Key importance of water in the European economy – Water Europe report

On January 15 this year, Commissioner for Environment, Water Resilience and a Competitive Closed Economy Jessica Roswall declared that her goal for this year will be to develop a new EU Water Resilience Strategy. The Water Europe report on the value of European investments in water management could provide excellent support in this regard. The document highlights the strategic importance of water for economic development, focusing on four priority sectors.

Genesis of the report

Water Europe (EC) was established by the European Commission in 2004 to address water challenges on a continental basis. In two decades, it has grown from a narrow technology platform into an organization that widely promotes innovation and research for water in Europe. The EC’s latest report, Socio-Economic Study on the Value of European Water Investment, was prepared by consulting and engineering agency WSJ and aims to provide decision-makers with macroeconomic data that highlights the real importance of water in the European economy. The analysis focuses on priority sectors: semiconductors, data centers, renewable energy sources and storage, and agriculture and food processing.

Use and pollution of water resources in Europe

The report makes it clear that water extraction and consumption in the EU declined by 17.7 and 17.1 percent, respectively, over the period 2010-2021. Taking into account the simultaneous growth of population and GDP, this means an obvious improvement in water efficiency, which is due to technological development, pricing policies and increased public awareness. The main user of water in Europe remains the energy sector (35-39 percent), followed by agriculture, forestry and fishing (23-24 percent) and public water supply (23-26 percent).

Despite positive trends, one-third of the EU territory is exposed to water stress, i.e. demand outstripping supply, for which the climate crisis is largely responsible. Water pollution resulting from, among other things, the release of untreated wastewater into the environment also remains a serious problem. As a result, only 44 percent of Europe’s rivers, lakes and coastal waters are in good ecological condition, and less than a third have good chemical status.

EU water productivity

The importance of water can be depicted using a purely economic indicator of its productivity. It determines the ratio of the yield of an entity to the amount of water with which it was generated.

The Water Europe report defines water productivity as Gross Value Added (GVA, or Gross Value Added) per unit abstracted. Analyses conducted for 2010, 2015 and 2019 show that water productivity is growing primarily in the construction and manufacturing sectors, while it remains fairly stable in others. As for agriculture, forestry and fishing, the highest productivity was recorded in Luxembourg, Slovenia and Estonia, while the lowest was in Malta, Spain and Greece. The situation is slightly different in the manufacturing sector, where the highest water productivity is observed in Luxembourg, Denmark and Cyprus, and the lowest in Bulgaria, Sweden and the Netherlands.

An analysis of water consumption used in the public supply and wastewater management sectors indicates a GVA of 129 billion euros in 2021. This is less than 1 percent of GVA in all other sectors of the European economy combined. Employment in the water and wastewater sector is less than 1 percent of total EU employment. However, the report’s authors point out the huge investment in water and sewage infrastructure, which annually amounts to approx. 45 billion euros and generate new jobs.

Importance of water in priority sectors

An in-depth analysis has identified the importance of water in four key sectors for sustainable development. The production of semiconductors, which increase energy efficiency in transportation, industry or services, among others, requires huge amounts of ultrapure water – 45 million^{m3 of} water is used for the 3 million wafers produced per month. Further growth in the sector, which is inevitable, could increase this demand to as much as 108 million^m3 per month. The need to improve water recycling technology in the production process is therefore evident.

The data center sector is also growing intensively, with capacity expected to increase from the current 12,000 MW to nearly 18,000 MW as early as 2029. The demand for water here is related to the need to cool equipment, maintain the desired humidity level in servers and provide fire protection. Consumption is estimated at 26,000^m3 for every 1 MW produced per year. If cooling technologies are not improved, European data centers could consume as much as 90 million^{m3 of} water in 2029.

Demand for the water needed to produce green hydrogen is also expected to triple by 2040, reaching as much as 7.3 billion^m3. In addition, the production of batteries for electric cars in the same period is projected to already require 56 million^{m3 of} water.

Water Europe’s analysis also summarizes the agriculture and food sector. In Europe, agriculture accounts for 28 percent of total water withdrawal, with meat and dairy production having a particularly high water footprint. In 2030, depending on conditions and technological advancements, European agriculture could use between 52 and 60 billion^m3 of water. Innovations to reduce water use in the food industry, such as in the production of cheese or beer, therefore appear to be a necessity.

Need for investment

The economic value of water expressed in GVA or number of jobs does not, of course, reflect the true strategic importance of water to the European economy. The production of semiconductors, green hydrogen and EV batteries alone is expected to be worth €1 trillion in 2030. A cost-benefit analysis of investments in innovation to reduce resource consumption in these key technology sectors indicates the potential to save €2.9 billion and create some 13,500 jobs. new jobs.

According to the report’s authors, investments in water management guarantee a wide range of economic and social benefits related not only to increasing the supply of water, but also its quality. The way wastewater is treated is also of great importance – its costs will be significantly reduced if production facilities invest in closed-loop technologies, allowing them to treat water on their own, instead of sending wastewater to traditional municipal treatment plants.

In the agricultural sector, unfortunately, the use of drip irrigation and recycled water evidently increases production costs. Even more uneconomical seems to be the desalination of seawater, which requires huge amounts of energy and additionally creates the ecological problem of the presence of a by-product in the form of condensed brine. Investments that reduce the water-intensity of agricultural technologies, however, are of great importance for the restoration of rivers and other water bodies, resulting in healthier ecosystems, less risk of flooding and better adaptation to climate change.