Three Cheers for the CHIPS and Science Act of 2022! Now, Let’s Get Back to Work

After some two years of congressional deliberation, the House passed the already-Senate approved CHIPS and Science Act of 2022 on Thursday, sending the legislation to President Biden’s desk. Congressional passage of the legislation represents a tremendous step forward toward renewed U.S. industrial competitiveness, science and technology leadership, and greater levels of innovation to tackle pressing economic and social challenges—but it serves as merely the beginning, not the end of progress toward enacting a national competitiveness agenda.

The first step will be ensuring all the programs that the legislation authorizes receive full appropriations in upcoming budgets. Moving forward, the work will continue through a formal process of developing and annually renewing a national competitiveness strategy for science, technology, research, and innovation—a process ITIF proposed and championed, and now, by law, will be part and parcel of the country’s national security strategy.

More on that in a moment. First, this occasion calls for celebration. ITIF is particularly gratified about this legislation, having played a pivotal role in shaping and influencing many of its key elements. Starting with the CHIPS (Creating Helpful Incentives to Produce Semiconductors) and FABS (Facilitating American-Built Semiconductors) Acts, ITIF has long written about the need to bolster America’s share of global semiconductor manufacturing activity and to provide greater levels of federal research and development (R&D) funding for the sector. ITIF has also detailed steps the United States can take unilaterally to bolster its semiconductor industry competitiveness as well as those it can collaboratively pursue alongside likeminded nations. In total, the legislation will provide some $76 billion to spur U.S. semiconductor competitiveness, including $39 billion in federal matching grants for state and local incentives toward attracting semiconductor fabs, $11 billion for R&D and innovation efforts, $2 billion for defense-related semiconductor needs, and an estimated $24 billion for semiconductor manufacturing investment tax credits.

The legislation authorizes significant increases in federal funding for scientific research over the coming half decade, authorizing $81 billion for the National Science Foundation (NSF) over the next five years (from FY 2023 to FY 2027), including $61 billion for core science R&D activities and $20 billion for a new directorate focused on technology transfer and commercialization activities, the functional need for which ITIF was perhaps America’s most-prominent advocate. Hearkening back to the Senate’s original Endless Frontiers Act, originally introduced in the summer of 2020, much of the increased science funding will go toward advancing U.S. scientific and technical leadership in 10 critical technologies ITIF has long highlighted, including artificial intelligence (AI); high-performance computing (HPC); quantum computing; robotics and automation; advanced communications technologies; biotechnology, medical technology, genomics, and synthetic biology; cybersecurity; advanced energy technologies including batteries; and advanced materials.

This increased federal investment in R&D is sorely needed, for as ITIF has written, federal R&D funding has long been in an ignominious slide. In fact, in 22 of the 28 years following 1990, federal R&D spending has made up a smaller share of GDP than the year before, sinking to just 0.61 percent of GDP in 2018, the lowest level since 1955. Other NSF-related aspects of the legislation ITIF has long championed include efforts to bolster pre-K-12 STEM (science, technology, engineering, and mathematics) education as well as undergraduate and graduate STEM education, including by updating the Advanced Technological Education (ATE) program to establish a network of centers for science and technical education as well as expanding efforts to improve STEM education at U.S. community colleges. In particular, the legislation expands NSF graduate STEM education opportunities in partnerships with industry, as ITIF has proposed.

To be sure, ITIF contended that the United States should have set up a National Advanced Industry and Technology Agency alongside the National Science Foundation with a similar budget to manage a wide array of policies and programs designed to ensure long-term U.S. advanced industry leadership. That would have been a preferable construct to setting up a Directorate within NSF focused on Technology, Innovation, and Partnerships (TIP). That said, it’s positive that policymakers did recognize the need for NSF to place a much greater focus on technology and commercialization so that America can realize greater impact from the basic science in which America invests, and so set up the TIP program. This matters greatly because nations’ investments in basic science create knowledge that constitutes a global public good that’s freely available among nations, whereas gains from applied science and engineering-based innovation are capturable and appropriable within nations.

