California approves lithium tax despite industry warnings

Written by Ernst Scheider

(Reuters) – The state of California on Thursday approved a plan to tax metallic lithium for electric car batteries to generate revenue for environmental repair projects despite industry concerns it would hurt the sector and delay shipments for automakers.

Governor Gavin Newsom, a Democrat, approved the tax as part of the state budget that must pass Thursday. The state legislature approved the tax during deliberations on Wednesday evening.

The tax was set at a flat rate per ton and will come into effect in January. The tax will be reviewed each year, and state officials have agreed to study the possibility of switching to a percentage-based tax.

The largest US state sits above giant lithium reserves in the Salton Sea region, east of Los Angeles, an area that was hard hit in the 20th century by years of extensive use of pesticides from agriculture. The money generated by the tax is partly earmarked for cleaning up the area.

Federal officials praised the region’s nascent lithium industry for deploying a brine process that is more environmentally friendly than open-pit mines and brine evaporation ponds, the two most common ways to produce lithium.

Two of the three lithium companies in the region have warned that the tax will scare off investors and customers. Both said they might leave the state for lithium-rich brine deposits in Utah or Arkansas.

Privately-owned Controlled Thermal Resources Ltd. said the tax would force it to miss deadlines to deliver lithium to General Motors by 2024 and Stelantis NV by 2025.

EnergySource Minerals LLC, which is privately owned, said it has suspended discussions with potential financiers and the automaker.

“Subsidizing a tax that ensures lithium imports from China are less expensive for automakers to insure will destroy this promising California industry before it even begins,” said Rod Colwell, CEO of Control Thermal.

(Reporting by Ernst Scheider; Editing by Michael Berry)