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The Role of Semiconductors in the Renewable Energy Transition

by Caterina Favino Americas Asia Europe Oct 6th 20226 mins
The Role of Semiconductors in the Renewable Energy Transition

Will the environmental cost of semiconductor production be offset by their contribution to the long-term green transition? Semiconductors facilitate the transition toward a decarbonised economy. Yet, the chip industry must build sustainability into its manufacturing processes to align with a net zero future.

Semiconductors are the basic building blocks of modern computing. They are vital components of all electronic systems, from smartphones to cars. But the environmental cost of manufacturing them is becoming increasingly problematic. Energy demand is rising as chip design grows more intricate, with the manufacturing of advanced 3nm chips (N3) predicted to consume up to 7.7 billion kilowatt-hours annually

Paradoxically, semiconductors also facilitate the transition toward a green economy. Decarbonisation efforts will increase the usage of renewable energy and electric vehicles around the world, driving demand for chips. The number of power semiconductors used in the global renewable energy market is expected to grow with a compound annual growth rate (CAGR) of 8% to 10% from now to 2027

Vital Components of the Green Transition

While their manufacturing process can adversely impact the environment, semiconductors play a fundamental role in the development of green technologies. They harness, convert, transfer and store renewable energy as electricity and subsequently move it onto the electric grid with minimal loss of power. Semiconductors also enable responsive and efficient use of electricity through IoT technology, ensuring supply is matched to demand and current is well-distributed. Both solar panel systems and wind turbines are highly dependent on semiconductor technology. 

Semiconductors are also necessary for producing electric vehicles (EVs) and charging stations. On average, electric cars have about 2,000 chips, roughly double the number of chips in a non-electric car. As the nervous system of electronic materials, chips drive innovation in the automobile industry. They allow vehicles to become smarter and safer by controlling every feature from breaks to parking cameras. EVs have become a significant growth sector for the semiconductor industry. In 2020, the global stock of electric cars reached 10 million vehicles, a 43% increase over 2019. The boost in consumer demand for EVs has been driven by several factors, including government incentives, regulatory policies, and improvements in semiconductor design which have increased battery life and lowered the cost of vehicles. 

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Renewable power generation costs have also decreased significantly over the past decade. A report by the International Renewable Energy Agency (IRENA) shows that 62% of total renewable power generation added in 2020 had lower costs than the cheapest new fossil fuel option. Such achievement was due in part to the steady improvement of energy-saving technologies empowered by semiconductors devices.

Resource-hungry Production

Despite its fundamental role in the development of the clean energy economy, semiconductor production comes with a significant environmental cost. The semiconductors industry is resource-intensive, using copious energy and water to manufacture its chips. A significant proportion of the energy utilised comes from fossil fuels such as coal and gas. A 2020 research paper based on publicly available corporate sustainability reports attempted to quantify the carbon footprint of computer systems. These researchers concluded that chip manufacturing currently accounts for most of the carbon produced when making electronic devices. Data from Bloomberg show that pollution by chip producers is overtaking that by automakers as a result of their dramatic power consumption. 

Reducing emissions through clean energy usage and energy conservation projects is imperative to make the industry more sustainable. 90% of the manufacturing capacity for the world’s most advanced semiconductors is located in Taiwan. The world’s largest chipmaker – Taiwan Semiconductor Manufacturing Co. (TSMC) – uses 6% of the island’s total power. This figure is expected to exceed 7% in 2022, making TSMC Taiwan’s largest energy consumer. The company produced approximately 15 million tons of carbon in 2020, followed by industry competitors Samsung and Intel with 13 million and 3 million tons, respectively. 

During chip production, water is utilised to rinse and clean silicon wafers, removing debris from the manufacturing process. This operation requires ultrapure water (UPW) which is thousands of times purer than drinking water. It takes roughly 1,400 to 1,600 litres of municipal water to make 1,000 litres of UPW. In 2020, TSMC used more than 193,000 tons of water per day. This amounts to about 70 billion liters of water in one year alone. Overall, the semiconductor industry consumes approximately 10% of Taiwan’s water. As climate litres intensifies, abnormal climate patterns are exposing Taiwan to severe water constraints, exacerbating the environmental pressure semiconductor firms place on the island. Between 2020 and 2021, Taiwan experienced its worst drought in over 50 years.

