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Water and microchips: the climatic and industrial future of Taiwan

Gauthier Roussilhe, April 30th 2021

Taiwan has been experiencing its worst drought in 56 years in recent months. The absence of typhoons and low rainfall last year did not allow the island's reservoirs to be sufficiently filled. This comes at a time when demand for semiconductors and integrated circuits is exploding: components for which Taiwan is the main supplier and which require a lot of water to manufacture. This industrial sector is a technological and geopolitical keystone for the island and a bottleneck in the global digital manufacturing chains. This intertwining of extreme weather events related to climate change and industrial development policies provides a valuable case for understanding the climatic future of the digital sector and its new material conditions of production for the next century.


Taiwan's climate

Before taking the full measure of the current drought, it is necessary to understand the island's water cycle. Taiwan has a tropical climate, even subtropical in some parts of the island, and therefore experiences significant rainfall (over 2,500 mm). The rainy season starts around May and typhoons are more frequent in July (3.6 on average) and August (5.6 on average). Typhoons are responsible for 47.5% of the annual rainfall on the island of Taiwan. Of the 87 billion tons of annual precipitation, 23.75% evaporates, 70.5% runs off the surface and 5.8% flows into the groundwater. In the end, Taiwan's annual water consumption is 16.7 billion tons, of which 25% comes from artificial reservoirs, 42.5% from river diversions and 32.5% from underground pumping (2018 data).


Summary of annual rainfall by region in Taiwan - Credit: Gauthier Roussilhe

So how do you explain the drought experienced this year in Taiwan? No typhoons passed over the island in 2020, an exceptional situation in over 50 years. The slowing down of typhoons in this geographical area has been the subject of intense research for many years. The impact of climate change is now well documented both on water evaporation, vertical air movements and on the various circulation currents in the region (MJO, BSISO, ENSO). This slowdown affects the formation of typhoons and their position in the Pacific Northwest. According to Jien-Yi Tu and Chia Chou, two extreme phenomena related to climate change are in fact emerging in the region: the rapid decrease in non-typhoon precipitation and the decrease in the number of typhoons, which could nevertheless become increasingly violent. In short, there will certainly be fewer rainfall episodes, but they will be increasingly intense. This means that the risk of flooding and landslides will increase in the long term if the soils do not absorb the excess rainfall.


Reserve levels and restriction policies

As of mid-April 2021, the level of most reservoirs is still falling. Since February, the Taiwanese government has put in place several restrictions: factories and industrial parks in the centre and south of the island must reduce their water consumption by up to 15%. On 24 March, the Minister of Economy announced the suspension of water supply for two days a week in three municipalities (Taichung, Maoli, Changhua). The rationing affects 1,064,000 people, or 4.35% of the island's population. The government has also decided to stop the irrigation of 74,000 hectares of agricultural land for the benefit, it seems, of semiconductor and integrated circuit manufacturing plants..


Maps of water reservoirs in Taiwan and their levels on 15 April 2021 - Credit: Gauthier Roussilhe

As seen in the previous paragraph, the rainy season should start soon on the island and should fill the reservoirs again. If there are no typhoons again this year then the water situation on the island will be dramatic next February. Let's not forget that rainfall from typhoons accounts for almost 50% of annual rainfall. It should be noted that the government has made several attempts at geo-engineering technologies consisting of introducing particles of carbonic snow or silver iodide using rockets or planes (cloud-seeding) to cause rain. However, these experiments did not have the expected effects.


