Implementing CHIPS: The NEPA Permitting Challenge
An unprecedented amount of federal funding has been authorized and appropriated for major infrastructure projects over the past two years through the Infrastructure Investment and Jobs Act (Bipartisan Infrastructure Bill), the Inflation Reduction Act (IRA), and through regular annual appropriations. In addition, the CHIPS for America Fund within the CHIPS and Science Act of 2022, at $52 billion, has attracted disproportionate visibility—including a callout in President Biden’s February 7, 2023, State of the Union address—given its focus on China’s challenge to U.S. economic competitiveness and national security. Further, even in advance of the deployment of these funds, major semiconductor corporations have announced tens of billions of dollars in investments in domestic manufacturing facilities in Texas, Arizona, Ohio, and New York.
These investments mark a major turning point in federal and private investments for advanced manufacturing and innovative capacity in the United States. This effort to restore U.S. leadership in the semiconductor industry, however, requires managing another well-intentioned goal: the environmental permitting process, in particular the National Environmental Policy Act (NEPA) review.
While the semiconductor manufacturing companies are no stranger to the standard state and local permitting processes required to build chip fabrication plants (fabs), federal funding under the CHIPS Act triggers the federal NEPA review process, which is new territory for the industry. This has raised fears that complying with the NEPA review could stall projects for over two years and cost the firms billions, undermining the policy imperatives of CHIPS.
The Challenge of the NEPA Review
Semiconductor firms are at pains to point out that they have no issue with the need for careful environmental stewardship. If a process is clear, they say that they can factor the cost, complexity, and time needed into their plans. But NEPA opens new uncertainties. Given that some firms had broken ground pre-CHIPS Act, while others are on a different timeline, there is already confusion as to how these different cases are to be treated under NEPA review.
There are three levels of environmental analysis possible under the NEPA:
- Categorical Exclusion
- Environmental Assessment
- Environmental Impact Statement
If a proposed project falls under a federal agency’s categorical exclusion list, meaning it is part of a class of projects that usually have minimal environmental impact, then an Environmental Assessment or an Environmental Impact Statement are not needed. According to a 2012 guide on NEPA compliance by the Department of Transportation, 90 percent of proposals fall under this category. However, given that semiconductor fabs do not qualify, the Semiconductor Industry Associate (SIA) suggested in a public 2022 note to the Department of Commerce that there be “categorical exclusion for CHIPS projects based on criteria developed after consultation with affected stakeholders” in order to streamline the process. If a project is not categorically excluded, then agencies must formulate an Environmental Assessment, which provides an overview of potential environmental impacts. If the Environmental Assessment determines that a project will have significant environmental impact, then the agency puts together an Environmental Impact Statement. The regulatory requirements for an Environmental Impact Statement, which involves a public review process, are more detailed and rigorous than the requirements for an Environmental Assessment.
Currently, there is uncertainty about how these rules will apply to the construction of semiconductor fabs stimulated by the CHIPS Act. Already, according to the U.S. Department of Justice, NEPA “is the most frequently litigated federal environmental statute. A 2020 study estimated that, between 2001 and 2013, plaintiffs challenged 1 in 450 agency actions taken to comply with NEPA, with an average of 115 NEPA cases annually.” Further, the Council on Environmental Quality (CEQ) claims that between 2013 and 2018 Environmental Impact Statements took an average of 4.5 years to complete. This implies that any fab that is obliged to generate an Environmental Impact Statement would likely face significant delays. Some estimates put delay costs for large infrastructure projects as high as 5 percent a year, meaning, for example, that Intel’s planned $20 billion investment in Ohio could encounter about $1 billion in extra expenses for every year delayed.
Past Policy Lessons
Environmental permitting and its associated hurdles are not new, and actions have been taken in the past to ameliorate the delays and challenges associated with this process. The 2015 Fixing America’s Surface Transportation (FAST) Act recognized this issue in Title 41 by creating the Federal Permitting Improvement Steering Council, and the Biden administration’s May 2022 “Permitting Action Plan” proposed several key elements to “help ensure the timely and effective delivery of crucial upgrades to America’s infrastructure.” Ensuring timely and effective delivery of crucial upgrades specifically to semiconductor manufacturing facilities is also not new.
