What Environmental Regulations Mean for Fab Construction
By: Hideki Tomoshige and Benjamin Glanz
Recognizing the inherent vulnerability of the global chip supply chain to black swan events and looming geopolitical trends, U.S. policymakers have sought to encourage chip companies to build fabrication facilities (fabs) on U.S. soil. The CHIPS for America Act, notably, would provide $52 billion in support for domestic semiconductor manufacturing.
Industry is also responding to new global uncertainties and opportunities. Semiconductor manufacturers Intel, Samsung, and GlobalWafers recently announced new plans to build fabrication facilities in the U.S.
Any semiconductor company looking to build a factory in the U.S., however, is required to navigate a complex network of local and federal environmental regulations. While these regulations are necessary to minimize the environmental impact of any proposed facility, the process of securing governmental permits is time-consuming and expensive. In this blog, we explore the current environmental permitting process and how the U.S. can realize both speedy permitting and good environmental stewardship.
Complex and Lengthy Permitting Process
In the United States, the bulk of environmental permits are granted by state and local governments, with the U.S. Environmental Protection Agency (EPA) issuing less than 5% of the total nationwide. It is a complex process. While some permits are required by state or local law, others are required by federal law and must be implemented by the states in coordination with federal agencies. In Arizona, for example, where TSMC recently started building a new fabrication plant, the Department of Environmental Quality (DEQ), a state agency, grants permits called for under the federal Clean Air Act (CAA), the Resource Conservation and Recovery Act (RCRA), and the Clean Water Act (CWA), among others. The DEQ also implements a variety of Arizona-specific environmental regulations. Permits granted by local authorities like the Arizona DEQ might receive input from the EPA prior to approval, further lengthening the process.
Semiconductor fabrication facilities consume large quantities of energy and fresh water and produce thousands of tons of hazardous waste every year. They can have a large impact on the environment and are thus subject to stricter environmental reviews. These reviews are often lengthy, as documented in a 2017 report by the President’s Council of Advisors on Science and Technology (PCAST) titled “Ensuring Long-Term U.S. Leadership in Semiconductors.” PCAST found that the permitting process can take 12-18 months for larger fab projects, adding significant costs for companies. The report identified the CAA – specifically, the preconstruction and operating permit programs – as the primary obstacle to the prompt issuance of permits.
The Impact of NEPA
In the past, the Clean Air Act and hazardous waste regulations were the primary permitting programs that slowed fab construction. But if Congress authorizes funding for the CHIPS Act in the summer of 2022 then another piece of legislation will likely become relevant: the National Environmental Policy Act (NEPA). Passed in 1970, NEPA requires federal agencies to conduct a review process to consider the environmental consequences of their proposed actions and inform the public about their decision-making. NEPA applies to a wide range of federally funded or approved projects and activities, and with the CHIPS Act providing significant federal funding to semiconductor facilities, NEPA could slow the construction of fabs that CHIPS seeks to stimulate.
There are three levels of environmental analysis possible under the NEPA: 1) Categorical Exclusion, 2) Environmental Assessment, and 3) 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. Ninety percent of proposals fall under this category, though semiconductor fabs would not qualify for this exemption. 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.
According to the Council on Environmental Quality (CEQ), between 2013-2018 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% 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.
Speeding Environmental Permitting
There is widespread recognition across government and industry that the environmental permitting process needs reform. The 2017 PCAST report, issued under the Obama administration, recommended that the federal government “responsibly” accelerate the permitting process in order to encourage semiconductor investment and development. The report called for the creation of “fast-track” permitting options, especially for companies building fabrication facilities at existing sites.
Oregon’s Plant Site Emissions Limit (PSEL) program, a policy first instituted in the 1980s that allows for flexibility in operations changes as long as a plant site stays under the emissions limit, is cited in the 2017 PCAST report as an example of such a flexible approach. While PSEL-style programs only apply to construction on existing sites, and thus would be unlikely to benefit most fabrication facilities, they provide a model for future “fast-track” reforms.
During the Trump administration, the EPA made reform a priority, aiming to make permit decisions within six months and reduce the backlog of applications. Empowering decision-makers and increasing transparency were the key ambitions of this effort.
The Biden administration has since rolled back some of the Trump-era EPA policies, citing environmental concerns, but has promised to make the permitting process easier for the implementation of infrastructure funds, again emphasizing the need to consolidate the decision-making process. The administration also plans to announce new NEPA guidelines that would accelerate the review process. Congress, meanwhile, is considering legislation that would help fast-track preconstruction permits for semiconductor facilities. Democratic leaders recently reached a deal on a new bill that would include a variety of potentially game-changing permitting reforms, including fast-track options for "high-priority" projects, caps on NEPA reviews, and amendments to the Clean Water Act.
Across the U.S., a number of state and local governments have also looked to speed environmental approvals. For example, the District of Columbia has implemented a program that allows companies to pay for permit fast-tracking (which has raised some equity concerns) and the state of California recently allowed companies to apply for a consolidated approval process. Though neither locality has been targeted by semiconductor companies for fab investment, their efforts can serve as a model for other states. The accumulation of such state and local policies could create best practices for the country and help speed up the permitting process for other industries, including for semiconductor companies.
Can accelerating the permit process create risks for the environment? The Biden administration argues that this is not necessarily the case. Recent analysis from the Bipartisan Policy Institute supports this position, pointing out that solving bureaucratic inefficiency is not the same as cutting corners.
In fact, Germany, and Canada, widely seen as environmentally-conscious, administer a streamlined and relatively-fast approval process that does not compromise on environmental standards. They have a track record of approving even the largest infrastructure projects within two years.
For the U.S. to renew its global position as a technology leader and manufacturer, it has to match and surpass the regulatory efficiency of its competitors and rivals. With the expected passage of the CHIPS for America Act, the U.S. must make sure that a costly and complex environmental review process does not stand in the way of fab construction and the related economic benefits. 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.
Hideki Tomoshige is an intern with the Renewing American Innovation Project at the Center for Strategic and International Studies in Washington, DC.
Benjamin Glanz is an intern with the Renewing American Innovation Project at the Center for Strategic and International Studies in Washington, DC.
The Perspectives on Innovation Blog is produced by the Renewing American Innovation Project at the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).