Chip Makers’ Guide: The CHIPS Act & California’s Senate Bills

Compliance Countdown: CHIPS Act and California’s senate bills – Here is how the chip makers can navigate new regulations 

The semiconductor industry is at a crossroads. On the one hand, it is one of the most important and fastest-growing industries in the world. On the other hand, the industry is also a major emitter of greenhouse gases. 

In recent years, governments around the world have been implementing new regulations to reduce greenhouse gas emissions. The semiconductor industry is no exception. In California, for example, two new bills have recently been passed that will have a significant impact on the semiconductor industry: SB 253 and SB 261.These bills aim to make companies more open about their impact on the environment by sharing details about their emissions with the public.  

If these bills become law, they will push businesses to actively deal with climate change. The proposed rules would make it mandatory for many California companies to report not just their different emissions but also reveal any financial risks related to climate issues. These new rules might start as soon as December 2024, highlighting the state’s strong commitment to making positive changes for the environment. 

In case of failure to follow the new bills, the companies will have to pay a fine of up to $500,000. The amount of the fine will depend on how bad the company was at following the law and how hard they tried to follow it.  

The company will not get fined for making honest mistakes in their emissions report, as long as they tried their best to be accurate and honest. However, if the company does not file their emissions report at all, they will get fined. 

SB 253: Driving Businesses Towards a More Sustainable Future 

Under SB 253, large companies in California must report their Scope 1, 2, and 3 emissions, regardless of whether they are private or public. 

This means that companies will have to report all the pollution that they produce, both directly and indirectly. This includes pollution from their own operations, as well as pollution from their employees’ commutes, the transportation of their products, and the supply chain. 

Reporting requirements will begin in 2026 for Scope 1 and 2 emissions, and in 2027 for Scope 3 emissions. 

SB 253 is a significant step forward for environmental protection in California. By requiring large companies to report their emissions, the state is making it easier to track progress towards reducing greenhouse gas emissions and to hold companies accountable for their environmental impact. 

These new regulations are set to pose a major challenge to the semiconductor industry. However, they also present an opportunity for the industry to invest in innovative technologies that can help them reduce their environmental impact and become more sustainable. 

In recent years, there have been several compliance updates in the USA that are driving the industry to adopt more sustainable practices. 

One of the most important compliance updates is the CHIPS Act. The CHIPS Act is a $52.7 billion investment in the semiconductor industry that aims to boost domestic manufacturing and reduce reliance on foreign suppliers. This act includes several provisions that promote sustainability, such as tax credits for investments in renewable energy and carbon capture and storage technologies.  

Inflation Reduction Act (IRA): A Catalyst for Sustainability 

The Inflation Reduction Act (IRA) is a landmark piece of legislation that is transforming the way businesses operate, including in the semiconductor industry. The IRA emphasizes the need for businesses to address financial risks associated with climate issues and encourages transparency and risk mitigation strategies. This presents a unique opportunity for semiconductor companies to position themselves as leaders in sustainability.  

One way that semiconductor companies can take advantage of the IRA is through the CHIPS Act, a $52.7 billion investment in domestic manufacturing. The CHIPS Act incentivizes sustainable practices through tax credits for investments in renewable energy and carbon capture technologies. This alignment of economic growth with environmental responsibility sets the stage for a greener future for the semiconductor industry. 

Here are some specific ways that semiconductor companies can integrate sustainability into regulatory compliance under the IRA: 

  • Optimize manufacturing processes to reduce energy consumption and emissions. 
  • Invest in renewable energy sources to power manufacturing facilities. 
  • Develop and implement waste reduction and recycling programs. 
  • Support research and development of new, sustainable semiconductor manufacturing technologies. 
  • Publicly disclose climate-related risks and financial information. 

By taking these steps, semiconductor companies can demonstrate their commitment to sustainability and compliance with the IRA. This will not only help them to avoid legal penalties, but it will also make them more attractive to investors and customers. 

Sustainability is no longer a luxury for semiconductor companies; it is a necessity. The IRA provides a clear roadmap for the industry to embrace sustainability and build a more resilient future. 

The future of business is sustainable. Are you on board? 

