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California legislators voted late Wednesday to impose flat taxes on lithium producers, ranging from $400 to $800 per ton, based on how much is produced by the nascent extraction industry.
The fees were fiercely contested by two start-ups that lobbied for a sales tax approach, but supported by energy giant Berkshire Hathaway's renewables arm. Officials noted the fees — along with $400 million in state funds that were authorized for infrastructure, planning and environmental reviews — could bring sorely needed improvements and steady revenues to the state's impoverished, often overlooked southeastern corner. Gov. Gavin Newsom's office was closely involved in negotiations on the package, and he is expected to sign it into law.
"This truly will be transformational for Imperial County and eastern Riverside County communities around the Salton Sea," said Assemblymember Eduardo Garcia, D-Coachella, who along with Sen. Ben Hueso, D-San Diego, shepherded the legislation across the finish line. "We're talking about ... investments to a region that so rightfully deserves it, and I just feel really good this morning. We have done our job, and it's now up to us to oversee and follow through to make sure it happens."
In an effort to mollify the start-up companies, who said per-ton taxes would drive away crucial investments and kill the industry there before it starts, an 18-month independent study will review whether the flat tax approach holds up, or whether a sales tax approach on revenues would be preferable.
Rod Colwell, chief executive officer of Controlled Thermal Resources, said in a statement that the company “is confident that the required independent study and accurate analysis of the lithium market and tax mechanisms will make it abundantly clear to Governor Newsom that this tax proposal will severely impact the development of ‘Lithium Valley’ and be catastrophic for the communities in Imperial County."
Lithium companies also could have access to another $1.05 billion in "clean energy" funding if the legislature approves it after returning from summer recess.
Lithium, the lightest known metal and capable of holding an electric charge for long periods, is a critical ingredient in smart phones and lithium ion batteries in electric vehicles and emerging large scale battery storage technology. Demand is surging as governments pass mandates to phase out gas powered cars and power plants in favor of cleaner products.
There is enough lithium to supply as much as a third of global supply in a vast, underground brine reserve that stretches across northern Imperial County, including the rapidly drying Salton Sea, experts say. President Joe Biden, Energy Secretary Jennifer Granholm and others have expressed support for extracting the lithium from the brine via a separation process at geothermal steam energy plants, a less destructive and cleaner process than hard rock mining or huge evaporation ponds used elsewhere in the world.
News of the bills' passage brought cheers from Imperial County officials and community groups, who pushed hard against industry opposition to get them passed.
"Hallelujah," texted Imperial County Supervisor Ryan Kelley shortly after 10 p.m. Wednesday, when the state Senate voted 26-1 to approve the package. The Assembly voted 55-17 an hour earlier to pass it. Kelley, who penned most of the text in the bills, and spent half a year navigating a series of obstacles to ensure their passage, said his first reaction after the votes was "relief."
In addition to guaranteeing what Garcia said would be "a very good steam of revenue" via the taxes, the package and this year's budget include $80 million for a new Brawley Cal State San Diego STEM campus, major funds for large new transmission lines from the Salton Sea area across the Imperial and Coachella valleys, $3.5 million for Imperial County to produce overarching planning and environmental documents to structure and potentially streamline construction of the lithium development zone at the county's north end, and $800,000 for environmental justice and community groups to hire independent experts to review potential impacts of those plans.
While all Imperial County communities will receive funds from the per-ton revenues, Kelley said "the lion's share" will go to low-income communities like Niland and Calipatria in the county's Northend.
That promise helped secure vocal support from Calipatria Mayor Pro Tem Maria Nava Froelich, who originally declined to back it because she feared her community would be short-changed. A broad coalition of community environmental and public health groups and union leaders also visited legislators in Sacramento, spoke up at county meetings, and penned letters voicing strong support.
But Imperial Irrigation District, the powerful water district that has leased large amounts of land to Controlled Thermal Resources in exchange for royalties, declined to endorse the bills in a bitterly divided special meeting on Tuesday.
Lithium developers also could have access to $1.05 billion in climate innovation related grants and loans through 2026 if those allocations are approved, though they would need to compete against other projects.
Measures that could have streamlined permitting of geothermal plants were removed, and will instead go through a rulemaking process by the California Energy Commission.
