The next time you switch on your TV or laptop, or click your smartphone, take a pause.

The world is becoming digital. So does the demand for semiconductors increase? Semiconductors are a vital component that controls and manages the flow of electric current in electronic equipment and devices. According to estimates, the global semiconductor market is projected to reach $515 billion in 2023.

However, the spurt in demand comes with environmental damage.

According to the Environmental Protection Agency, semiconductor manufacturing uses gases with high global warming potential. These include perfluorocarbons and hydrofluorocarbons—major contributors to Scope-3 emissions globally.

Scope 3 refers to the company’s other indirect emissions beyond the company’s direct operations and occur in the company’s value chain, such as upstream transportation and distribution, business travel, and purchased goods and services.

Primary sources:

Semiconductor manufacturing contributes to 31% of global greenhouse gas emissions.

Chip production requires a significant amount of water and electricity. According to a Harvard University study, manufacturing accounts for nearly 75% of all CO2 emissions associated with electronic communication devices, which is a significant increase over emissions from the power used by the devices over their useful lives. In turn, the production of the semiconductors used in these devices accounts for the majority of the emissions generated during manufacturing. The environmental impact increases as chip power increases.

A recent McKinsey survey reveals that typical fabrication’s upstream emissions come from three primary sources, which is an overlooked yet crucial category. Scope 3 upstream emissions are primarily attributed to purchased materials (62%), maintenance services (22%), spare parts (22%), and supplier transportation (6%).

Most programs up to this point have concentrated on two categories of emissions: those that are directly connected to operations inside their fabs (Scope 1) and those that result from the production of externally purchased electricity, steam, heating, and cooling equipment (Scope 2). The goal now is to reduce Scope 3 emissions.

The authors note that many semiconductor companies might also calculate their Scope 3 upstream emissions using false assumptions. For instance, aluminum. While most industries can use 99 percent pure aluminum with no complications, semiconductor companies often require 99.9 percent purity—and that slight improvement requires far more energy, partly because of repetitive melting and cooling as well as the electrochemical purification required, which increases the emissions. Numerous other materials follow the same pattern.

Challenges:

Companies can achieve net-zero goals by incorporating Scope 3 upstream emissions from suppliers providing services or materials for chip manufacturing, as Scope 1 and 2 emissions only account for 65% of total GHGs.

Many fabs face issues with Scope 3 upstream emissions, including materials, services, or suppliers, due to unclear information about their priorities in renewable energy. For example, nitrogen trifluoride (NF3), commonly used in semiconductor fabrication, has a high global warming potential, with fugitive emissions potentially exceeding actual production emissions.

The levers:

Fab companies’ collaboration with suppliers contributes to half of emissions from chemicals, wafers, and gases. The involvement of top leadership is crucial for promoting decarbonization across operations, technology, development, and procurement.

Green supply chain: Semiconductor companies are hesitant to address Scope 3 upstream emissions due to difficulties in promoting decarbonization and transparency, largely due to emissions fragmentation across multiple materials and suppliers.

They are enhancing waste management, product specifications, and material usage by utilizing new methodologies, automated baselining tools, and decarbonization in cross-functional programs.

Fab companies collaborate with numerous suppliers for material procurement. Our analysis reveals that six to ten suppliers contribute to half of emissions from chemicals, wafers, and gases, while three to five suppliers contribute more than half.

Top leadership involvement is crucial for promoting decarbonization across various functions such as operations, technology, development, and procurement.

Supplier decarbonization: McKinsey suggests that fabrication companies should assist suppliers in reducing their carbon footprint in chemicals, wafers, and gas, transitioning from Tier 1 to smaller ones, or collaborating on decarbonization programs.

Tier 2 suppliers, who contribute to fabs’ Scope 3 emissions, should be included in decarbonization initiatives. Tier 1 suppliers, as end customers, can exert pressure on Tier 2 to reduce emissions.

Semiconductor companies can enhance vendor performance by implementing innovative procurement strategies, such as promoting vendors with lower emissions or those who disclose their emissions.

Waste reduction: Semiconductor companies are addressing Scope 3 emissions by improving waste management, product specifications, and material usage, and involving top leadership in decarbonization across operations, technology, development, and procurement.

Recycling and energy efficiency: Leaders in the industry can set an example. Fabs can reduce waste by implementing recycling programs, eliminating impurities, and implementing on-site recycling for ultra-high purity aluminum, meeting semiconductor industry standards.

Fabs can reduce conventional energy emissions by offering financial incentives, partnering with innovative production methods, and promoting renewable energy usage. However, effectiveness may vary depending on supplier location, McKinsey cautions.

Materials optimization: Fabs can produce goods with lower emissions, but businesses must establish R&D, quality, and engineering teams to review product specifications, evaluate alternatives, and find better manufacturing processes, McKinsey states.

Fabs can produce goods with lower emissions, but R&D, quality, and engineering teams must review specifications, evaluate alternatives, and collaborate with trade associations for environmentally friendly alternatives.

Product-specification adjustments: Fabs should initially focus on simpler solutions like using lower-grade chemicals during wafer-cleaning steps to reduce emissions without significantly altering product specifications. Over time, they can explore complex process changes throughout the supply chain, to meet zero emissions demands.

Businesses can reduce Scope 3 emissions by focusing on six to ten suppliers, which account for half of emissions in chemicals, wafers, and gases, requiring operational and product changes.

Conclusion:

Many semiconductor companies struggle with supplier switching, suggesting that extensive efforts may yield better results. Due to their broad scope, Decarbonization initiatives will require top leadership and stakeholders from various groups, including operations, procurement, and R&D. Semiconductor companies are implementing initiatives to decrease Scope 3 upstream emissions, potentially becoming early leaders in this area.