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Water access is a key element of semiconductor manufacturing globally. Droughts are expected to increase, and water scarcity will pose a greater threat to the industry.  At the current consumption rate, WWF estimates that two-thirds of the world’s population may face water shortages by 2025. Water conservation and recycling have become necessary to avoid any interruptions to production. In response, Intel treats and returns some 80% of the water it uses through internal water management practices. In 2021, 13 billion gallons of water flowed out of Intel and back to surrounding communities. To further minimise its impact on the environment, Intel pledged to restore and return more freshwater than it takes on. The company’s goal is to achieve a net positive global water contribution by 2030. This target has already been reached in the United States, Costa Rica, and India, where Intel’s operations are already net positive for water use. 

As calls for ethical investing become louder, companies are under increasing scrutiny over their contribution to climate change. Therefore, the semiconductor industry is taking tangible steps toward more sustainable operations. For instance, in 2020 TSMC committed to relying fully on renewable energy by the end of 2050. The company signed the world’s largest renewable corporate power deal that same year, buying up the full output of a 920megawatt offshore wind farm to be built in the Taiwan Strait. The project is scheduled to be finalised between 2025 and 2026. 

More recently, TSMC announced that up to 2% of its annual revenue will go to green initiatives as part of its journey toward net zero. Rival firm Intel pledged to achieve net zero GHG emissions in its global operations by 2040. However, according to Intel’s chief sustainability officer, the company must address its use of polluting chemicals in order to make significant progress in cutting emissions. Perfluorocarbons, potent greenhouse gases, were Intel’s primary source of direct emissions in 2020. Transitioning to alternative, less toxic chemicals will be a lengthy process, yet one that is necessary to produce chips in a more environmentally responsible way. 

Global Semiconductor Competition 

The semiconductor industry is heavily subsidised by governments around the world, the same ones that have recently strengthened their commitments to climate action. The United States recently passed the CHIPS Act of 2022, which drew bipartisan support. This historic piece of legislation allocates US$53 billion to support chip manufacturing and bolster US competitiveness. Meanwhile, the EU will mobilise more than Є43 billion of public and private investments to address semiconductor shortages and strengthen Europe’s technological leadership. Nevertheless, Asia remains the dominant player in semiconductor manufacturing. 

Taiwan’s semiconductor industry is worth an incredible US$147 billion, equivalent to 15% of the country’s GDP. Taiwan offers incentives to attract overseas talent and suppliers of materials and equipment needed to manufacture chips. Its government also encourages domestic companies to develop technologies vital to supporting the growth of the island’s semiconductor industry. Similarly, Mainland China is aiming to achieve technology independence as its own technology sector relies predominately on foreign chips. The Chinese government has rooted its indigenisation strategy in large manufacturing and R&D subsidies. Digital sovereignty comes with substantial environmental and energy costs. Industrial policies aimed at increasing the share of domestic semiconductor production, may not be compatible with the green agenda, at least not in the short term.

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For over a decade, semiconductor companies have been trying to mitigate the environmental impact of their business operations. Sustainability has now become an increasingly important factor within the industry. As global demand for semiconductors continues to surge, a smaller carbon footprint must become a key priority among manufacturers that are working to increase capacity. The manufacturing chain for semiconductors is remarkably complex and relies on hundreds of different inputs. Therefore, reducing GHG emissions across the value chain requires significant collaboration. A cohesive and collaborative approach must also include efforts from end-users and regulators who should advocate for a fundamental change in the industry. To achieve this, we may consider making government funding contingent upon the ability to meet surging demand sustainably.  

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About the Author

Caterina Favino

Caterina works in Corporate and Public Affairs in Beijing, China. She is passionate about corporate sustainability and exploring the geopolitical dimension of environmental issues. She holds a master’s degree in International Relations from Peking University and has conducted research at the Italian Ministry of Foreign Affairs. Caterina volunteers for The Climate Mobilization, working with regional advocacy groups based in the United States.

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