The hidden ecological costs of AI: why chip production poses an additional challenge

3 min read

Over the past two years, rapid advancements in general-purpose artificial intelligence (AI) have spurred widespread debate about AI's societal and economic impact, while simultaneously driving a significant expansion in data centres and a surge in demand for semiconductors. At the same time, pressure and criticism from civil society, scientists and policymakers have triggered a lively public debate on the skyrocketing electricity and water demand projected for AI infrastructures. However, focusing solely on the high energy and water consumption in training large language models and in operating data centres is only part of the story. The production of the components that lie at the heart of every data centre – such as graphics processing units (GPUs) or high bandwidth memory chips – also has a substantial environmental and climate impact: Semiconductor manufacturing consumes a high amount of energy and water, emits a variety of greenhouse gases (GHGs) and uses many so-called “forever chemicals” and fluorinated gases.

Europe’s focus on “AI chips”

Particularly in the first quarter of this year, policy makers in Europe have increasingly emphasized the central role of AI in driving technological progress and economic success. In the “Competitiveness Compass” published in January 2025, the European Commission sets the ambitious objective to excel in the “technologies for tomorrow’s economy” and outlines plans for an “EU Cloud and AI Development Act”, emphasizing the need to “support (...) chip design and manufacturing in Europe, including further actions in relation to cutting-edge AI chips.”

The strong emphasis on advanced manufacturing processes for AI chips is also evident in the recently announced “Semiconductor Coalition” launched by nine EU Member States. In their March 2025 declaration, which references the AI Action Summit in Paris, the coalition highlights the “unique opportunity to align our efforts and reinforce Europe’s leadership in cutting-edge technologies”.

The focus on the well-known – though vaguely defined – goal of establishing “cutting-edge” chip production in Europe is not new; it was already a central objective of the EU Chips Act adopted in 2023. In any potential Chips Act 2.0, representatives of the EU semiconductor industry have consistently advocated for also addressing strengths in more mature node chip production, addressing the demand of European end-customers in this segment. However, the recent policy developments indicate that the focus on advanced wafer fabrication is still expected to be at least one pillar of the EU’s chip ambitions.

A mismatch between long-term climate objectives and the competitiveness discourse

What unfortunately also feels all too familiar is the lack of attention to the inevitable environmental and climate impacts of these strategic goals. While broader climate policies – such as those outlined in the Green Deal – are built around long-term transition plans and milestones, the impact of strategic decisions such as the expansion of resource intensive chip manufacturing is not carefully considered, leading to policy conflicts in the mid- to long-term. A closer look at electricity consumption – the largest source of GHG emissions in the industry – helps illustrate this point more concretely. Notably, 56% of electricity usage comes from energy-intensive equipment, including lithography machines essential for wafer fabrication. The remaining 44% is attributed to facility operations, such as heating, ventilation, and air conditioning systems, which are critical for maintaining the controlled environment of cleanrooms.

Energy consumption has grown by 125% over the last 8 years

Our analysis of energy consumption trends in chip production reveals a steep 125% growth over the course of 8 years, reaching 131 TWh in 2023. This is half of the global electricity consumption from data centres (270 TWh) in the same year. This significant rise is driven by the rapid expansion of chip production and the growing complexity of manufacturing processes. To increase the computational power of a chip and increase economic profitability, particularly in advanced logic chip production, innovation is still rooted in the goal of node shrinkage to increase the number of transistors on one chip. However, greater computing power increases the complexity and electricity requirements in the manufacturing process, specifically due to the high electricity demands of advanced lithography equipment. A recent imec study concludes that total energy consumption has increased nearly 3 times from 32 nm to 5 nm chip production. This is further reflected in our observation that the five largest energy consumers in chip production accounted for 69% of total energy consumption in 2023. All of them are active in very advanced wafer fabrication for logic and memory chips – the driver for innovation in AI.

The need to align sustainable goals with AI advancements

The growing energy consumption as one climate dimension among many others – such as the use of fluorinated gases – in chip production highlights that semiconductors as the foundational hardware in AI pose a huge challenge for the Green Transition. If Europe wants to play a meaningful role in advanced chip manufacturing, it has to incorporate three actions in their strategy:

First, long-term technological competitiveness must balance sustainability. Otherwise, strategic goals in chip production will be in conflict with the Green Deal and Paris Agreement.  Europe already offers important infrastructural conditions, such as access to renewable energy and a relatively stable water supply. These conditions must be improved and clear frameworks and rules for incorporating more sustainable manufacturing conditions have to be set.

Second, let’s not forget Europe’s existing strengths. Particularly when it comes to chips needed for industries such as automotive or industrial applications, Europe has market-leading companies. The same goes for indispensable supplier of machines and chemicals needed for chip production. Maintaining these does not only mean geopolitical leverage, but also important positions to research and develop more sustainable manufacturing processes.  

Third, it is vital to recognize that to date, Europe plays no role in advanced wafer fabrication. Less than a handful of companies are currently capable of producing these advanced chips for which Europe is aiming. Since these manufacturers are primarily based in Asia, dependencies will continue to exist. Thus, driving sustainable and resilient chip production should not end at the European boarder. It needs a collective push – initiated by strengthening international partnerships to promote and support sustainable and resilient semiconductor production on a global scale.