Water Agency employee supervising an operation to create artificial rain at the Zengwen reservoir ((南部難得午後陣雨,水利署不懈怠即刻於曾文水庫人工增雨作業_圖示)) – Credit: Taiwan Water Resources Agency

Semiconductor and microchip industry in Taiwan

From the 1980s onwards, Taiwan began to rapidly develop its electronic component manufacturing industry. This sector includes different types of operations: the manufacture of semiconductors, the manufacture of wafers, the design and assembly of integrated circuits, packaging, to name a few... To explain the nuance briefly, semiconductors are materials that can conduct or not conduct an electric current. These semiconductors are the basis of the transistors that drive the electrical signal. The transistors are assembled into circuits to carry out different logical operations, which are called integrated circuits. Since the 1980s, Taiwan has created industrial parks (Science Parks) to develop its production capacities and to pool research and development processes. The most important parks in the north are Hsinchu and Taoyuan, Central Taiwan in the centre of the island and Tainan in the south. These development policies have led to the emergence of leaders in the field of semiconductors and electronic components. The Taiwanese giant of the sector, TSMC, alone accounts for more than 50% of the global market share. If we add up all the Taiwanese companies, the island would represent more than 65% of the global market.


Simplified explanation of the difference between semiconductors, transistors and integrated circuits - Credit: Gauthier Roussilhe

This industry is crucial in global production chains as most equipment is digitised (cars, sensors, entertainment, ...). It is a major bottleneck in the manufacture of all electronic equipment. The production capacities of Taiwanese foundries can pace, willingly or unwillingly, the production capacities of many companies on Earth. On the island, the electronic components industry accounts for more than a third of exports. In 2019, the island's exports amounted to 329 billion US dollars, with electronic products accounting for 34.2% of its exports (112.5 billion). The sector is estimated to account for more than 800,000 jobs on the island (manufacturing + ICT), out of a workforce of almost 12 million people. However, the sector is reportedly generating fewer and fewer new jobs according to national statistics. Faced with the intentions of the US, China and Europe to strengthen their production capacity in this sector, the Taiwanese government has recently renewed its support for its manufacturers.


Place of the electronics industry in Taiwan's global exports and labor force - Credit: Gauthier Roussilhe

Water consumption of the electronics industry on the island

Why is the current drought affecting the semiconductor and chip industry? Some of the manufacturing steps in this industry are particularly water intensive. There are two types of water, purified water and cooling water. For example, the silicon wafers used as the basis for etching must be "rinsed" with Ultra Pure Water (UPW) to remove any impurities. These disks will also be immersed in water when the components are etched on their surface (Immersion Lithography). Similarly, the race to miniaturise circuits has led to the development of new advanced etching techniques (Extreme Ultraviolet Lithography, EUV) which will require more water for cooling than current generations. Depending on the location of the installations, indirect water consumption may increase depending on the methods of electricity production (steam plant, etc.). In terms of changes in production methods, it does not appear that industry is moving towards a reduction in total water consumption.


Daily water consumption of industrial parks and status of reservoirs as of 15 April 2021 - Credit: Gauthier Roussilhe

In Taiwan, the water consumption of facilities is partially documented. TSMC is the largest water consumer in the sector and provides daily consumption for its sites. At the Hsinchu park, the TSMC site uses 57,000 m3 per day, which is 10.3% of the daily supply from the reservoirs. UMC would "only" use 16,400 m3 per day. In Central Taiwan and Tainan, each of TSMC's sites would use about 50,000 m3 per day. TSMC claims to use 58,000,000 m3 of water per year. This seems relatively small compared to the annual consumption of industry in Taiwan (16,680,000,000 m3/year). However, industries are not evenly distributed over the Taiwanese territory and the concentration of factories also creates a concentration of water demand. The water footprint of these installations is not new on the island and the companies have largely developed water recovery and recycling circuits to reduce their footprint on the municipal water distribution systems. However, the annual water consumption of most companies in the sector is increasing. Furthermore, the current crisis already shows that this sector is already problematic in terms of water management.


Annual water consumption of the main electronic component manufacturers (all classifications) between 2015 and 2019 - Credit: Gauthier Roussilhe

The water supply to this sector is far from under control and the increase in annual consumption, despite the recovery systems, does not send a positive signal about the water future of the island. For the time being, water supplies to manufacturing plants during the drought are provided by fleets of water trucks. TSMC has its own fleet, but is said to be using 8,000 tankers with a capacity of 20 tonnes per day to supply its facilities on the island. However, it is difficult to know where the water that these tankers carry comes from. It is likely that climate change in the region will exacerbate water conflicts in Taiwan as the industry giants announce major investments to increase their production capacity.


