Taiwan's semiconductor industry faces dilemma of carbon lock-in

Judy Lin, Analysis, DIGITIMES Asia, Taipei 0


Several semiconductor companies in Taiwan are among the world's top-ranking companies in various ESG ratings, but they are not immune to a potential carbon lock-in effect due to the fact that the efficiency gains on carbon reduction of the state power generation system as a whole are not sufficient enough to curb the environmental footprint at the national scale.

Carbon lock-in is defined as when fossil fuel-intensive systems perpetuate, delay, or prevent the transition to low-carbon alternatives, creating a situation that can seriously imperil climate action. The papers authored by Belgian scholars Thibault Pirson and Gauthier Roussilhe called for attention to the carbon lock-in effect of Taiwan's electronic manufacturing industries and urged an urgent rethinking of the road ahead to effectively reduce the absolute environmental footprint of IC production because even though the size of semiconductors is small, their production is intensively involved with chemicals, energy, and water usage.

Regulation, investment, and customers have become the three key forces pushing semiconductor companies such as TSMC, UMC, Nanya Technology to go green and leverage ESG as a competitive advantage. The fact that semiconductors are going to be ubiquitous due to pervasive applications in the Internet of things (IoT), electric vehicles, AI, 5G communications, etc., will require those companies to produce more chips in the future. But in doing so, they will also create more negative impacts to the climate.

As a key provider supplying more than 63% of IC foundries and 58% of IC packaging to the rest of the world, Taiwan's semiconductor industry has a big impact on the global ICT supply chain and is critical to the carbon-neutral agenda. But it takes policy to address the issue at hand; individual efforts of several industry leaders may not suffice for minimizing the cost added by carbon tariffs when it comes to international trade, should the semiconductor industry be included in the EU's Carbon Border Adjustment Mechanism (CBAM) in the future.

As a leader in the global semiconductor industry, with many of its semiconductor firms ranked as top performers in various sustainability ratings, Taiwan should take the initiative to participate in formulating the global standards of ESG. Since the Global Reporting Initiative (GRI) is going to stipulate standards for individual industries, semiconductor industry leaders should actively participate in the process, said Verna Lin, head of the Greater China regional hub of GRI at a forum hosted by Taiwan Institute for Sustainable Energy (TAISE).

Times listed in S&P DJSI

Ranked in 2022 S&P Global Sustainability Report



Top 10%



Top 1%



Top 1%

Nan Ya Tech


Top 5%

Win Foundry


Top 10%

Vanguard Intl


Top 10%

Source: S&P DJSI, compiled by DIGITIMES, July 2023

Since the manufacturing process of semiconductors uses electricity, water, and chemicals heavily while relying on perfluorocarbons gases (PFGs) during the fabrication, their successful reduction of power consumption and effective recycling of water and waste will make a significant contribution to greenhouse gas reduction action plans implemented by governments and their supply chain partners, thus helping the world deal with climate change challenges.

Sabrina Yu, DIGITIMES Research analyst and a sustainability expert certified by the Taiwan Institute for Sustainable Energy (TAISE), said CBAM has announced that it will start levying carbon tariffs on imports of certain goods and selected precursors whose production is carbon intensive and at most significant risk of carbon leakage – cement, iron and steel, aluminum, fertilizers, electricity and hydrogen – on October 1, 2023. Official implementation of CBAM will be effective on January 1, 2026. "Although the semiconductor imports have not been included in CBAM yet, it has become an important incentive behind Taiwanese companies' decarbonizing efforts," said Yu.

"However, besides efforts by the individual manufacturers, it also requires a national-level effort of the energy transition," Yu explained. "Taiwan needs to take alternative clean energy sources such as low-carbon hydrogen, nuclear fusion, etc., into consideration for power generation, because large-scale renewable energy development projects have land acquisition difficulties due to its constrained territory."

Energy policy is key

Taiwan imports 97.5% of its energy sources from carbon-intensive resources such as coal, crude oil, and natural gas, and the government has announced plans to phase out nuclear power plants by 2025, failing to create a sufficient supply of renewable energies will indirectly hamper the competitiveness of the industries. In the latest national Electricity Resource Supply and Demand Report published by the Ministry of Economic Affairs (MOEA), data showed that Taiwan's renewable energy installation progress is falling behind schedule. MOEA has adjusted the 2025 goal to 15.5% from the 20% share of power generation previously set for renewable energies.

That would be bad news for companies such as TSMC, UMC, Nanya Technology, and ASE, which have devoted significant efforts to their supply chain sustainability and have participated in global initiatives such as RE100. That is because if the home country failed to meet the EU standards, these companies, no matter how well they do individually, will find it difficult to escape the carbon trap, since they all share the carbon emissions produced by the high-carbon laded power grid of the Taipower system.

Model ESG compliance by TSMC, UMC, and NanYa Technology partly was driven by customers who would want to decrease their own carbon footprint in their supply chains. Apple, AWS, Microsoft, Nvidia, and AMD all have their individual sustainability goals to meet.

Even though the Taiwan government has announced plans to go carbon neutral by 2050, the fact that there is an insufficient supply of green energy has made semiconductor companies, as well as other industries, worried that there is nothing they can do but pay for their carbon emissions. And that would add to the cost of their production, thus hampering their competitiveness.

Former CEO of the Australian Energy Council, Matthew Warren, also warned recently in a forum that since Australia is planning to reduce carbon emissions from oil, natural gas, mining, and manufacturing industries in the future and implementing regulations related to energy prices and imports and exports, Taiwan, which imports 37% of the liquefied natural gas (LNG) it consumes from Australia (which is also the largest source of coal for Taiwan), should beware of the urgency for policy changes.

However, since CBAM will be effective soon, it is urgent for Taiwanese industry leaders to urge the government to adjust energy policies and increase alternative green energies in its power generation.

Net Zero Goal Year

Percentage of Green Energy in Power Used in 2021










Source: Company Sustainability Reports, Compiled by DIGITIMES Research, July 2023.