The Humble but Mighty Chip is the Real Star of the Climate Transition

And heroes have their flaws and challenges too

Amidst the global rush to decarbonize every sector of the economy there is a hyper focus on the deployment of renewables (solar PV, wind, geothermal, etc.), batteries or long-duration storage to improve grid resilience or support the intermittency of renewables, more efficient HVAC systems, or zero emission transport. There has been little to no real focus on the crucial role that semiconductors (chips) play in this global decarbonization landscape, until recently. Every major economy in the world has announced incentives and funding to draw semiconductor investments in their respective local economies to support ambitious climate goals (see the table below).

Source: Yole Intelligence report 2023

In the U.S. the Biden administration announced $53 billion in funding through the CHIPS and Science Act (CHIPS) in 2H 2022 with more expected this week while China launched a $40 billion state-backed investment fund to grow the local semiconductor capabilities. The Indian government announced a $10 billion incentive plan to woo global semiconductor players while Germany has pledged $22 billion in incentives to chip makers. This is in addition to the investments various semiconductor companies have committed to, to expand their operations and manufacturing capacity.

So where exactly are chips used and what role do they play?

Semiconductors or chips that are typically housed in a casing/box (inverters) are essential to convert one form of energy (from a solar PV panel, a wind turbine, or the power from the grid) in to a more usable form of energy. Think about the HVAC compressors you use; they contain inverters (that contain the chips). Improved Light emitting diode (LED) lighting was the result of better, more efficient semiconductors (which is also why you see lower electricity bills when you deploy LEDs). The “inverterization” trend requires better and more powerful semiconductors. It is virtually impossible to achieve decarbonization goals without the access to and availability of increasingly efficient semiconductors.

With the spotlight comes scrutiny of the semiconductor industry’s environmental footprint….

Chip manufacturing is space intensive, energy intensive and competes for water. Water is used to cool equipment and clean wafers. A typical or an average chip fab uses about 8 to 10 million gallons of water per day (which is a significant improvement) thanks to efficiency improvements in the industry. While in the past about 60% of the water needed was recycled by chip manufacturers, over 95% of it is recycled today. With dramatic and unpredictable weather patterns, the pressure on water resources will bring a heightened scrutiny around the world. Agricultural farmers in Taiwan have had their irrigation systems turned off amid droughts while chip factories continue to use millions of gallons of water. These issues have not been felt as strongly in the US and other parts of the world primarily because new capacity is expected to come online only in the next few years.

Semiconductor manufacturing also needs a lot of real estate with easy access to established and sound grid infrastructure and power from renewables to decarbonize. And this is not easily available. These are typically known as megasites - those that have about several hundred to a thousand acres surrounded by (but not too close) well connected transport facilities with an abundance of skilled labor. According to Water Cycle, the semiconductor industry consumed about 149 billion kWh in 2021 which will need about 330 million solar panels.

The semiconductor industry also uses a lot of fluorinated gases including perfluorocarbons (PFCs), hydrofluorocarbons, nitrogen trifluoride (NF3), and sulfur hexafluoride (SF6). There are tightening regulations and a heightened oversight on per- and polyfluoroalkyl substances (PFAS) because of the harmful effects that these chemicals have on humans and the environment. Both in the US and in the EU new regulations are looking ultimately do away with PFAS which is likely to impact the semiconductor industry that relies on it today. In response to this fast changing landscape, SEMI the industry organization has committed to looking into ways to reduce the use of PFAS from current levels.

Scrutiny and market demand creates opportunities for innovation

Most semiconductors today are made of silicon. There is a new class of materials, that have been in development, which offer superior performance. Gallium nitride (GaN) and silicon carbide (SiC) have been in various stages of scale up around the world. So what do these new materials do? When converting electricity from one form to another, you want to reduce losses; these newer class of materials help reduce these losses, and boost efficiencies within the system. According to a featured IEEE article (I highly recommend reading this article) from Dr. Umesh Mishra (I’ve had the pleasure to work with him) who co-founded Transphorm in 2007, GaN-based semiconductor solutions could lead to a savings of over 1 billion tonnes of greenhouse gases in 2041 (just in the US and India, combined).

The rapid growth of autonomous vehicle functions globally is creating demand for chips that feature sensors and electrical architectures to improve driver monitoring and monitoring of the vehicle’s surroundings.

In addition to relying on electricity from renewables and other market mechanisms such as carbon credits, some companies are substituting conventional chemicals with recycled materials such as using agricultural residues in to SiC abrasives and high-tech semiconductors.

Balancing grid capacity and demand is one example of the use of AI to reduce GHG emissions. The use of AI will allow power producers to adjust production and distribution to enable flexibility and limit the risk of blackouts. Advanced processors that can handle deep learning workloads, specific to industries, are being developed to better address this rapidly growing need in the industry.

Similarly tackling PFAS contaminants in water from processing waste has led to the rise of startups using bio-based sensors to detect PFAS and tackle this early on. I’ll write more about the innovation landscape in the future.

Are you aware of more innovations? What are your thoughts on the state of the semiconductor industry and its interplay with the climate transition?