SACRAMENTO — Gov. Gavin Newsom signed into law a contentious proposal to tax lithium production in the state on a tiered, per-ton basis despite objections from industry executives warning that it could hurt their projects in the Imperial Valley.
The measure, Senate Bill 125 (Assembly Bill 208), was part of a $300 billion state budget package passed on Wednesday night, June 29, and Newsom signed it into law Thursday, June 30. It gives way for Imperial County to receive millions of dollars in tax revenues generated from several lithium extraction projects near the Salton Sea.
Specifically, the measure establishes a three-tier tax for every metric ton of lithium produced starting at $400 per ton for 20,000 tons or less, $600 per ton for 20,000 to 30,000 tons, and $800 per ton for more than 30,000 tons.
“This is an opportunity to put people first over industry,” Assembly member Eduardo Garcia, D-Coachella, said on the Assembly floor on Wednesday. “A fixed cost is appropriate and just because it can be factored into contracts as a fee that is known.
“A fixed cost, versus a percentage, provides audit certainty rather than that which could be a variable that changes day by day. A percentage tax may be fraught with potential fraud, the definition would be hard to pin,” Garcia added. “And it may include insider sales contracts to reduce the price, market timing to reduce tax at low points.”
While a large contingency of Imperial County municipal leaders, residents, and organizations, including labor unions, supported the measure in its final form, the per-ton tax did not sit well with some lithium industry executives and some members of the Imperial Irrigation District board.
“Supporting a tax that ensures lithium imports from China are less expensive for auto manufacturers to secure will devastate this promising Californian industry before it has begun,” said Rod Colwell, chief executive officer of Controlled Thermal Resources, one of the three companies seeking to extract lithium in the Imperial Valley.
Executives with EnergySource Minerals, one of the other two companies involved, did not respond to a request for comment.
“Extremely proud of the county and supporting partners who brought their voices to Sacramento,” Imperial County Supervisor Ryan Kelley said Wednesday night. “We will benefit from the bill’s approval, community and industry.”
Hours before the vote took place in Sacramento, Colwell and EnergySource CEO Eric Spomer told Reuters that the per-ton tax will delay deliveries to electric vehicle makers.
Spomer told the news agency that his company has halted discussions with potential financiers and a major vehicle maker as a result of the tax proposal. Spomer did not identify the name of the automaker.
CTR has previously said it signed contracts to deliver battery-grade lithium supplies to General Motors by 2024 and Stellantis by 2025. Colwell told Reuters that the tax would force his company to miss those delivery deadlines, though he did not specify by how long.
To date, none of the three companies near the Salton Sea have extracted enough battery-grade lithium to sell to buyers in the market. CTR has yet to build its geothermal and lithium plant. EnergySource had previously said it would begin building its lithium extraction facility at its John L. Featherstone geothermal plant this summer.
BHE Renewables, which oversees 10 geothermal plants near the Salton Sea, had not publicly taken a position on the proposed lithium tax until now.
“We do not oppose the lithium tax passed by the Legislature,” said BHE spokesperson Dan Winters in a statement. “We recognize the opportunity a lithium tax provides for the local community, and that a balanced outcome will ensure California-sourced lithium can compete in the world market.
“We will continue advancing production research to deliver lithium from our geothermal brine as we work with legislators and other stakeholders to achieve an economical, environmentally safe outcome for everyone,” Winters added.
In addition to setting a tiered, per-ton tax on lithium production in the state, the Legislature also spelled out how those revenues would be distributed — 80 percent going back to Imperial County and 20 percent going to Salton Sea restoration efforts. Of the revenues allocated to the county, 30 percent will go directly to Northend communities like Bombay Beach, Niland, Calipatria, Westmorland and Brawley.
Of the 70 percent remaining revenues, the county said it will apply them across various needs — 50 percent on infrastructure, services and administration, 10 percent on environmental mitigation, 10 percent on public safety, 15 percent on improving quality of life, 10 percent on community sharing and 5 percent on maintaining regional partnerships.
If all lithium extraction projects produce the tens of thousands of tons as projected, tax revenues could add many millions of dollars more to the county budget, which was set to spend $655.8 million in 2021-2022.
For more than a year, the three companies have rallied Imperial Valley leaders, residents and outside investors on a promise to turn the Salton Sea geothermal region into a significant supplier of lithium in the U.S. and to economically transform the region.
The soaring demand for electric vehicles, and by extension the lithium-ion batteries that power them, have made the mineral’s production a lucrative opportunity. The price of lithium carbonate on the global market has averaged $70,000 per metric ton in recent months.
Unlike other sources of lithium around the world, extracting the mineral from geothermal brine reserves underground near the Salton Sea comes with far less environmentally damaging impacts. The challenge lies in the process of removing impurities from the hot brine, which is already pumped to the surface to create steam-powered electricity at the many geothermal plants in the Imperial Valley.
That highly technical lithium extraction process, which is expected to be latched onto existing geothermal plants, is costly and has not yet been shown at a commercial scale.
A provision in the lithium tax proposal says the state will conduct a study to assess the impact of the tax on lithium production by the end of 2023. Colwell says he urges the state to make that study immediately.
“CTR is confident that an independent study and analysis of the lithium market and tax mechanisms will make it abundantly clear to Gov. Newsom that this additional tax, as it currently stands, will severely impact the development of Lithium Valley,” Colwell said.
“I am also confident that Gov. Newsom will take into consideration the importance of supporting domestic lithium production and clean energy independence at this critical time, and will realign with President (Joe) Biden’s multiple executive orders that clearly state the need to encourage the production of sustainable, domestically sourced lithium and critical minerals essential to the electric vehicle and clean energy transition.”
Luis Gomez is an Imperial Valley journalist who chronicles developments of the lithium industry through his free weekly newsletter, Lithium Valle, and his Facebook Group, Lithium Valley Updates.
(This story was updated on Friday, July 1 with Gov. Gavin Newsom’s signing of the budget.)