However, even then, ITIF contended that the Senate’s proposal for the new NSF TIP directorate was superior to the House’s alternative, and in this regard much of the final legislation looked more like the Senate’s version. For instance, ITIF advocacy proved influential in ensuring that TIP programs like the Collaborative Innovation Resource Center Program reports on commercialization metrics. ITIF also emphasized that funds from NSF programs could be directed to institutions other than just universities; for instance, with regard to recipients of NSF R&D funding broadly the legislation contains language stating that, “Recipients of funds under this section may include institutions of higher education, research institutions, non-profit organizations, private sector entities, consortia, or other entities as defined by the Director.” Beyond this, ITIF’s work was instrumental in inserting language directing NSF to advance novel approaches and to reduce barriers to technology transfer, including through intellectual property frameworks between academia and industry, nonprofit entities, venture capital communities, and approaches to technology transfer for applications with public benefit that may not rely on traditional commercialization approaches. With regard to NSF translation-accelerating programs, ITIF influenced the cost share provisions, ensuring that at least 25 percent of the funding for such institutes should be provided by non-federal entities (so as to ensure buy in and “skin in the game” from stakeholders that would ultimately be the users and deployers of such technologies).

The CHIPS and Science Act of 2022 is attentive to regional innovation capacity and authorizes $10 billion over five years to create 20 geographically distributed “regional technology and innovation hubs” in areas that aren’t currently leading technology centers, a proposal that came directly from ITIF’s work, notably the report “The Case for Growth Centers: How to Spread Tech Innovation Across America.” That report found that fully one-third of U.S. innovation jobs were concentrated in just 14 U.S. counties, and one-half in 41, highlighting the need for greater equality of innovation opportunity across the United States. The Regional Innovation and Technology Hub Program will use a merit-based competitive process to bring together consortia of local and state governments, universities, industry, labor organizations, and other stakeholders to promote innovation capacity within selected regions.

The legislation provides the National Institute of Standard and Technology (NIST) with a much-needed increase in funding, authorizing $9.68 billion over the ensuing five years, including $2.23 billion for the Hollings Manufacturing Extension Partnership (MEP) program and $829 million for Manufacturing USA. ITIF has long argued that Congress was underfunding MEP relative both to international peers and America’s own historical norms (when the program was enacted in 1981, it received roughly 25 percent more in funding as a share of GDP than contemporary levels). While the boost does unfortunately fall short of the quadrupling of MEP funding candidate Biden promised on the campaign trail (it’s FY 2021 funding was $150 million, so a quadrupling would have entailed an investment of $600 million a year, or $3 billion over five years), at least the now-authorized levels represent roughly a tripling of investment. ITIF originated the idea for a National Network of Manufacturing Innovation during the Obama Administration, and the network, now known as Manufacturing USA with 16 institutes, receives authorization to support over 10 new competitively awarded institutes. Taken together, these represent very serious efforts to bolster U.S. manufacturing innovation and in particular support the competitive and innovation capacity of small and medium-sized (SME) manufacturers that form the backbone of many critical U.S. supply chains.

As noted at the outset, the legislation further establishes a “Strategy and Report on the Nation’s Economic Security, Science, Research, and Innovation to Support the National Security Strategy”—an idea advanced by ITIF Honorary Co-Chair Sen. Todd Young (R-IN)—as well as a National Engineering Biology R&D Initiative, an idea ITIF proposed in its report “Ensuring U.S. Biopharmaceutical Competitiveness.”

