Semiconductors are integral to modern technology, powering devices from smartphones to supercomputers. Beyond consumer electronics, these chips enhance economic efficiency and reduce environmental impact. They drive advancements in electric vehicles (EVs), smart grids, and energy expansion, making them an essential tool for sustained economic growth and technological progress.

As nations and corporations prioritize expanding energy sources while reducing waste and improving efficiency, semiconductor technology is key in making industries more productive and cost-effective. However, semiconductor manufacturing is resource-intensive, prompting discussions on how the industry can sustain economic growth while improving sustainability practices.

Semiconductors make EVs more efficient and reliable. They manage battery systems, regulate power conversion, and optimize energy use, improving driving range and performance. Innovations in semiconductor technology are driving longer-lasting batteries and shorter charging times, making EVs a practical and cost-effective alternative to gasoline-powered cars.

In energy production, semiconductors enable smarter, more efficient power distribution. Solar panels and wind turbines generate intermittent electricity, but integrating these sources into the grid requires advanced chips to manage power flow effectively. Smart grids use semiconductor technology to analyze real-time energy demand, adjust distribution, and minimize energy waste, ultimately reducing costs and improving grid stability. These advancements make energy expansion more efficient and support broader economic growth.

Beyond energy production, semiconductors improve efficiency in everyday technology. Low-power chips help reduce electricity consumption in household appliances and industrial machinery. Data centers consume vast amounts of energy and are increasingly adopting energy-efficient processors to lower power usage and operational costs. As artificial intelligence and cloud computing expand, optimizing semiconductor efficiency will be crucial in managing economic and environmental impact.

Manufacturing chips require large amounts of energy, water, and raw materials. Semiconductor fabrication plants, or fabs, consume millions of gallons of water daily, and the process involves hazardous chemicals that must be managed carefully. Additionally, chip manufacturing is highly energy-intensive. A single fab can use 100 MWh per hour, more than some refineries. TSMC consumed 25,000 GWh in 2023, making up 6 percent of Taiwan’s energy use, expected to reach 12.5 percent by 2025. Leading chipmakers are addressing these concerns by shifting to low and zero-emissions energy sources, improving water recycling systems, and adopting more sustainable materials, but the rising global demand for chips presents an opportunity to help lower green premiums without the help of the taxpayer. 

>>>READ: The Semiconductor Boom Is a Massive Energy Consumer—Can Innovation Save Us?

Rather than relying on subsidies and heavy-handed regulations, policies that promote open markets and reduce trade barriers can help the semiconductor industry continue innovating while addressing its environmental impact. Scott Lincicome of the Cato Institute suggests several strategies that could drive semiconductor sector growth while ensuring economic and technological resilience.

One critical step is improving tax policies for capital investments. The current tax system often disadvantages capital-intensive industries like semiconductor manufacturing. Implementing full expensing for capital investments would encourage the expansion of fabs and the development of advanced, energy-efficient production techniques. 

Another key strategy is reducing trade barriers. Eliminating tariffs on semiconductor components would lower production costs, making it easier for companies to invest in efficiency and sustainability improvements. Lower costs mean more resources can be allocated toward developing cutting-edge technology that enhances energy efficiency across industries. 

Pursuing international trade agreements with allied nations can strengthen supply chains and open new semiconductor product markets. Greater trade cooperation can drive global standards for efficiency and sustainability in chip production while ensuring access to key raw materials. 

Finally, avoiding excessive social policy mandates in semiconductor subsidies would allow companies to focus on technological advancements rather than meeting arbitrary conditions that may not align with business needs. When public funding is involved, it should prioritize industry growth and competitiveness rather than social engineering. 

Semiconductors are crucial to technological advancement and economic expansion. The industry must drive efficiency and innovation while minimizing its environmental footprint. Instead of relying on government mandates, market-driven policies that foster open trade, improve tax structures, and support a strong workforce will allow the semiconductor industry to thrive. By embracing these strategies, the industry can sustain long-term economic growth and technological leadership while making energy use more efficient and cost-effective.

The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.