California Lithium Tax Proposal Stirs up Further Controversy

SHANGHAI, Jul 1 (SMM) - The month of June has seen a lot of turmoil concerning lithium ore. Following the EU's "Lithium Harm Theory" - a proposal to classify lithium carbonate, lithium chloride and lithium hydroxide as harmful to humans - a proposal to impose a consent tax on the production of lithium emerges in the Salton Sea region of California. The proposal is said to levy a tax of $400 per tonne on the first 20,000 mt of lithium produced each year, $600 per tonne on the next 10,000 mt, and $800 per tonne for those beyond 30,000 mt.

California's Salton Sea region is said to be rich in geothermal resources, with 11 geothermal power plants, and has long been seen as a "blue ocean" for the lithium industry. Most of the emerging local lithium producers are development geothermal brine processes, which are more environmentally friendly than existing lithium production methods such as open pit mines and brine evaporation ponds. The industry has predicted that it could meet more than a third of the world's lithium demand in the future, and would help the US build a multi-billion dollar domestic supply chain for electric vehicle batteries.

But the proposal was met with considerable resistance from executives of EnergySource Minerals and Controlled Thermal Resources (CTR), two of the three lithium mining companies with lithium development projects in this region.

EnergySource Minerals executive Eric Spomer said the company has halted negotiations with financing institutions and a major car manufacturer because of the uncertainty surrounding the tax proposal, while CTR chief executive Rod Colwell said the tax proposal may cause the company to miss delivery deadlines for lithium supplies to General Motors in 2024 and 2025.

Currently, based on responses from local lithium companies, most industry executives support the California measure, but prefer a 2% or less tax rate, generally believing that a flat tax rate could have an economic impact when the prices of the metal fall in the future. Some mining executives even said that due to the high concentration of impurities in geothermal brines, extracting lithium is already a costly endeavour and that if the tax bill passes, they may consider moving to other states with large deposits of lithium-rich brines, including Utah and Arkansas.

Rod Colwell, CEO of Controlled Thermal Resources (CTR), warned, "If California passes the tax proposal, we will fight it or leave." The same situation comes at a time when the EU is considering classifying "lithium" as a hazardous material, forcing lithium processors to put more effort and financial resources into the processing, packaging and storage of lithium-related products, when Albemarle, the world's largest lithium producer, threatened that if the EU classified lithium as a hazardous material, it would close its plant in Langelsheim, Germany. The plant is said to generate an annual sales of around US$500 million and a forced closure would have a significant impact on Albemarle's operations.

It is worth mentioning that overseas countries have a high reliance on Chinese power batteries. According to the market research firm SNE Research, Chinese companies grabbed six seats in terms among the global power battery brands in terms of installed capacity in the first quarter of 2022, and their dominant position is unshakeable. In order to reduce the dependence on Chinese power batteries, the Biden administration has mentioned more than once the need to accelerate the production of key battery metals in the United States, and if the proposal is passed in California, it will make the United States' goal of establishing a local power battery supply chain "even more difficult".