for non EII sectors, manufacturing companies still face significant costs alongside administrative hurdles, regulatory challenges and skills shortages for companies. Today, the cost difference between high carbon and low-carbon technologies remain high, as it is explained under Sub-problem 1 and 3 and in more detail in Annex 7.

Clean technologies also face competitiveness challenges and supply chain vulnerabilities. 40  For instance, for solar PV modules, the EU relies almost entirely on imports from China. Lack of competitiveness is also visible in more downstream value chains. For instance, the European automotive industry has witnessed a significant reduction in profitability, with the average profitability of European automotive suppliers dropping from 7.4% in 2017 to 5.1% in 2023. 41  See Annex 7 for further analysis of all relevant sectors.

2.2What are the sub-problems and their drivers?

The main problem is the limited business case for EU industry, and EIIs in particular, to invest in decarbonisation in time to reach the EU’s climate targets while ensuring the competitiveness of EU energy intensive and clean tech industries in the process.

2.2.1Sub-problem 1: Limited demand for European low-carbon industrial products at current prices

Limited demand for low-carbon industrial products is mainly due to the currently higher costs of these products against more carbon intensive alternatives. Additionally, business customers often lack sufficient incentives and face difficulties distinguishing between low-emission and carbon intensive industrial products, due to the absence of commonly agreed, transparent and harmonised standards, labelling and definitions. These factors restrict market entry and identification of low-carbon industrial products and hamper business to business (B2B) transactions from complying with high climate mitigation ambition.

2.2.1.1Driver 1 (market failure): Challenges in distinguishing low-carbon industrial products from high-carbon alternatives

Although many industrial production facilities closely monitor their emissions, there is currently no harmonised carbon accounting methodology systematically applied for industrial products. 42 This is due to several reasons. First, current environmental and GHG reporting requirements are typically registered at installation level, as in the context of the EU ETS. Translating these installation-level emissions into emissions per product requires attributing the emissions from various production stages and possibly various installations (in or outside the EU) to a specific industrial product. 43 Second, the complexity is further increased by factors such as the diversity of production technologies, the outsourcing of certain production steps, long and complex supply chains and the varying use of imported heat and electricity in production processes. Finally, different methodological approaches are used on the scope of emissions to be considered. Without sound verification mechanism in place, the level playing field among businesses cannot be guaranteed, greenwashing can proliferate, and the exercise may become an administrative burden, including for public authorities when dealing with green public procurement procedures.

As a result, several initiatives have emerged to define what constitutes a “low-carbon” industrial product. For instance, over 150 sustainability standards and initiatives 44 spanning the entire steel value chain aim to determine what constitutes iron and steel with lower environmental impacts. As explained in the baseline (Section 5.1 and Annex 8), the ESPR and the CPR (Construction Product Regulation) provide a regulatory framework to introduce information and/or performance requirements on the environmental or carbon footprint of products from a life-cycle perspective. This initiative will complement and ensure coherence with these frameworks 45 while enabling more targeted deployment of carbon-intensity information for selected industrial products.

2.2.1.2Driver 2: Limited willingness to pay a premium for low-carbon industrial products

While in some sectors, such as electricity production, the cost of low-carbon technologies is already lower than that of conventional fossil fuel-based alternatives, industrial sectors often continue to face significantly higher costs for producing low-carbon products, often due to lack of economies of scale. 46 In the steel and cement sectors, estimates suggest that procurement cost for low-carbon steel could range from around 33%% in a low-cost scenario to as much as 70% in a high-cost scenario, compared to conventional technologies and considering current CO2 costs. 47

To create a sound business case, when commercially marketing low-carbon products, manufacturers will likely need to pass on these additional costs in the short to medium term through a "green premium" to potential buyers. 48 However, the percentage of buyers willing to pay a premium for low-carbon products is estimated to range from 14% in the aluminium market to 16% in steel. 49

In certain segments, the uptake of low-carbon products will likely develop at a faster pace, due to EU requirements. For instance, the revised Energy Performance of Buildings Directive 50 (EPBD) requires Member States to draw up national roadmaps on the introduction of limit values on the life-cycle Global Warming Potential (GWP) of buildings. In addition, the automotive sector appears more willing to accept higher premiums for low-carbon metals, as shown by a growing number of low-carbon steel supply agreements. 51 One key driver is that automakers are subject to life-cycle CO2 emissions reporting obligations, increasing attention on the overall carbon footprint of a vehicle, including emissions from manufacturing. However, the extent to which these commitments will translate into actual demand remains uncertain. 52

Public procurement is a key driver for low-carbon demand for industrial materials and products. The construction sector dominates EU public procurement involving energy-intensive materials 53 , making it a critical lever for stimulating demand for low-carbon industrial products. However, despite this potential, market demand alone is often insufficient to support the scale-up of low-carbon production required to offset higher production costs. Furthermore, public procurement practices aimed to support the uptake of low-carbon materials remain limited at both EU and national levels. Key barriers include a lack of training and capacity, insufficient data availability, fear of litigation and legal complexities. 54 Financial constraints may also be a barrier to support the higher initial costs often associated with low-carbon products. For instance, demand for low-carbon steel under green public procurement accounts for 2.1% of total steel demand. 55

Finally, the limited willingness to pay for the green premium depends on a range of policy measures to bolster the business case for decarbonisation investments, optimizing net benefits. Importantly, the lion’s share of demand generated by lead markets measures will continue to originate from private sector uptake and procurement.

2.2.2Sub-problem 2: Supply chain vulnerabilities in strategic sectors

Security of supply is a precondition for sustainable industrial growth. EU manufacturing is exposed to a risk of dependency for its most strategic industries. The production processes for certain industrial sectors (mainly clean tech and, increasingly, EIIs) rely heavily on third countries for their input materials and/or components, which puts these sectors at risk of supply chain disruptions, limiting Europe’s potential to decarbonise. Industrial decarbonisation will also depend on access to energy and raw materials, therefore the risk of disruption in these value chains pose a serious challenge to the EU’s strategic autonomy and clean energy transition. Looking ahead, Europe’s security and open strategic autonomy will depend increasingly on the ability to increase supply chain resilience, particularly in net-zero and digital technologies. 56  

2.2.2.1Driver 3: European industry loss of competitiveness due to fierce global competition and value chain dependencies

Energy-intensive industries

A strong industrial base is essential for Europe’s economic resilience. However, sectors like steel, chemicals, aluminium, have been losing market shares in Europe due to several factors, including higher operating costs compared to foreign competitors, rising imports because of persistent global overcapacities. 57 While both exports and imports for EIIs have increased by more than 25% compared to 2007, a striking difference appears when compared to 2015, where imports rose by 16.9%, while exports increased by only 1.4%. 58 For instance, the EU dependency on aluminium imports has reached more than 50% of domestic demand in 2023. 59 Furthermore, for chemicals and plastics, the Commission’s SCAN monitoring system 60 confirms a clear pattern of loss of competitiveness due to fierce global competition and deepening value-chain dependencies. Out of roughly 780 products analysed, about one-third were identified as distressed, showing a price increase combined with a higher reliance on fewer suppliers between January–September 2025 and the 2022–2024 average. 61

The weakening of Europe’s industrial position is also visible in the investment pipeline, where many announced industrial decarbonisation projects remain stalled before final investment decision. Despite an unprecedented wave of projects announcements in the past five years, the real pace of decarbonisation has slowed sharply since 2023. Analysis from the Commission’s Joint Research Centre (JRC) shows that almost half of all announced industrial projects remain unimplemented, and fewer than one in three has entered construction or operation. 62  

Figure 2: Announcements of decarbonised projects in the EII by start date, Commission analysis based on BloombergNEF, Decarbonizing Steel Project Database (1.0.5)

Figure 2  confirms that, in the case of steel, most of the projects announced in 2023-2025, are still in the announced stage. Most concerning is the cancellation of projects announced during the study period (2023-2025), and which were supposed to start between 2024 and 2027 (~10%).

Cement, chemicals, and refining account for most projects, but implementation lags. Collectively, these projects represent over EUR 1.5 billion of announced investment. Achieving the Union’s climate and industrial objectives will require an additional EUR 480 billion in annual investment 63 in energy systems, industrial innovation, scale-up and transport compared to the previous decade. While the EU has mobilised significant resources through instruments such as the Innovation Fund and InvestEU, private investment remains below the level required to meet the 2030 and 2040 climate targets.

When turning to steel 64 , Europe’s clean-steel transformation remains largely on paper. Out of roughly 250 European decarbonisation projects since 2018, about 68% are still at the announcement or concept stage, with no final investment decision yet taken.

Batteries manufacturing

A similar situation is visible in the batteries industry. In 2024, the EU imported around EUR 28 billion worth of batteries, with EUR 22 billion coming from China alone 65 , while EU exports stood below EUR 11 billion. 66 In 2024, China dominated global battery production, holding around 83% of the world’s capacity, well above their end-use demand. 67  China’s market share on the upstream battery supply chain is even more significant. 68  

While European battery manufacturers continue to scale up and optimise their production processes, they face intense price competition from third-country producers, particularly China. The EU battery ecosystem remains heavily reliant on critical components and technological know-how sourced from these third countries. These factors have led to the cancellation or delay in the EU of several battery projects, including 233 GWh of battery cells, 100 GWh of anode active materials, 513 GWh cathode active material, and 115 GWh of precursor active materials as considered no longer competitive. Although the EU reached a battery cell installed capacity of around 205 GWh by the end of 2025 and has over 750 GWh in the pipeline 69 , these cancelations and delays show the competitiveness gap of the European industry. This gap is further exacerbated by the vulnerability of the existing EU battery industry to supply chain disruptions due to export restrictions on key components and technologies. Additionally, the absence of a robust domestic value chain means EU manufacturers may face a premium for depending on imports to sustain its battery sector, impacting both cost and reliability. 

PV manufacturing

The European solar PV industry has been losing competitiveness due to several factors, mainly Chinese overcapacity and lower manufacturing costs and prices. Regarding overcapacity 70 , at least 80% of global manufacturing across the supply chain components is concentrated in China, which makes them the dominant country in the global PV manufacturing market. 71   72 This level of concentration creates structural risks for the EU’s security of supply of PV systems: overcapacity in China drives prices down globally and exports are redirected to the EU following US import restrictions, discouraging investment in alternative production outside China, and reinforcing dependency on a single source. This dependence heightens exposure to potential supply disruptions, trade tensions or geopolitical shocks, and raises cybersecurity concerns risks in related to system equipment such as inverters.

At present, the EU manufacturing capacity in the solar PV value chain amounts to approximately 12 GW of PV modules, around 2 GW of PV cells, and less than 1 GW of PV ingots and wafers. 73 Inverter manufacturing is still quite strong in the EU (over 82GWAC 74 ) but there is similar worrying pressure and trend as for the rest of the supply chain.

Other clean technologies, or ‘net-zero technologies’ (e.g. wind, electrolysers), face similar challenges, however the combination of high global overcapacities and high dependencies of the EU’s consumption on one single source of supply is particularly acute for solar PV and batteries. 75  Therefore, the assessment report focuses primarily on these two technologies, while Annex 16 provides an in-depth analysis on additional net-zero technologies.

Vehicle components

Over the past years, the European automotive industry has been investing heavily 76 in the development of cleaner vehicles and innovative components. However, based on JRC estimates, the EU content of cars produced in Europe has been slightly decreasing over time.

At the European level, the production index for the European automotive component industry continues to fall at a steady pace (by an average of 11% in 2025 compared to 2021 production volumes), as does vehicle production (compared to 2023). Despite the exceptional customs tariffs introduced in 2024 on Chinese EVs, imports of Chinese vehicles continue to grow (+35% in volume in the first half of 2025 (+380% compared to 2021), compared to a 50% drop in EU exports to China), and they have reached a market share of 9.9% in July 2025 despite efforts to restore level playing field and to safeguard the European automotive industry against unfair competition. This phenomenon has been squeezing the volumes and margins of European manufacturers and representing huge competition for local manufacturers. 77 Furthermore, as described in the Draghi report, even more than 10% of local EU production may be displaced in the following five years. 78

Lastly, the automotive industry’s vulnerability to external supply chain disruptions was displayed by recent announcements by the largest European automobile manufacturers trade association about the difficulty to secure chips for the automotive supply chain. Despite efforts to diversify supply chains following the semiconductor shortage in the past, automotive companies are still facing vulnerabilities to external shocks when it comes to the supply of essential parts for their vehicles, which decreases the resilience of supply chains.

2.2.2.2Driver 4: A fragmented EU approach towards foreign investments

The EU’s openness to foreign direct investment (FDI) is enshrined in the Treaty on the Functioning of the EU and is essential to ensure the Union’s competitiveness and progress towards decarbonisation. Foreign investors can play a significant role in areas where Europe lags on innovative technologies and processes. However, FDIs do not necessarily imply that technology transfer, know-how development, job creation/retention and value chain integration, are realised in Europe or by European companies. Europe’s heavy industry is dependent on imported technologies and equipment in emerging low-carbon value chains such as hydrogen electrolysers, batteries, and solar PV. 79  In many cases, investors choose to limit their European footprint to assembly or non-core operations, preserving strategic technologies and innovation activities abroad. 80  while other investors choose to position high value added segments of the production chain, such as R&D, in the EU. 81  

Unlike other countries such as the United States, Korea or Japan 82 , the EU does not consistently attach requirements on R&I or skills development. Most importantly, over the past decades, China has applied FDI conditionality by restricting market access in sectors such as automotive, solar, and wind, to joint ventures with Chinese partners, often under majority control by the Chinese partner, while requiring foreign companies to transfer technology, establish local R&I, source components locally and comply with data-localisation and security reviews; these conditions enabled Chinese firms to absorb foreign know-how, scale up domestic capabilities. 83  Foreign companies seemed to have been willing to accept China’s demanding FDI conditions because the market itself was too large and too strategic to ignore. In addition, many firms feared that if they stayed out, rivals would step in and gain an advantage, so they chose to comply with technology transfer, joint venture, and localisation requirements. These factors meant that, even though foreign companies may have been at higher risk of intellectual property loss, stringent FDI conditions were tolerated in the context of increasing global integration of production chains, and with China having a strong comparative advantage in the cost of labour.

By contrast, the EU approach remains largely project-by-project, sometimes dependent on EU and national funding programmes. 84  Member States currently compete to attract investors, leading to uncoordinated and uneven requirements. Competition between EU countries for attracting new assembly and material production investments is likely to intensify, as new EV entrants expand into Europe. 85  This fragmented approach does not maximise benefits of foreign investment in the EU, as Member States compete individually to attract foreign investors with varying conditions and incentives, leading to uneven requirements on technology transfer, skills, and R&I commitments. As a result, the Union’s overall ability to leverage foreign investment strategically is weakened.

This lack of expertise leads to a strong dependency on imports of such batteries from a dominant foreign supplier, with this supplier (China) having a track-record of weaponizing dependencies. It is important to reduce internal market risks associated to this dependency, ensuring that assembly activities of foreign investors in battery production in the EU lead to knowledge spillovers and gradually reduce the EU dependency on foreign know-how, creating the conditions for maintaining and reinforcing EU capabilities in locating the strategic parts of the battery value chain in Europe, with the economic benefits it brings. In addition, multi-stage production is highly sensitive to fixed-cost thresholds and policy-driven cost differentials, meaning that without coordinated EU-level conditions, firms have strong incentives to keep the high-value stages abroad. 86  Recent evidence confirms that upstream stages do not automatically localise: China retains a strong comparative advantage specifically in cells and modules, while European production remains competitive only in downstream assembly, the part creating least added value. 87  This pattern is not limited to batteries but applies to other industries where China’s dominant market position similarly heightens Europe’s strategic dependencies.

2.2.3Sub-problem 3: Industrial decarbonisation technologies are not deployed at scale

Many projects of the most promising technologies for decarbonising EIIs are not commercially deployed at the necessary scale, nor at the pace needed to meet the climate neutrality target. The long investment cycles for industry from R&I to deployment highlight the importance of policy predictability to reduce regulatory and financing risks. 88  Furthermore, the availability and economic viability of these technologies vary depending on the specific sector and parameters such as the technology readiness level, the energy and raw materials needs, the CO2 abatement potential and CO2 abatement costs. Many technologies, such as heat pumps or energy efficiency solutions, are already mature and able to help reducing costs, while improving performance. At the same time, they are not always available at scale. Electrifying industrial production is a viable solution due to the rapid renewable energy deployment but requires process transformation and it is not always affordable nor fully available, because of the need to improve connections and increase grid capacity, or to meet the specific EIIs’ needs to consume baseload power. 

In addition, decarbonising the sectors with so-called ‘hard-to-abate emissions’ (i.e. chemicals, basic metals, cement, and pulp and paper) requires significant investments. Emission-abatement technologies, including electrification, EAF, clean hydrogen, carbon capture and storage (CCS), carbon capture and use (CCU), and raw material recycling require large capital costs (CAPEX). In addition, the operational costs (OPEX) are uncertain when technologies are not mature and often higher than those of traditional technologies, as long as electricity and low-carbon fuel (e.g. clean hydrogen) prices remain high in Europe. These elements are an important factor determining the slow decarbonisation pace. Estimates suggest that by 2030, producing green steel (H2-DRI-EAF route) in Europe could cost around EUR 100/tonne of steel (17%) more than in the US or Saudi Arabia. This cost gap exceeds that observed today for conventional BF-BOF steel, reflecting Europe’s higher (clean) energy and hydrogen prices. 89 Comparing all iron and steel technology pathways, estimates suggest that in 2024 the low-emission solution was 74% more costly  than the conventional routes, and 48% more costly than a new build basic oxygen furnaces (BOF) plant. Data suggest that by 2030 the costs will have fallen but will on average remain higher (66%) than for an existing BOF plant, and 42% to a newly built BOF plant. 90  In the case of cement, techno-economic studies for theoretical cement plants estimate CO₂ abatement costs at approximately EUR 47.3–60.2/tCO₂ for oxy-fuel technologies and EUR 77.4–129/tCO₂ for post-combustion capture. 91  A detailed analysis of the availability and economic viability of industrial decarbonisation technologies and their cost evolution is presented in Annex 7.

2.2.3.1Driver 5: Lengthy, fragmented and uncertain permitting procedures for decarbonisation projects

Industrial manufacturing activities can have significant impacts on the environment beyond CO2 emissions (e.g., SOx, NOx, dust, dioxins, waste generation, water, resource consumption). EU and national legislation have regulatory frameworks to address these impacts. Industrial plants show compliance with the legislation via permits, processed and granted by national, regional or local authorities. While permitting is not an exclusive trait of industries (including EIIs), industrial activities are a considerable source of pressure on the environment. As such, as mentioned below, the permit-granting process can be particularly cumbersome for them - the higher the environmental hazard, the more complex permitting can become. In the context of Europe’s decarbonisation transition, where the investments needed are extremely large, the complexity and duration of permitting processes can be an obstacle to investing in Europe and therefore impact its ability to decarbonise. Permitting process has been recognised as a major challenge for project development. 92

The evidence gathered via stakeholder consultations, as well as internal Commission analysis through the implementation of Union funding for industry showed unnecessarily lengthy and complex industrial permitting. See Annex 2 for more detail. The issues identified are common to the different manufacturing sectors, however industrial projects that need to drastically change their processes in EIIs sectors face an extra layer of difficulty due to the innovative and impactful nature of their projects. Almost half of the respondents to the Innovation Fund Sharing Report note that the novel nature of their operation does not fit well in the existing permitting procedures. 93  For Innovation Fund projects, the time required for granting the permits after the applications were filed was on average 16.4 months. Almost 45% of projects estimated that their permit-granting processes would require from 12 to 48 months. 94 More than half of the projects indicated that in the end they required more time than originally foreseen. 95

The complexities and delays stem from several factors, which are closely related to the administrative setting of each Member State. The most important factors include the numerous authorities involved in the permit-granting process (5 to 10 different authorities can be involved for a single project) 96 , unclear or insufficient details on the necessary information to be submitted, lack of administrative capacities in Member States, potential inconsistencies between EU and national regulatory framework implementation, or low levels of investments by Member States in digitising permitting systems.

2.2.3.2Driver 6: Difficulty to access resources (e.g. inputs and funding)

For a project developer to proceed with a specific investment project, several elements are needed to make that commitment such as financing, and access to the energy grid.

Industrial decarbonisation requires substantial investments and needs to attract private investors. In the past six years, despite many announcements, less than one-third of industrial decarbonisation projects in large energy-intensive sectors have reached final investment decisions, and almost half remain unimplemented (see Driver 3).

