APAC’s semiconductor industry must tackle the chip sustainability paradox

Semiconductor chips are becoming a fierce battleground in Asia-Pacific (APAC). With the world relying on a wide array of increasingly sophisticated technology, demand for semiconductors is strong. But as countries in the region build their chip expertise, we believe the industry must address sustainability issues to offset the environmental consequences of its own success.

Semiconductor chips have become ubiquitous, and are now present in almost every electronic device in the world. Although the more basic chips are produced by many countries, the manufacturing of the most sophisticated chips – those in nodes below 10 nanometres (NM) – is dominated by Taiwan, where 92% of the world’s under 10NM semiconductor chips are made¹. South Korea accounts for the other 8%.

The proliferation of artificial intelligence (AI) is creating a new technological revolution, equivalent to the industrialisation of the last two centuries.

Production accelerates across the region

The proliferation of artificial intelligence (AI) is creating a new technological revolution, equivalent to the industrialisation of the last two centuries². This will continue to drive structural demand for semiconductors and data centres. From the technology sector itself, to a wide range of industries from finance to retail, companies in the AI value chain are set to benefit.

With the manufacturing of the most advanced chips being concentrated in Taiwan³, governments across the world are scrambling to build their own expertise as they seek a degree of self-sufficiency.

Japan, for instance, is forecast to move from a near zero market share to 4%⁴. Between 2021 and 2023, the country invested JPY 3.9 trillion (around USD 22 billion) in the sector⁵. Rapidus, a Japanese firm set up in 2022, aims to mass produce 2NM logic chips by 2027, which would be a remarkable feat considering the country’s ceiling is currently 40NM⁶.

China is also racing to produce its own advanced semiconductor chips, and this year raised a further CNY 340 billion (around USD 47 billion) for its semiconductor investment fund, known as the Big Fund⁷. The impact of US sanctions is adding pressure on China to build its own expertise in chipmaking and associated industries.

Meanwhile, other APAC countries – including Singapore, India, Malaysia, Vietnam, and Thailand – are investing in their own semiconductor industries, focussing on chipmaking, assembly, packaging and testing⁸.

The stakes are high, with stellar regional growth projections. APAC’s semiconductor market size was estimated at USD 287.79 billion in 2023, and is anticipated to reach USD 611.73 billion by 2033, growing at a compound annual growth rate (CAGR) of 7.83% from 2024 to 2033⁹.

The sustainability paradox

This rapid growth, combined with technological advances, is creating a sustainability paradox. Even as chips have become smaller, quicker and more sophisticated, and electronic devices more efficient¹⁰, industry energy demands are rising. The manufacture of advanced 3NM chips (N3), for example, is expected to consume up to 7.7 billion kilowatt-hours of electricity annually¹¹.

The semiconductor industry is resource-intensive, using copious amounts of energy and water to manufacture chips. For example, Taiwan’s semiconductor industry consumes approximately 10% of the island’s water resources. A significant proportion of the energy currently comes from fossil fuels such as coal and gas. The world’s largest chipmaker – Taiwan Semiconductor Manufacturing Co. (TSMC) – emitted approximately 15 million tonnes of carbon in 2020, followed by industry competitors Samsung and Intel with 13 million and 3 million tonnes respectively¹².

Read more about the importance of water security here in Asia-Pacific.

Yet, the paradox is that these chips are vital to the sustainability transition. Decarbonisation efforts, from renewable energy technologies such as solar panel systems and wind turbines, to electric vehicles and their charging stations, are all dependent on semiconductor technology.

At Lombard Odier, we believe that limiting climate change requires the transition to a net-zero economy, and that shifting to renewable energy and materials is key.

A sustainable future

Chipmakers are now facing external pressure from their end-clients to resolve this paradox by producing chips more sustainably, with many businesses increasingly focussing on reducing carbon emissions along their supply chains.

Already, some chipmakers have been taking tangible steps toward more sustainable operations. For example, TSMC has committed to relying fully on renewable energy by the end of 2050. Intel, meanwhile, pledged to achieve net-zero greenhouse gas emissions in its global operations by 2040. Major chipmakers are also exploring how to minimise wastage and – crucially – reuse water in the manufacturing process¹³.

At Lombard Odier, we believe that limiting climate change requires the transition to a net-zero economy, and that shifting to renewable energy and materials is key. We believe firms leading such changes, for example to clean transportation and energy generation, should benefit.

Discover more about Asia’s climate tech growth.

APAC’s semiconductor chip manufacturers are at the centre of this transition – they have immense potential to be part of the solution to some of the most pressing difficulties regarding developing and scaling clean energy production.

At the same time, however, they must also mitigate the environmental impact of their own operations. To achieve substantial reductions in emissions, manufacturers will need to collaborate with peers and suppliers, invest in new technologies and efficient production processes, and rethink their net-zero pathways to achieve carbon neutrality and manage transition risks. As they undertake these changes, new opportunities for investment will arise.

Finding the balance between the sustainability solutions the semiconductor industry enables and solving its own sustainability issues may well determine how the world continues to manage the growing climate crisis.

More on our conviction about the transition to net zero here.