(Bloomberg) -- A measure designed to speed up the construction of semiconductor projects in the US was stripped out from must-pass defense legislation after objections from US House Speaker Mike Johnson and other Republicans, according to people familiar with the matter.

The provision would have exempted projects that receive funding from the 2022 Chips Act from federal environmental permitting reviews. The Chips Act set aside subsidies worth $100 billion to revitalize chipmaking in the US, and the permitting provision was a key priority for Commerce Secretary Gina Raimondo as she prepares to distribute the first awards by the end of this year. 

Without a permitting exemption, projects that win Chips Act money — which are widely expected to include sites under construction by Taiwan Semiconductor Manufacturing Co. in Arizona and Intel Corp. in Ohio, among others — could face significant delays as they navigate the environmental review process. 

The measure is the latest bipartisan priority to fall victim to contentious National Defense Authorization Act negotiations in the House after clearing the Senate with overwhelming support. On this and a separate provision that would have curbed outbound investment to China, Speaker Johnson bucked broad bipartisan backing to side with individual committee chairs, according to the people, who asked not to be named as the deliberations aren’t public.

In this case, Johnson backed members including Washington Representative Cathy McMorris Rodgers, who leads the House Energy and Commerce Committee. Rodgers did not want to give away leverage on chips-specific permitting exemptions when she is seeking broader reform, according to two people familiar with the matter — one of whom added that there is still some residual frustration among Republican members who were unhappy with the final version of the Chips Act.

Spokespeople for Johnson and Rodgers didn’t immediately respond to requests for comment.

“This fight is too important to both our economic and national security for it to stop here,” Republican Senator Ted Cruz said in a statement. “I hope that Republicans who care about permitting reform will see the light and we’ll soon get this into law.”

Bipartisan Support

The permitting measure had enjoyed support from both parties and in both chambers, plus it’s had strong backing from the Semiconductor Industry Association. A group of 120 lawmakers sent an October letter to the leaders of the Senate and House Armed Services Committees urging them to include chips permitting language in the final version of the defense bill.

Reviews under the National Environmental Policy Act, which often take months or years, “could halt or delay commencement of new projects, impacting the United States’ ability to bolster its national security interests, economic growth, competitiveness, and technological leadership,” the lawmakers wrote. 

Raimondo had made the same plea in congressional testimony earlier this fall. While the Commerce Department has set up a team to help chip companies navigate the permitting process, Raimondo said, the agency is limited without legislation allowing firms to bypass permitting requirements altogether. 

“We are not in any way suggesting that we should do anything that hurts the environment, is unsustainable,” she said before a Senate panel on Oct. 4. “That being said, we do need to streamline the process, speed the process, make the process efficient and user-friendly.”

Projects would still have had to abide by other federal environmental laws like the Clean Air Act and Clean Water Act. The Commerce Department’s application for Chips Act money includes a lengthy environmental questionnaire. 

Cruz and Senator Mark Kelly, an Arizona Democrat, said in interviews last week that they were negotiating with individual members who expressed opposition to the permitting language, although they declined to name who was involved.

Both of their states have won billions of dollars in private semiconductor investment spurred by the Chips Act. In addition to TSMC, Intel is also undergoing a massive expansion in Arizona, and Samsung Electronics Co. is working on a new plant in Taylor, Texas.

“We’ve got to get this passed if we’re gonna get these plants built,” Kelly said last Thursday, adding that he was having conversations with members who opposed the permitting provision both on ideological grounds and as a political tactic during broader defense-bill negotiations. Cruz said he was also pushing “very, very hard” to keep the language.

--With assistance from Vlad Savov.

(Updates with company impacts, additional details on negotiations)

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