Increasing demand and current shortage

We are currently experiencing a shortage of electronic chips due to an increase in demand that is greater than the increase in production capacity. This sudden spike in demand is linked to several phenomena. Some Chinese manufacturing plants were shut down for 2 months during the first wave of COVID-19 in China. The calendar of new product releases has been very close this past year: game consoles (PS5, Xbox, ...), 5G equipment (smartphones, connected objects), new graphics cards ... The various lockdowns worldwide and the development of telecommuting would have increased the demand for personal electronic equipment (screens, computers, ...) The increasing digitalisation of most sectors (building, transport, ...) also implies a sustainable increase in demand. Similarly, the development of certain uses such as crypto-currencies increases the demand for certain types of high-performance computing equipment. Finally, the trade war between the US and China has created many tensions in supply chains. Chinese companies can no longer source certain common components from US companies and vice versa. Thus orders have been shifted to "buffer" countries (Taiwan, Japan, South Korea, Malaysia, etc.) for more common products and are taking up the production capacity of these countries.


Employee carrying a box of wafers - Credit: Taiwan Semiconductor Manufacturing Co, Ltd

Faced with this overall increase, manufacturers favour the most profitable orders and put the least profitable ones at the bottom of the order book. This prioritisation means that certain types of products are delayed. For example, deliveries of routers are pushed back by 60 weeks. The automotive sector, which is not very profitable for a chip manufacturer, is also experiencing a downgrading in order books and some automotive production lines are being shut down while waiting for the delivery of certain chips that are essential to finish the production of a vehicle. However, high-priority orders are also experiencing delays due to a mismatch between demand and production capacity: PS5, MacBook Pro, iPad, etc. TSMC, Samsung, Foxconn and other major manufacturers or assemblers have announced that delays will continue until 2023.


Some call it a "semiconductor famine" but the comparison seems clumsy. We are not facing an absence or decrease of production but an explosion of demand accompanied by a mismatch between production and demand, which is quite common in industries that require heavy financial investments and a lot of research and development. It is not a question of famine and bulimia: the appetite has grown faster than production. To use the food metaphor, it is not the number of "mouths to feed" that is the problem, but their appetite. On the other hand, the current crisis makes it clear that microchips are in a sense the 'livelihood' of the digital sector and beyond. In an industrial world where finished products are increasingly digitised, production lines come to a halt without a supply of chips. Today, the US, China and Europe are announcing massive investment plans to secure this critical supply. The USA is counting on its national giant Intel; China is investing massively in SMIC and recruiting Taiwanese, South Korean and Japanese engineers with salaries and working conditions that are beyond compare; the European Union also has a few players (STM Electronics) but could pin its hopes on German and Dutch companies (ASML, TRUMPF, Zeiss, etc.), which are world leaders in the manufacture of state-of-the-art machines (EUV) that allow semiconductors to be etched onto silicon wafers.


NXE:3400B extreme ultraviolet lithography (EUV) machine designed by ASML, weight: 180 tonnes, price: $120,000,000, capacity: 125 wafers per hour with 13 nm resolution. - Credit: ASML

Futures

The elements of this enquiry can be summarised as follows: at the climatic level, the slowing down of typhoons in the Northwest Pacific quadrant due to climate change is likely to reduce the number of rainfall and typhoon events but increase their intensity. Taiwan can therefore expect more recurrent droughts and heavy rainfall. For example, the absence of typhoons two years in a row would be a dramatic water scenario for the island. At the economic level, the electronics industry is the result of a policy implemented since 1980 and today represents the keystone of Taiwan's economic power. Thus this sector is today largely privileged to the detriment of other activities on the island. At the hydrological level, the island's industrial giants account for a relatively moderate share of national water consumption, except that this demand is highly concentrated and has concrete effects on neighbouring reservoirs. At the industrial and technological level, the race for smaller transistors (<7nm) implies new production techniques (EUV) which are more voracious in water at the same time as the demand for semiconductors and electronic components is exploding. It remains to be seen whether this demand will be sustainable.


