California Approves Tax On Lithium Extraction

The Salton Sea in southern California is a stinking muckhole of fetid pestilence, thanks to the heavy runoff of pesticides over the years from the farms surrounding it. It has only saving grace. It sits atop what may be the largest lithium deposits in the United States.

Unless you have been playing Call of Duty in your mother’s basement since the San Francisco Giants won the World Series in 2010, you know that lithium is that precious stuff we use to make batteries for electric cars. It is in short supply, which could make it difficult for the EV revolution — so critical to decarbonizing the transportation sector — to move forward as rapidly as possible.

Reuters reports that last week California approved a plan to tax the lithium extracted from the Salton Sea area. The money generated will be used to remediate the environmental damage done to the area by decades of abuse by humans. That seems like a good idea, doesn’t it? Of course, California could tax those who created the mess in the first place, but that’s not something that usually happens in the United States, where the prevailing policy is to privatize profits while socializing costs.

The tax is structured as a flat rate per ton and will go into effect in January of 2023. The tax will be reviewed every year, and state officials have agreed to study potentially switching to a percentage based tax.

Federal officials have praised the area’s start-up lithium industry because it would deploy a geothermal brine process that is more environmentally friendly than open pit mines and brine evaporation ponds, which are the two most common methods of producing lithium today.

There is a downside to the tax plan, however. Two of the area’s three lithium companies warn the tax would scare off investors and customers. Both said they may leave the state for brine deposits in Utah or Arkansas that are rich in lithium. Controlled Thermal Resources said the tax would force it to miss deadlines to deliver lithium to General Motors by 2024 and Stellantis by 2025. EnergySource Minerals said it has halted discussions with potential investors and an automaker.

“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,” said Rod Colwell, CEO of Controlled Thermal. He has a point. More than 80% of the lithium used to manufacture batteries for electric cars and trucks is either derived from Chinese-controlled resources or is processed in China.

The United States is utterly dependent on a foreign country that may have hostile intentions for a critical natural resource, which is hardly a smart long term strategy. It’s as if we have learned nothing from our unhealthy reliance on Saudi Arabia and other OPEC nations for our oil for so many years.

California, of course, has every right to impose whatever taxes it deems fit. But taxes have consequences and if the lithium industry decides to look elsewhere, not only will the state have lost a source of revenue, it will have an important new industry that could have brought much needed jobs to a financially distressed area of ​​the state. Former senator Huey Long once explained the essence of tax policy with this pithy phrase: “Don’t tax you. Don’t tax me. Let’s tax that fellow behind the tree.” Politics and common sense are seldom congruent.



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