Emissions targets being
imposed by corporates in the U.S. and Europe are forcing manufacturers in other
parts of the world to decarbonize, writes Kwangyin Liu at Clean Energy
Wire. she looks at how Taiwan’s TSMC – the world’s third largest chip
manufacturer – is having to set up factories in Arizona (U.S.) and Kumamoto
(Japan) where emissions are lower and thus to comply with requirements set
by customers like Apple, Google and Microsoft. It’s because Taiwan’s
electricity mix only has 6.3% of renewable generation, so TSMC’s emissions are
very high. It’s a lesson in how a nation’s poor record in clean energy is
now having a direct impact on its ability to do business with the clean energy
leaders. Taiwan’s carbon intensity (emissions produced for each kilowatt-hour
of electricity generated) of 567 grams is 61% percent higher than Germany, 60%
higher than the U.S., and 36% higher than Japan. Taiwan has over 90% of the
world’s manufacturing capacity for the most advanced semiconductors, so the
pressure is on to accelerate its energy transition, explains Liu.
Meanwhile, the global semiconductor industry is setting up platforms for
sharing data on how to reduce emissions: a welcome example of how
sustainability is becoming an area where rivals are willing to share
information.
Taiwan has little clean energy in
its mix:
As the world’s largest technology
companies, such as Apple, Google and Microsoft, push for emissions reductions
along their entire supply chains to reach net zero targets, Taiwanese chip
suppliers find themselves at a competitive disadvantage. The production of
chips requires a lot of electricity, and there are few options to source
renewable power on an island with a particularly dirty power mix.
Without microchips as core
processing units, none of our cars, smartphones or laptops would work. The
widespread delivery hiccups caused by the COVID-19 pandemic shed light on how
indispensable these tiny parts are for today’s economy. The shortage rippled
across countries and industries: in Germany, for example, new car registration
fell ten percent in 2021, partly as a result of the chip shortage.
More than 90 percent of the world’s
manufacturing capacity for the most advanced semiconductors — with transistor
sizes (nodes) below 10 nanometers — is located in Taiwan, according to the
Boston Consulting Group. The smaller and more energy-efficient semiconductors
are, the more energy-intensive their production becomes.
The race for low-carbon
semiconductors:
Since chips are used in countless
products and net zero targets are spreading across industries, the race for
low-carbon semiconductors is on. “The chip industry has for a long time put
less priority on taking on the decarbonization issue,” said Guy Wittich, a
senior strategic advisor on the semiconductor industry in the Dutch Ministry of
Economic Affairs and Climate. “Now that is changing. With rising energy costs
and a worsening climate crisis we see industry taking on that aspect more
seriously.”
Taiwan’s power challenge:
Following the Paris Agreement of
2015, tech companies committed to net zero goals one after another. Apple
unveiled a roadmap in July 2020 to achieve carbon neutrality for its products
and supply chain by 2030, putting huge pressure on its suppliers, particularly
chipmakers, which account for a substantial part of supply chain emissions.
But with a power sector dominated by
fossil fuels, Taiwan faces mighty challenges to provide “green” chips, because
the enormous amount of electricity needed is responsible for a large part of
semiconductors’ climate impact – in technical terms, scope 2 emissions from
purchased electricity.
As of 2021, 81.6 percent of the
electricity Taiwan consumed came from fossil fuels, mainly from imported LNG
(42.5%) and coal (35.6%), while renewables accounted for a mere 6.3 percent.
This sobering result led officials to downgrade this year their 2025 renewables
target to 15 percent from an original target of 20 percent. Taiwan’s government
still plans to cover 60 percent of the power use with renewables by 2050.
It’s hard to overstate the power
needed to make advanced chips. Taiwan’s largest chipmaker TSMC accounts for 6
percent of Taiwan’s total electricity demand. In 2025, that number is forecast
to rise to 12.5 percent. Liang Chi-yuan, professor of management at National
Central University in Taoyuan City, told Bloomberg Taiwan won’t have enough
electricity capacity to accommodate its semiconductor industry unless
chipmakers start building their own power plants.
TSCM: the world’s 3rd largest chip
maker:
TSMC is arguably among the world’s
most important companies most people have never heard of. The company is the
largest supplier of outsourced chips, which makes its products ubiquitous – it
produces chips for Apple’s iPhones, iPads and the Mac. In 2021, it was the
third largest semiconductor maker in the world with US$56.84 billion in sales,
just after Samsung (US$82.02 billion) and Intel (US$76.74 billion), according
to a Focus Taiwan report.
Like many other chipmakers, TSMC has
set a net zero target for 2050, which includes the target to exclusively source
renewable energy by that date (see table). Scope 2 emissions – mainly from
using electricity – accounted for 62 percent of the firm’s total in 2020,
according to a TSMC report.
For TSMC, it is imperative to decarbonize
if it wants a future in the business. Apple, its most important customer,
contributed 26 percent of TSMC revenues in 2021, and is exerting enormous
pressure on suppliers to achieve its 2030 net zero target, which includes 100
percent renewable electricity, also in its supply chain.
At present, it looks extremely
unlikely that TSMC can fulfil these demands. Even if it reaches its own target
of using 40 percent renewable electricity by 2030, it will still be falling far
short of Apple’s expectations. Judging from the chipmaker’s recent emissions
statistics, decarbonization is no less than an uphill battle, as it consumes
more and more power. According to its TCFD report, the company’s scope 2
emissions grew 38.7 percent between 2014 and 2020.