A recurrent issue for decarbonising industrial facilities is securing a timely connection to the energy grid. 98  Timely feedback is crucial from a business planning perspective, affecting the business case of each application and hence overall competitiveness. However, at least 15 Member States have experienced queuing problems, which slows down the clean transition and European economic growth. 99 This challenge differs between Member States, connection levels, generation and demand side. In case of not meeting technical requirements or potential impacts on the security of the electricity grid due to insufficient capacity, grid connection may be refused. For example, in 2024 in Spain, 11 GW of connection requests coming from industry were rejected. 

Barriers to finance. Multiple funds are available at the EU level (e.g. the Recovery and Resilience Facility (RRF), InvestEU, the Innovation Fund, Horizon Europe, the Research Fund for Coal and Steel, the Modernisation Fund, the LIFE programme, and the Social Climate Fund). Programmes like InvestEU have played an important role in mobilising private capital and de-risking investments in decarbonisation projects. However, the broader EU funding landscape remains complex to access and fragmented. Under directly EU managed funds, the Innovation Fund reinvests a portion of EU ETS revenues to support the decarbonisation efforts of the EIIs. However, applications meeting the funding criteria tend to exceed the number of projects funded by a considerable margin. At Member State level, only a limited amount of ETS revenues is dedicated to investment in decarbonisation. 100

Beyond grid access and access to finance, industries also face increasing difficulty in accessing critical and other raw materials at competitive prices and/or quantities. The rapid global race for clean-tech manufacturing has intensified demand for both primary and secondary raw materials, many of which are diverted to third countries offering higher prices or fewer export restrictions. This challenge is compounded by third countries increasingly using export controls to secure domestic supply most notably and recently China 101 , which has recently added restrictions to exports which now also include rare earth elements and other inputs critical for magnet and clean-tech production. At the same time, Europe faces the paradox of valuable secondary raw materials such as metal scrap being exported to third countries rather than reprocessed domestically, reducing availability for EU clean-tech and industrial producers. 102  These developments heighten input cost volatility and strategic uncertainty for EU industries.

Figure 3: Problem tree

2.3How likely is the problem to persist?

The need to decarbonise industrial manufacturing and to improve its competitiveness will remain a high priority for the EU and is also highlighted in the 2025 Strategic Foresight Report 103 , which stresses that Europe’s resilience and prosperity depend on accelerating industrial transformation while safeguarding competitiveness and strategic autonomy.

The EU ETS, including its planned review in 2026, provides incentives to decarbonise, but it will not be sufficient on its own to fully unlock the investments in low-carbon technologies. Investments are slowed down due to an ETS price not sufficiently high, and key barriers such as permitting bottlenecks and too high capital and operational costs. Today, the carbon price ranges between 70-80 EUR/tonne, while studies point at a much higher price to make investments in low-carbon technologies commercially viable. 104  

Over time, decarbonisation technologies like clean hydrogen, electrification of high-temperature processes or CC(U)S are expected to become more cost-effective 105 , especially as the EU ETS tightens, strengthening the incentive to decarbonise. However, in the short-to-medium term, the pace of decarbonisation remains too slow, driven by factors such as financing gaps, lack of incentives, permitting delays, infrastructure deficits, slow technology adoption, and a shortage of skilled workers. The price signal alone will not be sufficient to address on its own all the above drivers. At the international level, competitors to EU EIIs are not subject to equivalent carbon pricing measures, making the risk of carbon and investment leakage likelier to materialise. The CBAM and its review should help alleviate some of these impacts, notably by addressing the risk of circumvention. However, until low-carbon technologies and products reach cost parity with conventional alternatives, the problem is likely to remain.

Without additional policy measures to foster a competitive market for decarbonised industrial products now, the EU risks losing strategic manufacturing sectors that are critical for its resilience and economic security. In other words, while emissions abatement might be achieved and climate targets met, these may result from reduced industrial output, rather than more efficient technologies. This gap can be quantified by looking at the drivers of recent emissions trends. According to the Climate Action Progress Report 2025, the EIIs industrial production installations covered by the ETS reduced their GHG emissions year on year by 6.4% in 2022, 7.5% in 2023 and 0.8% in 2024, due to a combination of a reduced output and efficiency gains. 106 Zooming in on the specific iron and steel case, Figure 4 shows that over the past six years the emissions reduction was mainly driven by changes in the production activity level, rather than in emission intensity. 107  

Figure 4: Iron and Steel: EU GHG Emissions drivers 2018-2024 (ktCO2), European Commission JRC analysis

Past trends combined with recent announcement of projects being stopped, indicate that strategic sectors could face further decline, ultimately undermining the EU’s long-term economic growth, technological innovation, and resilience. In strategic sectors, this could also lead to greater dependencies. 

On the demand side, only a limited share of industrial buyers is currently willing to pay a ‘green premium’ for energy-intensive materials. While some recent EU (product) policies address the environmental or energy performance of the product or building in scope, they do not systematically look into the value chain, nor go as far as setting minimum requirements for the use of low-carbon materials in such products/ buildings. 108 The structural disadvantages companies face in Europe (e.g. higher energy prices or reliance of certain raw materials), combined with unfair global practices, will continue to put Europe at a systematic risk of overdependencies.

On public procurement, auctions and public support schemes, the NZIA has recently introduced resilience requirements for a range of clean-tech products. While this will decrease the dependencies from a single third country of supply, it will not be sufficient for these industries to ramp up at sufficient scale to compete with already established foreign markets and global overcapacities. In fact, as regards solar PV systems and batteries, the risk exists that Chinese companies would be able to supply the European market through factories built outside of China, in other Southeast Asian markets, and thereby circumventing the rules put in place by NZIA. According to BloombergNEF, investments in solar PV already appear to be shifting away from China as domestic manufacturers are investing in factories abroad, also in response to the US tariffs and imports restrictions on China. 109 When it comes to batteries, Chinese companies have heavily invested in Indonesia and Morocco 110 , while markets such as India, Türkiye and Brazil are leveraging tariffs to attract Chinese investment. 111  

The challenges facing the EU’s clean tech sectors are structurally embedded and unlikely to resolve without targeted intervention. Battery and PV manufacturers located in the EU are caught in a strategic squeeze: on one side, they face fierce price competition from third-country producers. On the other side, these same countries control access to critical upstream components and technologies, enabling them to restrict exports or inflate supply costs, further undermining the competitiveness of EU manufacturers.

On vehicle components, data (as described in Annex 7 on sectoral analysis), show an increase of delocalisation of production in the past few years, which is likely to persist over time unless mitigated by policy measures, as EU suppliers continue to face unfair competition.

The expected benefits of foreign investments depend on the business model and governance pursued by the investor for its European affiliates. Without conditions, EU firms may remain locked into high-cost abatement pathways since foreign investors face little obligation or commercial incentive to locate their R&I, engineering, or advanced processes within the EU. A clear illustration is the Tesla–CATL partnership in the United States, where investment incentives were tied to local content, technology transfer and domestic battery supply chains. This has led to the localisation of advanced cell manufacturing and R&I activities in the U.S. In contrast, similar investments in Europe by the same actors have largely focused on assembly and final integration, with limited technology transfer or anchoring of critical value chain segments.

Targeted improvements aimed at streamlining permitting procedures have been implemented for the deployment of specific sectors like energy infrastructure, renewable capacities, critical raw materials projects or net-zero technology manufacturing projects. In addition, the Industrial Emissions Directive (IED) was recently amended to facilitate environmental permitting of industrial installations. However, no current initiative addresses the entire industrial manufacturing sector, nor the entire permit-granting process from start to finish.

Consequences of the problems

Regions that are currently home to EIIs face risks of further economic and social decline, with significant regional disparities in employment and prosperity in the Single Market. This vulnerability echoes the broader megatrends identified in the 2025 Strategic Foresight Report 112 , which emphasises the growing regional and social disparities as a key test for Europe’s resilience by 2040.

EIIs, batteries, automotive and PV industries risk losing further market share, technological leadership, and becoming locked into deeper strategic dependencies. This would directly undermine the EU’s ability to deliver on the “promote” pillar of the European Economic Security Strategy. 113  Asymmetries in global investment conditions place EU industry at a structural disadvantage compared to global competitors who benefit from strong conditionalities and incentive frameworks that maximise spillovers. 114  

For the EU, continued clean technologies dependency means that the domestic battery and PV production will remain vulnerable to external shocks, price manipulation, and supply disruptions. China’s recent export restrictions on key battery technologies, including lithium-ion battery cells and packs, key production equipment and technologies linked to high-end batteries and graphite anodes, cathode material processes and lithium refining, signal a strategic shift toward consolidating its dominance and limiting foreign access to critical capabilities. 115  

Without additional policy measures, EU PV modules dependency on China could rise to 98% of the value chain. According to the Solar Alliance, which has set the target of achieving 30 GW manufacturing capacity along the value chain, if this goal is not met, Europe would miss out on creating more than 40 000 highly skilled jobs. 116  

When it comes to the automotive industry, the cost disadvantage of manufacturing key automotive components in the EU is combined with increasing pressure from Chinese imports, the impact of tariffs on the US market and increasing tendencies for local content requirements in other jurisdictions 117 , and in some cases the technological gap vis-à-vis non-EU manufacturers. Further competitiveness losses in the EU automotive industry may increase the risk of delocalisation of component manufacturing outside the EU, possibly contributing to economic security risks. It is therefore critical to pursue the active reinforcement of cooperation with other countries to strengthen the resilience of EU supply chains. In addition, declining domestic manufacturing capacity increases the risk of “cumulative vulnerability” across interconnected value chains, where disruptions in one critical input can cascade rapidly - from the component to the raw material - and impede the Union’s ability to maintain continuity of supply, manage emergencies and safeguard public order. This trend seems to be accelerating, and as a short-term impact 76 000 job losses have already been announced among the automotive suppliers, and up to 50% of the production is at risk in the next five years. 118  

3Why should the EU act?

3.1Legal basis

The initiative intends to increase decarbonised and resilient industrial production in the manufacturing industry, with a focus on energy-intensive industrial sectors and clean technologies. It intends to facilitate the harmonisation of the definitions of low-carbon industrial products, support European lead markets for the development, production and diffusion of clean tech in industry, streamline across EU Member States related planning, tendering and permitting processes, as well as address the fragmented approach of EU Member States towards foreign investments. Article 114 (Single Market) of the Treaty of the Functioning of the European Union (TFEU) is the appropriate legal basis. Article 173, on the other hand, is not considered an appropriate legal basis as it does not allow for harmonisation measures on the internal market, which remains the aim of measures included in IAA. Article 207 of the TFEU may be required depending on the specific measures proposed to address the fragmentation of foreign investments in EU Member States.

3.2Subsidiarity: Necessity of EU action

Industrial decarbonisation, as well as competitiveness, sustainable prosperity, industrial security and resilience are matters where EU action is needed. No single Member State alone is capable of effectively addressing industrial decarbonisation due to the integrated nature of the challenge. A harmonised EU-level approach is therefore necessary to avoid Single Market fragmentation and adequately address the urgency of the problems while protecting the level playing field as well as addressing administrative bottlenecks like permitting. Furthermore, climate change is a trans-boundary issue requiring international and EU action to effectively complement and reinforce regional, national and local action.

3.3Subsidiarity: Added value of EU action

While national measures may address parts of the challenge, they risk fragmenting the Single Market and undermining collective effectiveness. Given that supply chains are deeply integrated across Member States, a coordinated EU-level approach is essential. It enables economies of scale and solutions that fit the scope of the problem and helps prevent inefficiencies and duplication. In line with this logic, each policy option (PO) focuses on areas where there is a demonstrable value added in acting at Union level due to the scale, speed and scope of the efforts needed.

4Objectives: What is to be achieved?

4.1General objective

The general objective is to increase decarbonised and resilient industrial production in the EU manufacturing industry, with a special attention on EIIs and clean technologies, considering their contribution to Europe’s competitiveness, economic security, and sustainable economic growth, in line with the Clean Industrial Deal’s objectives. Progress regarding the general objective will be measured by monitoring the carbon intensity of EII production, as well as production capacities and output for the EU in EIIs, certain clean tech and vehicle components.

4.2Specific objectives

This overall objective is broken down into five specific objectives (SOs), related to the problems and drivers:

1.Facilitate differentiation for low-carbon industrial products to increase their value and marketability (SO1 addressing problem driver 1); this will be measured by an indicator on the availability of a low-carbon label for relevant industrial products, supported by a robust verification mechanism.

2.Boost demand for European low-carbon products and clean tech, (SO2 linked to problem drivers 2 and 3); measured by the share of EU and low-carbon production in EU consumption for relevant products,

3.Maximise the quality and benefits of foreign investment in the EU (SO3 linked to problem driver 4); measured by number of joint ventures for relevant sectors that create European added value, innovation and industrial resilience.

4.Speed-up and simplify permits for industrial decarbonisation (SO4 linked to problem driver 5); measured by the average permitting times

5.Increase investment projects in industrial areas (SO5) measured by the number of industrial Final Investment Decisions (FID) realised in relevant areas

Figure 5: Problem drivers and specific objectives

5What are the available policy options?

5.1What is the baseline from which options are assessed?

The current baseline presents a structural imbalance in Europe’s industrial transition: emissions are decreasing, but they are largely driven by shrinking production rather than cleaner production methods taking hold.  Figure 6 below illustrates past and potential future trends for the EU iron and steel sector, as an example. Between 2005 and 2023, CO₂ emissions and production volumes have moved almost in parallel. 119  

Figure 6: EU Iron and steel: production level and CO2 emissions (2023-2050)

Looking at the emissions projections extrapolated on the historical trends of production and emissions, although in reach, they will need to decline much faster to meet the EU 2030, 2040 and 2050 climate targets. While CO2 emissions reductions and production levels remained relatively correlated so far, emissions will have to be reduced much faster in the next decade. The EU remains firmly committed to achieving climate neutrality by 2050, including the intermediate target of a 90% reduction in net greenhouse gas emissions by 2040. 120 But if decarbonisation remains at today’s pace and is not accelerated, the EU will still be able to achieve its emissions reduction targets, thanks to the EU ETS, but such targets will be met by reducing industrial production, as recent trends have shown. Looking at the iron and steel example, if the trend of industrial production between 2005 and 2023 persist, the production projection shows that the sector is expected to shrink by almost 60% by 2050 compared to the 2023 baseline. 

In parallel to the EU ETS, the CBAM will gradually replace free allowances to prevent carbon leakage and ensure that imports reflect an equivalent carbon cost. Its implementation from 2026 is expected to support the competitiveness of EU producers that invest in cleaner technologies. The 2025 CBAM review is also expected to tighten the system, but its impact cannot be quantified at this stage. The baseline therefore assumes continued ETS-driven decarbonisation reinforced by a progressively more stringent CBAM regime, though with residual uncertainty regarding its effectiveness. Annex 8 presents the details of the baseline scenario, and includes the analysis like the above for aluminium, cement, and chemicals.

While industry is willing to invest in decarbonisation, and has taken important initial steps, concrete decisions risk not materialising fast enough to reduce emissions at the pace required to be on track to meet the EU climate targets. This is substantiated by clean projects announcements as reviewed in Driver 3.

Looking at each specific objective, the baseline scenario would result in no common definition, methodologies or minimum threshold for low-carbon industrial products. Furthermore, while existing public procurement rules establish how to buy, they fall short of addressing what to buy in terms of low-carbon criteria. Current green public procurement practices remain largely voluntary, sectoral, fragmented, and inconsistently applied across Member States. Voluntary resilience criteria are even less considered in the current procurement procedures, as they are a recent concept that will only become mandatory for some products from 30 December 2025 under the NZIA. Additionally, in the NZIA, resilience criteria refer to components, not specifically to the energy-intensive materials used. As such, the viability and competitiveness of European projects across the entire upstream value chain will continue to be undermined by the economic pressures outlined above and the lack of investments in innovation, resulting in a widened technological gap vis-à-vis a non-EU manufacturer.

The International Energy Agency (IEA) indicates that China’s predominant role in global solar PV production will remain largely unchanged until 2035, with only a slight decrease as PV manufacturing facilities in other regions begin to materialize. 121 While promoting resilience and diversification, the NZIA does not ensure sufficient support for scaling up EU-based solar manufacturing. Its rules allow PV modules to qualify as “compliant” even if all components are sourced from Southeast Asia, where Chinese Tier 1 firms already operate large hubs. As a result, a product with no European-made content can still meet the NZIA criteria and undercut EU producers in price-sensitive auctions.

In the EU battery ecosystem, manufacturing capacities for battery cells and other key components remain largely dominated by foreign companies. Currently, South Korean firms account for 82% of the installed battery cell production capacity, while European companies represent only around 8%. However, ongoing investments are set to significantly boost European production by 2030, with their share expected to rise to approximately 25% based on industry announcements. Despite this growth, Asian players, pushed by Chinese investments in the sector, will continue to lead, holding a combined 54% share of installed capacity. Notably, Chinese companies are projected to become the most dominant, with a 34% share, while joint ventures between European and Chinese firms are expected to contribute a further 7% to the total installed capacity. When it comes to key battery components, Chinese firms are expected to lead cathode active material production by 2030 with 44% of installed capacity, followed by the EU with 32% and South Korea with 19%. For anode active materials the projections are more diversified in terms of ownership with the installed capacity coming from companies from Australia and New Zealand (28%), followed by Europe (23%) and China (20%). 122

While the efficiency of the permit granting procedures for some decarbonisation projects is expected to improve, most manufacturing industries are not covered under existing frameworks and can continue to face complex and lengthy permitting procedures. The proposal for Simplification of administrative burdens in environmental legislation 123  is expected to streamline environmental assessments, but the overall permitting process from start to finish, beyond environmental permits (such as construction, operational and safety, land use or zoning permits) remains an untargeted field for simplification for the industrial manufacturing. While the grids package will tackle grid planning to remove bottlenecks, the difficulty to de-risk investments and access funding would remain, with Member States struggling to identify relevant projects to focus their efforts on better framework conditions.

Against this baseline, the competitiveness and decarbonisation of Europe’s manufacturing industries, notably EIIs and some clean energy technologies, is unlikely to improve in the coming years without further action. The Commission’s JRC has estimated that for each 1% loss of final demand in EIIs in the EU, the potential impacts would be the loss of 28 000 jobs, EUR 2 billion in value added and EUR 6.4 billion in turnover. 124  The EU’s share in global manufacturing value added has already declined steadily over the past decade, while new investments increasingly flow to regions offering lower energy prices, faster permitting, and stronger industrial incentives. This erosion of industrial capacity risks turning Europe into a net importer of both clean and conventional industrial products, with strategic implications for economic security and the resilience of its value chains.

5.2Description of the policy measures 

Table 1 summarises the main policy measures, which are further explained in Annex 9. 

Table 1: Main policy measures

Structure of the policy options

The POs are structured from a low degree of intervention (PO1) to a high degree of intervention on the measures proposed (PO3). Intervention should be understood in the context of each specific objective, e.g.: for permitting or the low-carbon label, each PO becomes increasingly more prescriptive in the requirements imposed on companies or Member States. In the case of FDI, the measures become more stringent due to their being binding, and for lead markets, the measures increasingly cover more and more market segments (from public procurement only to all products put on the market) either for low-carbon or for made in EU requirements.

Table 2: Policy options to be assessed

5.3Options discarded at an early stage

AREA 3 (SO5) would mandate the Commission to define industrial areas using the selection criteria and providing projects in these areas with preferential access to funding. This measure is discarded at an early stage as this would require amending other pieces of legislation, most notable the ETS Directive for the Innovation Fund, where a revision is already foreseen for 2026. IAA is not the right vehicle to conduct such amendments.

Table 3: Overview of LEAD measures under SO2

6What are the impacts of the policy options?

The impacts of the different POs are assessed below taking into account the results of the public consultation and based on internal analysis and external studies. Overall, the initiative is not expected to have an impact on fundamental rights. All measures that include or imply information sharing or reporting should be implemented in line with the principle of digital by default.

6.1POLICY OPTION 1

6.1.1Economic impacts

6.1.1.1Impact on companies

LAB 1 - Regarding the differentiation of low-carbon industrial products from conventional ones, PO1 develops a label on the carbon intensity of all energy intensive industrial products. It would have a demand-pull effect, encouraging energy-intensive companies to invest in low-carbon production processes.

The label allows companies to gain a competitive edge by accessing new markets which require the use of such label, specifically those to be created under SO2 – Lead markets. This means the label can be used as a compliance instrument to meet the environmental requirements foreseen by public procurement rules or public incentives schemes, as analysed under SO2, measures LEAD_EII 1, 2 and 3. An EU wide label would also mean easier access to green finance or Environmental, Social and Governance (ESG)-linked loans.

