The European Union (EU) is considering a proposal to support production of rare earth permanent magnets by offering support for local producers. The proposal is similar to one in the United States that aims to increase production by offering tax credits to companies that make rare earth permanent magnets.

European firms say they cannot compete with Chinese producers, which they say get subsidies worth about a fifth of their raw materials costs, helping them to supply 90 percent of the global market for the magnets.

Reuters reported that the proposals being considered by the EU include both cheap financing and compensation for higher raw material costs, said two sources who have seen the plans but were not authorized to speak publicly about them.

The EU launched the European Raw Materials Alliance (ERMA) late last year to ensure the bloc has a range of critical minerals needed for its green transition and gave top priority to rare earths.

The bloc aims to create a domestic industry of rare earth mining, processing and magnets to lessen vulnerability to any disruption in Chinese supplies.

Currently, China dominates the rare earth market and supplies 98% of EU demand for magnets made from rare earths.

A Chinese rare earths industry official said the country’s policy of encouraging export tax rebates for magnets has a long history and the ultimate beneficiaries are end users.

European officials hope to repeat Europe’s success in building an electric vehicle (EV) battery sector, which has seen a surge of investment after the EU offered funding and coordination.

The battery effort has seen 40 billion euros ($47 billion) of promised investment in 38 planned “gigafactories” over the past three years, climate group Transport & Environment said.

European attention is now shifting to the minerals used in permanent magnets, demand for which is due to surge as much as tenfold by 2050, when the EU and Britain have pledged to cut net greenhouse gas emissions to zero.

Recommendations on how to create a rare earth magnet industry from a group under the umbrella of ERMA are due to be made public next month, sources with knowledge of the situation said. An action plan from the ERMA Rare Earth Magnets and Motors Cluster has been passed to top EU officials, they added.

An EU Commission spokesperson declined to comment but said any potential measures must be compatible with state aid and World Trade Organization rules.

A viable magnet industry in Europe would also need the support of customers, such as automakers, who must agree to pay a slight premium to be guaranteed an environmental and traceable product, the sources said.