Semiconductor manufacturing is a very energy-intensive process. It accounts for about 5% of global industrial electricity consumption. Also, the chip manufacturing process also produces a significant amount of greenhouse gas emissions. The industry is responsible for about 2% of global greenhouse gas emissions. Companies that fail to invest in innovative technologies that can help them reduce their environmental impact will find it difficult to comply with these new regulations. They will also be at a competitive disadvantage, as customers are increasingly demanding products that are made in a sustainable way. 

AI-driven digital twins: The semiconductor industry’s secret weapons for sustainable operations 

Meeting compliance requirements poses significant challenges for the industry. However, the integration of AI (Artificial Intelligence) and digital twin technologies offers a promising avenue for the industry to reduce its environmental footprint and adhere to evolving regulations. 

AI proves instrumental in optimizing manufacturing processes, curbing waste, and enhancing energy efficiency. Simultaneously, digital twins can simulate semiconductor manufacturing facilities’ performance – discovering opportunities for emission reduction. 

Here are some specific examples of how AI and digital twins can be used to reduce emissions and comply with new regulations in the semiconductor industry: 

Energy Optimization: AI optimizes the consumption of energy, water, and chemicals in semiconductor manufacturing, pinpointing areas for reduced energy usage without compromising production quality.  

Yield Prediction: AI can predict yield rates and identifies potential defects, minimizing semiconductor wastage during manufacturing. 

Performance Simulation: Digital twins simulate manufacturing facilities, identifying areas for emission reduction, and enabling the optimization of layouts to minimize energy consumption. 

Compliance Planning: Digital twins aid in developing compliance plans by assessing the impact of new regulations on manufacturing facilities, facilitating the formulation of effective strategies for adherence. 

In leveraging these technologies, the semiconductor industry can navigate the complexities of compliance while actively reducing its carbon footprint.  

Eugenie: Helping you navigate the sustainability landscape 

Eugenie’s digital twins are helping the leading global semiconductor companies in reducing their environmental impact and comply with new regulations. The digital twins can be used to simulate the performance of semiconductor manufacturing facilities in real time and to identify areas where emissions can be reduced. The digital twins can also be used to develop compliance plans for semiconductor manufacturing facilities.  

To conclude 

The semiconductor sector grapples with various hurdles, from escalating expenses and supply chain disruptions to evolving regulations. Nevertheless, the integration of AI and digital twin technologies presents a transformative solution, enabling the industry to surmount these challenges and thrive.  

AI and digital twins offer the semiconductor industry avenues to curtail emissions, ensure compliance with new regulations, and pioneer innovative technologies. The robust capabilities of Eugenie’s digital twins position them as a potent instrument to aid the industry in attaining these objectives. 

As a linchpin of the global economy, the semiconductor industry assumes a crucial role in combatting climate change. Through the adoption of AI and digital twins, the industry can not only minimize its environmental footprint but also can also sustain its pivotal role in fuelling the worldwide economy. 

Decoding California’s SB 253 & SB 261: A Practical Guide for Companies

California’s Legislature has recently approved two significant climate disclosure bills: SB 253, known as the Climate Corporate Data Accountability Act (CCDAA), and SB 261, the Climate-Related Financial Risk Act (CRFRA). These bills collectively mandate various entities conducting business in the state to assess and divulge their carbon footprint and climate risks.  

The Governor has expressed the intention to sign both SB 253 and SB 261 into law. Applicable to both public and private entities, these laws are anticipated to impact over 5,000 businesses. 

While these bills primarily target U.S. companies operating in California, they are part of a worldwide trend pushing for strong climate reporting standards. This aligns with the SEC’s proposed climate disclosure rule in the U.S. and the Corporate Sustainability Reporting Directive (CSRD) in the EU. Notably, California, like the EU, is adopting a broad perspective on which companies should comply. Rather than concentrating solely on companies headquartered or conducting the majority of their business in California, the state mandates disclosures from any company with a presence there. 

Here’s a breakdown of California’s Climate Accountability Package (CCAD) and The Climate-Related Financial Risk Act: 

The Climate Corporate Data Accountability Act (SB 253) 

On September 12, 2023, the Climate Corporate Data Accountability Act marked a significant milestone by passing through the state legislature. This act requires large U.S.-based organizations doing business in California, with annual revenue exceeding $1 billion USD, to disclose their greenhouse gas emissions.  