Companies that wish to certify their products would incur costs related to monitoring, reporting and verifying, and certifying carbon emissions. Therefore, complementary monitoring, reporting and verification is needed. For products where process emissions represent the majority of the carbon footprint, these should be limited as companies are already obliged to do so under the EU ETS. Likewise, if the companies that wish to certify their products are importers, they would have to face similar costs as those faced under the CBAM monitoring, reporting and verification.

At the same time, the administrative costs of setting up specific product-labels covering all EIIs would be substantial and would increase significantly the complexity of implementation for regulators. Given the heterogeneity and complexity of EIIs and their value chains, a very wide range of product labels could be envisaged. For instance, today under the EU ETS there are 54 product benchmarks, used to determine how many emission allowances installations receive for free. At least as many product labels would need to be developed, creating important administrative burden. These costs relate, amongst others, to producing and maintaining a third-party verified carbon footprint certification system.

LEAD_EII 1 introduces low-carbon requirements for EIIs materials used in construction and automotive in public procurement and public support schemes. This measure provides increased security for EIIs to commit decarbonisation investments. The potential of low-carbon demand creation depends on the downstream sectors where the requirements would apply, and the role public procurement and public support schemes play in those markets.

In the cement industry, public procurement represents approximately 31% of the overall European cement market. 138 This significant share underscores the public sector’s leverage in securing the offtake of low-carbon cement in construction and infrastructure, driving broader market transformation within the cement industry. In the steel industry, however, public procurement, represents a smaller portion of the overall European steel market, accounting for around 11% of apparent steel consumption in the EU. 139  Aluminium is also used in public procurement and it is a light-weight material whose demand is increasing, primarily driven by automotive, building and construction and packaging. More concretely, considering the high shares of vehicles benefitting from public support schemes in the EU market, and the expected increase in aluminium shares in the future 140 , measures targeting public support schemes would be key to unlock low-carbon aluminium demand. Lead markets measure provides a clear and predictable demand signal for low-carbon materials used in publicly funded projects. Steel producers would be able to deliver certified low-carbon steel to industrial consumers that will benefit from more advantageous conditions to public tenders, and therefore an early market advantage during their decarbonisation.

The automotive sector is expected to play a significant role in driving demand for low-carbon steel and aluminium, particularly due to lightweighting needs for electrification in vehicles. However, public procurement is not a huge market for the automotive sector, compared to buildings and infrastructure. Of the approximately 15 million passenger cars registered in the EU in 2018, only 0.5% to 3.5% were procured for public sector fleets. 141  Therefore, measures targeting the public sector alone are likely to have a limited impact on driving low-carbon demand for steel and aluminium. The situation is different regarding public incentives and support schemes in the Member States, where according to internal Commission analysis 70% of the automotive market benefits of some sort of support schemes across the EU. Only corporate vehicles registrations make up around 60% of car registrations in the EU. 142

Introducing targets for the use of low-carbon materials in the construction and automotive sector would allow the steel and aluminium sectors to gain a green premium, which will partially be passed on into the price of final products (see Section 6.1.1.2). As a result, the steel and aluminium sectors could see an improvement of their sector’s value added. The benefits could reach EUR 686 million for the three EIIs (steel and aluminium EUR 241 million – 0.35%, cement EUR 445 million or 0.65%) combined throughout the EU, in 2030 compared to the baseline year. 143  

This predictability of future demand for low-carbon materials can help absorb part of the investment’s costs from the low-carbon technologies and has a high potential to further push investment decisions towards decarbonisation. As a matter of example, in the EU steel sector, there are currently at least 29 announced steel decarbonisation projects, with a combined potential capacity of additional 41 Mtonnes of low-carbon steel per year by 2030, that have not yet reached the final investment stage. To that end, the proposed lead market measures, based on the current project pipeline, could unlock up to EUR 15.5 billion in investments 144 covering approximately 15% of the sector’s EUR 100 billion total investment need by 2050, as estimated in the impact assessment forthe 2040 Climate Target Impact Assessment.  145 ,  146

LEAD_BAT 1 introduces made in EU requirements for four main components in EV batteries and three main components in Battery energy storage systems (BESS) for public procurement, auctions, and public support schemes starting one year after the entry into force of the legislation. These requirements would increase after three years into entry into force. These targets are not limited in time but remain, like all other requirements, subject to a review clause, and will promote the use of EU machinery and equipment when possible.

Made in EU requirements will help ensure that existing manufacturing capacities for key battery components are fully utilized, while supporting the successful implementation of projects under construction and those that have been announced or put on hold. The EU battery ecosystem currently has a project pipeline, including expansions, projects under construction, and announced projects, totalling 775 GWh of battery cells, 874 GWh of CAM, 478 GWh of anode active materials (AAM), 663 GWh of separators, and 205 GWh of electrolytes. These figures exclude projects currently on hold. For battery cells, approximately 134 GWh of announced capacity is on hold, with an additional 100 GWh having been fully cancelled. In the case of CAM, cancellations total 513 GWh, while for AAM, around 100 GWh of capacity has either been paused or cancelled. 148  

By leveraging the size of the European market alongside support schemes, with European EV purchase subsidies totalling between EUR 14 billion and EUR 17 billion annually from 2021 to 2024 149 , Made in EU requirements will help strengthen the EU battery industry by ensuring that value creation takes place within the EU and by reducing strategic dependencies across the supply chain. This will level the playing field against heavily subsidised battery industries operating both overseas and in Europe, where some foreign companies maintain key stages of the value chain and the technological know-how in their home countries. 

Additionally, Made in EU requirements will protect the European battery industry from the disruptive impact of Chinese export restrictions on critical battery technologies and materials. By anchoring more stages of the battery value chain within Europe, this measure will not only reduce the battery industry’s exposure to geopolitical risks but also ensure that public support translates into industrial resilience and long-term competitiveness. The impact of Made in EU requirements also extends to the extraction and processing of critical raw materials, where creating strong and predictable demand is essential to de-risk investments. 150  

In public procurement and auctions, EVs are only marginally affected, except for urban buses, thus the impact will be limited to around 3.5% of the total EV demand 151 , whereas BESS have a bigger exposure due to its growing reliance on public auctions, which in 2024 accounted for 5% of the total BESS deployment. 152  The proposed phased approach to introducing Made in EU requirements in BESS would help mitigate the impact on prices while enabling the EU to gradually build up its domestic value chain.

Based on the analysis on batteries for EVs in Annex 4, section 2.2, Made in EU requirements in public support schemes may raise passenger EV costs  between EUR 360-900 in 2030, which could affect affordability and competitiveness in cost-sensitive markets. In 2024, all Member States had some type of tax benefit or purchase incentive for EVs 153 , however this will slow down as EV uptake keeps growing. A phased implementation starting with Made in EU requirements for batteries of four components for EVs, including the battery cell, at entry into force, plus the support schemes themselves would help absorb the impact. According to industry announcements and demand estimates 154 , battery cell installed capacity in 2025 could meet around 90% of the EV battery demand. While actual production falls short of installed capacity, a significant share of EVs on the EU market are already powered by battery cells manufactured within Europe, indicating that the cost impact of local production is already being absorbed to a large extent by the market.

LEAD_SOL 1 introduces Made in EU requirements for three main specific components in solar PV, starting one year after entry into force, and four main specific components three years after entry into force, in public procurement, auctions, and support schemes.

Made in EU requirements will ensure the retention of existing manufacturing capacities for solar PV modules and inverters, while enabling the scaling-up of further components and supporting the implementation of both the current project pipeline and projects under construction or announced. The component related targets have been set taking into account the assessed project pipeline and thus introducing a Made in the EU requirement one year after the entry into force of the IAA would be feasible (see Annex 9 for detailed assessment).

The impact of this measure would be to reduce the investment risks and improve market access for EU-based solar manufacturers. Companies willing to participate in tenders will have to localise manufacturing or partner with EU suppliers, hence supporting industry growth and job creation. This should therefore facilitate manufacturing projects reach final investment decision. 155  Scaling up the industry here will also ensure investments also in innovation and research in Europe. At least 12 GW of manufacturing capacity is on hold and at least 4 GW is shut down due to insecure and unstable business case for manufacturing PV in the EU at the moment. Despite the existing challenges, a strong project pipeline exists which, if realised, could increase the manufacturing capacity by 2030 for ingot from less than 1 GW today to 20 GW, for wafers from less than 1 GW to over 30 GW, cells from 2 GW to over 30 GW, modules from 8 GW to over 40 GW, and inverters from around 80 GW to more than 100 GW. 156  

LEAD_VC 1 – The impact of LEAD_VC is assessing based on a model developed by the Commission’s JRC (For further information about the methodology and assumptions, see: Annex 4). As vehicle manufacturers will have the incentive to comply with the target to have potential access to public subsidies, the model projects an increase in EU vehicle component suppliers’ sales to the manufacturers of EUR 6.5 billion in 2027 and by EUR 6.9 billion in 2030 when aggregating the sales in all three vehicle segments. 157  Following the sensitivity analysis carried out in Annex 15, the cross-region elasticity (i.e. substitution between EU- and non-EU-made EVs) is the parameter that affects mostly the results for EU EV manufacturers, vehicle component suppliers, and the value added generated. However, the values do not significantly affect the outcome of the policy's economic effects.

INV 1 – Voluntary FDI conditions would create only limited and uneven effects: companies in Member States that apply the guidance may face modest requirements, while those investing elsewhere would see no change at all. While such measures could send a positive market signal, they would not prevent a ‘race to the bottom’ across the Single Market.

However, the voluntary approach does not fix the core problems. Companies can simply avoid any obligations by choosing more permissive Member States, and even implementing Member States may pick and choose individual conditions, creating further fragmentation. This enables regulatory arbitrage and is likely to preserve superficial or assembly-only investment models, and fails to secure technology retention, local value-added or meaningful supply-chain integration—leaving strategic vulnerabilities essentially unchanged.

PERM 1 - Streamlining permitting for decarbonisation projects in manufacturing industries would accelerate the authorisation of such projects and speed up the development of economies of scale for new generation of low-carbon manufacturing. However, these investments also depend on factors beyond the permitting framework, making quantification difficult.

A joint, mandatory, digitally integrated assessment of the entire permit-granting process would reduce the administrative burden compared to fragmented procedures, thus lowering costs (e.g. environmental assessment costs 158 ) and saving time and money for companies. The introduction of e-permitting whenever missing could introduce cost-savings from 80 million (for a third of all industrial manufacturing) to EUR 240 million for all manufacturing industries in the EU, through the digitalisation of 5 permit-granting procedures. 159 See Annex 4 Section 2.1 and Annex 15 for more information on the calculations. 

AREA 1 - Regarding the definition of criteria for industrial areas, the measures would recommend Member States to make use of the criteria defined in the IAA to focus on which projects to support under their national schemes. As this would be only a recommendation to Member States, it can be assumed that the effect on companies is likely to be limited and potentially fragmented across the EU Single market, with some limited support for projects and industrial sectors with strategic importance for the EU.

6.1.1.2Impact on downstream sectors 

LEAD_EII 1 will have an impact on the cost of procuring low-carbon materials, as well as an impact on the final product pricing across the automotive and construction sectors.

Automotive sector

A 25% low carbon steel target would lead to a price increase for a midsize passenger vehicle of 0.125% increase in the average price of a vehicle 161 , resulting in a EUR 46.67 price increase per passenger vehicle and EUR 186.4 for heavy-duty vehicles. The results for low-carbon aluminium present similarly low impacts in the price of a vehicle with only a 0.1% increase 162 , or EUR 22.6, bringing the total cost per passenger vehicle at 0.225% increase for both the low-carbon steel and aluminium. The overall impact per passenger (light duty) vehicle would total to EUR 69.27. 

As a result of the modelling exercise, the value added of the automotive sector would be affected in a limited way, with losses of EUR 291 million for the entire sector. These losses are a consequence of the higher final vehicle price driven by the newly imposed green premium and the consequent decrease in the consumption of automotive and construction sectors.

See Annex 4 Section 2.2 for more details on cost calculation. Following the sensitivity analysis for the corporate fleets expected in 2030, the costs could range from EUR 179.6 million up to EUR 417.13 million derived from uncertainties linked to the future cost of low-carbon steel, notably on the technology routes used to decarbonise. See Annex 15 for more information.

Besides the premium linked to the use of low-carbon steel, vehicle manufacturers may need to adjust their supply chains to source the materials, which can lead to additional costs and logistical challenges. The effects of the supply chain adjustments will depend on the verification rules in place to comply with the requirements. In the case of steel, the approach established under the label on the carbon intensity (SO1) is based on third party verified data and on ensuring physical traceability.

Construction sector

Different estimates indicate that the premium associated with low-carbon steel in the construction sector can account for 0.25% of total building costs, with some variations depending on the type of project. 163  In the case of low-carbon aluminium, in the absence of construction sector specific estimates, the 0.1% price increase 164  is also used. Similarly, as far as cement is concerned, estimates on the impact of using low-carbon cement or concrete on the final price of a house or construction project range would be of 0.10% for a 5% low-carbon cement target. 165  Setting a 25% target for both low-carbon steel and aluminium, as well as a 5% target for low-carbon cement in public procurement is estimated to lead to a combined cost increase of less than 0.45% for a construction project. The construction sector would face a loss in value added of EUR 691 million by 2030, due to the requirements to source a share of low-carbon steel, aluminium and cement.

Since the value of public support schemes available across Europe in the construction sector is not available, the full impact of the costs for this market segment cannot be provided at this stage. The impact of this proposed measure for the entire construction sector are reflected in Section 6.3.1.2. See Annex 4, Section 2.2, for cost calculation.

It is also important to recall that the cost premium of producing low-carbon materials is expected to decline over time as related technologies mature, are being deployed at large scale and demand for low-carbon materials moves from niche, lead markets to larger scale markets. At the same time, conventional carbon-intensive production methods will become more expensive as CO2 prices rise, narrowing the cost gap between conventional and low-carbon materials. See Annex 7 for more details on the projected cost evolution of clean technologies.

Administrative costs

For steel, the label on the carbon intensity foreseen under LAB 2 would provide a reliable tool for participants in the tender to demonstrate compliance with low-carbon requirements for the material used in the automotive or construction projects. For cement, the standardisation request under the revised CPR has recently been adopted with a deadline for CEN of June 2027 to deliver the first new harmonised standards. 167 Under these harmonised standards, CE marking will require the declaration of the GHG emissions in the declaration of performance and conformity and in a label on the packaging. This will offer a reliable basis for public authorities to ensure compliance with the relevant policy measure. Accordingly, this would add limited administrative burden compared to the baseline. 

LEAD_BAT 1 – Introducing Made in EU requirements for batteries will have a twofold impact on downstream sectors. First, it will lead to higher prices compared to low-cost battery imports with short term risks of delaying the energy transition. However, this must be considered in light of the EU’s existing battery production capacity, which reached approximately EUR 24 billion in 2023 168 , with exports exceeding EUR 11 billion in both 2023 and 2024 169 , demonstrating an already strong industrial base. Second, since foreign-made EVs and BESS are unlikely to meet the Made in EU thresholds for batteries, EU-made downstream products will benefit from the access to public support schemes, procurement, and auctions. Even if foreign producers attempt to comply, their costs are likely to be higher due to logistics and limited integration of EU components, further reinforcing the competitiveness of an EU based battery downstream sectors.

In 2024, the price increase for manufacturing the same battery product in the EU using local battery cells, CAM and AAM, compared to importing these components from China, ranged between EUR 16-30 per kWh depending on the maturity of the manufacturing company (see Annex 9). For example, looking at the impact on EVs, for an average passenger EV equipped with a 68-kWh battery pack, the estimated price increase in 2024 would range between EUR 653 and EUR 1 632. This corresponds to approximately 1.4% to 3.5% of the average retail price of an electric vehicle in Europe. 170

Ongoing cost reductions in battery packs and cells are expected to gradually reduce the battery’s share of total EV and BESS costs, thereby diminishing the overall cost impact of Made in EU requirements on the downstream sectors. Global average lithium-ion battery pack prices fell by 20% between 2023 and 2024, and by a total of 86% from 2013 to 2024. The learning rate for batteries is estimated at 18% at the pack level and 24% at the cell level, meaning costs typically decline by 18% and 24% respectively each time cumulative production doubles. 171 This suggests a continued and potentially accelerated decline in battery prices. Pack costs are projected to fall from EUR 98.9/kWh in 2024 to EUR 59.3/kWh by 2030 and EUR 46.4/kWh by 2035 (i.e., a 53% reduction). Similarly, cell prices are expected to drop from EUR 67/kWh in 2024 to EUR 36.9/kWh by 2030 and EUR 27.5/kWh by 2035 (i.e., a 59% reduction) while maintaining a typical cell-to-pack cost ratio of approximately 60:40 (see Annex 4 Section 2). 172

LEAD_SOL 1 - Introducing Made in EU requirements criteria in public procurement, auctions, and public support schemes for solar PV might result in a short-term cost premium 173 , as EU-made modules currently have higher production costs than imported ones. European panels with three components manufactured in Europe (which would be NZIA compliant) would cost around 19 €ct/Wp, while minimum sustainable price for production in China is estimated at 15.9 €ct/Wp 174 , despite Chinese panels currently being sold at levels of 8.7 €ct/Wp in Europe. Once Chinese products hit a sustainable level again 175 the price difference between the Made in the EU module and an imported one will not be that disproportionate. At current levels of 8.7 €ct/Wp the price difference between Chinese products and NZIA-compliant products   would impact the Levelized Cost of Energy (LCOE) by 0.75 €ct/kWh equal to an increase of 14.5% 176  at the level of the specific auction. Please see Annex 4 section 2.2. for further calculations. This means that profit margins of utilities could be negatively impacted, with electricity prices for end consumers potentially increasing only very marginally as (i) Made in EU requirements would be applied only to a share of the auctions; (ii) gas power plants would remain the marginal source to set the electricity price most of the hours. Further, at end-consumer level, slight price increases can be accommodated by other means, such as levies and taxes. According to stakeholder input, the NZIA resilience requirements, applicable as of 30 December 2025 and foreseen to be implemented under the Fer X scheme in Italy, could lead to an increase of approximately 15% in the auction-level LCOE, but only around 1% at the corresponding electricity price level.

Overall, applying Made in EU requirements under LEAD_SOL 1 is estimated to generate the following additional cumulative costs by 2030 compared to the Baseline: approximately EUR 60 million in public procurement, EUR 580 million in auctions, and EUR 240 million in public support schemes. These costs reflect the price difference between PV modules manufactured in the EU using a mix of EU and Chinese components (IAA compliant), and the minimum sustainable PV module price in China 177  for fully Chinese-made modules. If Chinese solar costs would remain closer to today’s price, these costs could be higher. The costs for downstream industrial and household consumers resulting from higher electricity prices could not be calculated with the models used for this impact assessment.

Nevertheless, this cost premium would be reduced over time as EU manufacturers ramp up and as the cost of solar PVs, and therefore the share of their cost within a PV installation (household or utility-scale) decreases. Large‑scale solar parks may see bid prices rise as EU‑content requirements take effect. However, the baseline scenario of NZIA’s indicative benchmark of manufacturing capacity across net zero technologies to reach at least 40% of the EU’s annual deployment needs by 2030 will improve market predictability. Rooftop and commercial installers who buy panels in small lots could see retail module prices climb and potentially dampening uptake. However, since the module typically accounts for 25-30% 178  of total installation costs, the impact on final consumer prices would remain limited and could be further mitigated through smart auction and procurement design to create different incentives and flexibility.

In relation to cybersecurity, Made in EU requirements for inverters can boost local manufacturing and improve cybersecurity by keeping control of key technologies in Europe. This reduces risks from foreign cyber threats and protects energy infrastructure, making the EU safer and more resilient.

Regarding the energy transition in the EU, the potential impact of Made in EU requirements in solar PV could lead to higher costs in the short term but will be beneficial in the mid to long-term. First, the requirements will significantly reduce Europe’s heavy import dependence—especially on China—thereby lowering risks of supply disruptions and enhancing solar PV rollout reliability, critical for achieving renewable targets. Second, they will trigger large investments in new manufacturing capacity, technology, and skills; and 3) it will ensure availability of the main specific components, in particular inverters, with high sustainability and quality standards that enable more resilient deployment, supporting grid stability and climate goals. Over time, this will make Europe a more energy secure space.