The CHIPS and Science Act includes significant investments in clean energy innovation and technology commercialization, and notably increases Department of Energy (DOE) Office of Science funding by 17 percent from FY 2022 to FY 2023 ($7.5 to $8.9 billion) and provides for 6 percent annual increases thereafter. The legislation recognizes that significant investments are needed in energy innovation and commercialization. The bench-to-commercialization pathway presents many well-understood yet difficult-to-overcome barriers to adoption for cost-effective, innovative, next-generation energy technologies. The CHIPS and Science Act aims to leverage America’s existing foundation of knowledge found at U.S. national laboratories, universities, and programs within the DoE to lower and overcome some of those barriers. Together, the programs and initiatives funded and authorized by the Act will serve to advance support for next-generation energy technologies that may come to be the key technologies we and the world rely upon in a low-carbon future. Below, ITIF highlights just a few areas where the legislation will help support and grow U.S. leadership in basic energy and science research to further commercialization of future low-carbon technologies

The Act includes significant authorization for programs to facilitate and speed innovation in critical energy technologies, particularly those needed to meet long-term energy security challenges. The Act establishes the Foundation for Energy Security and Innovation (FESI), which ITIF has championed as an effective public-private collaboration that can use private sector funding and infrastructure to support commercialization of technologies. The Foundation will be able to support those technologies that DOE on its own might not be able to properly support or fund. An agency-affiliated Foundation will help spur faster commercialization through prizes, challenges, partnerships, and expanded grant and funding capacity. It can also serve as a liaison between private industry and government entities like U.S. national labs and offices within DOE.

The Act also includes authorization for programs to support the transfer of early-stage technologies through the commercialization pipeline. Specifically, the Lab-embedded Entrepreneurship Program, which ITIF has long extolled, authorizes $100 million over four years to increase access for energy entrepreneurs to take advantage of America’s world class-national laboratory research facilities and expertise. The aim is to use our national lab resources as a springboard for energy-technology entrepreneurs to perfect their ideas and set them up for future commercial application.

Additionally, the Act includes authorization for $100 million over four years to support funding for a small business voucher program within DOE, as ITIF has called for. This program is set up explicitly with the goal of partnering with small businesses to perform many of the RD&D (research, development, and demonstration), technology transfer, and workforce development functions that will help the national labs in pursuing their research. The program will foster cooperation between the national lab infrastructure and small clean-technology businesses while providing them access to state-of-the-art facilities.

To maintain U.S. energy technology RD&D leadership, the Act authorizes up to $800 million in much-needed investment in applied laboratory infrastructure at our nation’s 17 national labs to fund deferred maintenance, critical infrastructure needs, and modernization efforts. ITIF has long called for increased investments and funding for our national lab infrastructure to lay the foundation for a more-flexible model that facilitates our labs’ ability to address national needs and incubate ideas and technologies.

Tucked away in the basic science authorization section lies $200 million for carbon sequestration modeling and advanced carbon molecule research for high-value products beyond combustion. Funding is also included for geological computational science efforts to expand data collection and analysis of geological pore-space areas that will be needed to sequester billions of tons of CO2. ITIF has noted that increased data availability and technical understanding of geological storage will be necessary to scale the active carbon management sector.

Finally for clean energy, the Act authorizes $11.2 billion in RD&D for 10 technology areas in the applied energy offices of DOE. ITIF and its Mission Innovation research has championed the need for increased funding to pave the way for a major expansion in RD&D to reinvigorate national energy innovation and strengthen U.S. competitiveness. This includes significant increases in RD&D funding for industrial emissions reduction technologies, sustainable transportation technologies, and advanced and smart manufacturing. Additional authorization for advanced materials science to support grid modernization alongside carbon removal efforts within DOE’s Office of Fossil Energy and Carbon Management will lay the groundwork for the technologies that will be need not in this decade but in many decades to come.

