On Sept. 24, 2021, Intel broke ground on two new computer chip factories in Chandler, Ariz., just one of many such projects companies are racing to complete across the country to fuel a seemingly bottomless demand for semiconductors. Amid the backdrop of dirt, steel, and bulldozers, Intel CEO Pat Gelsinger stood at a podium to address the crowd gathered to mark the occasion. “Isn’t this awesome?” he said, gesturing to the massive construction site behind him. “If this doesn’t get you excited, check your pulse.”

Intel’s plans for its campus near Phoenix are indeed remarkable: The chip giant is pouring $20 billion into the project, and says the new factories, or fabs, will create thousands of jobs, not to mention significantly boost its domestic capacity to churn out semiconductors used in products like personal computers and data center servers. But there’s another, less celebratory side to the recent boom in chip manufacturing—not just Intel’s, and not just in Arizona. Critics worry that the new plants could exacerbate the growing climate crisis, spoil the environment with chemicals, and suck aquifers dry. Here’s why: While semiconductor chips are made in “clean rooms,” manufacturing them is in fact quite dirty.

Producing the fingernail-size building blocks of electronics is an intricate and energy-intensive process. To that end, large fabs can use as much as 100 megawatt-hours of power hourly, more than what oil refineries or automotive plants consume, according to energy management provider Schneider Electric. Each semiconductor factory can also consume more than 1 million gallons of water daily, in addition to producing thousands of tons of chemical waste annually.

What’s more, the challenges of mitigating these environmental hazards could soon become even harder. New technology used for making high-end chips requires even more energy and therefore is an even greater potential source of carbon emissions. And despite the industry’s progress on making chipmaking cleaner, plenty of work remains.

To be sure, onshoring chip production has many upsides, including bolstering supply chains and even making the U.S. safer—one of the federal government’s stated reasons for implementing the CHIPS and Science Act, signed by President Biden in 2022. The legislation authorized nearly $53 billion in subsidies and tax credits to incentivize semiconductor companies to invest more in domestic research and manufacturing. So far, it appears to be working.

Since the CHIPS Act was enacted, a number of chipmakers have committed billions of dollars to building new plants. In addition to its new factories in Arizona, Intel has broken ground on fabs in Ohio. Meanwhile, Taiwanese chipmaker TSMC, which makes most of Nvidia’s processors, is also expanding in Arizona with a $40 billion build-out, reportedly among the largest foreign investments in U.S. history. And memory chip manufacturer Micron has plans for a massive plant in Boise, where the company is based.

1 million
Gallons of water used by a chip factory daily. Source: Intel

It’s no surprise that the industry has rallied behind the CHIPS Act. (Who wouldn’t, with $53 billion in financial incentives?) But again, all of this expansion comes at a cost. And Intel and its rivals now find themselves having to come together to develop cleaner manufacturing. After all, they have a lot riding on their ability to both take advantage of the government’s financial incentives and achieve the ambitious sustainability goals they have set for their companies. Intel, for example, has committed to reach net-zero emissions for its own operations by 2040.

That’s why in November 2022, just a few months after the CHIPS Act was signed, the semiconductor industry formed a new group with 60 founding members that aims to accelerate the reduction of greenhouse gas emissions.

“We can’t do it alone,” says Todd Brady, Intel’s chief sustainability officer. Brady joined the company 28 years ago, and he says that while today’s challenges require the backing and collaboration of the entire industry, Intel has been making headway on more sustainable manufacturing practices for decades.

According to Brady, the company’s carbon emissions peaked in 2006, and have since been declining because of a growing reliance on renewables. Globally, Intel now gets 93% of its electricity from “clean” sources such as solar and wind.

Still, those energy demands are huge. A 2020 paper titled Chasing Carbon: The Elusive Environmental Footprint of Computing found that chip manufacturing was responsible for the majority of the carbon output of a consumer electronic device, rather than usage over its entire life cycle. And the process could get even more energy-intensive.

“The newer fabs for the most advanced [chip] designs will come with even heavier electricity demands,” researcher and paper coauthor Carole-Jean Wu tells Fortune in an interview.

100
Megawatt-hours consumed by large chip plants hourly. Source: Schneider Electric

Intel and its rivals have plenty of reasons to keep reducing their carbon footprint, and not just because of their ambitious goals. While most new and existing semiconductor hubs in the U.S. welcome their investments, local communities and organizations worry about the environmental impact.

Use of water is of particular concern, especially in parts of the country like Arizona where it’s not exactly plentiful. Chips must be rinsed with ultrapure water during the manufacturing process, in addition to water being used to cool equipment, as in data centers.

But here, too, companies like Intel have made progress, with a growing percentage of water used being recycled after cleaning. Intel says it has already reached “net-positive water” in the U.S. and India and will hit this same goal in all countries by 2030, even with the new sites and the increased water use they require. To fully meet its goal, the company is also working with nonprofits. Those projects, such as helping local communities use water more efficiently, offset water lost in manufacturing, mostly due to evaporation.

Much work still needs to be done to come up with greener chemistry in chipmaking, as several types of chemicals that harm the environment are currently used and then pumped into the atmosphere. At Intel’s Arizona campus, where the new facilities are still unfinished, the company already emits about two tons of hazardous air pollutants quarterly.

Intel’s Brady says this is one area in which a concerted effort by the whole industry could make a difference, in order to come up with alternatives to harmful chemicals. This, he says, is the dirtiest part of chipmaking. And the CHIPS Act, with all of its incentives to build bigger and faster, is making it more critical for chipmakers to act, including reducing the use of chemicals that contribute to greenhouse gases. After all, while onshoring chip production creates jobs at home, it also brings the pollution closer.

“We set our 2040 goals knowing we’re going to be expanding,” says Brady. “It’s going to be a lot of work.”

This article appears in the February/March 2024 issue of Fortune.

The chip industry’s dirty little secret: It’s very dirty