In the absence of Made in EU requirements, Europe’s heavy reliance on China controlling over 90% of global solar photovoltaic (PV) manufacturing capacity across the whole value chain exposes the EU to significant risks. Negative actions by China—such as export restrictions, tariffs, or supply chain disruptions—could create severe supply shortages, resulting in delayed solar project installations and increased costs due to price spikes. These possible disruptions would likely slow down Europe’s renewable energy deployment, delay the achievement of the EU climate targets for 2030 and 2050, and, consequently, increase dependence on fossil fuels or less sustainable alternatives. Moreover, this dependency weakens Europe’s strategic autonomy in clean energy technologies, making the continent vulnerable to geopolitical tensions. Building a resilient EU manufacturing ecosystem through EU content requirements is therefore essential to safeguard energy security and ensure a stable, affordable, and timely solar PV deployment.

Concerning the impact of the Made in EU requirements on the affordability of energy, this is likely to be limited. In the EU electricity market’s marginal pricing model, the price is determined by the most expensive energy source needed to meet demand which typically includes fossil fuels such as coal, oil, and natural gas due to their higher operational and fuel costs. In June 2025, solar energy was the main source of electricity generated in the EU (22%). 179  Since the price formation is dominated by the most expensive energy source, a greater solar share tends to lower average prices when solar is generating because it displaces fossil fuel generation. Buying made in EU solar PV may lead to power producers passing on the cost to consumers but in a modest increase. This impact is expected to be small and much less volatile compared to the larger fluctuating cost related to fossil fuel consumption and CO2 ETS pricing.

An example of how lead markets measures proved successful in the long run can be the feed-in tariffs models used by member States to support renewables deployment. In the past, Europe benefited from spillover effects of feed-in tariff policies like Germanys Renewable Energy Law (EEG). While the policy initially contributed to higher electricity prices for consumers, it ultimately generated net benefits by driving down costs for renewable technologies and accelerated large scale deployment. The guaranteed premium enabled the derisking of future investments, which led to a wide adoption of renewable energy projects as well as rapid expansions. 180

LEAD_VC 1 - Given the estimated current level of 70% Made in EU in the EVs, the measure would not lead to any further compliance costs for EU EV manufacturers in 2027. As the target is increased to 75% by 2030, the measure would represent a cost increase of EUR 1.9 billion for EU EV manufacturers, which would be offset by the increase of sales. EU EV manufacturers are expected to benefit from a sales increase of EUR 13.9 billion across all vehicle segments in 2027 and EUR 9 billion in 2030. The increase in sales is presumed to offset the cost increase for passenger cars and LCVs, however, not for HDVs. It is important to note that the numbers presented here are aggregated from all vehicle segments, and the measure would impact each of them to a different extent. As previously noted, for the HDV sector, due to the limitations of the model, the same assumptions are applied as for passenger vehicles. However, as the Made in EU in HDV is likely to be higher than the assumed requirements, the measure may result in zero cost implications for EU HDV manufacturers, while preserving the positive effect on sales. Finally, the measure is projected to lead to the generation of EUR 5.5 billion Global Value Added (GVA) in 2027 and EUR 4.5 billion in 2030 when assessing the impact, taking into account only the first tier of the value chain. When considering the entire value chain, the value added generated from the necessary intermediate inputs for EVs the value added can reach EUR 10.5 billion in 2027 and EUR 9.7 billion in 2030. Following a sensitivity analysis (See Annex 15 for more information), the cross-region elasticity is the parameter that most affects the results for EU EV manufacturers, and the value added generated. However, the sensitivity analysis shows the robustness of the results, with values falling within a small range and not significantly affecting the policy's economic effects.

INV 1 – The impact of conditions on investment would depend on the extent to which Member States take up the voluntary guidance. In the short term, the effects are likely to be limited, as companies would not be legally required to adapt their sourcing or production models. In Member States that do apply the guidance, some investors may be encouraged to increasing EU sourcing of components, materials or services, potentially creating spillovers through knowledge transfer and collaboration with EU-based firms. However, because the implementation of the guidance is voluntary and Member States may apply the guidance only partially, these positive effects would be uneven across the Union, with benefits concentrated in those countries that actively promote and monitor such conditionalities. In practice, the fragmented uptake would limit the overall capacity of the initiative to strengthen EU-wide industrial ecosystems. 

6.1.1.3Impact on SMEs

LEAD_EII 1 – SMEs may have less capacity than larger firms to absorb temporary increases in material costs or to pass them on to customers, which could put pressure on their margins in the short term. However, these effects are expected to be limited, as the cost increase linked to low-carbon material requirements remain modest and as low-carbon products gradually become more available and price differentials narrow.

LEAD_BAT 1 would directly support SMEs by boosting demand for locally produced battery packs, cells, components, and advanced materials. This would not only strengthen existing suppliers but also create market opportunities for emerging businesses in a nascent and growing strategic industry. As the European battery ecosystem expands, SMEs will be better positioned to scale, innovate, and integrate into regional and global value chains. Since this measure does not target private transactions, the impacts on the SMEs part of the road transport ecosystem using vehicles are expected to be limited.

LEAD_SOL 1 will help channel public demand towards domestically built modules, which are predominantly produced by SMEs in Europe, catalysing the creation of additional manufacturing and installation roles. While a temporary slowdown in solar panel installations by SMEs may occur, the negative impact is expected to be limited and manageable, as Europe’s commitment to ambitious PV deployment targets remains firm and unchanged. In the mid to long term, these targets will continue to drive strong demand for installation services, ensuring SMEs can recover quickly and benefit from a sustained, growing market for solar deployment.

INV 1 will have very limited effect on SMEs as the conditionalities would apply primarily to large foreign investors rather than smaller domestic firms and be limited to large investments. Where Member States choose to implement the guidance, SMEs located in those regions may benefit indirectly if inbound investors increase local sourcing or collaboration, but these effects would be uneven and dependent on national uptake. Given the voluntary nature of the measure and the fragmented application across the Union, broader SME participation in strengthened industrial ecosystems would remain uncertain and geographically constrained.

PERM 1 - The digitalisation of the permit-granting process with the Single Digital Gateway would benefit SMEs active on their domestic (national) market by gaining an easier access to other Member States for permit-granting submission.

LEAD_VC 1 is expected to affect those EU based SMEs positively that are Tier 2 and Tier 3 suppliers of the industry due to the increased demand for vehicle components sourced locally. In quantitative terms, the impact on SMEs is covered under the impact on consumers section, as they are included in the definition of consumers, alongside private citizens. As Light, Medium, Heavy Commercial Vehicles, and Buses fall within the scope of the measure, the effects described above for consumers in these vehicle segments, have to be assumed as impacting SMEs that typically purchase and operate these vehicles.

6.1.1.4Impact on citizens and consumers

LAB 1 – As explained under the economic impacts, this option would add complexity to the implementation of the existing framework and might create unnecessary confusion among consumers/businesses with a very wide range of labels on all EIIs.

LEAD_EII 1 - Low-carbon requirements are applied to the steel and aluminium used in end-products (such as passenger cars) supported by public schemes. Therefore, the financial burden would mainly fall on Member States, if they decide to absorb the price increase, rather than on final consumers.

As outlined in Section 6.1.1.2, the minor economic losses observed through the general equilibrium model point at a decrease in the consumption of automotive (EUR 84.4 million) and construction (EUR 59.4 million) goods, driven by the low-carbon cost increase, as one of the reasons for the value-added decrease of these downstream sectors.

For a wider consideration on cost estimates, the sensitivity analysis for the range of potential costs derived from low-carbon steel can present the following for passenger cars: EUR 91.7 million – EUR 212.87 million. See Annex 15 for more information.

However, access to public schemes would be reduced to consumers willing to purchase a product containing low-carbon content. While no assumption can be taken on the level of public funding, public incentives in these products are already widely present in society as explained above. Only for internal combustion engine vehicles, a recent study estimated that subsidies for corporate vehicles alone amounted to EUR 42 billion in 2023. 181  Cost implications on the final products in automotive and construction 182 are outlined in Section 6.1.1.2 .

LEAD_BAT 1 - As outlined in Section 6.1.1.2, consumers would be affected by the possible price increases. However, since these are tied to public support schemes, the effect on final prices would be less pronounced and more gradually absorbed. By 2030, the adjustment costs for consumers will range between EUR 292-730 million (average EUR 511 million) for private consumers and EUR 0.9-2.2 billion (average EUR 1.55 billion) for corporate consumers (see Annex 4 Section 2). Given that EV subsidies have exceeded EUR 16 billion annually from 2021 to 2024 183 , these subsidies have the potential to financially compensate the income effect of the impact on the final consumers.

LEAD_SOL 1 would likely bring a near‑term cost uptick. As mentioned above, even a moderate increase in EU module prices would result in a system cost increase of only around 5-15%, depending on the configuration and market conditions, to be weighed against the broader benefits of resilient, locally based manufacturing and reduced dependency on imports. 184  Directing part of publicly backed demand toward European products would diversify supply and build (economic) security. 185  As the measures target public procurement, auctions and public support schemes consumers would not be directly impacted by the price increase and especially under the public support schemes, consumer purchases of EU made PV systems would be financially rewarded.

LEAD_VC 1 is estimated to have two different effects: As EV passenger cars become more expensive from non-EU manufacturers, and ICE vehicles, being not affected by the measure, could benefit from a relative price advantage (prior application of the bonus schemes or subsidies) over EVs, there may be a partial product substitution of EVs with ICEs. However, as EV passenger cars produced by EU manufacturers will benefit from a relative price advantage following the reduction of price originating from the reallocated subsidies, this may lead consumers to prefer EV passenger cars produced by EU manufacturers (which increase their sales) over non-EU EV passenger cars (which reduce their sales). The latter effect crucially depends on the bonus schemes and conditional to the assumptions taken in this impact assessment and Annex 14 presents a counterfactual analysis on the potential price impacts when changing the amount of public subsidy allocated to EU EV manufacturers.

In quantitative terms, when we look at the impacts in 2027, the average price increase (from both the potential reduction of price for EU manufacturers and price disadvantage for non-EU manufacturers), there would be an overall price increase of 0.4% for passenger cars, 0.5% for HDVs and there could be a reduction of 0.7% for LCVs. Looking at the impact in 2030, the price increase for passenger car rises to 1.2%, to 0.4% for LCVs and 1.2% for HDVs. As buyers of LCVs and HDVs are mostly economic operators, the impact qualifies as impact on the downstream. Following the sensitivity analysis carried out in Annex 15, demand elasticity is the parameter that has the strongest impact on the results. However, it shows values falling within a small range and not significantly affecting the policy's economic effects.

INV 1 – For citizens and consumers, the effects would be limited in the short term, as the measure’s voluntary nature means it would not immediately alter market prices or consumer costs. Where Member States do implement the guidance and attract additional investment, some localised benefits (such as job creation or opportunities linked to industrial activity) may occur, but these would be uneven and dependent on national uptake. Overall, the voluntary and fragmented application limits the likelihood of consistent or EU-wide improvements for citizens and consumers.

6.1.1.5Impact on competitiveness

LEAD_EII 1 - EU producers of low-carbon materials would initially benefit from a first-mover advantage. However, many non-EU regions have also rapidly expanded their low-carbon production capacity and are well-positioned to compete on carbon-related requirements. As an example, according to Strategic Perspectives, China is expected to produce 105 Mtonnes of recycled steel by 2030 186 , positioning it to supply nearly half of the EU’s potential low-carbon steel demand, subject to the limits imposed by the forthcoming Regulation addressing global overcapacity. 187  Any potential disadvantages for firms still relying on high-emission routes are expected to be temporary, as the gradual increase in low-carbon production reduces cost differentials across the sector. At the same time, the measure will create a more stable and predictable domestic market for European producers, allowing them to secure long-term contracts for low-carbon materials in public works and supported sectors. This internal market stimulus is expected to offset any small decline in export volumes, reinforcing industrial utilisation and accelerating investment recovery. In addition, by slightly increasing domestic output and reducing exposure to highly concentrated foreign supply chains in the supported segments, the measure provides a modest economic-security gain, lowering vulnerability to sudden price shifts, coercive practices or export restrictions from dominant suppliers.

Compared to the baseline, EU-based EIIs – especially the frontrunners – are expected to benefit from the low-carbon requirement, however their competitive position would still remain at risk, primarily due to higher operational costs in the EU compared to other global regions. 188 Furthermore, as some sectors, such as steel, are significant exporters, their competitiveness on the global market might be affected to some extent, since customers in third countries may not face the same low-carbon requirements and might not be willing to pay for the green premium. However, requirements under this measure only apply to public procurement, and do not require a 100% shift to low-carbon production in 2030, giving producers flexibility to gradually adapt and ramp up the low-carbon production.

Looking at the competitiveness of downstream customers, low-carbon requirements would apply indistinctively to all vehicle manufacturers that operate in the Single Market (both domestic and foreign) that intend to participate in public support schemes or procurement. Therefore, the proposed measures will in principle preserve the level-playing field. However, given the significant share of vehicle registrations supported by public support schemes, it is reasonable to expect that introducing low-carbon steel and aluminium requirements as a condition for accessing such support would strongly incentivise vehicle manufacturers to adopt low-carbon materials across a significant part (if not the entirety) of their product portfolio, particularly for models intended for the EU market. At the same time, there is a risk of losing competitiveness on third countries markets, especially if no similar low-carbon policies apply.

Consequently, the absence of similar requirements in other world regions may put – in the short term – EU vehicle manufacturers in a condition of relative cost disadvantage and possible relocation of EU industry. Moreover, the risk of capacity constraints in the low-carbon steel and aluminium supply-chain should not be neglected: the moderate low-carbon ambition tabled under this measure is therefore based on the existing pipeline of projects, to prevent that risk. Besides, as low-carbon production scales up, premiums are projected to decline, reducing the competitiveness gap. In the medium term, the expansion of EU low-carbon capacity and declining green premiums are expected to strengthen the overall competitiveness of the European industrial base, enabling it to compete globally on both cost and sustainability performance.

LEAD_BAT 1 / LEAD_SOL 1– Such measures would clearly benefit the situation of EU-based batteries and solar industry, creating the conditions to reinforce their competitiveness. In the case of solar PV, introducing Made in EU requirements for only a subset of the main components can limit the production cost difference with fully Chinese PV systems, since some components can be sourced in third countries. For example, producing a PV system with three EU-made components, including the module and cell, while relying on Chinese polysilicon, ingots, and wafers, would reduce the average cost to 19 €c/Watt-peak for a compliant PV system under LEAD_SOL 1. Under LEAD_BAT 1, EU based battery manufacturers would benefit from an increased demand for EU made batteries through public procurement and public auctions, while also reducing the cost gap with battery imports which will cease to receive public subsidies. These competitiveness gains also translate into a modest improvement in economic security, as a larger share of Europe’s demand would be met by domestic production rather than from highly concentrated foreign supply chains, reducing vulnerability to external price shocks, export restrictions or other coercive practices affecting strategic inputs. When increasing the cost of power generation technologies, this may also have a moderate impact on clean energy deployment in the short term, and indirectly on the cost of electricity. However, electricity prices remain very largely determined by other components, such as the marginal source (usually gas).

LEAD_VC 1 – The measures would create a stable lead market in the EU for European component manufacturers, leading to a stronger business case for manufacturing in the EU and providing European suppliers with greater scale and industrial capacities to compete on the global markets. The EU local requirement for EVs could gradually increase the reshoring of the global value chain and increase the EU production capacity to meet the new requirements. This gradual increase in domestic component production also brings a small but relevant economic security benefit, as reduced dependence on extra-EU suppliers in highly concentrated segments of the EV value chain lowers exposure to supply disruptions, price manipulation and other external shocks.

The competitiveness effects on EU car manufacturers are also positive. On the EU market for EVs, EU car manufacturers could benefit from the policy as it creates a positive price differential vis-à-vis non-EU car manufacturers. The measure also reduces foreign competition, as the Made in EU requirements are likely to be more difficult to meet for non-EU car manufacturers as the initial level of Made in EU in their EVs is lower and they will likely not be eligible for subsidies. The effect will depend on the capacity of non-EU car manufacturers to absorb the non-eligibility of subsidies.

On the non-EU market for EVs, EU car manufacturers would not be impacted as they only need to comply on the domestic market and can differentiate their production based on the destination market of each product. This assessment does not focus on potential action taken by trade partners in response, which are described below.

INV 1 would have limited impact on the competitiveness of EU industries in scope, as any effect depends on whether Member States choose to apply the guidance. Where implemented, voluntary conditions may encourage some investors to embed more activities locally, which could support specific value-chain segments. However, these effects would be uneven, modest in scale, and constrained by the ability of investors to avoid such conditions entirely by locating in more permissive Member States.

PERM 1 - Implementing the SDG will reduce the cost of doing business in the Single Market, administrative frictions, obstacles and therefore improve the overall competitiveness of businesses by facilitating cross-border administrative operations.

6.1.1.1Impact on competition

LEAD_EII 1 - Low-carbon requirements would apply uniformly to all participants in public procurement procedures and beneficiaries of public support schemes, ensuring that manufacturers of energy-intensive materials and downstream producers compete on equal terms. As such, the measure is not expected to distort competition among market participants that meet the low-carbon requirements, as long as strong and reliable verification mechanisms are in place.

LEAD_BAT 1 / LEAD_SOL 1 Introducing Made in EU requirements is likely to reduce the overall pool of competitors for the segments targeted in this PO. As the number of EU businesses active in PV manufacturing is currently limited (approximately 150) 189 , such requirements may initially lead to a concentration of the market among a smaller number of players. However, as investments in the European manufacturing landscape are expected to increase, new players (including through FDI) are likely to enter the market. Competition would, in this scenario, be limited to manufacturers with production located in Europe, who, to be competitive, would be expected to build up GW-scale capacities. This would result in fewer but larger players, rather than many small ones. Nevertheless, competition among these manufacturers is expected to ensure competitive pricing. Another key consequence is that this PO would ensure that Europe can at least partly rely on domestic technologies and jobs, which is essential to achieving climate objectives while reducing the risks associated with external dependencies.

LEAD_VC 1 – The effects of the policy on total sales and consumer welfare depend on the level of market competition on both the supplier and final producer sides. There is a certain risk of captive market for vehicle components, however, it is considered unlikely given the dependence of suppliers from vehicle manufacturers. Regarding the EV producers, the EU EV car manufacturers will have a competitive advantage with respect to non-EU car manufacturers. However, if the EV market is very competitive, non-EU EV car manufacturers will absorb a share of their price increase to not pass through the full price increase to EU final consumers. As there are no market entry barriers, and given the overcapacity of supply in China, non-EU EV manufacturers are likely to compensate with aggressive discounts, hence competition would remain.

INV 1 - Attracting FDI is important to strengthen innovation and competition in the Single Market. Since the measure is voluntary, implementation may remain highly uneven across Member States. Restrictive measures under conditionalities (a) and (b) may limit companies’ freedom in supply chain choices. Where applied, certain conditions could marginally influence investors’ operational choices, but these effects would be limited and geographically concentrated. The ability of investors to choose Member States applying fewer conditions (or none at all) would encourage regulatory arbitrage and sustain divergent competitive environments across the Union, rather than ensuring a level playing field.

6.1.1.2Impact on international trade

LEAD_EII 1 is expected to shift trade flows only modestly, increasing trade with producers of low-carbon materials while reducing demand for high-carbon alternatives. Low-carbon steel and low-carbon aluminium or, to a lesser extent, cement produced in non-EU countries would likely be redirected to the EU, to meet such requirements in public procurement and support schemes. While cement trade at the borders of the EU increased since the 2008 crisis, volumes traded remain marginal with the EU cement industry remaining a net exporter.

LEAD_BAT 1 / LEAD_SOL 1 / LEAD_VC 1 would likely reduce the import of solar PV cells and modules, batteries and their key components and vehicle components from non-EU countries, particularly from the single most dominant supplier, China, but also, from other partner countries.

The trade balance for solar products could thus improve for the EU. The requirements could encourage FDI into the EU's manufacturing sector as companies look to set up operations within the region. This reconfiguration could impact the geography and logistics of global solar, battery and vehicle component supply chains, as global suppliers adapt their supply chains to comply with EU requirements. It would also boost the EU’s environmental ambition by reinforcing key supply chains for clean energy and mobility transitions.