Lastly, the legislation includes funding for numerous initiatives designed to keep the United States at the global forefront of information technology- and computing-based innovations. For instance, ITIF’s Center for Data Innovation has advocated for many of the provisions included in Sec. 404 addressing DOE increasing access to quantum infrastructure. The language in the bill about facilitating “access to United States quantum computing hardware and quantum computing clouds for research purposes,” is the second recommendation from the aforementioned report. The Center for Data Innovation also wrote specifically about why the competitiveness bill should include this in a blog post titled “The Case for a National Quantum Computing Research Task Force in the United States.” The subsections specifying that the DOE’s system access should be competitive and merit-based is also what ITIF argued for in its comments to the DOE on providing access to quantum systems last year. Here, Sec. 403 of the legislation directs that “The Secretary of Energy shall...engage with the Quantum Economic Development Consortium and other organizations, as applicable, ... to help facilitate as appropriate the development of a quantum supply chain for quantum network technologies.” That’s essentially the third recommendation from the Center for Data Innovation’s quantum report, which argues, “The National Quantum Coordination Office (NQCO) should review the quantum supply chain and identify risks.... NQCO should work with the Quantum Economic Development Consortium to identify any risks in the supply chain.”

ITIF has also long advocated for increased investments in high-performance computing (HPC, or supercomputing). To this end, the legislation calls for a roughly 40 percent increase in funding for Advanced Scientific Computing Research Program activities, increasing from $1.03 billion of funding in FY 2021 to $1.42 billion funding by FY 2027. Also notable here is the so-called Micro Act, or the microelectronics research for energy innovation program, which establishes a program addressing the research, development, demonstration, and commercial application of microelectronics to meet the mission needs of the DOE and to drive U.S. global competitiveness in the field of microelectronics. The program receives authorization for $75 million in funding in FY 2023 and $100 million annually in the remaining years through 2027.

Overall, ITIF’s decade and a half of advocacy for more-robust policies to support the U.S. science, technology, and innovation enterprise certainly proved influential in shaping what’s certainly a critical piece of legislation toward bolstering U.S. economic competitiveness, scientific leadership, and innovation potential. However, while great progress has certainly been made, there remains much more that Congress and the administration needs to do, chief among these being fully authorizing the programs and envisioned in the CHIPS and Science Act of 2022.

But even that won’t be enough. The administration needs to articulate a coherent and comprehensive economic, trade, and national security strategy to address the China challenge. More needs to be done to support U.S. industrial competitiveness. U.S. tax support for R&D is too low. Here, the United States should seek to increase the overall subsidy rate to 15.5 percent from 9.5 percent, which could be achieved by eliminating the 2017 repeal of the expensing of R&D costs, while slightly more than doubling the effective rates for the Alternative Simplified Credit and the Regular Credit. Senator Chris Coons (D-DE) has proposed important legislation titled The Manufacturers of the Future Act which creates within the Small Business Administration (SBA) 504 loan program a sub-program that provides incentives to SME manufacturers that invest in smart manufacturing technologies. He’s also proposed compelling legislation in the Industrial Finance Corporation that would establish the Industrial Finance Corporation of the United States (IFCUS) to support scale-up of advanced technology manufacturing and support resilient supply chains. And just as Congress has now passed CHIPS to stimulate domestic semiconductor manufacturing, so America needs a similar effort for the biopharmaceutical industry, for instance a program that allocates at least $5 billion per year to states (matched at least with 50 cents in state funding for every $1 in federal funding) to provide incentives for the establishment of new biomedical production facilities in the United States. U.S. high-skill immigration policy needs to be reformed. ITIF offers many more such proposals, though ultimately, Congress and the administration should launch an economic “moon shot” initiative committing to increase the concentration of these industries in the U.S. economy by at least 20 percentage points relative to the global average within a decade.

Congress has made tremendous progress in passing the CHIPS and Science Act of 2022, and ITIF certainly commends this, but America can’t rest on its laurels, even these. An innovator’s job is never done. Nor should Congress and the administration lose sight of the continued need to pass legislation that bolsters America’s competitive capacity and, conversely, to not move backwards by passing policies such as onerous drug price controls (as currently being considered in the reconciliation package) that would harm it. Much remains to be done—and moreover, many minds still need to change. This law passed because semiconductor production is easily and correctly understood to be a national security issue, and the other provisions were easily packaged under the rubric of scientific leadership. But policymakers are still deeply resistant to the notion that national competitiveness must entail real industrial policy. The problem of U.S. competitive decline will persist until a majority gets over their fears.