Concern over the permitting process for manufacturing facilities is also not new. In January 2017, as President Obama left office, the President’s Council of Advisors on Science and Technology’s (PCAST) report, Ensuring Long-Term U.S. Leadership in Semiconductors, recommended “responsibly speed facility permitting,” noting that “the permitting process provides important public benefits, examining projects to determine whether they meet public objectives, including minimizing environmental and community impact, which companies are not always economically incentivized to do. The combination of the current Federal and state permitting and review processes, can be slow, unpredictable, and lacking in transparency.”
PCAST also reported industry concern with implementation of the Federal Clean Air Act, stating that permitting that can take 12–18 months. PCAST proposed three modest steps to “[simplify] the existing permitting process for high technology facilities and carefully [provide] opportunities for speedier review.”
Concern over permitting for domestic manufacturing is also bipartisan. When the Trump administration assumed office later in January 2017, the president also issued a memorandum tasking the Commerce Department prepare a report on the impact of federal regulations on domestic manufacturing.
The Commerce Department's following report, Streamlining Permitting and Reducing Regulatory Burdens for Domestic Manufacturing, identified two predominant challenges: “overlap, duplication, and poor coordination” among agencies permitting processes, and reporting requirements, and “uncertainty in the permitting processes.”
While the Biden administration’s plan will positively impact the performance of the consultative bodies that enhance organization and streamlining in the permitting process, industry, and interagency consultation is no assurance of success. As regulators deliberate on the path forward, they need to prioritize clarity, consistency, coordination, and communication with the firms they work with.
There is no tradeoff between doing the proper environmental reviews and fast-tracking the construction of needed semiconductor fabs. Of note, 2017 analysis from the Bipartisan Policy Institute posits that solving bureaucratic inefficiency is wholly different from cutting corners. Germany and Canada, both recognized as environmentally conscious nations, maintain an adherence to a streamlined approval process that does not compromise on environmental standards, while maintaining a record of approving even the largest infrastructure projects within two years.
The intent of the CHIPS and Science Act was to allow semiconductor firms the capital to get new projects in the U.S. operational quickly and efficiently. The legislation sought to make investing in the United States easier, but NEPA review process that faces firms set to receive CHIPS funding could have the opposite effect.
The administration recognizes the significance of the challenge. The National Institute of Standards and Technology (NIST) has the responsibility for administering the bulk of the CHIPS funding; in March 2023, NIST’s CHIPS Program Office (CPO), as part of its rollout of the incentives program, informed potential applicants they are required to submit “a single Environmental Questionnaire for its entire application, with responses to questions A through Z for each project included in its application.” This literally means there are 26 different points to address.
This purpose of the Environmental Questionnaire is to assist NIST to determine the “appropriate level of environmental review required under the National Environmental Policy Act (NEPA) and related laws, such as the Endangered Species Act and the National Historic Preservation Act (NHPA).
The proactive approach to a complex problem is well-intentioned and welcomed.
Making It Work
Most of the United States’ environmental permits are granted by state and local governments, with the Environmental Protection Agency (EPA) issuing less than 5 percent of the national total. An October 2021 report by Georgetown University’s Center for Security and Emerging Technology (CSET) titled No Permits, No Fabs: The Importance of Regulatory Reform for Semiconductor Manufacturing, found that the United States currently builds fewer fabs at a slower rate than the rest of the world, that fabs have extensive infrastructure requirements which interact with federal, state, and local regulations in complex ways, and urges regulatory support to ensure that these new fabs are built on time and on budget.
Having offshored much its advanced manufacturing capacity decades ago, this new period of seeming “reindustrialization” for the United States allows the federal government to take another look at the existing costly and complex environmental review process and find a way to make it work with the administration’s key goals of bringing the semiconductor manufacturing industry back to the United States. A national priority for security, innovation, and economic competitiveness, it is in the shared interest of state and federal governments as well as semiconductor companies to structure and participate in a speedy and environmentally responsible review process.
Phillip Singerman is a senior adviser (non-resident) with the Center for Strategic and International Studies (CSIS) in Washington, D.C. Alexander Kersten is deputy director and fellow at the CSIS Renewing American Innovation Project.