LEAD_VC 1, introducing a minimum share of Made in EU requirements for EVs sold in the Union, as a condition to access public procurements and subsidies, presents an opportunity to accelerate localisation, increase EU resilience, and reduce vulnerability to potential export restrictions or geopolitical leverage from dominant suppliers and level playing field, taking into account local content requirements applied on other markets. This could have an indirect effect on international trade, however, given the attractiveness of the single market and the global nature of most vehicles manufacturers, foreign producers would have a strong incentive to adapt, either by reconfiguring supply chains or by investing in local production to meet the requirement (also thanks to FDI conditionalities, if applied by the Member States under INV 1). The measure is tied to legitimate policy objectives such as security of supply, ability to decarbonise, as well as cybersecurity concerns linked to connected vehicle systems.

INV 1 - As the measure remains voluntary, its impact on international trade would be limited, as companies would not be obliged at EU level to localise production or adjust sourcing patterns. In Member States that decide to apply the guidance, some investors may marginally increase EU-based activities, but these effects would remain partial and uneven. Because uptake is optional, any trade effects would be small and geographically concentrated, with no meaningful substitution of imports across the Single Market.

Although the overall impact may remain contained, there is a risk that certain partners could introduce reciprocal or retaliatory conditions affecting EU investors. At the same time, given the non-binding nature of INV 1, significant reactions from trading partners are unlikely, as conditions would only apply where individual Member States choose to implement them. Any external response would therefore be limited and directed at specific national regimes rather than the EU as a whole.

In the specific case of China, some temporary adjustment in investment behaviour could occur. Chinese companies with strong state backing or strategic technology interests may initially hesitate to invest under tighter localisation or value-added conditions. However, analyses 190 show that many Chinese industrial groups have progressively adapted to similar requirements when market access is sufficiently attractive. For instance, Chinese manufacturers in the battery and electric vehicle sectors have already expanded their use of European suppliers and partnerships in order to comply with local content expectations. Therefore, while stricter conditionalities could shift a few planned projects to third countries with lighter rules (e.g. Türkiye or Morocco), well-designed measures are likely to enhance the overall quality of Chinese FDI by anchoring more R&I, jobs and supply-chain activity within the EU rather than deterring investment altogether.

6.1.1.3Impact on Member States

Financial implications

LEAD_EII 1 – The cost implications of low-carbon requirements in additional public spending would be limited since the cost of steel and cement account for less than 1% of total public procurement expenditures across the EU, according to 2019 data. 191  Setting a 25% target for low-carbon steel and aluminium used in automotive, building and construction projects, as well as a 5% target for low-carbon cement in public procurement, could generate an additional cost for public authorities, assuming that they are passed on to consumers, and public authorities decide to cover them as the providers of the financial support for the schemes. 192  Furthermore, a portion of public budgets could continue to offset some of the costs for consumers outlined in Sections 6.1.1.2 and 6.1.1.4 by incorporating them into public support schemes. For instance, in 2024, the EU has spent approximately €17 billion in subsidies to promote the purchase of electric vehicles. 193  At the moment, there is public support to buy EVs for corporate purchases in all Member States and for consumers in 19 Member States. 194  In return, this investment could help stimulate job creation and foster the development of clean industries, the scale of the benefits depending on whether low-carbon materials are produced within the EU rather than imported from non-EU countries.

At the same time, the increase in the price of end-goods publicly purchased or supported can result in governments deciding to spend less for such goods. This could result in reduction of consumption from governments of EUR 373 million in the construction sector, and 120 million in the automotive sector.

For a wider consideration on cost estimates, the sensitivity analysis for potential costs derived from low-carbon steel and cement/concrete used in construction show that costs can vary from EUR 339.7 million to EUR 2 billion. For a wider consideration on cost estimates for automotive, notably public fleets, the sensitivity analysis for the low-carbon steel costs can range from EUR 14.04 million – EUR 32.59 million. See Annex 15 for more information.

LEAD_BAT 1 – Made in EU requirements for batteries are anticipated to impact approximately 3.5% of the European EV fleet through private procurement and around 5% of BESS deployment via public auctions. Consequently, the total adjustment costs are estimated to range from EUR 132 million to EUR 331 million for EVs (average EUR 231.5 million) and EUR 26 million to EUR 66 million (average EUR 44 million) for BESS in 2030 (See Annex 4 Section 2).

LEAD_SOL 1 – Due to the public procurement and public support schemes provisions requiring the purchase of EU Made products, the costs faced by public authorities and Member States will increase. However, public procurement is estimated to cover only around 3% of the solar market, auctions around 19% and public support schemes only 12%. In turn, Member States will benefit from several positive consequences in having increased manufacturing capacity in Europe, jobs creation and contributing to the achievement of European climate and energy targets through reduced emissions through transportation costs. It would also mean that the trade balance with Asia (with over EUR 4.5 billion in additional annual import costs) would be reduced and more wealth retained in Europe as well as job creation (more than 40 000 highly qualified jobs in manufacturing, equipment supply, and related industries) and halting foregoing tax revenues of over EUR 1 billion per year. If demand for EU-produced PV systems increases, this could temporarily result in a slight slowing down of deployment in the public-sector for the solar PV segment during the adjustment period. However, it is important to recognise that a significant portion of solar capacity deployment in the EU still depends on public support mechanisms, even when the installations are carried out by private entities. Consequently, a short-term price increase would likely translate into higher public financial support requirements to meet the EU’s renewable energy targets. Made in EU criteria could initially pose procurement challenges for some Member States, requiring potential adjustments to national plans to meet renewable energy targets.

Under LEAD_VC 1, as observed above, public support schemes currently used in the automotive industry will mitigate the potential adverse effects of LEAD_VC. (See: Assumptions) To reach this positive objective, as laid down in the assumptions, it is important that Member States re-distribute (at least, partially) the public subsidies that are no longer accessible to non-compliant manufacturers, meaning that the Member States would keep the volumes allocated to finance the strengthening of the EU industrial value chain. Since the assumptions are based on already existing schemes, the cost of public subsidies used for this Impact Assessment will not represent an increase in cost for Member States. Indeed, estimates indicate a saving budget for Member States of EUR 2.7 billion per year from 2027 to 2030, with a net present value of EUR 10.3 billion. 195

Administrative burden

LEAD_EII 1 - Public authorities can encounter increased administrative burden in ensuring compliance with low-carbon requirements for energy-intensive materials. Effective implementation depends on the availability of reliable and transparent standards, emissions accounting methodologies, and certification systems as well as guidance for Member States.

LEAD_BAT 1 would increase the administrative burden on Member States to ensure compliance with the requirement. Rather than using a detailed value-based approach calculation, fixed component percentages would help lessen the administrative burden.

INV 1 - As the measure is voluntary, Member States would face no obligation to adapt their national frameworks or establish new implementation mechanisms. Administrative impacts arise only where a Member State chooses to apply the guidance, in which case the additional burden would remain limited with respect to additional administrative costs for national authorities. In fact, the Commission’s Evaluation of the FDI Screening Regulation found only a ‘minimal financial burden’ for Member States. 196

PERM 1 - Digitalising the permitting process would streamline transactions between public administrations and users, resulting in time savings for both parties. Moreover, the economic benefits for public authorities are greatest when digitalisation is implemented swiftly and covers a substantial number of transactions. 197 The biggest beneficiary of these savings would be municipalities, as they normally carry the biggest burden in the permit-granting process.

The type of costs initially incurred by public administrations would be investment costs during the development and implementation phase, which can also include transitional costs from the paper/offline to the digitalised process. In addition, additional operational costs for the management of the tool are also expected. A reorganisation of the administration in some Member States may be required and can be costly in the short term. In turn, this measure can avoid duplication of efforts, notably at the various stages of environmental assessments. Similar digitalisation processes show net benefits for all relevant administrative authorities (local, regional and national), even after the upfront cost of implementation for the first year. 198 An upfront cost of EUR 16 000 to EUR 400 000 to digitalise a procedure, depending on whether it’s a local or other type of procedures can be considered in this context. Estimates based on digitalisation of procedures can show savings up to EUR 1.3 billion per year for EU governments in efficiency savings. 199  See Annex 4 for more information. However, accurate estimates are hard to quantify precisely, as they depend on the level of digitalisation of the relevant procedures, their complexity or number of relevant procedures.

A small additional administrative cost can be expected when updating the Single Digital Gateway system to streamline the accessibility of information for cross-border users, updating the system to include the permit-granting process for manufacturing industries with a sectoral approach of EUR 20 000 per section for the Commission and up to EUR 40 000 for Member States, per section as well. For more information on aggregate cost calculations for the Single Digital Gateway amendments, see Annex 4 Section 2.1.

The introduction of technical assistance for innovative projects will have positive impacts for the national authorities’ staff. Training on the most relevant innovative technologies will facilitate the treatment of permits and reduce the need to contact the project promoter for additional clarifications. In this context, the role of INCITE is particularly relevant. 

6.1.2Social impacts

LEAD_EII 1 – The creation of new demand for low-carbon materials is expected to spur investments in decarbonisation technologies. Analysis by think tank Strategic Perspectives estimates that introducing low-carbon requirements 200  for steel in public procurement could preserve approximately 4 500 additional jobs in the steel sector by 2030 compared to the baseline scenario. 201

LEAD_BAT 1 - Made in EU requirements can play a critical role in safeguarding and expanding employment across the European battery value chain. By creating stronger demand for locally produced components, Made in EU requirements can help increase investments, secure existing jobs and stimulate further employment across upstream and downstream the battery value chain. The current battery project pipeline is expected to create 170 000 jobs by 2030. 202 In the battery cell sector alone, currently announced gigafactories are expected to create up to 128 000 jobs. However around 85 000 of these jobs are considered to be at high or medium risk. 203 LEAD_BAT 1 would help derisk these jobs, which currently amount to around 66% of the total jobs in the pipeline.

LEAD_SOL 1 could deliver a substantial boost to employment. According to InnoEnergy, manufacturing 30 GW of solar panels annually in Europe alone would require 20 000 trained operators and technicians 204 , underscoring the need for dedicated workforce development. In this context, Made in EU requirements would also help secure employment pathways for the growing number of skilled workers, including the 100 000 individuals the EU Solar Academy aims to upskill in solar PV by 2027, ensuring that training efforts are matched with long-term industrial job opportunities. 205  

LEAD_VC 1 could stop, and possibly reverse, the trend of progressive job losses which has been materialising over the past years in the EU’s vehicle components supply chain. 206  From this perspective, the minor vehicle price increases described above in the impact on consumers section, should be seen as irrelevant compared to the preservation of hundreds of thousands of high-quality jobs and a strong industrial base in the Union. Furthermore, the measure could create additional financial capacities for suppliers to be reinvested in future technologies. 

INV 1 - As the measure is voluntary, social impacts would be limited and depend entirely on whether Member States choose to apply the guidance. Where implemented, some projects may generate additional employment or higher-quality jobs linked to localised activities, but these effects would be uneven and confined to specific regions. In Member States that do not adopt the guidance, no material social impact would occur, resulting in an overall limited and fragmented effect on EU employment and working conditions.

6.1.3Environmental impacts

Introducing EU-wide labels for low-carbon energy intensive industrial products, as proposed in LAB 1, can improve the understanding of what constitute energy intensive products with lower environmental impact. However, the impact of an EU voluntary low-carbon product label depends on its ability to effectively stimulate demand for low-carbon products. This requires the label to provide buyers with credible information about the GHG emissions associated with the product. At the same time, its impact also depends on the ability of low-carbon producers to differentiate their products from conventional alternatives and to strengthen the business case for low-carbon production.

The environmental impact of the different design elements for the low-carbon product label will depend on the scope of GHG emission information provided by the label and on its ability to ensure comparability across products as well as attractiveness and accessibility of such a label for different market players/products (e.g. non-EU manufactured products). These specific aspects are assessed for steel under PO2 and PO3. Regarding other EIIs, it is expected that ongoing efforts to present the environmental performance of construction products would lead to lower environmental impact choices. For other sectors, ongoing initiatives, such as the upcoming ESPR delegated act on aluminium, could ensure a broad coverage of emissions and solid comparability, therefore providing strong incentives for decarbonisation.

LEAD_EII 1 is expected to provide a clear demand signal for low-carbon materials, thereby encouraging investment and accelerating decarbonisation efforts. With a 25% target for low-carbon steel in automotive and construction, emission reductions would amount to approximately 3.37 Mtonnes CO₂ in 2030 alone. 207  Based on the 5% low-carbon target proposed for cement in 2030, the potential savings could reach 0.69 Mtonnes CO₂ for that year. Correspondingly, the 25% low-carbon target for aluminium could save 0.22 Mtonnes CO₂ in the year 2030. Combined, the potential savings for steel, cement and aluminium could reach 4.28 Mtonnes CO2 in 2030. 208  These emissions savings amount to EUR 428 million (from EUR 256 million to EUR 809 million depending on the cost of carbon used). See Annex 4 Section 2.3 and Annex 15 for monetisation calculations in ranges following the sensitivity analysis.

LEAD_BAT 1 - Under the Batteries Regulation, batteries manufactured in the EU must meet strict environmental standards throughout their life cycle, covering carbon footprint, responsible sourcing of raw materials, durability, safety, and high rates of collection, reuse, and recycling. Based on the 2023 EU grid, a battery manufactured in the EU would imply on average a 25% CO2 emissions reduction compared to a Chinese manufactured battery using the average Chinese grid. 209 These CO2 reductions also apply across the upstream value chain. 210  Localizing the production of battery cells and cathode active materials, including its precursor material, under PO1, rather than relying on imported Chinese products, could reduce CO₂ emissions by an estimated 25.6 Mtonnes overall in 2030 alone. These emissions savings amount to EUR 2.56 billion (EUR 1.5 billion- 4.8 billion), see Annex 4 Section 2.3 and Annex 15 for monetisation calculations. 211  

LEAD_SOL 1 - Due to the provisions of the NZIA on environmental sustainability, PV system production in Europe is expected to meet certain environmental standards across the entire value chain. While the NZIA criteria set an important standard for all products, promoting EU PV manufacturing can result in further positive environmental impacts through reduced logistics emissions, stronger regulatory frameworks, and more sustainable production practices overall. This in turn will facilitate meeting Europe’ emission reduction targets. According to the JRC, PV modules manufactured in Europe consistently demonstrate lower lifecycle emissions than those produced in more carbon-intensive electricity systems. This is primarily due to Europe’s cleaner energy mix during manufacturing, which is the dominant driver of global warming potential (GWP), as well as the use of materials from low-carbon supply chains and more advanced recycling practices. 

LEAD_BAT and LEAD_SOL 1 provisions may also risk having an impact on the pace of deployment of clean energy solutions, and therefore on overall emissions, which could not be quantified in the context of this Impact Assessment . However, the fact that these provisions are limited to publicly supported products attenuates this risk.

PERM 1 - Streamlining provisions for permitting, notably through joint or coordinated environmental assessments, as provided by environmental law, will reduce administrative inefficiencies by identifying potential inconsistencies and in turn increase the quality of the assessments. Moreover, introducing a set of standardised data sets, notably on submissions linked to environmental permits will enable their re-utilisation in other areas like environmental reporting. Being able to re-use the original and most environmentally sound information will benefit the quality of other assessments. Furthermore, the EU manufacturing industry represents 22.5% of the EU total GHG emissions. 212 Streamlining permitting procedures will accelerate the implementation of decarbonisation projects, therefore leading to an accelerated pace of GHG savings.

LEAD_VC 1 - In Scenario 1, global greenhouse gas emissions from vehicle manufacturing decrease by 0.5 Mtonnes CO2e in 2027 and by 0.6 Mtonnes in 2030 due to shifts in production; they further decline by 0.1 Mtonnes due to reductions in international transport associated with EU imports. These emissions savings amount to EUR 70 million (EUR 42 million -132.30 million), see Annex 4 Section 2.3 for monetisation calculations and Annex 15 for sensitivity analysis on the ranges.

In sum, the environmental effects remain limited and are very similar across LEAD_VC 1 and LEAD_VC 2.

6.2POLICY OPTION 2

LEAD_BAT 1 / LEAD_SOL 1 / LEAD_VC 1 – the proposed policy measures under PO2 are the same as under PO1, and the impacts have been assessed under PO1.

6.2.1Economic impacts

6.2.1.1Impact on companies

LAB 2 would introduce a label on the carbon intensity of steel only, covering emissions up to the hot-rolling production step (see more in Annex 12). The impact on steel companies would be overall positive, providing a reliable EU-wide methodology to calculate embedded emissions and support the creation of lead markets. Steel companies would be encouraged to certify their production with the label as it would provide a clear identifier for producers using low-carbon processes and therefore positively impact their ability to monetise their green premium towards potential customers. The classification system combined with the shape of the sliding scale, a clear presentation of the embedded emissions and the share of steel scrap, provides a fair treatment for all producers, acknowledging the decarbonisation effort. See Annex 12 for extended description of the design elements under LAB 2 and their potential impacts. While the use of LAB 2 for steel is voluntary by design and therefore no additional costs are imposed on companies, the administrative costs have been estimated in a yearly approximate cost of EUR 6 700 per steel site 213 , which could offset the administrative costs from using several other labels in the market for different products, to just one.

LEAD_EII 2 introduces made in EU requirements in addition to the low-carbon requirements for steel, cement and aluminium used in the automotive and construction projects, purchased through public procurement or public support schemes.

The impacts of low-carbon requirements for steel, cement and aluminium in public procurement and incentives have been addressed under PO1, where the benefits in terms of value added could reach EUR 686 million for the three EIIs combined, as a result of the requirements (see Section 6.1.1.1.). Introducing Made in EU requirements will ensure that a share of the demand for low-carbon energy intensive industrial products is met by domestic production, instead of imports from third countries. The Made in EU requirements, however, are unlikely to create further economic benefits for the EII sectors. In the absence of well-established low-carbon supply chains for their materials, and assuming traditional supply chains are maintained, the proposed level of targets is lower than the share of EU’s domestic demand for these materials (in automotive and transport) that is currently met by European production. 214  Overall, it will help safeguard security of supply, guaranteeing a share of secure, low-carbon demand for domestic producers, and improve the resilience of low-carbon production of steel, aluminium and cement in their transition process where international competition and pressures will remain.

Furthermore, such predictability of demand for low-carbon steel can help absorb part of the investment’s costs from the low-carbon technologies, potentially pushing investment decisions towards decarbonisation. In the EU steel sector, there are currently at least 29 announced steel decarbonisation projects, with a combined potential capacity of additional 41 Mtonnes of low-carbon steel per year by 2030, that have not yet reached the final investment stage. 215 To that end, the proposed lead market measures, based on the current project pipeline, could unlock up to EUR 15.5 billion in investments 216 covering approximately 15% of the sector’s EUR 100 billion total investment need by 2050, as estimated in the impact assessment for the 2040 climate target. .  217 , 218   

In contrast to the baseline scenario, where export-led overcapacity in third countries leads to artificially low prices (notably for steel) and causes EU job losses and plant closures, introducing Made in EU low-carbon requirements will help safeguard security, redirect demand towards domestic, cleaner producers, and improve the resilience and transition of sectors like steel or aluminium that have lost market share over the past decade.

INV 2 - FDI conditions would be mandatory and applied consistently across the EU, resulting in more stringent requirements on companies in scope. Conditionalities such as value-added production and staffing requirements could increase costs by limiting options for raw materials, components or labour, while ownership, joint-venture and EU-content requirements would have the strongest operational and strategic impact. The benefits outlined in PO1 would be amplified, as consistent application would close loopholes, preventing investors from bypassing requirements by selecting investment locations with weaker or no conditionalities. For companies investing in or producing “strategic reinforcement” technologies, all core conditions would apply, creating a more rigid obligation set; for companies developing or manufacturing “other emerging key strategic sectors”, the requirement to comply with only a minimum subset of conditions would provide greater flexibility when adapting business models. In the short term, this may temporarily deter some investments in the EU for the concerned sectors, particularly those relying on imported intermediate goods or a global staffing model. However, OECD evidence shows that performance-based, transparent obligations (e.g. EU sourcing shares, local R&I, technology commitments) are compatible with sustained inflows. 220  Over the medium to long run, companies adapting to these obligations are expected to embed more R&I and technology in their EU operations, making investments “stickier” and more resilient. International experience suggests that such measures can strengthen strategic value creation without deterring investment, provided they are implemented carefully (see Annex 13).

PERM 2 has the objective to streamline and/or increase business certainty over the permitting process. In this context, energy intensive companies’ decarbonisation projects eligible for measures like a One stop shop (Single point of contact) or the permitting timelines could largely benefit from an improved efficiency for their businesses as outlined in the findings of the Innovation Fund knowledge sharing report from 2025. 221 The measures would reduce the number of authorities to contact (which can in some cases reach 10), increase certainty over the timeline for the project from extreme cases lasting more than two years, and be reduced to a maximum of 18 months. Projects could also benefit from tacit approval, subject to conditions, on certain intermediary steps of their permitting process, which could help with the sequencing of permits and further incentivise public authorities to deliver timely feedback.

