How climate change and water stress is risking the semiconductor supply chain

Semiconductors form the backbone of everything powered by a microchip. They’ve been called this century’s oil and the most critical intermediate good for information computer technology end products. Without semiconductors, there are no electronics.

Given their critical importance, businesses and governments are unsurprisingly worried about the stability of semiconductor supply chains. What is surprising is the little attention paid to how climate change is expected to impact those supply chains in the near to medium term.

The deepest concerns about the security of semiconductor supply chains are couched in terms of geopolitical rivalry. Yet, the preoccupation with “chip wars” has meant little attention is given to how climate change shapes the environmental conditions of semiconductor manufacturing sites.

Acute shocks to semiconductor supply chains resulting from climate change-induced extreme weather events are already here.

In late September 2024, for example, Hurricane Helene shut down the Spruce Pine mine in North Carolina, from which about 70% of the global supply of high-quality quartz – a key material in the crucibles needed in semiconductor manufacturing – is sourced.

Two mining companies extract quartz from Spruce Pine but neither has returned to full capacity. While they have restarted operations, getting the quartz to market remains a challenge because some road and rail infrastructure in the region may not be fully back online until 2025.

The unfolding climate emergency means acute events such as Helene and chronic conditions are affecting semiconductor supply chains now and will put increasing pressure on their resiliency in the future. One of the most important impacts is related to water availability.

Semiconductor production depends on abundant water but climate change-induced water stress jeopardizes supply-chain security.

Research using global water stress models, scaled to the level of individual watersheds, combined with data on the location of semiconductor manufacturing facilities, suggests reasons for concern.

Globally, 40% of existing facilities will be in watersheds projected to experience high or extremely high water stress between 2030 and 2040. Meanwhile, 24-40% of facilities under construction and more than 40% of those planned are in regions expected to experience high or extremely high water stress over the same period.

The largely uneven distribution of critical facilities in semiconductor production networks means that climate change-induced regional water stress could quickly cascade across those networks.

Individual semiconductor manufacturing firms take water stress risks to their operations seriously. However, assessing individual firms overlooks systemic risks to global semiconductor networks; a focus on water stress at regional pinch points and network structure is thus essential.

Not all nodes may be of equal importance in a network, as disruption of a single node can trigger a cascade of adverse effects throughout the entire system. The interruption of operations at the Spruce Pine mine is one example of this possibility.

Another notable example is the Taiwan Semiconductor Manufacturing Company’s Fab 15; the sole supplier of central processing units for Apple’s iPhone. Taiwan is responsible for producing about 90% of the demand for advanced semiconductors but the island has been experiencing drought conditions since 2021.

The technical challenges of creating the most advanced semiconductors mean that companies like Apple cannot easily switch to a new supplier if problems arise.

Meanwhile, public policy in the United States and the European Union pay insufficient attention to how changing environmental conditions may affect the future operations of facilities granted public funds.

The US government has committed tens of billions of dollars to new semiconductor fabrication plants (fabs) in Arizona. Yet, Arizona and the broader region of the Southwest desert have been officially under drought since 1994.

Meanwhile, in Grenoble, France, conflicts between residents and semiconductor manufacturer STMicroelectronics over access to the region’s high-quality water have been unfolding since 2023.

Technological advances in water efficiency help but can't fully solve the issue, as water is also needed for agriculture, domestic use and other industries. Even very high rates of efficiency can be overcome by increased aggregate demand for water.

The semiconductor industry faces two major challenges in addressing water stress risks. First, focusing too much on geopolitical rivalries can overlook environmental risks such as climate change.

Second, looking at the risks only of individual companies may miss how climate-related issues, such as water stress, can ripple across entire production networks.

To effectively address these challenges, firms and governments must adopt flexible strategies that account for how climate change impacts water availability differently across regions.

Facilities currently in the planning stages need closer scrutiny of their locations, especially in relation to future water stress projections. Without careful planning, billions of dollars spent to strengthen the semiconductor supply chain could unintentionally create long-term vulnerabilities due to climate change.

In areas with high water stress risks, it may be necessary to reconsider facility locations unless effective local solutions to address water challenges are in place.