Climate threatens world’s semi-conductor capacity – Moody’s

There are increased warnings over the security of the global semi-conductors supply chains amid concerns the concentration of the world’s production is in the heart of a region beset by physical climate risks.

In a new paper from Moody’s, the threat of physical climate risks – from both acute events such as floods and chronic events such as droughts –  has the potential to create significant damages and associated disruptions to operations and supply chains across critical industries, including the semiconductor manufacturing sector.

The study looked at the manufacturing of semiconductors and their rising importance to modern electronics and their underpinning of everything from communications to transportation to countless other essentials.

Moody’s research, Using its own Orbis private companies data resource tool and Climate on Demand Pro climate risk modelling platform, Moody’s said it has concluded.

  • Taiwan, a leading country for the world’s semiconductor manufacturing capacity (alone, it holds 92% of the most advanced/below 10 nanometres semiconductor global manufacturing capacity), is one of the wettest places on earth, driven by rainfall from typhoons. But 2021 also showed the country’s vulnerability to drought, with no typhoons making landfall in the 2020-2021 season.
  • Across semi-conductor facility locations in Taiwan, the costs associated with flooding are expected to rise by around 30%, water stress by 35%, sea-level rise by 60%, and heat stress by 150% by 2050 under a moderate climate change scenario. An extreme climate change scenario accelerates water stress in particular by 4 to 5 times.
  • In terms of future semiconductor manufacturing builds, Ohio, Arizona, New York are among the US states where plans have been announced. New York is in the top 10 US states for which water stress is expected to increase the most over the next 50 years under a moderate scenario, Arizona and Ohio are in the top 10 for increases in flooding impacts, and Arizona is also very vulnerable to heat stress.

Claire Souch, vice president of Climate Risk, Moody’s RMS and one of the authors of the research explained: “Any future changes in climate and weather patterns could potentially increase the frequency, intensity, and severity of events, and in turn, increase these risks and their impact on communities and costs to businesses.

“In terms of supply chain disruption, the recent water scarcity events in Taiwan are a very relevant example.”

She added: “As more and more devices rely on a range of semiconductors to function, the supply of semiconductors for the modern global economy has become critical. Any break in supply also results in other production lines, such as cars and computers, grinding to a halt.”

Souch explained while Taiwan continues to be the global leader in high-value semiconductor manufacturing, other Asia-Pacific countries, particularly South Korea, Japan, and China, have their own semiconductor industry development strategies, and weather risks.

“For all these countries, our analysis shows that the impact of water stress is expected to increase, particularly in South Korea which could see an impact of over 75 percent by 2050 (using a moderate scenario) on costs and reduced production without additional risk reduction features,” she continued. “South Korea’s lengthy coastline and its low-lying coastal areas are also very vulnerable to sea level rise and could see increased costs to industrial facilities of over 70 percent on average by mid-century.

“With India also starting to initiate policies favouring greater self-sufficiency in semiconductors, it also faces an overall doubling in the risk from flooding by mid-century.”

The report added it is estimated that 75 percent of the world’s semiconductor manufacturing capacity is concentrated in East Asia and China, with Taiwan and South Korea producing the majority of the world’s semiconductors.

Ninety-two percent of the most advanced (below 10 nanometres) semiconductor manufacturing capacity is based in Taiwan.

With such a geographically concentrated semiconductor manufacturing industry, concerns are growing about the region’s exposure to climate change and the knock-on effects on supply chains around the world, warned the report.

“Building semiconductor manufacturing plants is a capital-intensive, specialist endeavour,” added Souch. “Plants with the most advanced chip-making technology and equipment regularly cost tens of billions of dollars, and plants cannot easily be brought back online or replicated if a disaster strikes.

“In terms of rainfall, Taiwan is technically one of the wettest places on Earth due to typhoon-driven rainfall. With an average of up to four typhoons, the country typically receives 2,500 millimetres (98 inches) of rainfall per year.

However, during the 2020-21 Pacific typhoon season, Taiwan did not experience a single landfalling typhoon.

“This exposed the country’s vulnerability to drought, and Taiwan’s reliance on the regularity of typhoons for the plentiful supply of freshwater, to meet the needs of its manufacturing and agriculture sectors.

“Therefore, the importance of the semiconductor supply chain, from the manufacturing plant to distribution through to the end user, cannot be underestimated.”

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