In a world increasingly driven by artificial intelligence, cloud computing, and high-performance chips, semiconductors have become the foundation of modern life. They power everything from smartphones and self-driving cars to the AI models transforming industries. However, while the technological progress enabled by chips is undeniable, chip manufacturing is very energy-intensive. With rising electricity demand, innovative technologies could help keep costs affordable and ensure reliable power. 

To understand the scale of energy consumption in this industry, consider this: a single semiconductor fabrication plant can use as much electricity as an entire mid-sized city. Taiwan Semiconductor Manufacturing Company (TSMC), one of the world’s largest chipmakers, consumed over 21 terawatt-hours (TWh) of electricity in 2022—equivalent to the annual energy use of Iceland. Meanwhile, data centers, the nerve centers of the AI boom, already account for around 1 percent of global electricity demand. That number is only expected to rise as companies race to deploy ever-more energy-intensive AI models. The environmental cost of this digital explosion is mounting, and the industry now faces a defining challenge: can innovation keep pace with sustainability?

For years, tech giants have championed efficiency, promising that advances in chip design would reduce energy consumption even as computing power increased. Yet, the innovations meant to make our lives easier—AI, automation, and cloud services—fuel the significant energy demand. Training a single large AI model can emit as much carbon dioxide as five cars over their entire lifetimes. The more powerful chips become, the more energy they require. Ironically, every step we take to make chips more efficient seems to push energy consumption even higher. So where does that leave us?

Some within the industry argue that making chips more efficient is the answer. Shrinking transistor size has been the go-to solution for decades, following Moore’s Law, which predicted that the number of transistors on a chip would double roughly every two years. As semiconductor manufacturers continue to shrink transistor sizes to 3 nanometers (nm) and even 2 nm, they are developing chips that maintain high performance while using significantly less power. For instance, TSMC expects its upcoming 2 nm technology to offer a 10–15 percent performance increase and a 25–30 percent reduction in power consumption compared to its 3 nm technology. Others are looking beyond silicon entirely. Materials like gallium nitride and silicon carbide conduct electricity more efficiently than traditional silicon, reducing waste and making them ideal for high-performance applications.

The same AI models consuming vast amounts of energy may also hold the key to reducing energy use. AI-powered chip design is revolutionizing the way manufacturers build their semiconductors, allowing for more precise energy optimization. These AI-driven models can predict performance bottlenecks, reduce power leakage, and optimize cooling strategies to minimize excess energy use.

However, making chips more efficient will not be enough to offset the industry’s growing energy footprint. The real challenge lies in how these chips are manufactured and powered. Semiconductor giants have pledged to transition to renewable energy, with companies like TSMC committing to using 100 percent renewable energy by 2050. Intel has already reached 80 percent renewable energy usage, and Samsung has set aggressive carbon neutrality goals. Yet, these efforts face a fundamental obstacle: semiconductor manufacturing requires an uninterrupted power supply, which renewable sources like solar and wind struggle to reliably provide. To address this, some companies invest in advanced energy storage solutions, while others sign long-term contracts with renewable and other emissions-free energy providers to secure a steady supply.

So what happens next? If the industry keeps using energy at this pace, we could see a future where the very technology meant to drive efficiency leads to power shortages, rising electricity costs, and even new government regulations. Some governments are already taking notice, pushing for stricter energy efficiency standards in chip production and data center operations. 

The European Union’s Green Deal includes provisions to make the electronics industry more sustainable, encouraging energy-efficient design and reducing electronic waste. However, it relies more on strict government regulations rather than creating the right conditions for innovation to thrive. Instead of letting companies compete to develop more efficient, cost-effective technology, these rules could drive up production costs and limit flexibility. In the end, that might make chips—and the everyday tech we rely on—more expensive, without necessarily solving the energy problem in a meaningful way.

Ultimately, the industry must decide whether to continue expanding at any cost or commit to genuine sustainability. Efficiency breakthroughs and clean energy adoption are promising steps, but they won’t be enough without systemic change. A shift toward circular manufacturing, where old chips and electronic waste are recycled into new components, could help reduce the environmental toll. Collaboration between tech companies, policymakers, and energy providers will also ensure that innovation minimizes semiconductor fabrication’s environmental footprint.

One of the simplest ways to drive innovation is immediate expensing—letting companies fully deduct the cost of new equipment and facilities immediately after purchase instead of over years. This gives businesses the flexibility to invest in energy-efficient technology faster. Rather than relying on strict regulations, policymakers should streamline the processes for building, expanding, and innovating.

The semiconductor boom is not slowing down, but its energy consumption cannot keep rising unchecked. Chips aren’t going anywhere, but neither is the energy problem. The real question is: can we innovate fast enough to keep up or will outdated regulatory policy stand in the way?