The US Department of Energy has granted $9.5 million to a company in California that plans to build America’s first recycling facility for lithium-ion vehicle batteries.

Anaheim-based Toxco says it will use the funds to expand an existing facility in Lancaster, OH, that already recycles the lead-acid and nickel-metal hydride batteries used in today’s hybrid-electric vehicles.

There is currently little economic need to recycle lithium-ion batteries. Most batteries contain only small amounts of lithium carbonate as a percentage of weight and the material is relatively inexpensive compared to most other metals.

But experts say that having a recycling infrastructure in place will ease concerns that the adoption of vehicles that use lithium-ion batteries could lead to a shortage of lithium carbonate and a dependence on countries such as China, Russia, and Bolivia, which control the bulk of global lithium reserves. “Right now it hardly pays to recycle lithium, but if demand increases and there are large supplies of used material, the situation could change,” says Linda Gaines, a researcher at the Argonne National Laboratory’s Transportation Technology R&D Center.

Toxco’s DOE grant may seem like pocket change–last week the DOE awarded a total of $2.4 billion to companies developing batteries and systems for electric vehicles–but it’s also early days for the project. Sales of plug-in hybrids and all-electric vehicles have yet to take off, and though President Barack Obama has pledged to get a million plug-in hybrids on US roads by 2015, it will likely be a decade before any large-scale recycling capability is required.

Demonstrating the capacity to recycle, however, will be key to showing that electric vehicles are truly “green”–both emission-free in operation and sustainable in design. “Management of these batteries has to be done in an environmentally responsible way and in an economic way,” says Todd Coy, executive vice president of Kinsbursky Brothers, Toxco’s parent company.

Toxco also has an edge over newcomers to the market. The company is already North America’s leading battery recycler and has been recycling single-charge and rechargeable lithium batteries used in electronics devices and industrial applications since 1992 at its Canadian facility in Trail, British Columbia. “We’re managing the bulk of the batteries already out there,” says Coy.

The Trail facility is also the only one in the world that can handle different sizes and chemistries of lithium batteries. When old batteries arrive they go into a hammer mill and are shredded, allowing components made of aluminum, cooper, and steel to be separated easily. Larger batteries that might still hold a charge are cryogenically frozen with liquid nitrogen before being hammered and shredded; at -325 degrees Fahrenheit, the reactivity of the cells is reduced to zero. Lithium is then extracted by flooding the battery chambers in a caustic bath that dissolves lithium salts, which are filtered out and used to produce lithium carbonate. The remaining sludge is processed to recover cobalt, which is used to make battery electrodes. About 95 percent of the process is completely automated.

The DOE grant will help Toxco transfer the Trail recycling process to its Ohio operations, laying the foundation for an advanced lithium-battery recycling plant that can expand to accommodate expected growth in the US electric-vehicle market. The electric-car maker Tesla Motors, like most major automakers, already sends old or defective battery packs to Toxco’s Trail facility for recycling. “It’s very important for us,” says Kurt Kelty, director of energy storage technologies at Tesla. “The recycling issue is a key issue and we need to get it right.”

But Kelty says the economics of recycling depend largely on the chemistries of the lithium-ion batteries being used. He adds that lithium is currently one of the least valuable metals to retrieve. For example, the lithium in a Tesla Roadster battery pack would represent roughly $140 of a system with a replacement cost of $36,000. For most lithium-ion batteries, the lithium represents less than 3 percent of production cost.

“The lithium part is a really negligible cost when you compare it to other metals; nickel, cobalt, those are going to be the biggest drivers [of recycling],” says Kelty, adding that Tesla actually makes money by recycling just the nonlithium recycled components of its batteries. “So while we’ve been reading plenty of articles about the industry running out of lithium, it’s totally missing the mark. There’s plenty of lithium out there.”

Estimates range, but cobalt sells on the market for about $20 per pound, compared to $3 per pound for lithium carbonate. Cobalt, a byproduct of nickel and copper mining, is also scarcer and half of the world’s supply comes from the Democratic Republic of Congo, a politically unstable region.

Some lithium-ion chemistries are less cost effective to recycle. For example, the lithium iron phosphate batteries produced by A123 Systems don’t yield as much value back. The lower-cost materials in A123’s batteries give the company an edge over competitors but also make its batteries less economical to recycle.

The lithium situation could change. Industry research consultant Tru Group says the global recession has led to a large surplus of lithium in the market, keeping prices low. The consultancy, however, expects that by 2013, supply and demand will be in balance again and that a production crunch could occur around 2017 and beyond.

Over the long term, some observers believe the mass introduction of plug-in hybrid and electric vehicles, combined with the fact that much of the world’s lithium reserves lie in foreign and potentially unfriendly countries, could lead to a large spike in the price of lithium carbonate. The concern is that we could end up trading “peak oil” for “peak lithium.”

Gaines is looking at the scarcity issue closely. She is overseeing a four-year project at Argonne that will assess the long-term demand for lithium-ion battery materials and recycling infrastructure. Gaines says research to date shows that demand could be met until 2050, even if plug-in vehicle sales grow dramatically. But recycling will be crucial to helping the US become less dependent on foreign sources of lithium. “We show that recycling would alleviate potentially tight supplies,” she says.