The semiconductor industry is in a paradoxical position, contributing to greenhouse gas emissions and playing a critical role in green transition. What role will market & consumer choices play?
Semiconductor demand is skyrocketing, and the industry is booming accordingly. The global market for semiconductors is set to reach about $1 trillion by 2030, driven by demand in wireless communication and computing, automotive, and industrial sectors. Economic data shows that the semiconductor industry is the second-most profitable in the world and accounts for the second-highest amount of R&D spending-contributing to the creation of many highly skilled jobs.
Artificial intelligence accelerator chips (chips designed to work with neural networks and machine learning) will grow by approximately 18% every year 1. Semiconductors are a crucial component of AI as they provide the hardware for the complex computations that AI applications undertake; however, the inherently complex and sophisticated nature of semiconductors – in their design, manufacturing, and packaging elements – makes semiconductor manufacturing a water and energy-intensive process, already consuming as much water as Hong Kong 2.
TSMC, the largest semiconductor chip manufacturer, is responsible for approximately 90% of the world's most advanced chips. But droughts in Taiwan have occasionally slowed production, and in its 2019 Corporate Social Responsibility report, TSMC admitted its facilities in Hsinchu consumed 63,000 tons of water a day 3. The semiconductor industry also consumes large amounts of energy, with power from electrical grids, fossil fuel, renewable energy and others accounting for 83.7%, 12.0%, 2.7% and 1.7%, respectively. 4. Global energy use by products containing semiconductors has doubled every three years since 2010 5, and semiconductor manufacturing is projected to consume 237 terawatt hours (TWh) of electricity globally by 2030 6.
The semiconductor industry finds itself in a paradoxical position, both contributing to greenhouse gas emissions and playing a fundamental role in the green transition (though some industries such as transportation and telecommunications use more energy). At the heart of the renewable energy revolution lies semiconductor technology, powering everything from electric vehicles (EVs) to solar panels.
Gallium nitride (GaN) and silicon carbide (SiC) have begun displacing silicon-based electronics in vital categories of power electronics. GaN and SiC devices perform better and are more efficient than the silicon parts they are replacing 7. Due to their critical foundation to semiconductor technology, countries such as the U.S. and China have now begun implementing export restrictions and controls for critical materials and minerals, with governments requesting details of final end-users. The inextricably linked nature of AI, semiconductors, supply chains, geopolitics, and green tech – with the U.S. and China serving as a case study – will act as a basis to better understand the implications and possibilities of climate change action.
Sand, silicon, and semiconductors: asymmetric restrictions in the supply chain
The chips competition initiated between a U.S.-led coalition and China 8 has resulted in the sides leveraging opposite ends of the semiconductor supply chain, with each taking advantage of their unique positions in the global division of labor. The coalition strategy focuses on limiting access to advanced semiconductors themselves, the capital goods that produce them, such as advanced lithography machines, and key support services and engineering know-how. China's response has been a set of export controls of industrial inputs including graphite 9 and most recently antimony 10. By leveraging basic industrial building blocks rather than the apex technologies, China's response strategy threatens wider damage to the US and global economy – but also to China's strategic position as well.
Advanced semiconductors and the fabrication plants that produce them have been called "tip of the spear" technologies, 11 but a better metaphor might be the apex of a pyramid. Semiconductors represent the peak of four different supply chain vertices, 12 each with different chokepoints: design and software, core intellectual property development, materials and chemicals, and manufacturing equipment.
The U.S.-led strategy to contain China's semiconductor industry relies on undermining three of these pillars where it and its allies dominate supply chains: design and software (U.S.), core IP (U.S.), materials and chemicals, and manufacturing equipment (Japan, Netherlands, U.S.). Collectively, the U.S, Japan, the Netherlands and Taiwan are in a strong position to make the Chinese semiconductor industry advance more slowly and at a higher cost.
China's response strategy has focused on materials, the lone vertical where it can significantly impact the stability of the pyramid. While a Center for Strategic & International Studies report 13 notes advanced economies also dominate this vertical in terms of silicon wafers, photomasks, photoresists, and chemicals, this reflects a focus on finished intermediate goods and not the raw materials on which these supply chains depend. Raw materials – or rather processed raw materials – are where China has real leverage, accounting for 98% of global gallium, 14 86% of germanium, 15 77% of graphite, 16 and 48% of antimony 17 production. For years, China's investments in mining and mineral processing have driven down costs and put higher-cost competitors out of business. In less geopolitically fraught times, China's cost-competitiveness was a boon to end-use industries like semiconductors and renewable energy, 18 both in China and abroad. But times have changed.
China's export restrictions on gallium, germanium, graphite and now antimony are intended to erode the stability of the West's materials vertex by creating uncertainty and driving input costs higher. Although the materials make up only a fraction of the cost of advanced semiconductors, raw materials costs nevertheless affect manufacturing prices 19 . They are still foundational and can limit production if they are in short supply.
