German Chancellor Olaf Scholz and his Social Democrats will call on the European Union to create new co-financing instruments to help member states compete with increased U.S. subsidies for green technologies.

The Social Democrats want to see reform of existing EU state aid rules and more funds, according to a draft European industrial strategy document seen by Bloomberg.

The chancellor supports the proposals put forward by his party and wants EU leaders to approve additional funding instruments so that member states with tighter budgets are not left behind in the race for green subsidies.

The move comes amid growing skepticism in Brussels and other European capitals that President Joe Biden's administration will make any meaningful changes to its $370 billion green investment plan. The EU says the law unfairly discriminates against European companies and threatens to lure green industry across the Atlantic.

To this end, the EU should reallocate unused funds from the pandemic recovery fund and, in particular, strengthen its energy investment program. In addition, the SPD wants member states to use the upcoming EU budget review to prioritize investment projects for green transformation.

According to a source close to Scholz, discussions among EU leaders are at a very early stage, and it will be difficult to reach consensus, given the resistance in some member states with a tradition of financial prudence. Any agreement is likely to take several months, but Scholz nonetheless believes there should be European funding in addition to building up national subsidies, the source added.