In contrast, rival Intel committed
to net zero greenhouse gas emissions in its global operations by 2040, and
wants to achieve 100 percent renewable electricity as an interim milestone in
2030.
For TSMC, Taiwan is where the
biggest challenges lie. The global proportion of scope 2 emissions from the
firm’s Taiwan chipmaking plants, or fabs, grew from 93.5 percent in 2014 to
99.6 percent in 2020, as detailed in the TCFD report. While TSMC’s global
subsidiaries outside of Taiwan cut emissions by 86 percent in the same period,
the emissions attributed to its Taiwan fabs increased by 47.7 percent.
Power-guzzling processes:
Explosive demand for its products,
coupled with the adoption of power-consuming technology, contributed to the
emissions surge. TSMC owns 80 EUV (extreme ultraviolet) machines, extremely
power-hungry lithography equipment manufactured by Dutch chip-gear specialist
ASML, according to Bloomberg.
Responding to the decarbonization
challenges in a written statement, TSMC didn’t want to comment on individual
customers or specific markets, but estimated that their carbon emissions will
peak in 2025, considering the development trends of Taiwan’s renewable energy
market and the continued implementation of greenhouse gas reduction practices.
“We believe the use of renewable energy is a critical strategy to
achieve net zero emissions,” TSMC said, without specifying how they plan to
deal with the gap with Apple’s expectation.
TSMC reiterated its strategies to decarbonize,
including direct emission cuts in manufacturing, corporate power purchase
agreements (CPPAs) for renewable electricity, carbon credits and energy
efficiency improvements.
Complicating the matter, TSMC cannot
deliver the emission cuts alone. In its Sustainability Report, TSMC has set a
target for its own suppliers, who contribute 24 percent of TSMC’s emissions, to
save 1,500 GWh of electricity use by 2030. It has also demanded that its major
equipment suppliers cut power consumption of their products by at least 20
percent by 2030.
Relocating manufacturing to the
U.S., Japan, Germany:
Should TSMC and its supply chain
fail to meet their decarbonization targets, the company will likely face
heightened pressure from its big customers, and could face revenue losses.
One option to decarbonize chip
production is to locate plants in countries with plentiful supply of renewable
power. This process is already set in motion: TSMC is working around the clock
to build new fabs in Arizona in the U.S. and in Kumamoto in Japan, both
expected to start production in 2024.
“Access to renewable energy may be a major factor as companies
decide where they should build new fabs—something that is becoming more common
as they try to increase capacity to alleviate the chip shortage,” according to
consultancy McKinsey.
“They can generate further gains by developing new off-grid power
sources that rely on green technologies, such as photovoltaics, fuel cells and
battery energy storage systems. But these supplies often only complement,
rather than replace, a fab’s long-standing on-grid sources.”
If TSMC is to provide low-carbon
chips for specific customers, they are more likely to come from locations
outside of Taiwan. Because of its dirty power mix, Taiwan’s carbon intensity
(emissions produced for each kilowatt-hour of electricity generated) of 567
grams is 60 percent higher than that of the U.S., 36 percent higher than Japan
and 61 percent higher than Germany.
Industry experts expect TSMC to
continue to diversify locations. Renewable energy use, as well as supply chain
security concerns related to geopolitical risks, could play a part in the
decision making.
Supply chain cooperation:
In the broader chip industry,
alliances are formed to foster momentum for sustainability. The Belgian
Interuniversity Microelectronics Centre (imec) introduced the Sustainable
Semiconductor Technologies and Systems (SSTS) program in September 2021, allowing
participants to share and have access to information on the environmental
impact of various chip making processes, like CO2 emissions, electricity and
water consumption, and raw materials use.
According to Lars-Åke Ragnarsson,
SSTS program director, the semiconductor manufacturers have never been
transparent about their data, because it was long considered proprietary and
kept secret.
Now, via the SSTS program, chip
designers and equipment manufacturers have access to comprehensive data in
order to conduct life-cycle assessments of their designs. For example, a
designer could know how much water and material use, emissions and power consumption
would be associated with a certain technology, with different parameters
adjustable, including region and electricity mix.
“Data is crucial for the companies to make decisions on what kind of
designs should be adopted to minimize impact on the environment,” Ragnarsson
said. The next step would be to help fabs reduce these environmental impacts.
As of October 2022, the initiative
had 11 partners, including five big systems (such as Apple), one foundry and
five equipment suppliers. All data is anonymized, and SSTS won’t do rankings of
any kind. The program is expected to launch the “imec. Net zero” platform in
late 2023 for public use.
Ragnarsson said he has seen positive
responses across the board. “Sustainability is one of few areas where companies
are willing to share information,” he said.
Other similar initiatives may soon
also materialize. On the sidelines of the COP27 climate conference in Egypt,
the global chip industry association SEMI launched the Semiconductor Climate
Consortium (SCC) and announced 65 initial members across the supply chain,
including GlobalFoundries, Global Wafers, imec, Intel and TSMC.
Industrial alliances and ambitious
pledges are essential, but they cannot replace real efforts. The net zero
challenges for the chip industry are dire, especially so for TSMC, whose
manufacturing prowess relies on increased consumption of energy in a place
where the adoption of renewables is much slower than elsewhere. If decarbonization
is a top priority for TSMC, locating plants outside of Taiwan could be its only
option.
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