The semiconductor industry depends on these materials, but in this respect, it is hardly unique. Most obviously, graphite controls affect steel production and EV and EV battery supply chains, as graphite is the main input for active anode materials used in all lithium-ion batteries 20. Gallium and germanium are used in lasers, fiberoptics, radar arrays, and satellites. And antimony is used in a host of applications including as glass clarifier for solar panels and metal strengthener in wind turbines.
The sustainability of critical materials
Export restrictions on critical minerals such as gallium, germanium, graphite, and antimony are only set to expand, as countries will most likely continue to restrict precious materials and metals foundational to critical industries such as EVs, semiconductors, and other strategic sectors of the 21st century economy. Countries are now heavily reverting to the dispute settlement system of the World Trade Organization (WTO) to challenge the legality of export restrictions. Such cases have been brought by China against the U.S.'s export controls for semiconductors and other advanced computing chips and by the European Union, U.S., and Japan against China regarding restrictions on the export of rare earths (which China was found guilty of and complied with the WTO Panel and Appellate Body's ruling that China must lift the export duties and quotas on the products at issue). 21 The invocation of Article XXI of the General Agreement on Tariffs and Trade, the so-called "national security exception", has been increasing in recent years as countries now view international trade as national defense.
The market and consumer preferences will also play a role in how companies procure certain critical materials. For instance, Tesla announced its intentions to reduce its use of SiC transistors by 75%, despite SiCs being used in EVs due to their superior performance compared with traditional silicon-based transistors. 22 Cost savings, improved manufacturing processes, 23 and smaller vehicles were cited as factors in explaining the transition. Silicon's use in the electronics industry is mostly due to its excellent electrical properties, low power consumption, high reliability, and compatibility with existing processes.
Similarly, export restrictions on critical minerals may initially have a disruptive effect on supply chains and business operations but due to the interconnected nature of the global economy, companies will seek to find creative workarounds to gain access to the necessary inputs for their products to bring them to market, while satisfying consumer demands.
AI's thirst
AI's water footprint has received much less attention than it deserves. AI models consume fresh water in two ways: onsite server cooling (Scope 1) and offsite electricity generation (Scope 2).
Scope-1 onsite water usage
- The operational demands of computer servers produce substantial heat, necessitating efficient cooling mechanisms within data centers. To regulate temperatures and prevent overheating, these facilities commonly employ waterintensive cooling systems such as evaporative cooling towers and airside adiabatic cooling systems. While effective, these methods heavily rely on the use of clean, fresh water, contributing to considerable water consumption.
- Recognizing the environmental impact, certain data centers are exploring on-chip liquid cooling solutions. These systems function as closed loops, utilizing flowing liquids to extract heat directly from the servers and transfer it to the facility's cooling infrastructure; however, even with such advancements, reliance on waterbased cooling methods such as cooling towers for final heat dissipation persists.
Scope-2 offsite water consumption
- The pervasive use of AI, predominantly housed in data centers, indirectly influences offsite water consumption (Scope 1) through its association with electricity generation. This includes the water utilized in cooling processes at thermal and nuclear power plants, alongside heightened evaporation rates from hydropower reservoirs.
A recent study by researchers at the University of California, Riverside, revealed the significant water footprint of AI models such as ChatGPT-3 and 4. The study reports that Microsoft used approximately 700,000 liters of freshwater during ChatGPT-3's training in its data centers. The study's water consumption figures refer to fresh clean water used by data centers to generate electricity and cool the racks of servers. During a 20 to 50 question conversation with the AI chatbot, they estimate it could consume a 500ml bottle of water. Additionally, Google uses over three times more water for data center cooling, compared to Microsoft, highlighting resource management issues.
Footnotes
2. Water worries flood in as chip industry and AI models grow thirstier.
3. Drought in Taiwan Pits Chip Makers Against Farmers.
5. Semiconductor sustainability: Emissions reduction by design.
6. Semiconductor industry electricity consumption to more than double by 2030: study.
7. Gallium Nitride and Silicon Carbide Fight for Green Tech Domination.
8. Chip wars: how semiconductors became a flashpoint in the US-China relationship.
9. China's Jan-Feb graphite exports plunge amid export controls.
10. China fires latest warning signal with antimony controls.
11. How the Commerce Department Can Implement CHIPS for Maximum Impact.
12. Mapping the Semiconductor Supply Chain: The Critical Role of the Indo-Pacific Region.
13. Mapping the Semiconductor Supply Chain: The Critical Role of the Indo-Pacific Region.
14. GALLIUM .
15. GERMANIUM.
16. GRAPHITE (NATURAL).
17. ANTIMONY.
18. It doesn't make sense: why US tariffs on Chinese cleantech risk the green transition.
19. Recent Price Trends in the Semiconductor Industry .
20. Battery Anode Market.
22. Eu MEMO_14_504.
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