Client Alert: Climate Change Threatens Domestic Chip Production, U.S. National Security

Source: Statista

Years of drought—exacerbated by climate change—have pushed the Colorado River to a breaking point. Federal officials are warning that Lake Powell and Lake Mead, the U.S.’s two largest reservoirs, could by 2025 reach “dead pool” status, where water levels will have become so low that water could no longer flow during certain times of the year. To stave off such a dire scenario, state and local authorities are negotiating drastic cuts to already-reduced water usage under the threat of unilateral federal action.

Even if successful at avoiding a “dead pool,” it is clear that states along the Colorado River—particularly those downriver from Lake Powell and Lake Mead—will have to make difficult decisions about water usage as climate change threatens the “permanent aridification” of the Southwest. Such decisions will not only impact residential water usage but will also have broader economic and national security implications if water-intensive industries struggle to adapt.

Image of shrinking Lake Mead (source: NASA)

Semiconductor Manufacturing in Arizona

Take Arizona, which receives roughly a third of its water from the Colorado River and about 40 percent from in-state rivers like the Salt and Verde.

Source: DoD 100-Day Supply Chain Report, June 2021

Agriculture in the Grand Canyon State accounts for most water usage, but other industries vital for national security and supply chain resiliency—namely semiconductors—may also be threatened by water shortages in spite of recent efforts like the CHIPS and Science Act to bolster domestic industry vis-à-vis strategic competitors like China.

Semiconductor manufacturing is a water-intensive process. A manufacturing plant, or fab, can reportedly use up to four million gallons of water each day to cool down equipment and clean the delicate silicon wafers. Fabs in Arizona are likely particularly susceptible to restrictions on Colorado River water use.

Intel’s main North American production facilities are located in Chandler, Arizona, at its Ocotillo campus, which has four active fabs. In 2021, Intel announced a USD 20 billion investment to build two new fabs in Chandler that will produce cutting-edge chips (5nm equivalent). Taiwan Semiconductor Manufacturing Co. (TSMC) is similarly building two fabs in Phoenix, Arizona, that will produce advanced chips (down to 3nm).

Construction at Intel’s Ocotillo campus in Chandler, Arizona (source: Intel)

Implications of Climate Change on Chip Manufacturing

Leading-edge chips of this size are crucial for powering rapidly advancing technology like artificial intelligence (AI) that will ensure the U.S. military retains its edge and ability to deter adversaries like China in the years to come. Taiwan currently accounts for about 90 percent of the advanced manufacturing capacity capable of producing the chips that power AI technology. Without fostering a domestic supply, the U.S. could lose access to advanced chips if China invades or blockades Taiwan—which some U.S. policy planners expect to happen later this decade.

Advances in TSMC chip technology 1987-2020 with advanced chips to the far right (source: TSMC)

The severe drought affecting the Colorado River risks hobbling U.S. advanced semiconductor manufacturing just as China is seeking to assert itself more aggressively on the international stage. Although both Intel and TSMC report having robust water recycling programs, it remains to be seen to what extent they can blunt the impending water restrictions that will likely significantly impact the cities where their Arizona fabs are located. Chandler—the site of Intel’s campus—receives 37 percent of its water from the Colorado River. TSMC’s location in north Phoenix is reliant on it, although projects are underway to pipe in water from other in-state rivers. The Inflation Reduction Act of 2022 also includes efforts to mitigate the effects of drought in the Colorado River basin.

A water treatment facility at Intel’s Ocotillo campus (source: Intel)

Climate change is a national security issue. As these advanced fabs come online, water insecurity could hamper U.S. efforts to boost domestic, advanced chip production and in turn counter the rising threat from China.

How Exiger Can Help

Climate events and environmental issues are just one aspect of supply chain risk that Exiger’s integrated products offerings help illuminate. Beyond such concerns, public and private sector organizations must also consider cybersecurity threat actors; geopolitical tensions; foreign ownership, control, and influence (FOCI); and operational and financial health. DDIQ provides a holistic view of risk, short-circuiting your path to organized fact-finding so you can make critical decisions with confidence and speed.

Contact us today to discuss how Exiger can support your organization.

This client alert was compiled by Ben Winik of Exiger.

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