Flat tax versus sales tax will be studied
Producers of lithium in California now will be required to pay a $400 per-ton fee for the first 20,000 tons they produce, $600 per ton for between 20,000 and 30,000 tons produced, and $800 per ton for anything above 30,000 tons.
Officials said the tiered approach is a fair one, designed to give smaller companies like Controlled Thermal Resources and EnergySource a chance to complete pilot projects and initial commercial production at lower rates. Along with Berkshire Hathaway Renewables, they either own geothermal plants or are building them, and own or hold leases for lithium production on major swaths of land in north Imperial County.
Colwell with CTR wants the Lithium Market and Tax Mechanism Study completed in six months, not 18 months, "to minimize any further damage to the emerging lithium industry in California.”
“We are sure once the facts are presented, Governor Newsom will also take into consideration the critical importance of lithium production and clean energy to the nation and to the automotive industry and will realign with President Biden’s multiple Executive Orders that clearly state the need to encourage the production of sustainable, domestically sourced lithium and critical minerals that are essential to the EV and clean energy transition.”
Garcia said that while he would love the study to be done in three months if possible, the longer time frame is necessary for a full analysis, and to give all potentially impacted parties time to review it and respond.
He said the tiered tax approach, which mirrors per volume taxes on oil, tobacco and alcohol, also will guarantee an immediate, continuous revenue stream once production begins, which will protect Imperial and eastern Riverside communities that have been burned in the past by promises from other types of developers that went unfilled. He said having known fees up front could ultimately help companies as they sign production contracts, too.
"This is the most accurate and consistent way of taking on a lithium fee that will be good for the community and for industry. Everyone wants certainty, and a sales tax doesn't provide that," Garcia said.
As for Kelley, he said of CTR and EnergySource, "I respect their position. If I were in their shoes, I would be advocating for the the most value of my project as possible."
But he said "more than a few" other companies would like the ability to access the tremendous lithium brine reserve, if they ultimately can't make their projects work with the tiered taxes and other conditions.
"From my point of view, they're sitting on a resource that is only available to three companies to develop at this moment. And if they're in a position where they don't feel like they can do it, I think somebody else would be able to," he said. "But I wish them well and I'm here to help."
While all Imperial County communities will receive funds from the per ton revenues, Kelley said "the lions share" will go to low income, struggling communities like Niland and Calipatria in the county's Northend.
Angry IID meeting bares deep divides
IID retiring president James Hanks, along with outgoing director Norma Galindo, opposed a motion by director JB Hamby to endorse the state lithium bills at the Tuesday meeting. It failed 2-2, with director Alex Cardenas absent.
Hanks said part of the reason he opposed it was because he wanted to ensure Northend communities were prioritized to receive funds. He said he and others on the board had not been notified of all the bills' provisions. Hamby said that was false, that all the board had been invited to numerous informational sessions over the past year.
Hanks sought to call another special meeting for Friday to revisit the issue, but staff told him the legislature would likely have already acted by then.
IID meetings are often fractious, but Tuesday's was especially acrimonious. Board members traded insults, and along with an agency consultant, lobbed barbed remarks at county officials and community members who spoke in favor of the package.
Consultant Pedro Nava, former chair of the state's Little Hoover Commission and a former Coastal Commissioner, could be heard saying in the background as Nava-Froelich spoke in support of the bills, "“They’re f**king nuts there.”
At another point, Galindo, who was defeated earlier this month in her bid for another term on the board, said Kelley's deceased brother and former longtime IID general manager, Kevin Kelley, would be "rolling his grave" if IID endorsed the bills.
Supervisor Kelley responded in public comment, urging the clearly divided board to "end the agony" of the protracted discussion and call a vote. And, he said, "if my brother were alive, he'd be dancing a jig in the hallway" urging the board to support the package.
Late Wednesday, he said he looked forward to working with the IID board moving forward if possible.
Janet Wilson is senior environment reporter for The Desert Sun, and co-authors USA Today's Climate Point newsletter. She can be reached at email@example.com or @janetwilson66 on Twitter.
This article originally appeared on Palm Springs Desert Sun: Lithium Valley: Calif. Legislature approves per-ton lithium taxes, hefty development funds