This memo is the second of two publications by Catalyse Europe on the Industrial Accelerator Act. The first addresses the Act’s overall framework and Made in/with Europe provisions.
Europe needs foreign investment to build its clean industrial base at the pace and scale the energy transition requires. Yet, dependency on foreign-controlled infrastructure on European soil can be as strategically significant as dependency on fossil fuels or critical technologies coming from abroad. Ensuring that investment strengthens European capacity rather than increasing vulnerabilities is essential to the security and economic prosperity that Catalyse Europe aims to advance in Europe.
The EU’s Foreign Direct Investment (FDI) framework is being amended with several instruments now affecting the same sectors and supply chains including the FDI Screening Regulation, the Tech Sovereignty Package, the Cybersecurity Act and the upcoming Public Procurement Act. The Industrial Accelerator Act’s (IAA) new conditionalities also aim to ensure that foreign investment in strategic clean sectors generates clear value for Europe. However, getting coherence across all those files is essential: an incoherent framework deters investment; an overly restrictive framework shuts out investment Europe needs; a naïve framework leaves strategic assets vulnerable and undermines security.
Europe does not need to choose between openness and security. It needs a framework that sets the right conditions for foreign investment to build European capacity, not dependency. Catalyse Europe argues for FDI conditionalities differentiated by genuine risks, coherent across overlapping instruments, and complementary positive partnerships with third allied countries so that Europe protects its strategic assets, attracts the investment it needs and ensures that value creation happens within Europe.
1. Europe needs foreign investment to scale but the trade-off with security exists
Europe’s scale-up problem will not be solved by domestic capital alone. Foreign investment is part of the answer, but the same logic that applies to fossil fuel dependency applies here: resilience depends not only on what Europe builds, but on who controls it. FDI that builds European capacity strengthens resilience; while FDI that extends foreign control over critical infrastructure in Europe without building local capabilities recreates the dependency the transition aims to resolve. As electrification accelerates, foreign control over the operational layer of the energy system is not an abstract risk: it is the capacity to disrupt or shut down infrastructure that the entire economy depends on.
Both sides of this trade-off must be addressed: slowing investment undermines the transition while building infrastructure and capacity without security guarantees undermines the resilience the transition aims to deliver. The IAA’s FDI conditionalities fill a gap by ensuring large foreign investment generates local value rather than just establishing a presence on European soil. This is the right approach, but the design and most importantly the implementation ensure it delivers on that objective.
2. The IAA’s new criteria for FDI in strategic sectors must be differentiated
The IAA adds a layer distinct from the FDI Screening Regulation: rather than blocking harmful investments, it aims to ensure that foreign investment in strategic sectors creates genuine European value against a set of criteria. This is a necessary complement to the IAA’s Made in EU provisions, which without effective FDI conditionalities, risks being met through assembly operations that qualify on paper without building real capacity. But if poorly designed or delayed to later stages of implementation, this additional layer will add complexity, uncertainty and deter investment without delivering the industrial benefits it promises for European firms and workers.
Two design issues stand out. First, as currently proposed, the conditionalities apply uniformly despite very different risks, from critical raw materials recycling to battery or solar PV investments that can include strategically sensitive digital control systems. Second, the pick-and-choose nature of the criteria, requiring four out of six, risks delivering compliance on paper while the most strategically meaningful conditions are left unmet.
The approach should reflect real risk: stricter conditions where FDI touches critical infrastructure control, digital layers and security-related functions, and proportionate conditions where it builds productive manufacturing that deepens European supply chains. This would be more effective at addressing genuine risks and less deterrent to the investment Europe needs.
3. Coherence across instruments is essential
The IAA’s FDI conditionalities sit alongside the FDI Screening Regulation, the Tech Sovereignty Package, the Cybersecurity Act and the upcoming Public Procurement Act, all of which affect many of the same sectors and supply chains, but with different thresholds and enforcement mechanisms.
These instruments share the same logic but must reinforce each other rather than deter investment through overlapping complexity. The IAA’s conditionalities are designed to complement the FDI Regulation by adding a value-creation layer but for this to be meaningful, they must be calibrated to strategic sensitivity. Different instruments targeting the same investors must be aligned to deliver shared objectives, rather than add regulatory burden.
4. Conditions rather than closure with trusted partnerships prioritised
The EU can reconcile openness and security. Conditions that require genuine local value creation are necessary and legitimate. But they must be credible and enforceable without adding further administrative complexity. The framework must shape the terms on which investment takes place, while retaining the ability to exclude where genuine security risks demand it.
However, restrictions and conditionality are not sufficient, despite being necessary. Europe’s clean energy transition cannot be built in isolation, because clean supply chains are, and will remain, global. The question is not only whether to accept foreign investment, but also how to actively attract it from partners whose interests are compatible with European objectives and who contribute to building the European industrial base, not diluting it.
A positive partnerships agenda, identifying where trusted partners can fill gaps that European industry cannot fill alone, is the complement to a robust FDI conditionality framework. This is the approach taken by the Clean Technology Partnerships Initiative (CTPI) project coordinated by Catalyse Europe and IPPR. CTPI aims to identify the most vulnerable supply chains over the medium-term and pair this with an assessment of which partner countries have the potential to scale supply through new partnerships and mechanisms (e.g. joint ventures, offtake agreements, etc). Without this positive dimension, Europe’s FDI framework risks being defined only by what it is against and will miss out on facilitating a key growth driver of the clean energy globally.