Moreover, while not speeding up the environmental assessment itself, the presumption of overriding public interest could streamline the final stages of permit approval and increase business certainty. Additionally, enabling the testing of innovative technologies under the regulatory sandboxes for limited periods of time, regarding the production technologies for renewable and low-carbon hydrogen, will facilitate the testing of new generation technologies. Regulatory learning, as one of the main outcomes of regulatory sandboxes would enable authorities to improve the regulatory environment for upcoming technologies, and as a result improve their permitting framework.

AREA 2 - The designation by Member States of industrial areas with investment projects that comply with the criteria presented in this option would allow for selected projects complying with the specified IAA criteria to increase visibility and facilitate their access to finance. This would include easier access to public funding at EU and national level, without prejudice to State aid rules, as well as increased visibility vis-à-vis private investors.

6.2.1.2Impact on downstream sectors

LEAD_EII 2 - The impacts of low-carbon requirements for steel, aluminium and cement used for the end user of the materials, namely automotive and construction projects in public procurement and support schemes, have been addressed under PO1 (Section 6.1.1.2 estimates implications for the downstream sectors of about EUR 291 million loss of GVA for automotive and EUR 691 million loss of GVA for construction).

Combining such low-carbon with Made in EU requirements in public procurement and public support schemes is expected to induce no further adjustment costs for the construction sector and automotive manufacturers. In fact, assuming current supply/ demand ratio is maintained, a high share of the steel and aluminium currently used in European vehicles and construction is already sourced from European production. 222 Made in EU requirements will mostly act as a safeguard mechanism, to make sure that domestic producers, when investing in decarbonisation, benefit from a secure and guaranteed demand share.

It should be noted that according to the modelling exercise, the definition of Made in EU assumed that demand is to be met by EU Member States and EEA, and therefore does not consider any imports which can alleviate the impacts to downstream sectors.

Construction: Over 30% of the EU’s steel demand comes from the construction sector, while for cement, construction represents 98% of the demand. As noted in the introduction of low-carbon requirements in PO1, the cost increase for final products would be relatively small, since steel, aluminium and cement represent a fraction of the final product costs of, e.g. vehicles or infrastructure projects. Available estimates, as outlined in Section 6.1.1.2 confirm that, even combining the impact of low-carbon material requirements across several energy-intensive materials would have a moderate effect on the final cost of vehicles and construction projects, and therefore moderate impact in the sector’s value added.

Administrative costs

Administrative costs for ensuring conformity with the Made in EU measures could entail a higher impact than those observed in PO1, due to the need to enforce the Made in EU. More concretely, applicable measures could have significant impacts on the aggregated administrative costs for the construction sector, due to its size, in the EU to show compliance with the measures. To minimise these impacts, an exemption could be considered for micro and small companies as they are not expected to fundamentally impact lead market provisions due to the size of their projects.

For most firms, these costs represent a minor fraction of total project expenses and are unlikely to affect investment or procurement decisions. Over time, the establishment of harmonised certification procedures and greater supplier familiarity with EU-origin rules should reduce administrative burdens and improve efficiency. The measure thus provides downstream actors with more stable and predictable sourcing conditions, while incentivising closer collaboration with EU-based suppliers.

INV 2 - Regarding the FDI conditionalities, the voluntary approach assessed in PO1 would, under PO2, become mandatory EU-wide for the batteries segment and for the other strategic technologies in scope. In the short term, downstream sectors could face moderate cost increases if suppliers pass through compliance costs, particularly in batteries and other market segments where EU production capacity is not yet fully scaled. These transitional costs are expected to be contained if conditionalities are phased in gradually. As under PO1, the conditions with the strongest downstream impact are ownership, joint-venture and EU-content requirements, as these conditions shape suppliers’ sourcing strategies, cost structures and localisation decisions. Mandatory application across the Single Market would substantially strengthen EU value chains by encouraging more embedded upstream activities, accelerating technology and know-how transfers and improving the availability of EU-based suppliers - resulting in more tangible competitiveness gains for downstream sectors.

Conditionalities linked to value-added production, supply-chain security or technology retention could raise the price of certain inputs, especially in the short term as local value chains adjust to the new demand created by the new FDI projects. Nevertheless, a more predictable and harmonised investment environment could lead to higher benefits for the industries in scope than the operational costs of mandatory investment conditionalities. For downstream sectors, the uniform EU framework reduces fragmentation, levels the playing field across Member States and enhances long-term supply-chain stability. Above all, they would contribute to harmonise the approach within the Single Market, thereby increasing the benefits across EU Member States. Experience from other regions suggests that comparable FDI measures can reinforce industrial linkages and supply chain resilience without harming investment flows (see Annex 13).

6.2.1.3Impact on SMEs

LAB 2 - SMEs in the steel value chain are expected to benefit from the low-carbon steel label obtained by large manufacturers, as it will promote and enhance market differentiation of low-carbon products across the supply chain. This, in turn, can provide SMEs a competitive edge by meeting the demand for low-carbon products, and accessing new markets which require the use of such label as a compliance instrument.

LEAD_EII 2 will directly benefit EU SMEs in the steel, aluminium, cement, vehicle component manufacturers, as well as solar and battery manufacturers by creating more predictable demand for their European products. These requirements will not only strengthen existing manufacturers but also open new market opportunities for emerging businesses, especially within the growing battery ecosystem. As these industries expand, SMEs will be better positioned to scale their operations and integrate into global value chains. As under option PO1, SMEs in selected downstream sectors are expected to be less able than larger firms to pass on to consumers or to absorb the extra costs. Even if limited, the cost increase will likely negatively impact their ability to export products.

It may also be costly and time consuming for SMEs to demonstrate compliance with low-carbon and made in EU requirements. This burden could be eased through tailored support measures (such as clear guidelines, digital tools, and dedicated helpdesk) specifically for SMEs as well as by extending the validity periods of relevant certificates. Furthermore, in the case of the construction sector, small and micro companies (99% of construction companies) will be allowed to demonstrate compliance with the requirements via self-declaration, reducing the administrative burden.

INV 2 - Mandatory conditionalities are expected to systematically increase opportunities for SMEs as suppliers to foreign investors. Because conditionalities apply across all key strategic sectors, the resulting localisation of R&I, manufacturing and procurement activities is likely to broaden SME entry points in multiple value chains rather than in isolated segments. This integration may require SMEs to meet higher quality and certification standards, potentially creating compliance costs and working-capital needs. Some SMEs may also need to scale production capacity or upgrade processes to meet the requirements of foreign investors adapting to the mandatory regime. Complementary support (e.g. supplier development programmes, technical assistance) will be critical to ensure SMEs can capture these opportunities. In the medium run, SMEs are expected to benefit from more predictable and stable demand, enhanced technological capabilities, and greater participation in global value chains. The uniform EU-wide application of conditionalities also reduces fragmentation, ensuring that SME opportunities are not limited to specific Member States, as would be the case under a voluntary regime.

6.2.1.4Impact on citizens and consumers

LAB 2 - The impact on citizens and final consumers of a label on the carbon intensity of steel would be marginal or indirect since steel is a business-to-business traded product between steel manufacturers and other companies, rather than to individual consumers. However, indirectly and through the supply chain, the info on the label could be transferred to consumers to inform about the carbon footprint of the material used in the final good.

LEAD_EII 2 - The impacts are broadly similar to those described under PO1, and driven by the low-carbon measures, rather than Made in EU requirements. As noted in Section 6.2.1.2, the introduction of Made in EU measures would not necessarily add any extra costs for the final consumers, other than the low-carbon premium.

PERM 2’s measures related to the presumption of overriding public interest might generate additional resistance by local communities affected by such projects, which can be mitigated by maintaining dialogue with local population. Similarly, strict deadlines for permit granting would need to be achieved while ensuring proper consultation to prevent the risks of litigation.

INV 2 - Consumers may face small, visible price increases in the short term (e.g. for EVs) as firms adapt supply chains to meet EU sourcing or staffing obligations. These transitional effects are expected to be modest and outweighed by longer-term benefits. Citizens will benefit from more secure access to critical products (like batteries and EVs), higher-quality jobs located within the EU, and better protection against supply disruptions. Over time, conditionalities should also contribute to faster decarbonisation, supporting the EU’s climate goals and strengthening public trust that the green transition delivers local value and industrial capacity.

6.2.1.5Impact on competitiveness

LEAD_EII 2 is not expected to have an impact on trade flows compared to PO1, considering that the Made in EU targets introduced fall within existing shares of EU demand met by domestic supply in the automotive and construction sectors. In fact, the made in EU measure would enhance competitiveness by securing  a minimum low-carbon domestic demand, which is particularly important in a context where the decarbonisation of these industries  can widen the cost gap with third country imports. Temporary administrative and certification costs linked to verifying Made in EU are expected to decline over time as procedures become standardised, strengthening predictability and supply-chain resilience. 223  Additionally, the combination of low-carbon and made in EU requirements will ensure demand is met internally rather than through third country imports. Some of the costs may also be underestimated, as the modelling assumptions do not reflect potential changes in trade flows deriving from the Made in EU requirements while switching to low-carbon alternatives. As such, it is assumed that the supply chain structure and flows for the automotive and construction sectors would remain the same through the transition. It is possible however to consider that supply chain dynamics would result in downstream sectors preferring to source outside of the EU while shifting to low-carbon alternatives.

Automotive: Considerations under PO1 are also valid under PO2. The Made in EU requirement introduced under PO2 is set to generate a positive impact on the competitiveness of domestic vehicle manufacturers that already source most of their steel inputs locally (see Section 6.2.1.3).

INV 2 - Mandatory conditionalities would strengthen EU competitiveness by ensuring that inward FDI systematically contributes to local value creation, innovation, and industrial ecosystems. In the short run, compliance costs could erode margins for some investors. However, consistent EU-wide rules eliminate loopholes, closing opportunities for firms to bypass requirements and helping to level the playing field for both EU and foreign companies. Over time, the resulting knowledge transfer, technology retention and innovation spillovers are expected to reinforce EU technological leadership across the batteries and other key strategic sectors concerned, rather than in isolated value chains.

6.2.1.6Impact on competition

LEAD_EII 2 - As the low-carbon and made in EU targets are set in order to accommodate for existing and future EU low-carbon production while also considering the reasonable absorption of price increases in downstream sectors, the measure is not expected to distort competition among market actors that comply with these requirements. However, for products subject to Made in EU requirements for security or environmental reasons, competition would be limited to manufacturers located within the EU, thereby excluding non-EU producers up to the minimum content and narrowing the pool of eligible suppliers.

INV 2 could further safeguard the Single Market from disruptions caused by foreign investments and promote more effective competition, due to its mandatory nature. By introducing harmonised conditions for investments in scope, the level playing field in the Single Market would be enhanced and give investors a single, predictable rulebook. This uniformity ensures fairer competition between investors, regardless of entry location. Practices in other jurisdictions demonstrate that well-designed FDI conditions can enhance fair competition and prevent market distortions linked to state-backed investors (see Annex 13).

6.2.1.7Impact on international trade

LEAD_EII 2 is not expected to have an additional impact on trade flows compared to PO1, considering that the Made in EU targets introduced fall within existing shares of domestic supply in the automotive and construction sectors.

The EU’s cement industry is structurally domestic, with exports representing less than 3% of production and imports even smaller. Transport costs and product bulk make long-distance trade uneconomical. Even under a 5% low-carbon requirement, no material effect on trade flows or competitiveness is expected. Intra-EU trade flows of steel, aluminium and cement would increase due to the requirements in other EU countries to buy more Made in the EU steel, aluminium, and cement products.

INV 2 - Compared with PO1, the mandatory nature of INV 2 could generate stronger short-term adjustments in trade and FDI flows, particularly where localisation or EU-content obligations alter sourcing patterns, but these effects would remain concentrated in the sectors covered. Its application must remain consistent with the EU’s international commitments on investment liberalisation. In most FTAs, the EU has already granted extensive market access and national treatment in non-services sectors, except for a few sensitive activities. As a result, FDI from these partner countries (representing most EU inflows) would be exempt, limiting overall coverage. The measure would thus primarily apply to strategic investments from non-FTA countries where economic security risks are highest. However, both GATS and TFEU provisions allow restrictions on capital movements only under narrowly interpreted public policy or security exceptions, leaving limited room for measures justified purely on economic or industrial grounds.

6.2.1.8Impact on Member States

LAB 2 would increase the administrative burden for Member States, depending on the additional data requirements, accounting, reporting and verification system. However, as the label on steel will be built on existing EU ETS and CBAM verification rules, the burden on national authorities is expected to be limited, and even more so compared to LAB 1.

LEAD_EII 2 - The financial burden on Member States of introducing low-carbon requirements for steel, aluminium and cement used in automotive and construction projects in public procurement and incentives schemes has been assessed under PO1. Adding a Made in EU requirement will likely not lead to additional adjustment costs. However, it is likely to increase the administrative burden since public administrations would be required to establish systems for monitoring, verification, and enforcement of compliance. This will involve building on existing EU-level verification mechanisms or building new ones in case not in place yet. Effective implementation depends on the availability of reliable and transparent standards, emissions accounting methodologies, and certification systems as well as guidance for Member States.

To support effective implementation, Member States will need to designate a competent authority to oversee the implementation process and ensure monitoring, verification and enforcement. For steel, the introduction of a label on the carbon intensity of steel (LAB 2) will provide a reliable tool for certification. It will also have to ensure that the certification system in place is properly enforced and monitored for fraud risk. Similarly, in the construction sector, for harmonised construction products the compliance with low-carbon requirements will have to be certified by a Declaration of Performance and Conformity, under the procedure established in the context of the Construction Production Regulation.

INV 2 - For Member States, mandatory EU-wide conditionalities would bring higher administrative responsibilities for those Member States that currently do not screen incoming FDI. This will entail capacity-building and generate efficiencies by reducing fragmentation. Uniform conditionalities strengthen the consistency of the Single Market and reduce the administrative burden of divergent national practices, while ensuring that all Member States benefit from spillovers rather than competing against each other. Lessons from other economies show that coordinated frameworks for FDI screening can strengthen national capacities while preserving overall attractiveness to investors (see Annex 13).

PERM 2 - Impacts linked to the “One project, one digital process” have already been outlined for PO1. Measures related to timeframes are expected to shorten procedures and would require additional administrative resources when the reason for delays is the lack of capacity. Still, the proposed time limits for decision-making are based on timeframes that are often already achieved and aim mainly to increase the predictability of the process for the most extreme cases. In addition, time limits can provide incentives to public authorities to consolidate internal processes.

Tacit approval measures for intermediary steps of the permit granting process would not be applicable for Member States in which this option is not allowed by their legal system. No additional impact would be expected in those countries. This measure is in part introduced to facilitate the achievement of the time limits by streamlining sequential characteristics of certain permit-granting processes in other Member States. Some training for relevant authorities could be expected to fully incorporate the tacit approval into the permitting process.

AREA 2 - Member States would need to provide the necessary resources to conduct the process to designate areas with relevant projects. Given that the Commission will provide them with guidance on how to do so, and that each Member State only assigns a limited number of such projects, the additional impacts on Member State administrations should be limited. Additionally, Member States will be able to draw on their experiences with Strategic Projects under the NZIA, where already decarbonisation projects have been designated as strategic.

6.2.2Social impacts

6.2.2.1Impact on employment

LEAD_EII 2 would help boost European employment in EIIs. According to research by think tank Strategic Perspectives, implementing a 100% substitution of low-carbon and made in Europe requirements 224 for steel could result in a 21% increase in employment in the steel sector by the year 2030 compared to a baseline scenario without such policies in place. 225  

INV 2 - Impacts described under PO1 remain valid for PO2 and are expected to contribute to an increase in employment and the creation of quality jobs. Mandatory measures would more effectively prevent companies from circumventing staffing requirements by removing the possibility for investors to choose Member States without such obligations, thereby better safeguarding the homogeneity of the Single Market. The implementation of these conditionalities would build on existing FDI screening structures in Member States, with designated authorities ensuring that employment and training commitments are met. This may require some procedural adjustments where Member States currently apply limited or no staffing-related conditions.

6.2.3Environmental impacts

LAB 2 would support the decarbonisation of the steel industry, which is one of the most emission-intensive industrial sectors, representing almost 20% of the industrial GHG emissions in the EU. In fact, the introduction of an EU-wide label based on reliable and verified data and a uniform methodology can improve the understanding of what constitutes steel with lower carbon footprint impact. The exact impact would depend on three key parameters:

1.The scope of the GHG emission information provided by the label.

2.The label’s ability to ensure comparability across products and producers.

3.The attractiveness and use of the voluntary label by companies. 

As explained in more detail in Annex 12, up to 78% of GHG emissions (in case of primary steel, up to 60% in case of secondary) can be covered by a label relying on direct industrial GHG emissions covered by EU ETS as well as indirect emissions from electricity, heat and hydrogen use. Besides, the comparability across products and producers can be effectively ensured by integrating classes of performance in the label, based on clear quantitative GHG-intensity thresholds. To maximise the comparability of diverse production pathways, the performance class thresholds could be adjusted in line with the amount of scrap used. Multiple types of information, in addition to indicating a performance class under the classification system, could be added, such as the actual GHG emission intensity or the amount of recycled content used in the product. It must be noted that during stakeholder consultations, the use of a sliding scale for differentiating the performance classes or of an alternative classification method not as a function of scrap was highly debated with no clear preference or compromise solution within industry.

LEAD_EII 2 – could have a bigger environmental impact than PO1, as mandating made in EU requirements could lower transport emissions associated with imports. These are however not quantified in the calculation on reduction of GHG emissions, since they would require a comparison between the domestic and imported material under an established low-carbon methodology.

PERM 2 - The designation of a one-stop-shop and streamlining of different assessments could prove to have a positive impact on the environment, as it enables a more comprehensive information base for decision-making. Moreover, by providing a set time limit of 18 months for decarbonisation of energy intensive industrial projects, the EU could gain up to 30 months of decreased emissions from industrial projects on the most extreme cases, thus speeding up GHG emission reductions. 226  

The use of the overriding public interest (OPI) provisions is allowed under the current environmental legislative framework. This provision does not prevent the need for planning and assessing environmental effects under relevant legislation (Water Framework Directive, Habitats Directive,) and therefore does not necessarily accelerate the speed of the assessments. It will provide however the most favourable procedure available in Member States’ planning and permit-granting procedures, while requiring that all other conditions are also met. Overriding public interest considerations enable projects to go ahead upon some conditions even in case of a negative assessment for the project, so certain environmental impacts can be expected. However, any authorisation under the overriding public interest considerations must provide adequate compensation measures to offset environmental adverse effects, as provided in relevant legislation. Finally, regulatory sandboxes would be accompanied by a framework setting the necessary limitations to prevent any unintended environmental consequences. Sandboxes would always be limited in time and scope, as well as accompanied by appropriate mitigation measures.

6.3POLICY OPTION 3

6.3.1Economic impacts

6.3.1.1Impact on companies

LEAD_EII 3 - extends low-carbon and Made in EU requirements to the steel, cement and aluminium used in all vehicles and construction products placed on the market.

Extending requirements to all products in the automotive and construction sectors would drive the broader market transformation needed for systemic decarbonisation of EIIs, particularly in steel, where public procurement covers only a limited share of total consumption. By creating large-volume and predictable demand, these measures would send long-term market signals necessary to unlock investment in low-carbon technologies.

This predictability of future demand for low-carbon steel can help absorb part of the investment’s costs from the low-carbon technologies and has a high potential to further push investment decisions towards decarbonisation. In the EU steel sector, there are currently at least 29 announced steel decarbonisation projects, with a combined potential capacity of additional 41 Mtonnes of low-carbon steel per year by 2030, that have not yet reached the final investment stage. To that end, the proposed lead market measures, based on the current project pipeline, could unlock up to EUR 15.5 billion in investments 227 covering approximately 15% of the sector’s EUR 100 billion total investment need by 2050, as estimated in the impact assessment for the 2040 climate target.  228 , 229   

Furthermore, export-driven overcapacity in third countries today leads to artificially low prices (notably for steel) and causes EU job losses and plant closures. Therefore, this measure introduces higher Made in EU requirements (targets of 85% for steel, 95% for cement and 70% for aluminium) to help safeguard security, redirect demand towards domestic producers, and improve the resilience of sectors like steel or aluminium that have lost market share over the past decade.209 There are two opposing effects of introducing Made in EU requirements. The first is the reduction in the production of cement, steel or aluminium due to the downstream sectors facing higher costs and reducing their demand for domestic production. Secondly, the cement, steel and aluminium industries will experience an increase in demand stemming from the Made in EU requirements as these would lead to replacing imports from non-EU countries by domestic production. Overall, the second effect is greater than the first and translates into higher value added for these sectors.

