Issue 112

Chipageddon

Delivered on 10 May 2021 by Justin Pyvis. About a 5 min read.

The ABC (an Australian government news organisation) ran an article 'explaining' the global microchip shortage, titled What does chipageddon have to do with climate change?

As you might have guessed by the title, the authors attribute the global chip shortage – chipageddon – to a drought in Taiwan (its worst for 56 years, according to the BBC), which they say "is happening in the context of a changed climate, particularly the extremes". At first glance, that makes sense – chip production requires a lot of water and the ABC cites a 2012 journal article that concludes climate change will lead to "a rise in drought frequencies" in Taiwan (as well as increased floods).

There are two major problems with the ABC's article. First, the paper cited only modelled the years 2080 - 2099. It's a bit of a stretch to say the current drought "is happening in the context of a changed climate", then citing a paper that supports that argument by modelling climate change 59 - 78 years into the future.

But the biggest problem with the article is there's no evidence a lack of water has actually affected Taiwan's chip production.

Due to the drought, the government has been transporting water from less affected regions for use in technology parks (where most microchip factories operate). So while agricultural crop yields might be damaged due to the lack of typhoons in 2020 (around 70% of water usage in Taiwan is for relatively lower value agricultural use), microchip manufacturing has so far been spared.

Don't get me wrong: climate change is something Taiwan's chip producers will have to manage going forward. But it can be managed – Taiwan's biggest issue is not the drought but a chronic underpricing of water. Taiwan has the cheapest water in Asia and one of the lowest water prices in the world. That leads to inefficiencies all the way down the supply chain, from wasteful behaviour by households to entire industries being built around artificially cheap water.

Fix prices, fix the drought.

As an addendum (because you won't learn much about chipageddon by reading that ABC article), the current chip shortage stems from the combination of the US-China trade dispute disrupting supply chains (Huawei reportedly stockpiled six months' worth of inventory) and a huge miscalculation on behalf of manufacturers around the world. According to Taiwanese chipmaker TSMC, "In March, 2020, as COVID paralysed the US, car sales tumbled, leading automakers to cancel their chip orders. So TSMC stopped making them."

Global manufactures panicked when the pandemic hit and cancelled their orders. Suppliers stopped producing. Now they're crying shortage because the rebound in the demand for durable consumer goods has been so intense. Hence, chipageddon.

The Maher effect

Old man yells at Bitcoin
Source: Ben Kaufman/Twitter

Many of you may have seen comedian/talk show host Bill Maher's hit job on Bitcoin last week. He clearly doesn't understand crypto and makes a lot of mistakes in his analysis, but he tends to do that with everything he doesn't understand:

  • On vaccines, "It's presented as this genius medical advancement. No it's actually this risky medical procedure."
  • On camera phones, "It's a phone not a Swiss army knife."
  • On social media, "I already know what the captain of the football team is doing these days: mowing my lawn."
  • On SARS, "Stop scaring us with diseases we will never get... Mysterious Asian diseases don't come knocking on your door."
  • On streaming, "I just think people watching other people playing video games is a waste of f**king time."

However, one valid point he did bring up was Bitcoin's electricity use:

Bitcoin uses more electricity per transaction than any other method known to mankind; just one uses more energy than a million Visa transactions and has the same carbon footprint as 85,000 hours of watching YouTube ... Bitcoin uses more energy than Netflix, Apple, Facebook, Microsoft and Google combined.

It's a legitimate concern, but also one that was answered last week by the Harvard Business Review:

In December 2019, one report suggested that 73% of Bitcoin’s energy consumption was carbon neutral, largely due to the abundance of hydro power in major mining hubs such as Southwest China and Scandinavia. On the other hand, the CCAF estimated in September 2020 that the figure is closer to 39%. But even if the lower number is correct, that’s still almost twice as much as the U.S. grid, suggesting that looking at energy consumption alone is hardly a reliable method for determining Bitcoin’s carbon emissions.
...
Almost all of the energy used worldwide must be produced relatively close to its end users — but Bitcoin has no such limitation, enabling miners to utilize power sources that are inaccessible for most other applications... Bitcoin miners from North Dakota to Siberia have seized the opportunity to monetize this otherwise-wasted resource, and some companies are even exploring ways to further reduce emissions by combusting the gas in a more controlled manner.
...
Many journalists and academics talk about Bitcoin’s high “per-transaction energy cost,” but this metric is misleading. The vast majority of Bitcoin’s energy consumption happens during the mining process. Once coins have been issued, the energy required to validate transactions is minimal. As such, simply looking at Bitcoin’s total energy draw to date and dividing that by the number of transactions doesn’t make sense — most of that energy was used to mine Bitcoins, not to support transactions.
...
Because Bitcoin's energy footprint has grown so rapidly, people sometimes assume that it will eventually commandeer entire energy grids... [However,] the energy mix of Bitcoin grows less reliant on carbon every year... [and] miners are unlikely to continue expanding their mining operations at the current rates indefinitely.

TL;DR: Bitcoin's electricity use and environmental impact is "a lot less alarming than you might think".

Merkel nails it

For those who missed it, US President Joe Biden jumped on the 'abolish intellectual property (IP) for COVID-19 vaccines' bandwagon last week, "amid pressure from Democrats in his party to remove patent protections". In other words, yet another policy directed at virtue signalling rather than accomplishing anything useful.

The thing is, IP is not the handbrake on vaccine production and distribution. IP holders have been more than willing to licence it to whomever has, or is willing to develop, manufacturing capacity. Moderna (the creator of one of the two mRNA vaccines) even went so far as to suspend enforcement of its IP way back on 8 October 2020:

...while the pandemic continues, Moderna will not enforce our COVID-19 related patents against those making vaccines intended to combat the pandemic. Further, to eliminate any perceived IP barriers to vaccine development during the pandemic period, upon request we are also willing to license our intellectual property for COVID-19 vaccines to others for the post pandemic period.

It's not just Moderna, either. All vaccine makers are licencing their products to whomever wants them. Take AstraZeneca, which for all its problems has built a supply network with 25 manufacturing organisations in 15 countries to produce three billion doses this year.

Thankfully the world still has a handful of politicians that possess some common sense. In response to Biden's support of abolishing IP, German Chancellor Angela Merkel (via a spokesperson) nailed it:

The US plan would create "severe complications" for the production of vaccines. "The limiting factor for the production of vaccines are manufacturing capacities and high quality standards, not the patents. The protection of intellectual property is a source of innovation and this has to remain so in the future.

If you want to make the 'scarring' from the pandemic even worse, then abolishing vaccine IP would be a great way to do that, as it would undermine the incentive to quickly innovate during the next crisis.


Issue 112: Chipageddon was compiled by Justin Pyvis and delivered on 10 May 2021.