Summary of the global challenges of semiconductor manufacturing in Taiwan

It is easy to plan the increase of production capacity in an abstract world, but every means of production exists in material conditions that must be maintained (climate, energy supply, water, components, metals, etc.). The current crisis shows that Taiwanese industry is possibly hitting the ceiling of its material conditions. The slowing down of typhoons in the northwest Pacific will have lasting consequences for the island's water cycle and the risk of flooding and landslides. The hydrology that once supported water-intensive industry is now becoming increasingly unstable. This implies that yesterday's discrete trade-offs in water management are becoming the core policy of today and tomorrow. In the long run, the island's industrialists will surely continue the trend of developing their factories outside Taiwan, with all the geopolitical risks that this entails.


Faced with an increasingly unstable water situation and the general consequences of climate change, what are the island's futures? The increase in semiconductor and chip production in Taiwan will increase the consumption of an increasingly shrinking water supply. Recent improvements in on-site water management and water desalination do not solve the problem. Eventually, the island will face a complex choice: to further increase its production capacity at the expense of other sectors and climate trends, exacerbating an already growing climatic and social fragility; or to align their production capacity with the new climate situation in the region and prepare to better withstand the more violent events that are now affecting the global production chains. Perhaps current events show that the value of this industry lies more in the stability of production chains than in increasing their production capacity. If Taiwanese industries cannot reason with the annual droughts then there is little chance that this sector will remain sustainable on the island in the medium to long term. More generally, this situation brings the phenomenon of digitalisation down to very material dimensions and raises questions about its growth. Today, the industrial development of digital technology increasingly resembles a climatic mortgage for the countries that host the production capacities. The question of the material and climatic limits that should set the pace for digitalisation has still not been raised, yet these limits are becoming more and more visible every day.


Footnotes

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  3. Chih-wen Hung, Ming-Fu Shih & Te-Yuan Lin, "The Climatological Analysis of Typhoon Tracks, Steering Flow, and the Pacific Subtropical High in the Vicinity of Taiwan and the Western North Pacific," Atmosphere 11, no. 5: 543 (2020) https://doi.org/10.3390/atmos11050543
  4. Jien-Yi Tu & Chia Chou, “Changes in precipitation frequency and intensity in the vicinity of Taiwan: typhoon versus non-typhoon events,” Environmental Research Letters 8, 014023 (2013) https://iopscience.iop.org/article/10.1088/1748-9326/8/1/014023/meta
  5. Liang Pei-chi, Elizabeth Hsu & Matthew Mazzetta, "Water supply to be cut 2 days per week in parts of central Taiwan," Focus Taiwan, March 24 2021, accessed on 20 April 2021 https://focustaiwan.tw/society/202103240020
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  7. Ramish Zafar, “TSMC Earned $1,634 Revenue/Wafer In 2020 With A 54% Global Market Share,” WCCFTech, March 16 2021, accessed on 20 April 2021 https://wccftech.com/tsmc-earned-1634-revenue-wafer-in-2020-with-a-54-global-market-share/
  8. Max Chang, “Le commerce extérieur de Taiwan en 2019,” Bureau Français de Taipei (Service économique), March 20 2020, accessed on 20 April 2021 https://www.tresor.economie.gouv.fr/Articles/467c973a-f7d0-4c81-b3dc-04c94a5c5bdb/files/0afd1fe0-999f-4c29-9c87-26c6f957a534
  9. Sarah B. Boyd, “Life-Cycle Assessment of Semiconductors,” (Springer: New-York, 2012)
  10. Andreas Thoss, “EUV lithography revisited,” LaserFocus World, August 29 2019, accessed on 20 April 2021 https://www.laserfocusworld.com/blogs/article/14039015/how-does-the-laser-technology-in-euv-lithography-work
  11. Hamza Mudassir, “Commentary: There is a global semiconductor famine and it will not go away anytime soon,” Channel News Asia, March9 2021, accessed on 20 April 2021 https://www.channelnewsasia.com/news/commentary/global-semiconductor-shortage-chips-pandemic-14360716