Energy intensive sectors (cement, aluminium and steel) would benefit from higher targets under LEAD_EII 3, in a similar way as in LEAD_EII 2 but with a higher positive impact. In particular, for the EU cement industry, such benefits would represent 3.09% (EUR 2 079 million) of its total sectoral value added, while for the European steel and aluminium companies, it would account for 4.32% (EUR 2 883 million) of its total sectoral value added. In both cases, the results refer to the period 2025-2030, compared to a baseline scenario without IAA measures.

Similarly to LEAD_EII 2, the benefits stemming from the increase in the demand for steel, cement and aluminium due to the Made in EU requirements overcompensate the reductions in the demand for steel, cement and aluminium from downstream sectors facing higher costs. Moreover, the benefits are greater since the Made in EU requirements are extended to all products in the automotive and construction markets (not only public procurement and support schemes markets).

When comparing LEAD_EII 3 and LEAD_EII 2, the FIDELIO model shows that the public market is an important driver of impacts of the proposed policy measures. This is particularly relevant for the steel and aluminium sectors, where public procurement and public subsidies for automotive causes up to 73.84% of the total estimated positive impacts in both sectors in the period 2025-2030. 230

In addition to the existing climate policies, introducing low-carbon requirements will help creating demand and accelerating investments, while Made in EU requirements would secure domestic market share for strategic materials, providing greater certainty for investment decisions, compared to the baseline. Redirecting demand to EU-based producers would also improve capacity utilisation - particularly in sectors that have seen notable declines between 2000 and 2021, such as cement, aluminium, and integrated steelmaking.

LEAD_BAT 2 / LEAD _SOL 2 - Expanding Made in EU requirements to all products in scope (i.e. steel, cement and aluminium in automotive and construction; batteries and solar PV) placed on the market would increase demand for EU produced energy intensive materials, EU manufactured batteries and solar, with greater certainty for domestic investments.

Looking ahead, Europe is not expected to meet its internal battery demand with domestic production only until 2030. 231 Therefore, the introduction of Made in EU requirements to products placed on the market had to take account of the time needed to reach operational status and reach full-scale production for battery investment.

The current EU solar manufacturing capacity, mainly in critical components (e.g., wafers, cells, inverters), does not yet have sufficient scale to meet overall demand. As the non-public segment of the solar PV market accounts for around 65% 232 of the EU market, introducing mandatory minimum Made in EU requirements had to be carefully designed to avoid creating pressure on the EU supply chain.

In conclusion, extending even partial Made in EU requirements to all products placed on the market at this stage carries some risks for the solar and battery industries, including potential market distortions, implementation challenges, and legal uncertainties. While such requirements could play a role in the future, their near-term application may generate more challenges than benefits unless carefully phased and supported by complementary measures.

PERM 3 contains PERM 2 and therefore the same expected impacts. On top of this, it is expected to further facilitate the deployment of decarbonised projects in specific areas dedicated to industrial activity. The identification of geographical areas of industrial activity will promote industrial symbiosis and offer opportunities for collaboration between industries. Most notably, by being able to settle their projects in key areas of energy demand in the Member States, industry’s connection request to future energy infrastructure would become easier through the local synergies between generation and supply of electricity, potentially allowing for more efficient grid use and priority treatment for connection requests.

Considering the electricity grid congestion issues and the lack of a hydrogen or CO2 infrastructure, favouring a clustering approach is expected to attract industrial investments as it may allow for faster grid connection. Subjecting the entire plan designating the industrial clusters to environmental assessments can contribute to streamlining subsequent permitting steps.

LEAD_VC 2 – The same assumptions apply as in LEAD_VC 1 (the increasing cost of EVs for EU car manufacturers is projected to be the same). However, in LEAD_VC 2, 100% of EVs put on the EU market will be affected.

As vehicle manufacturers will have the incentive to comply with the target to have access to public subsidies, the model predicts an increase in EU vehicle component suppliers’ sales to the manufacturers of EUR 7.83 billion in 2027 and by EUR 8.2 billion in 2030 when aggregating the sales in all three vehicle segments.

6.3.1.2Impact on downstream sectors

LAB 2 would have same impacts as described under PO2.

LEAD_EII 3 - extending low-carbon and made in EU requirements to all products placed on the market will amplify the impacts described under PO1/PO2 for the construction and automotive sectors.

On the production side of the economy, the construction sector would see losses of their value-added reaching EUR 2.2 billion, while the automotive industry would see more moderate losses, of EUR 396 million. On the expenditure side, this translates into a reduction in consumption amounting to 564 million in the construction sector and 240 million in the automotive industry. These losses are a direct response to higher final good prices driven by the newly imposed green premium, and are partly driven by a decrease in the consumption of products of the automotive and construction sectors. 233  More information on consumption patterns can be found in Section 6.3.1.3 and 6.3.1.7, while further breakdown of cost calculation can be found in Annex 4 Section 2.2.

Expanding Made in EU requirements to higher targets (85% for steel, 95% for cement and 70% for aluminium) and larger scope (i.e. to include all vehicles and construction projects placed on the market) would broadens the impact. The measure would cover a large share of industrial steel use and require a minimum EU-origin content in products placed on the EU market.

However, downstream industries are expected to absorb these costs gradually through process optimisation and local sourcing efficiencies. In addition, greater reliance on EU-based suppliers will reduce exposure to import disruptions and long shipping lead times. For construction and automotive sectors, this stability translates into improved delivery reliability and long-term cost predictability, offsetting short-term compliance expenses.

For the automotive industry, LEAD_EII 3 would determine the application of a minimum Made in EU requirement to the steel and aluminium used in the production of all vehicles placed on the EU market. In 2024, 28% of all vehicles registered in the EU market were imported from extra-EU countries. 234 Those imported vehicles would also need to source from EU countries their steel and aluminium up to the minimum share required. While this is expected to translate into higher demand for EU EIIs producers, it would increase costs for automotive manufacturers. In terms of value added, the impacts of introducing the policy measures foreseen under LEAD_EII 3 would have considerably less important effects (in relative terms) on the automotive sector than in construction, even when combining them across several energy-intensive materials. Specifically, this impact would represent an EU27 average of -0.80 % (or EUR 6 651 million for 2030) of the EU automotive sector’s value added for 2025-2030, with respect to a baseline scenario without IAA measures. 235  

Introducing a minimum Made in EU requirement for cement used in the construction sector would reduce the EU construction sector’s value added by an EU27 average of -1.69 % (EUR 13 996 million) for 2025-2030 with respect to a baseline where no IAA measures are applied. 236  

The overall negative impact primarily arises from the fact that downstream sectors—those with a larger economic contribution to the EU GDP than the cement, steel, and aluminium industries—face increased costs due to increased Made in EU requirements.

There are however disparities across the cement-related products and across Member States. The EU has been consistently a net exporter of cement, while it relied on imports to meet its demand in clinker before the financial crisis and again in 2021. 237  In addition, Member States where there is a higher cross-border trade with third countries due to geographical proximity would be more affected. This is the case for Southern European regions, exposed to trading with Northern Africa, and Eastern European regions. It should be noted that in the modelling exercise, the relevant demand was only met by EU Member States supply and EEA countries, meaning that it does not consider any potential third country imports which could alleviate the impacts to downstream sectors assessed. 

Measures applicable to the construction sector could have significant impacts on the aggregated administrative costs for relevant companies in the EU to show compliance with the measures. To minimise these impacts, an exemption could be considered for micro and small companies as they are not expected to fundamentally impact lead market provisions due to the size of their projects.

LEAD_BAT 2 / LEAD _SOL 2 - Unlike measures limited to public procurement or public support, this approach would affect the whole market. Higher battery prices would impact the affordability and uptake of EVs and BESS, potentially slowing down their deployment. This, in turn, may also affect demand for EU-made batteries, influencing the pace of new investments in battery manufacturing. Ensuring cost competitiveness alongside scaling up production capacity will therefore be key to sustaining demand growth and strengthening the investment case for EU battery manufacturing. Additionally, ensuring adequate supply would be a challenge. Current EU battery production capacity does not match projected demand, as outlined in the previous Section. This measure would require a timely scale-up to prevent the gap from driving up prices and delaying project timelines.

As regards solar, the proposed measure could negatively impact downstream sectors involved in solar deployment. Increased regulatory complexity and increased investment costs in the short-term could slow down the development of utility-scale solar farms, with implications for project developers, engineering firms, equipment suppliers, and grid operators. While this may initially affect project pipelines, it can also encourage more resilient supply chains and greater transparency in the market. Buyers, particularly in offtake agreements or PPAs, may face increased due diligence obligations to certify compliance.

LEAD_VC 2 – Similarly to LEAD_VC 1, given the estimated current level of 70% Made in EU in the EVs, the measure would not lead to any further costs for EU EV manufacturers in 2027 to comply. As the target is increased to 75% by 2030, the measure would represent a cost increase of EUR 2.36 billion for EU EV manufacturers, which on the other hand would be offset by the increase of sales. EU EV manufacturers are expected to benefit from a sales increase of EUR 16.7 billion across all vehicle segments in 2027 and EUR 10.7 billion in 2030. The increase in sales is presumed to offset the cost increase for passenger cars and LCVs, however, not for HDVs. Finally, LEAD_VC 2 is projected to lead to the generation of EUR 6.6 billion Global Value Added (GVA) in 2027 and EUR 5.4 billion in 2030 when assessing the impact, taking into account only the first tier of the value chain. The positive impacts can also be perceived throughout the value chain for intermediate inputs, reaching this time higher benefits, EUR 12.6 billion in 2027, and EUR 11.5 billion in 2030 in value added.

6.3.1.3Impact on citizens and consumers

LEAD_EII 3 would have a much higher impact on consumers in terms of facing cost increase, as the associated ‘green premium’ is likely to be passed on to consumers via higher final good prices (until cost parity is reached). However, as outlined before, the low-carbon cost increase per passenger vehicle for including a 25% target for both low-carbon steel and aluminium is considered minimal, EUR 69.27.

However, these cost increases are projected to result in a reduction of consumption from household consumers of EUR 191 million in the construction sector, and 120 million in the automotive sector.

Introducing requirements for low-carbon steel, aluminium and cement in the construction sector at large would have a higher impact on costs, due to the cumulation of the three materials used for construction. Nonetheless these costs remain limited, at 0.45% compared to its traditional alternatives. Similarly, public subsidies for renovations could offset part of these costs.

PO3 raises the Made in EU targets for steel to 85%, aluminium to 70% and cement to 95%, going beyond existing sourcing levels from EU domestic suppliers for automotive and construction. Citizens and consumers will see further cost increases from the obligation to source European energy intensive industrial products, as automakers and construction companies would pass on the higher cost premium in the final selling price.

LEAD_BAT 2 / LEAD_SOL 2 would lead to higher prices for downstream products, as described under PO1. As regards batteries, this could hinder the adoption of EVs and jeopardise the EU’s clean mobility objectives. For BESS projects, the increase in prices and the possible lack of supply could stop the momentum of the sector. As regards solar, citizens and consumers may face higher energy costs and reduced access to affordable solar solutions. Stricter obligations on installers or product specifications could drive up the price of residential solar systems, discouraging adoption by households. In turn, it risks slowing down the uptake of clean energy at the local level and limiting the benefits of lower electricity bills and energy independence for citizens.

LEAD_VC 2 - The same assumptions apply as for LEAD_VC 1. In quantitative terms, when we look at the impacts in 2027, the average price increase (from both the potential reduction of price for EU manufacturers and price disadvantage for non-EU manufacturers), there would be an overall price increase of 0.5% for passenger cars, 0.1% for HDVs and there could be a reduction of 0.8% for LCVs. Looking at the impact in 2030, the price increase for passenger car rises to 1.4%, to 0.5% for LCVs and 1.3% for HDVs.

6.3.1.4Impact on competitiveness

LEAD_EII 3 - Given that a high share of the steel and aluminium used in vehicles produced in the EU is already sourced locally, the introduction of a higher Made in EU requirement in all products placed on the market is not expected to generate a significant impact on the global competitiveness of the EU vehicle manufacturers, at least in the short term. However, in the longer term, the Made in EU requirement could result in a limited capacity by EU vehicle manufacturers to find the required quality steel and aluminium from non-EU countries if domestic EII production is geared towards the specific needs of the EU market. However, a higher share of EU demand served by domestic steel, aluminium and cement producers under PO3 is expected to deliver a notable economic security gain, as reduced reliance on concentrated third-country suppliers lowers exposure to price manipulation, supply interruptions and coercive practices, thereby strengthening the resilience of the entire construction and automotive value chain.

Under LEAD_EII 3, the stronger Made in EU requirement would result in a domestic steel price increase, producing a more visible but still contained effect on downstream industries. The measure would not materially affect investment or competitiveness in construction and automotive sectors but would significantly reinforce the position of EU steel producers by redirecting part of export-oriented output to domestic projects. Total production would increase, improving utilisation of low-carbon capacity and supporting investment in cleaner technologies. As certification systems mature and compliance processes become more efficient, the temporary cost impact should diminish, consolidating a more resilient and competitive EU steel base. Once low-carbon technologies reach maturity and scale, the competitiveness gap is expected to close.

The EU’s cement industry is structurally domestic, with exports representing less than 3% of production and imports even smaller. Transport costs and product bulk make long-distance trade uneconomical.

In aggregate terms, JRC estimations show that Made in EU requirements for steel and aluminium in construction, and automotive might trigger negative value-added impacts in the EU economy of -0.13%, over the period 2025-2030 (or EUR 15 202 million), and with respect to a baseline where no IAA measures are applied.

LEAD_VC 2 – would have the same effect as described in PO1.

6.3.1.5Impact on competition

LEAD_EII 3 introduces Made in EU requirements for EIIs used in products placed on the market (in selected downstream markets), likely reducing eligible supplies for downstream sectors such as automotive, thereby restricting competition and limiting market access.

LEAD_BAT 2 would limit access to the European market for manufacturers and suppliers located outside the EU, strongly reducing competition. Such measures would disadvantage companies located overseas and restrict, proportionally to the level of the Made in EU obligation, supplier diversity for the downstream users of batteries (i.e. automotive OEMs and BESS producers).

Regarding LEAD_SOL 2, unlike public procurement, which can be monitored through clear compliance frameworks, private market transactions are highly fragmented and decentralised, making enforcement challenging.

LEAD_VC 2 The reduced competitive pressure for both the suppliers of vehicle components and vehicle manufacturers that was described for LEAD_VC 1 is to be assumed also under LEAD_VC 2, with a higher effect under the latter measure. Overall, minimum Made in EU requirements imposed on all products put on the market (in selected downstream sectors) would distort competition by artificially favouring EU-made products over others, irrespective of market price, quality or existing contractual relationships, depending on the sectors. This potential detrimental effect might be exacerbated in sectors where EU production capacity is more limited, even if for those sectors the level of the content obligations is also lowered.

6.3.1.6Impact on international trade

LEAD_EII 3 – PO2 impacts remain relevant but are amplified, as the introduction of strengthened Made in EU requirements would have a more pronounced impact on international steel and aluminium trade. This change represents an adjustment of EU trade flows, as part of export-oriented output is likely to be redirected to domestic consumption. However, the measure does not reduce total production capacity; rather, it reallocates supply to the internal market. The EU’s cement industry is structurally domestic, with exports representing less than 3% of production and imports even smaller. Transport costs and product bulk make long-distance trade uneconomical. Even under a 5% low-carbon requirement, no material effect on trade flows or competitiveness is expected.

Extra-EU economies would benefit from positive value-added gains in construction and automotive from an Made in EU requirement 238  for steel and aluminium. These downstream sectors would possibly benefit from the increased availability of domestically produced EII inputs that previously were exported to the EU, which would result in lower prices for their inputs.

LEAD_BAT 2 - Making market access conditional on Made in EU in batteries would directly affect imports from major global suppliers, particularly in Asia. The difficulty lies in WTO non-discrimination rules, as imported and EU-produced batteries are “like products” and a content condition would likely be contested. At the same time, Europe’s attractiveness as a fast-growing market means suppliers would have strong incentives to comply, either by adapting sourcing or investing in EU production facilities. This creates an opportunity to accelerate localisation and reduce dependency on external supply. To strengthen the case, the measure would need to be tightly framed around essential security and resilience arguments, supported by evidence of risks such as export restrictions. Even if challenged, it could succeed in re-anchoring part of the battery value chain in Europe, though the political costs of trade disputes would need to be managed.

LEAD_SOL 2 - Applying Made in EU conditions would have significant trade consequences, as the EU is highly dependent on imports, especially from Asia. WTO panels have already struck down comparable local content schemes in solar. The risk of legal and political retaliation is therefore high. Nonetheless, the scale of EU demand makes the market too important for global players to ignore. A requirement could trigger investment in EU manufacturing and create new industrial opportunities, provided it is carefully designed and linked to legitimate policy objectives such as climate security and resilience. There is therefore a trade-off: the measure could be transformative for EU industrial capacity but would almost certainly provoke partner pushback. Managing this would require complementary diplomacy and perhaps transitional measures to avoid abrupt disruption of supply.

LEAD_VC 2 - extending the Made in EU requirements to all EVs placed on the market in the Union would have a much more direct and wide-ranging effect on international trade.

6.3.1.7Impact on Member States

LEAD_EII 3 - introduces low-carbon and made in EU requirements for EIIs for products placed on the market, which will place additional responsibilities on Member States, as they would be required to establish systems for monitoring, verification, and enforcement of compliance. This will involve building on existing EU-level verification mechanisms or building new ones in case not in place yet.

PERM 3 - Relevant impacts on Member States have already been assessed under PO1 and PO2. Increased administrative support needs from relevant national authorities could be expected in the assessment and designation of potential clusters at Member State level including setting up relevant procedures across diverse public sector competencies, in view of the priority assessment to grant the infrastructure connection and the environmental assessments of clusters’ plans.

LEAD_VC 2 – Similarly to LEAD_VC 1, as observed above public support schemes currently used in the automotive industry will mitigate the adverse effects of LEAD_VC. Since the assumptions are based on already existing schemes, the cost of public subsidies used for this Impact Assessment will not represent an increase in cost for Member States.

6.3.2Social impacts

LEAD_EII 3 - Made in EU measures would generate employment in the energy intensive sectors, notably 4 272 jobs in cement, and 3 762 in the steel and aluminium sectors combined, resulting from the increase in value added. In other words, the employment benefits are directly correlated to the increase in value for the covered sectors. At the same time, decreased value added in downstream sectors could lead to negative impacts on employment for those sectors but could not be quantified at this stage.

LEAD_BAT 2 - As discussed under LEAD_BAT 1, Made in EU requirements would help anchor the 170 000 jobs expected to be created by the current battery project pipeline by 2030. However, this measure would not only safeguard those jobs, but it would also stimulate further employment across the value chain as additional production capacity would be needed to meet internal demand.

LEAD_VC 2 – as noted in LEAD_VC 1, the measure could stop the trend of progressive job losses which has been materialising over the past years in the EU’s vehicle components supply chain. Furthermore, the measure could create additional financial capacities for suppliers to be reinvested in future technologies.

6.3.3Environmental impacts

LAB 2 would have same impacts as described under PO2.

LEAD_EII 3 is expected to further contribute to the reduction of CO2 emissions from steel and cement since the provisions would impact the entire automotive and construction sectors. Low-carbon steel would account for emissions saving of 10.26 Mtonnes CO2, low-carbon cement for 2.22 Mtonnes CO2 and aluminium 1.1 Mtonnes CO2. In total, LEAD_EII 3 would contribute to the reduction of 13.58 Mtonnes CO2 emissions. These emissions savings can be valued at EUR 1.358 billion (EUR 814.88 million – 2.566 billion) for 2030, see Annex 4 Section 2.3 for monetisation calculations and Annex 15 for the emission ranges and monetisation.

It also introduces a wider scope for Made in EU requirements, which, on the one hand, would increase environmental performance as EU producers tend to outperform international competitors in terms of emissions performance. 239 On the other hand, it may limit market competition, which could result in lowering the incentive to innovate and hence further decarbonise.

