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The Commerce Department announced Monday it pledged up to $6.6 billion<\/a> to Taiwanese semiconductor manufacturer TSMC, which will add a third chip manufacturing facility in Arizona to the two in the works. The grant will go down in Washington as one of the crown jewels of the Biden administration\u2019s initiative to bring the supply chain for ubiquitous\u2014and strategically vital\u2014computer chips back to the United States.\u00a0<\/p>\n But in Phoenix, where the factories are going to be built, TSMC faces a lingering question: where\u2019s the water going to come from in one of the driest cities in the country<\/a>?<\/p>\n Semiconductor manufacturing requires water, and lots of it. The global industry consumes almost as much water as New York City does, according to a S&P Global Ratings report<\/a>, which flagged water supply as a potential threat. <\/p>\n \u201cWe view water scarcity as a risk in the coming decade for the tech hardware industry, particularly the water-intensive semiconductor subsector,\u201d S&P warned in February. \u201cMishandling of such a risk could hit a chipmaker\u2019s operations and creditworthiness.\u201d<\/p>\n Phoenix has been in a drought for well over a decade<\/a>. In fact, Arizona put limits on some new housing developments<\/a> last year because there isn\u2019t enough groundwater to go around. But local officials say the city has enough water for TSMC, and potentially even more companies, as the region emerges as a top chip hub. <\/p>\n \u201cWhen you\u2019re dealing in a limited and precious resource like water, if you\u2019re using a lot of water for one [facility], it\u2019s an economic tradeoff,\u201d Cynthia Campbell, Water Resources Management Advisor for the city of Phoenix, told Fortune. \u201cWe do [have enough water.]\u201d<\/p>\n Semiconductor fabs rely on water<\/a> to clean the tiny silicon wafers that computer chips are built on. And as design companies such as Arm and Nvidia<\/a> have developed new, more complex cutting-edge chips to support tech like AI, TSMC has required even more water to build them. TSMC\u2019s water usage per unit has been trending up<\/a> in recent years, though it\u2019s also reusing water and aims to achieve a 90% recycling rate<\/a>. <\/p>\n Still, some experts question the actual benefits.<\/p>\n \u201c90% recycling sounds really good,\u201d said Josh Lepawsky, a professor at the Memorial University of Newfoundland and Labrador and an expert in resource use and waste in the electronics industry. \u201cMaybe this is obvious, but 90% means that by definition, 10% is lost, or not recycled. Every 10 days, you\u2019ve got a 100% need for \u2018new water.\u2019\u201d<\/p>\n In addition to water usage, chipmakers produce wastewater as production relies on chemicals that have harmful or unknown environmental impacts. Last August, a coalition of semiconductor manufacturers argued against a proposed EPA regulation to ban PFAS, commonly known as \u201cforever chemicals,\u201d writing that<\/a> it would prevent the industry from making devices in the U.S. and warning the \u201ceconomic consequences of such a summary action by EPA are immeasurable.\u201d<\/p>\n For its part, TSMC\u2019s wastewater discharge decreased 30% between 2018 and 2022, and the company has committed to a \u201cnear zero\u201d wastewater discharge rate<\/a> for its three Arizona fabs. But again, that draws skepticism. <\/p>\n \u201cNear zero wastewater discharge\u2026there\u2019s no number on that,\u201d Lepawsky said. \u201cIs that 0.1? 1? 10?\u201d<\/p>\n Phoenix\u2019s Campbell said that city water officials still don\u2019t know what TSMC\u2019s precise discharge rate will be, but that authorities have been in close communication with the company about its water use and treatment plans. TSMC and the Commerce Department did not immediately respond to requests for comment.\u00a0<\/p>\n TSMC doesn\u2019t expect all three fabs to come online until 2028<\/a>, and they\u2019ll likely be in service for decades. Lepawsky said that water conditions could worsen in Phoenix over that timeline. But after investing $65 billion of its own<\/a> money into the fabs alongside federal grant money, moving to greener pastures (literally) would be a tough pill to swallow for TSMC.\u00a0<\/p>\n \u201cThese are facilities where you\u2019re expecting to be producing for 10, 20, 30 years. That\u2019s climate change timelines,\u201d Lepawsky said. \u201cWhen you\u2019re using billions of dollars to build a new facility\u2026at those kinds of magnitudes, you\u2019re not just going to pick it up and move it somewhere else if water conditions deteriorate to the point where that\u2019s an issue.\u201d<\/p>\n Other Arizona officials have dismissed claims that water scarcity presents a significant challenge for TSMC: Arizona Chamber of Commerce and Industry CEO Danny Seiden wrote in an op-ed last August<\/a> that increases in water efficiency and conservation will allow Arizona to meet water demands, pointing to TSMC competitor Intel\u2019s Chandler, Ariz. plant, which treats more than 9 million gallons of water a day at its on-site reclamation facility.<\/p>\n As Arizona continues to position itself as a semiconductor manufacturing hub, Campbell said Phoenix\u2019s water supply is capable of handling more projects\u2014as long as they line up with expectations.<\/p>\n \u201cWater is not infinite. There is a limitation at some point in time, but we don\u2019t see things hitting a wall based on the plans we\u2019ve seen,\u201d he predicted.<\/p>\n<\/div>\n\nSubscribe to the Eye on AI newsletter to stay abreast of how AI is shaping the future of business. Sign up<\/a> for free.<\/div>\n