Semiconductor shortages have become a critical technological vulnerability and a potential national security threat for major economies including the United States, China, and Europe, as all countries and many industries rely on Taiwan for cutting-edge semiconductor devices.
The ongoing supply chain shortage of chips is also becoming a chokepoint for the clean energy transition around the world. But circular economy solutions could help reduce systemic risks and address these multiple challenges.
The current crisis of global microchip shortages that started in 2020 during the COVID-19 pandemic are expected to continue well into 2022 and beyond. Furthermore, there are new long-term supply chain risks on the horizon stemming from US-China geopolitical dynamics and resulting trade decisions.
The shortages have raised attention not only about the processes and challenges of making microchips, but also about the geopolitical concentration of manufacturing by a few companies. Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract manufacturer for semiconductors, constitutes nearly 90 per cent of the market for advanced microchips in 2020. The obstacles in ensuring stable supplies and manufacturing semiconductors are possibly going to get even harder, more expensive, more technical, and potentially also more political.
Vital for the future of sustainability
This is bad news for car manufacturers and tech companies – Apple lost $6 billion in sales due to chip shortages in 2021 and cut projected production targets by as many as 10 million units. But semiconductors are also central to many sustainability solutions such as the enablement of smart grid infrastructure, renewable energy technologies, electric vehicles and virtualization.
Shortages can have cascading risks and negatively affect the clean energy transition – semiconductors are the ‘new oil’ and key to realizing countries’ net-zero pledges that were made before and during the climate COP26 in Glasgow. Already in 2021 several solar PV manufacturers had to cut production of solar equipment due to the supply crunch.
Furthermore, worsening climate change impacts such as severe weather events and persistent water shortages could continue to impact supplies – in 2021 a severe drought in Taiwan worsened the semiconductor bottlenecks. Large amounts of ultra-pure water are needed in the chip production process, and lack of rain last year strained water supplies, prompting the Taiwanese government to start rationing water for more than a million businesses and residents. In the US, severe winter storms in February 2021 forced Samsung to temporarily close two of its chip factories in Texas.
Transatlantic challenges and opportunities
The supply chain shortage has brought about discussions and political decisions that semiconductor supply chains must be diversified to decrease the over-reliance on manufacturing in Taiwan and East Asia. The lack of semiconductor fabrication plants in the US and Europe can be thought about both in a national security context and in terms of economic competitiveness – here Europe and the US are facing similar challenges. The key question is whether building greater self-sufficiency actually increases long-term security rather than simply increasing costs.
Some of the recent policy responses have been Biden’s 100-day review on resilient supply chains that focuses on bringing chip manufacturing back home. Since then, some of the large manufacturers Intel, Samsung and TSMC have all announced construction of new fabrication plants across the United States. In December 2021, the new German Federal Minister for Economic Affairs and Climate Action Robert Habeck announced 32 new microelectronics projects to bring the production of semiconductors back to Germany and Europe.
This follows the EU announcement of a ‘European Chips Act’ to bring back semiconductor manufacturing capabilities to Europe, considered key for technological sovereignty. The aim is to double Europe’s share of global microchips production from currently 9 per cent to 20 per cent and boost investments by €20-30 billion by 2030.
The ‘reshoring’ of semiconductor chip production from Taiwan to the United States and Europe could potentially change the industry and the geopolitics surrounding it. Yet, the aim to achieve autonomy in microchip production could prove to be unachievable – the global semiconductors value chains are too intertwined and too reliant on producers in East Asia and further politization of the issue could prove counterproductive. Also, with the growing demand from across many sectors of the economy, only focusing on boosting domestic supply capacity will likely not create long-term resilience.
Long-term strategies for resilient and sustainable supply
There are also potential trade-offs between the goals of supply chain security and environmental sustainability objectives. The danger that growing demand and supply shortage leads to lower environmental standards in production due to pressure on producers to deliver is an issue not only for the specific case of semiconductors.
Environmental and health impacts from semiconductor production have been known since the 1980s. The semiconductor industry uses large amounts of hazardous chemicals and toxic metals that have caused cancer in workers. Impacts on the environment include groundwater and air pollution, as well as generating toxic waste as a by-product of the manufacturing process. Until the 1980s, Silicon Valley was a major site for electronics factories that heavily contaminated many areas and resulted in Superfund sites, a designation the EPA gives some of the most contaminated or polluted land.
Limiting the pollution that comes with reshoring microchip manufacturing requires adoption of state-of-the-art cleaner production approaches and the development of new zero-waste manufacturing processes. A circular economy for semiconductors can address multiple challenges including global shortages and lack of compliance with environmental objectives. Circularity in semiconductor supply chains also offers new opportunities for transatlantic cooperation between the US and Europe, as well as concerted collaboration between leading industry players.
Circular approaches of microchips in early stages
While it is technically possible to recycle compound semiconductor materials, the recycling of smaller semiconductor materials is currently financially problematic. Only small amounts of materials can be reclaimed from individual products such as smartphones. Novel design-for-disassembly techniques to enable high-volume and low-cost disassembly are needed to recover microchips and enable reuse.
Leading microchip design and manufacturing companies like Intel, Nikon and Netherlands-based ASML, are applying practices to embed circular economy approaches, such as refurbished products and upgrades of older lithography equipment systems. But these circular approaches are only in very early stages and could be expanded across the entire industry.
In Europe, there’s an opportunity to align the ‘European Chips Act’ with the push towards the circular economy and parallel policy development such as the Circular Electronics Initiative. This is where Europe could lead the next innovation wave in semiconductors.
Part of the solution will be tackling the growing mountains of electronic waste. Justice considerations are also a concern with many used semiconductor products are winding up in the developing world’s e-waste facilities known for hazardous working conditions and exploiting child labour. The repair of electronics and extending the lifetime of devices and semiconductors will be an important element in this. Microchips can be recovered from electronic waste and reused; however, current design practices of electronics are an obstacle.
A resilient and sustainable vision
New standards and industry cooperation are key to creating transparent secondary markets for reused microchips. Semiconductor companies should consider a ‘certified second-hand chip’ mechanism where they are actively engaged in the validation process to prevent counterfeiting and national security issues.