LEAD_BAT 2 - Localizing the production of battery cells and cathode active materials, including its precursor material, under PO3 to meet the whole EU demand rather than relying on imported Chinese products, could reduce CO₂ emissions by an estimated 34.17 Mtonnes by 2030. These emissions savings have a value of EUR 3.4 billion (EUR 2 billion -6.4 billion), see Annex 4 Section 2.3 for monetisation calculations and Annex 15 for the sensitivity analysis. This does not account any potential slowdown of EV and BESS uptake, which would in turn have a negative environmental impact.

PERM 3 increases climate benefits by further accelerating the decarbonisation projects through faster deployment, potentially accelerated grid connection as a result of clustering and through easier implementation in clusters areas, notably in their GHG performance. It also introduces a single environmental assessment for the industrial clusters’ plans. To mitigate to the maximum any individual impacts by the projects, the plan would accompany the designation of such areas with the relevant mitigation and/or compensatory measures for the industrial activities planned. This would ensure that any potential environmental impact is kept to a minimum. However, a derogation from individual environmental impact assessments will result in a less efficient identification of environmental impacts associated with industrial activities in identified clusters. Hence, mitigation or compensatory measures are expected to be more challenging to implement at an adequate and sufficient level. Permitting under the IED would remain at the installation level within clusters. The possibility to derogate from the temporary emissions occurring during the construction phase of a project with CCS would have negative impacts on the environment, for instance in terms of nitrogen emissions. The initial negative impact on the environment from this derogation should be considered against the climate improvements brought by the projects in the process of the decarbonisation of sectors with hard to abate emissions . The identification of these industrial clusters can contribute to wider decarbonisation efforts as regard to infrastructure planning. Easily identifiable points of considerable energy demand could speed up the deployment of future energy infrastructure, necessary for their decarbonisation efforts.

LEAD_VC 2 - In Scenario 1, global greenhouse gas emissions from vehicle manufacturing decrease by 0.9 Mtonnes CO2e in 2027 and by 0.7 Mtonnes in 2030 due to shifts in production; they further decline by 0.1 - 0.2 Mtonnes due to reductions in international transport associated with EU imports. These emissions savings represent a benefit of EUR 90 million (EUR 54 million - 170 million), see Annex 4 Section 2.3 for monetisation calculations and Annex 15 for the sensitivity analysis. In sum, the environmental effects remain limited and are very similar across LEAD_VC 1 and LEAD_VC 2.

7How do the options compare?

7.1Effectiveness

The assessment of effectiveness looks at the extent to which the general and specific objectives (SO) of the intervention, as described in Section 4, are met.

SO1: Facilitate differentiation for low-carbon industrial products to increase their value and marketability: PO1 would be more effective than PO2 as it would develop low-carbon labels for all outputs of EIIs. This would increase transparency and help manufacturers of low-carbon industrial products in distinguishing their offerings from conventional alternatives, contributing to lead markets creation and, ultimately, the general objective of supporting the decarbonisation of EIIs. However, this would only be the case in the long term once labels have been properly established and the attractiveness and use of such labels confirmed.

SO2: Boost demand for European low-carbon products and clean tech: PO2 is likely to be the most effective in meeting the objective of creating lead markets for European low-carbon industrial products and European clean technologies as well as vehicle components for EVs, as it would introduce low-carbon and Made in EU requirements in those market segments where the benefits would be the highest. By spurring demand, it would also contribute to attracting new investments in EIIs, batteries, solar PV and automotive components. PO3, could also be effective, as long as introducing EU requirements for products placed on the market are sufficiently progressive to address implementation challenges for the sectors considered, especially for ‘nascent industries’ like batteries and solar PVs, where European manufacturers lack sufficient scale to ramp up production to meet the projected demand increase in the short to medium term. PO3 would also be challenging in terms of enforcement, affecting the effectiveness of the measure.

By creating more predictable demand, PO2 will help absorb some of the investments costs from the low-carbon technologies, unlocking stalled and creating market signal for new investments in the sectors covered. The Made in EU and low-carbon requirements will create a pull effect in the market that will increase the share of domestic demand to be covered by cleaner and European production, establishing certainty for investments decisions. It facilitates the reduction of the green premium through strategic green public procurement, creating a market signal to trigger private capital, which remain the main driver behind investments. As described in the Section 6, under impact on companies, the lead market measures on low-carbon steel could accelerate final investment decisions, unlocking up to EUR 15.5 billion 240  in investments, contributing to reduce the investment gap. 

SO3: Maximise the quality and benefits of foreign investment within the Single Market: Compared to PO1, PO2 is expected to deliver significantly greater effectiveness. Under PO2, all Member States would apply uniform, mandatory provisions, while the voluntary approach in PO1 would not ensure convergence, leaving scope for divergent national practices and competition based on lighter conditions. In both cases, the industries in scope are expected to cover batteries and possibly certain EIIs.

SO4: Speed-up and simplify permits for industrial decarbonisation: PO2 and PO3 introduce additional and targeted measures to facilitate and speed up the business case (e.g. planning security and de-risking investments) of decarbonisation projects for EIIs, while PO1 only contains digitalisation and streamlining measures for all manufacturing industries. PO3 would be the most effective option since it includes measures from PO1 and PO2 and combines them with a clustering approach to reap benefits from a geographical concentration of industries, notably in terms of energy infrastructure synergies and rippled down indirect benefits for infrastructure design.

SO5: Increase investment projects in industrial areas: PO2 would be more effective than PO1 in facilitating access to funding and accelerate investment decisions for industrial decarbonisation projects across the EU due to its binding nature.

7.2Efficiency

Efficiency refers to the ‘extent to which objectives can be achieved for a given cost (cost effectiveness). Efficiency also assesses to which extent options contribute to administrative and process efficiency (reaching objectives with the least administrative burden). The analysis below does not quantify the long-term benefits associated with economic security.

Summary of costs and benefits of policy options for 2030, compared to the baseline (in million EUR) 241

[* A quantification of benefits derived from Made in EU provisions for solar and batteries sectors was not possible. Moreover, adjustment costs on foreign direct investment conditionalities were not possible either. Therefore, a comparison of costs and benefits is only partially reflected. LEAD_EII costs/benefits are reflected for 2030 compared to baseline year.

** PO1 and PO2 only reflect impacts on the shares of the market covered by public procurement in construction (LEAD_EII_1 and 2, in the absence of data of public schemes.]

SO1: PO2 would be more efficient than PO1 as it would start by developing a label for one EII industry first, steel. Compared to other EIIs, steel is a relatively homogenous product, meaning the administrative costs of establishing an accounting methodology and ensure its implementation would be simpler, meeting the objective of supporting lead market policies faster, via a less burdensome process. Furthermore, by reusing most of the information that are collected through the EU ETS and CBAM, it would alleviate the administrative burden of reporting for both companies and authorities. Key differences between the individual options to design a low-carbon product steel label are presented in Annex 12.

SO2: PO3 has been assessed as more costly to society at large (including Member States and European consumers) than PO1 and PO2 to meet the objectives of creating lead markets for EIIs. Costs under PO3 remain larger than PO1 and PO2 (which are similar) in particular in relation to the ambitious Made in EU provisions for steel, cement and aluminium and their impacts on downstream sectors. Based on policy and regulatory developments, such as the newly proposed trade measure for the EU steel sector, the level of ambition of the Made in EU provisions could be adjusted to fit new market realities. Conversely, it is not possible to fully quantify the positive externalities associated with long-term economic security benefits linked to the promotion of resilient European supply chains in strategic EII industries introduced in PO2 and PO3, notably in relation to external shocks. Overall, PO1 and PO2 result in similar net benefits. Some of the costs may also be underestimated under PO2, as the modelling assumptions do not reflect potential changes in trade flows deriving from the Made in EU requirements, given the assumed constant supply chain structure for the automotive and construction sectors (in absence of low-carbon supply chains). It is possible to consider that supply chain dynamics would result in downstream sectors preferring to source outside of the EU while shifting to low-carbon alternatives. However, PO2 introduces a stronger positive externality of economic security mentioned before. Such benefits include, but are not limited, to job creation/retentions and more economic and social stability overall. Moreover, no quantification was possible on the benefits from Made in EU considerations for solar and battery manufacturing supply chains. Therefore, a full comparison between costs and benefits between the different POs and sectors included is not possible for all measures. In addition, PO2 will reduce the risks of supply chain disruptions and exposure to high-risk dependencies, or of third countries restricting imports of critical materials, leading to a more predictable and stable economic and social environment. While these effects cannot be reliably quantified, they constitute a real and material benefit of policy intervention.

Predictability, access to inputs and strong supply chains are essential for the well-functioning and competitiveness of EU’s manufacturing industry. PO3 affects the entirety of the automotive and construction sectors both in terms of low-carbon and Made in EU requirements. The cumulative impacts of these measures will make PO3 more costly, with additional challenges on how to pass on these extra costs for downstream sectors. Similarly, for EIIs, solar, batteries, and vehicle components, PO2 leads to fewer costs for the downstream industry than PO3 and therefore impacts less on final consumers or public authorities. PO1, on the other hand, would have the least adjustment and administrative costs. Benefits increase as the level of ambition increases in the policy options.

SO3: PO1 is expected to cost less than a mandatory approach (PO2), due to lower administrative burden, as some Member States might decide not to adopt the guidance on conditionalities. At the same time, gains (spillovers) are limited and uneven, leading to a low benefit-to-cost ratio overall. However, PO2 will have more impact in addressing the prevailing issues, as Member States will be required to enforce mandatory provisions more strictly, leading to higher market harmonisation. Accordingly, PO2 is expected to be more efficient in the medium- to long-term as systemic spillovers materialise, boosting resilience, innovation, and security of supply.

SO4: PO3 combines the previous permitting provisions introduced under PO1 and PO2, adding benefits for industrial clusters. However, the benefits from industrial clusters can only materialise if a prior mapping and designation of a geographical area by the Member State (with an additional mobilisation of resources) has taken place. All POs will lead to efficiency gains from the one project, one digital process measure, present under each option. Digital improvements paired with data interoperability will increase data re-use for other reporting or permitting activities and potentially reduce unnecessary duplications in the permit granting process. PO2 would capitalise as much as possible on the existing NZIA provisions to meet the objective of facilitating permitting processes to accelerate the decarbonisation of manufacturing industries in Europe with special focus on EIIs.

SO5: PO1 would minimise administrative burden, as it merely recommends using defined criteria for public support, leaving their application to Member States’ discretion. PO2 would require Member States to use these criteria to identify synergies with existing and future public funding opportunities, to facilitate access to funding for industrial projects in industrial areas. While this approach may entail higher administrative costs, it offers greater benefits by accelerating decarbonisation in targeted industries.

7.3Coherence

In terms of overall coherence, the options are all seeking to reinforce the EU’s ability to meet the Clean Industrial Deal’s objectives. Moreover, in terms of internal coherence, the options are built in a way that actions introduced to meet one specific objective, should not come at the expense of another specific objective.

SO1: PO2 would be the most coherent with existing policies and strategies, such as the Steel and Metals Action Plan, as well as the Clean Industrial Deal which calls for an accelerated procedure to create a voluntary label for low-carbon steel. Coherence with other existing regulatory frameworks, namely ESPR is guaranteed by the complementarity by design of the two initiatives, with a logic of building blocks. Once the steel label under IAA is stabilised, it would be possible to complement it through the ESPR approach and enlarge the scope of products and emissions covered. Both will also benefit from the ongoing streamlining exercise on carbon accounting methodologies.

SO2: All POs would meet the objectives without unduly undermining the EU renewable energy target, even if PO3 could have the greatest impact, as public intervention may not be in a position to smoothen the short-term impacts. Regarding EU requirements for batteries and solar PV, the gap analysis of this assessment demonstrates that the existing EU provisions under NZIA will not likely be sufficient to achieve the objective of creating European lead markets for clean technologies. Additional EU requirements, designed to complement or amend as relevant existing NZIA provisions, can better contribute to creating those European lead markets that in turn support the EU’s economic security of battery, solar technologies and automotive components. PO2 is coherent with the objectives set down in the Industrial Action Plan for the European Automotive Sector with respect to batteries and components. Similarly, for EIIs, the lead market measures would complement existing product policies, providing a targeted further demand-side incentive to decarbonise these industries, in line with buildings’ legislation notably. For steel in particular however, the new legislative instrument to address global steel overcapacities, points, if adopted by co-legislators, to a possible risk of incoherence, with the blanket measures on Made in EU provisions for public support. Exemptions to WTO principles and FTAs should be invoked to justify the introduction of Made in EU requirements in public procurement and support schemes, which might be more difficult to justify if applied to all products (e.g. batteries, solar PV systems, vehicle components and steel/aluminium/cement in automotive and construction) put on the EU market (PO3) or without considerations for environmental performance.

SO3: On conditionalities for FDI, voluntary measures (PO1) have fewer interlinkages with existing frameworks and could be interpreted in addition to prevailing legislation. It would be coherent with historic EU openness to FDI but in current times, but it would undermine coherence of the Single Market, leading to fragmentation: divergent application between Member States can create distortions and unequal benefits. Introducing mandatory conditionalities (PO2) to further harmonise the Single Market would be complementary to the existing FDI legal framework as it would focus on specific strategic industries only (e.g. batteries and possibly certain EIIs) and would be based on thresholds on the investment value, to limit the risk of overlaps. Mandatory requirements would be fully coherent with the European Economic Security Strategy 242 : proactively strengthening Europe’s competitiveness, resilience and technological leadership, while protection is strengthened against risks. Finally, conditioning FDI in the manufacturing sector would risk going against the investment liberalisation commitments on market access and national treatment the EU has undertaken under some of its FTAs and relevant FTA partners would thus need to be exempted from investment conditions in these areas to maintain coherence.

SO4: All options would include a measure targeting permitting for all manufacturing industries based on digitalisation of a unified permitting process, while building on sector specific legislation, including the upcoming Environmental permitting initiative (Environmental Omnibus) which will focus on environmental assessment specific items. For instance, PO2 complements the NZIA permitting provisions for EIIs and ensures a consistent approach in this regard by providing a level playing field. Moreover, the overall level of coherence with environmental legislation in PO2 and PO3 will be affected by any possible legislation on environmental simplification (omnibus), currently under preparation, which may require adjustments to the specific measures under the preferred PO presented in this impact assessment. PO3 could also partially overlap with the upcoming grid energy package, which aims at addressing grid infrastructure bottlenecks Finally, coherence will need to be ensured with the permitting reflections under preparation as part of the Environment omnibus, which are however not subject to an impact assessment.

SO5: Projects in industrial areas could tap into existing priority projects or areas under other EU legislation, such as the CRMA and the NZIA. However, care will be required to address the risk of confusion in the multiplication of labelling and in managing expectations by promotors on the benefits of being identified as priority projects.

7.4Proportionality/Subsidiarity

Regarding the proportionality of the measures to achieve the objectives of the initiative, the three POs follow a logic of increased level of intervention.

PO1 establishes minimum provisions for market intervention (SO2, SO4), often relying on voluntary aspects of the measures for Member States (SO3, SO5).

PO2 introduces a medium level of intervention, which increases the obligations on Member States and market operators. SO2 introduces made in EU requirements for low-carbon steel, aluminium and cement used in the construction and transport sector in public procurement and public support schemes, which are proportionate to the expected level of low-carbon capacities, based on current investment project pipelines. While the requirements are mandatory, they cover only a partial share of sourcing low-carbon materials and are gradually introduced only for products to be purchased thanks to public financing. This provides member States and business with some flexibility and adjustment time, to allow production ramp up and, ultimately, lowering the green premium. It also ensures that public money is spent to support the objective of EU industrial resilience and decarbonisation. PO2 corresponds to the most proportionate approach, considering market realities and calibrated against the sectors’ ability to fully scale up production for low-carbon steel, cement and aluminium, as well as domestic clean tech.

PO3 establishes the highest level of intervention in the market, increasing the obligation not only on the Member States but also more substantially on market operators, especially downstream sectors that will have to comply with the mandatory minimum Made in EU requirements. Regarding SO4, requirements on permitting in PO2 and PO3 increasingly impose further obligations on Member States to streamline processes and time management. At the same time, they would both provide further discretion to Member States regarding permit-granting and the application of environmental legislation, which would make the options overall proportionate to the objectives.

Table 5: Summary comparison of the options

8Preferred option

Following the analysis of the impacts of each PO, as well as their ability to meet the general and specific objectives in the most effective and efficient manner while respecting proportionality, coherence and subsidiarity, this impact assessment considers that PO2 would be the preferred option. In that balance, PO2 would facilitate business and trigger investment decisions in the EU by streamlining permit procedures for the entire manufacturing sector, boosting demand for decarbonised materials and clean tech products in strategic value chains, and ensure an investment framework that protects against unfair global competition and support value-added creation in the EU. PO1 and PO3 present a similar impact in terms of proportionality/subsidiarity, however PO2 stands out with a more positive impact in terms of proportionality when introducing Made in EU in policy measures for public procurement and public support only. Regarding coherence, PO2 again presents a bigger positive impact, followed by PO3 and PO1. For SO2 however, coherence with the latest legislative proposals as well as with the EU’s international commitments would be better ensured by a combination of PO1 and PO2, potentially associating made in EU requirements for relevant EIIs with low-carbon ones.

PO2 offers a good balance between effectiveness and efficiency. Although it demands resources from Member States and affects downstream sectors, it remains efficient for addressing the problem drivers, in particular when taking account of economic security considerations. PO3 would be more effective in achieving the objectives, but its possible efficiency is hampered by potential impacts on downstream sectors and consumers, and by the challenge in quantifying the positive externalities associated with supply security.

While PO2 results in similar net benefits as PO1, PO2 will provide further long term benefits, increasing the EU economic security and resilience as the Union advances in its transition towards climate neutrality, notably of the energy intensive industries. These benefits are however difficult to quantify and thus are not reflected in the costs and benefits analysis under Section 7.2. Economic security translates, amongst others, into businesses and public authorities operating in a predictable economic environment, with reduced risks of supply chain shortages and disruptions, or of third countries restricting access to input materials for key strategic sectors. This would ultimately result in reduced economic and social instability. For citizens, this means stable access to resources, creation and retention of industry jobs, stable incomes, thereby contributing to social cohesion.

PO3 is assessed as more effective to meet the SO4 (permitting). However, it would require additional resources and support for the mapping and identification of cluster areas. These additional resources could be overshadowed by the positive gains (efficiency offered by the industrial clusters to attract new investments). PO3 also presents some overlaps with other environment or energy initiatives and as such PO2 may offer a slightly more balanced choice, with detailed specific measures to be considered at a later stage pending the environmental omnibus outcome.

8.1REFIT (simplification and improved efficiency)

The preferred policy option will aim at simplifying conditions for manufacturing industry in general, and EIIs in particular, to decarbonise and operate in Europe whilst maintaining environmental protection through facilitation of permitting processes. This is particularly the case thanks to the proposed measure to speed-up and streamline permitting provisions for businesses investing in decarbonisation delivering a lower regulatory burden.

For the FDI conditionalities, the uniform application of the conditions across the EU would largely prevent forum shopping and race to the bottom in attracting investments, while harmonising and simplifying the business conditions.

The changes to existing legislation that this initiative would provide are limited to the NZIA and the measures are designed to consist in targeted amendments to existing provisions. This will reduce unnecessary regulatory costs and achieve a high degree of simplification in that a legally clear adjustment to reach the underlying policy objectives is made as early as possible, hence avoiding later changes and the related adjustment costs. Moreover, adjustments will be made as much as possible in line with the existing provisions of the NZIA, reducing unnecessary regulatory cost through relying on the existing basic concepts of NZIA.

8.1Application of the ‘one in, one out’ approach

The initiative is in the scope of the “one in, one out” approach. The one–off administrative costs for businesses that would result directly with this initiative are limited and relate to:

-The one-off FDI notification cost would amount to EUR 117 600 annualised at EUR 0.01 million per year.

The recurring administrative costs for businesses that would result directly with this initiative are limited and relate to:

-Demonstrating compliance with low-carbon and EU requirements for relevant downstream sectors would amount to EUR 1.16 million recurring administrative costs.

The administrative cost savings for businesses that would result directly with this initiative relate to:

-Cost savings of EUR 240 million for all manufacturing industries in the EU for the digitalisation of 5 permit-granting procedures, annualised at EUR 28.14 million per year.

Overall, the initiative would result in EUR 26.97 million yearly administrative savings for businesses.

The initiative does not foresee any administrative cost applicable to citizens.

The adjustment costs that would result directly with this initiative amount to:

-EUR 3 782 million for businesses.

-EUR 1 442 million for citizens.

A more detailed elaboration (the specific split of FTEs by lead market provision) of all calculations in this Section can be found in Annex 4.

9How will actual impacts be monitored and evaluated?