Navigating the nuances of the NEPA process

The world’s leading economies fought the COVID-19 pandemic with more than a vaccine. As a result, many new economic policies surfaced during the pandemic in response to supply chain disruptions and national security implications.¹

Here in the United States, three core policies emerged in response to these issues, each with a focus on providing direct and indirect benefits for manufacturing-related investors—the Infrastructure Investment and Jobs Act, the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, and the Inflation Reduction Act (IRA). These monumental incentive packages are spurring a resurgence of domestic manufacturing activity in the United States—a trend the Treasury calls “uniquely American.”²

NEPA: A landmark in environmental legislation

According to an August 2023 article from The Financial Times, approximately $225 billion in clean technology and semiconductor-related manufacturing investments have been announced in the United States since the passing of the CHIPS and Science Act, as well as the IRA.³ As expected, private enterprises seeking government dollars must adhere to additional requirements, including environmental approvals.

NEPA requires federal agencies to assess the potential environmental effects of significant federal actions, typically infrastructure investments (e.g., airports, toxic waste disposal sites, and interstates), prior to execution.⁴ Private enterprises must also engage in a formalized NEPA review when federal incentive awards are at play. Understanding the policy’s requirements is critical to mitigating potential impacts on construction timelines and production start, especially for prospective chip and clean tech investors.

The NEPA review process establishes three levels of potential review to be conducted by the lead agency awarding federal dollars to private enterprises:⁵

1. Categorical Exclusion (CATEX): A CATEX is issued by lead agencies to projects determined not to pose a significant harm to the environment.⁶
2. Environmental Assessment (EA): If a project does not qualify for a CATEX, an EA must be prepared by the applicant within one year of project kick-off, describing the proposed activity, anticipated environmental effects, and potential alternatives. Lead agencies must review EAs within one year of submission.
3. Environmental Impact Statement (EIS): The applicant must prepare an EIS when a project poses significant adverse effects to the environment, prompting a more extensive public comment period and further analysis of proposed mitigation measures and monitoring activities.⁶ Lead agencies are now subject to a two-year time limit for EIS reviews per recent legislative changes introduced in the Fiscal Responsibility Act (FRA).⁹

While newly imposed NEPA review deadlines stipulated in the FRA provide greater confidence to project proponents on timeline implications, the process can still be lengthy and costly.⁷ However, permitting reforms like the FRA signifies the federal government’s acknowledgment that uncapped timelines pose unreasonable uncertainty to project schedules and threaten on-time deployments.

CHIPS and Science Act spotlight

As part of the formal CHIPS application process, applicants must submit a completed Environmental Questionnaire (EQ) for review by the National Institute of Standards and Technology (NIST) CHIPS Program Office . The questionnaire includes 26 sections, ranging from wetlands disturbance to waste management protocols. Responses are evaluated by NIST to determine the “appropriate level of environmental review required under [NEPA].”⁸

Congress continues to entertain more extensive permitting reform measures for the semiconductor industry. In December 2023, the Senate passed a bipartisan bill exempting federally funded semiconductor project proponents from NEPA reviews—so long as construction starts by the end of 2024 and federal financial assistance (in the form of a loan or loan guarantee) does not exceed more than 10% of total project expenditures.⁹  The House is expected to support such permitting reform given the broad interest in advancing these capital-intensive projects, though the timeline of a vote remains uncertain.

Charting the course for NEPA evaluation

Companies must note that while permits and regulatory compliance are inherent to project timelines, NEPA's stringent environmental reviews add complexity and uncertainty to major manufacturing investments, potentially extending construction timelines. Despite efforts from Washington to streamline permitting procedures, firms making large-scale investments should anticipate prolonged environmental approvals, public input delays, and litigation risks.

Federal incentives like the CHIPS Act and IRA necessitate NEPA compliance. Thus, before embarking on capital-intensive projects and seeking federal incentives, companies need to grasp the environmental implications of their investments and the additional approval layers NEPA imposes to prevent project hold-ups.

Endnotes:

¹ Torsten Riecke, “Covid-19 causes a new wave of economic nationalism,” Mercator Institute for China Studies, April 24, 2020, https://merics.org/en/comment/covid-19-causes-new-wave-economic-nationalism.
² Eric Van Nostrand, Tara Sinclair, Samarth Gupta, “Unpacking the Boom in U.S. Construction of Manufacturing Facilities,” U.S. Department of The Treasury, June 27, 2023, https://home.treasury.gov/news/featured-stories/unpacking-the-boom-in-us-construction-of-manufacturing-facilities.
³ Amanda Chu, Oliver Roeder, Alex Irwin-Hunt, “Inside the $220bn American cleantech project boom,” The Financial Times, August 16, 2023, https://www.ft.com/content/3b19c51d-462b-43fa-9e0e-3445640aabb5.
⁴ Council on Environmental Quality, https://ceq.doe.gov/index.html, September 11, 2023.
⁵ U.S. Environmental Protection Agency, “National Environmental Policy Act Review Process,” October 5, 2022, https://www.epa.gov/nepa/national-environmental-policy-act-review-process.
⁶ OU.S. Environmental Protection Agency.
⁷ Husch Blackwell LLP, “The Debt Ceiling Standoff and NEPA: New Changes to the NEPA Review Process,” JDSUPRA, June 8, 2023, https://www.jdsupra.com/legalnews/the-debt-ceiling-standoff-and-nepa-new-7114850/.
⁸  Chips for America Guide, “Environmental Questionnaire,” https://www.nist.gov/system/files/documents/2023/12/27/PRA%20Environmental%20Questionnaire-20230825v3.pdf, August 25, 2023.
⁹ Library of Congress, 118th Congress (2023-2024): “S.2228 - Building Chips in America Act of 2023,” December 19, 2023, https://www.congress.gov/bill/118th-congress/senate-bill/2228/text