According to the policy, companies affected will be required to disclose their complete carbon inventories, encompassing scope 3 emissions. This is critical, given that scope 3 emissions typically contribute to over 90% of an organization’s climate impact and are often challenging to quantify. 

The legislation specifies that companies must submit emissions calculations to a digital reporting platform, ensuring that disclosures are easily understandable for residents, investors, and other stakeholders. Moreover, they are obligated to engage independent auditors to verify the reported emissions. 

The California Air Resources Board will supervise the reporting process, ensuring data verification through a registry or a third-party auditor with expertise in carbon accounting. Failure to comply with the new regulations could result in civil penalties from the state’s attorney general. 

Companies must report their 2025 direct emissions from 2026 and their 2026 indirect scope 3 emissions from 2027. This means that organizations need to establish a plan before the year concludes for the systematic collection of auditable emissions data. 

The Climate-Related Financial Risk Act (SB 261) 

This bill mandates large corporations with revenues exceeding $500 million, doing business in California, to submit an annual climate-related financial risk report. This report, based on recommendations from the Task Force on Climate-Related Financial Disclosures, discloses climate-related financial risks and mitigation measures. The submissions will be reviewed by the Climate-Related Risk Disclosure Advisory Group. If signed into law, the first round of reports will be due by December 31, 2024. 

The bill applies to any corporation or business entity established under California laws, the laws of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States. Entities impacted must have total annual revenues exceeding $500,000,000 and engage in business activities in California. 

In the climate-related financial risk report, businesses are required to disclose (i) climate-related financial risk, based on the recommendations of the Task Force on Climate-Related Financial Disclosures, and (ii) the measures adopted to mitigate and adapt to the disclosed climate-related financial risk. 

Submissions will undergo review by the Climate-Related Risk Disclosure Advisory Group, tasked with identifying inadequate reports and proposing additional policy changes and best practices for disclosure. 

SB 261’s goal is to protect consumers and investors from losses resulting from climate-related disruptions to supply chains, workforces, and infrastructure, exacerbated by the effects of climate change. 

The bill also addresses the financial risks businesses may encounter if unprepared for the transition toward a low-carbon economy. For example, automobile manufacturers failing to prepare for the shift towards electric vehicles may experience a decline in market share, leading to revenue losses. 

The initial round of climate risk disclosure reports is expected by December 31, 2024, provided Governor Newsom signs it into law. 

Comparison to SEC’s Proposed Rules 

California’s legislation, while aligned with the SEC’s climate proposal, goes further by demanding disclosure of all three types of emissions for any U.S. company with annual revenue exceeding $1 billion USD. Notably, California’s policy targets both public and private companies, potentially influencing the broader market.  

Why these bills matter 

These bills, covering over 7,000 companies, aim to enhance accountability, reduce carbon footprints, and empower consumers and regulators. For businesses already embracing climate-forward practices, the reporting framework can highlight their initiatives, creating a global push for increased transparency in carbon accounting. 

Preparation is the Key 

Businesses in California need to gear up for emissions reporting as the state shifts towards a low-carbon economy. With reporting requirements commencing soon, adopting a transparent, repeatable data collection process is crucial.  

Platforms like Eugenie offer solutions for target-based emission reduction, ensuring compliance with California’s new regulations. Eugenie’s products offer the provision to track, trace, and reduce emissions to meet regulatory goals. We achieve this using AI-based digital twins. Our digital twins, at both the machine and process levels, monitor performance and resulting emissions. 

With real-time emission tracking, we pinpoint the exact machines and processes responsible for emission levels. This provides clarity to CSOs and other stakeholders on specific contributors to overall emissions. 

Additionally, we enhance machine and process-level data with satellite imagery for volumetric estimation of environmental emissions. This comprehensive approach positions Eugenie as a reliable partner for CSOs and organizations committed to reducing emissions.  

Conclusion 

California’s Climate Accountability Package sets a new standard for corporate transparency, promising a ripple effect beyond the state’s borders. As the global market shifts towards sustainability, companies prepared to disclose and mitigate their climate impact stand to benefit. 

To prepare for California’s Climate Accountability Package, explore how Eugenie can help set emission reduction targets and achieve operational emission reduction without impacting your business KPIs. Talk to us for more information or write to us at [email protected].