Intel opened its Fab 9 factory in New Mexico in January. The company purchases renewable electricity to meet 100% of its New Mexico electricity use. Source: Intel Corp.

Chipmakers are simultaneously trying to ramp up production while cutting back on emissions, creating a challenge that any individual company cannot solve alone.

The semiconductor industry is seeing unprecedented demand as advances in artificial intelligence and the internet of things make the world smarter and more connected. Chips are at the heart of this transformation, going into everything from cars to phones to thermostats. As a result, according to estimates from McKinsey & Co., the semiconductor industry is on track to reach over $1 trillion in revenue by 2030, up from around $600 billion now.

This has companies of all sizes building new fabrication facilities and jockeying to claim a slice of that projected revenue growth. At the same time, the industry is also trying to reduce emissions by investing in renewable energy and experimenting with more efficient processes and materials. Nevertheless, it is difficult to bring down the industry's carbon footprint when its physical footprint is growing ever larger.

"There has been an explosion over the past couple of years of either planned fab construction or actual fab construction," said S&P Global Market Intelligence Kagan analyst Mike Paxton, who specializes in the consumer electronics industry. "So while it's great that some companies have reduced their emissions — and they have, to their credit — we're also building more semiconductor fabrication facilities, not only in the US but around the world, than we have any time that I can remember in the past quarter century."

Building boom

In tandem with the passage of the CHIPS and Science Act in July 2022 — which allocated $52 billion in grants, loans and other aid to onshore semiconductor research, development and production — semiconductor vendors began ramping up their fabrication pipelines and upgrading their facilities.

All told, there were $184.44 billion in announced investments in US semiconductor fabrication in 2022, according to Kagan data, up from $71.80 billion a year earlier. Investments slowed and shrank in 2023 as companies focused on executing the commitments they had made in 2022 and as companies waited for the federal grants to actually come through. Following a few announcements that trickled out earlier this year, recent reports have indicated the Biden administration is expected to announce some major grants ahead of the State the Union address on March 7.

In particular, Intel Corp. has applied for CHIPS money for its projects in Ohio, Arizona, Oregon and New Mexico. All told, Intel is spending more than $40.0 billion on the projects. Globally, the company has new or expansion projects in the US, Ireland, Germany, Poland, Israel and Malaysia.

But Intel believes that growth and sustainability can be achieved in tandem.

"We are fully committed to reducing our environmental footprint, even as we grow," said Intel Chief Sustainability Officer Todd Brady in an email to Market Intelligence. Brady noted that Intel's Scope 1 and 2 greenhouse gas emissions peaked in 2006 and have been decreasing ever since.

The company has committed to reach 100% renewable electricity by 2030, having achieved 93% renewable electricity usage globally at the end of 2022, with 100% in the US, EU, Israel and Malaysia. It aims to achieve net-zero greenhouse gas emissions across its global operations by 2040. In terms of Scope 3, it aims to achieve net-zero upstream greenhouse gas emissions by 2050.

"We're not slowing down on any of our sustainability commitments, even with our recently announced investments," Brady said.

A gaseous problem

Of course, the challenge for chipmakers goes beyond just electricity, although that is a major one.

"Semiconductor fabs are electricity hogs," Paxton said. "They're just huge facilities that gulp electricity."

The other challenge is that the manufacturing processes for chips rely on the usage of specific greenhouse gases that have very high global warming potential, or GWP. The GWP score compares how much heat different gases absorb over a given period of time compared to carbon dioxide. While CO₂ has a GWP of 1, the fluorocarbons used in chip production can have GWPs in the thousands or tens of thousands.

The semiconductor industry at large is working on strategies to reduce the impact of these gases including abatement and replacement.

"The industry and the fabs do a lot of abatement work," said Heidi Hoffman, senior director of sustainability at the industry group SEMI. "It's the concept of catching [the gases] before they go anywhere."

Hoffman also noted that the independent research and development lab IMEC has been working on replacement gases, though those efforts take time.

"If you're familiar with semiconductor fabs at all, the recipe is incredibly important to successful manufacturing," Hoffman said, noting the gases used today to etch designs on chips that are nanometers in size. To put it in perspective, a sheet of paper is 100,000 nanometers thick. The most advanced chips are just 3 nm.

"I'm talking very, very strict tolerance ... down to nanometer, down to atomic-level kind of processing. And so changing one gas takes a lot," Hoffman said. "You're talking millions and millions of dollars to even test that gas."

Company commitments

Another challenge is that not all chipmakers are equal when it comes to setting net-zero goals.

"Intel has set a good direction for other companies in emissions disclosures and reduction," Simon Fischweicher, director of supply chains and reporter services at CDP, said in an interview with Market Intelligence. CDP is a nonprofit charity that runs the global disclosure system for entities to manage their environmental impact.

Within the broader semiconductor ecosystem, chip designer QUALCOMM Inc. and equipment and software provider Applied Materials Inc. have both set ambitious net-zero goals. In particular, Applied Materials has been a vocal supporter of net-zero initiatives for the industry at large. Looking at mentions of the terms "sustainability," "ESG" or "emissions" in earnings transcripts, Applied Materials used the terms the most among its large, publicly-traded US semiconductor peers, with eight mentions in 2023 alone.

However, the biggest semiconductor stock of 2023 — NVIDIA Corp. — counted zero mentions of the above terms last year.

As a fabless chip designer — meaning it primarily designs chips that are then manufactured by other companies such as Taiwan Semiconductor Manufacturing Co. Ltd. — Nvidia inherently has lower Scope 1 and 2 emissions than some of its peers.

The company, which did not respond to a request for comment, has committed to achieving and maintaining 100% renewable electricity for its operations and datacenters by fiscal-year 2025. While it has not technically announced a "net-zero" goal, its commitments are set to result in a 100% emissions reduction in Scope 2 emissions by the fiscal year ending Jan. 26, 2025.

In fiscal 2023, by comparison, Nvidia sourced 44% of its electricity use from renewables, up 600 basis points from the previous year.

Fischweicher said companies should ideally have both long-term goals and interim targets. "We need to continuously reduce emissions towards that long-term objective," Fischweicher noted. "To do that, you need to have those interim targets."

A problem of scope

But for Nvidia and other semiconductor companies, the real difficulty lies in not just reducing but even measuring Scope 3 emissions. These include upstream emissions from suppliers and downstream emissions from customers using the end products over their lifetime.

The industry has taken some steps in this area — SEMI's Semiconductor Climate Consortium last month released its first alignment document with recommendations for calculating Scope 3 Category 1 emissions, covering emissions from purchased goods and services.

Intel's Brady said this industry alignment is critical. "When we have a common definition, we can better track what’s working and what isn’t," he said.

But the alignment document is very much a first step, with more work especially being needed on Scope 3 downstream emissions.

Applied Materials CEO Gary Dickerson noted at a conference last year that 99% of the company's emissions come from Scope 3 — 12% from the supply chain and 87% from downstream emissions.

"In other words, 99% of our emissions are shared with our customers and our suppliers," Dickerson said. "This is our primary challenge when it comes to setting a definitive goal for net-zero: we cannot do this in isolation."

Hoffman said myriad members of the semiconductor industry have shown they are willing to work together to make this a priority. When the Semiconductor Climate Consortium first launched, she expected maybe 25 companies to sign up.

"Instead of 25, we had 65," she said, noting that the cost of membership in the consortium ranges between $15,000 a year to $40,000 a year depending on the level. So companies are not just talking the talk but are spending to make this a priority.

"I think we could get another 30 companies on board this coming year," Hoffman said.