The potential of the water-energy nexus: Tapping into efficiency

The potential of the water-energy nexus

Danfoss Impact No. 7

Our latest Impact paper emphasizes the critical importance of seeing water and energy as interdependent resources.

Water and Energy

How efficiency links them both

Water scarcity is one of the defining challenges of our time, affecting us all. Global water demand is projected to exceed supply by 40% as early as 2030, while more than two billion people already live without access to safe drinking water.

A major but often overlooked part of this challenge is water’s use of energy. The way we manage energy in the water sector is inefficient — and expensive. Water-related activities account for around 4% of global electricity use. This power is needed to produce, treat, and move water across homes, farms, and industries. Yet decades of underinvestment have left our systems strained and inefficient.

If we fail to act, inefficiencies across the water and energy nexus could cost high-income countries up to 8% of GDP by 2050. But the good news is that proven solutions already exist to strengthen efficiency, resilience, and competitiveness across the water sector.

Behind the global water crisis lie hidden inefficiencies: leaky pipes, aging infrastructure, and excessive energy use. Addressing these requires more than technology alone — it demands coordinated action among governments, companies, and civil society to modernize systems and reform policies.

This paper explores the critical interdependence between water and energy. It highlights where energy use is concentrated within the water cycle, which technologies can reduce waste, and how effective policy can close the gap between ambition and implementation. Above all, this paper calls for a shift in perspective: to see water and energy as interconnected systems, where efficiency in one drives efficiency and resilience in the other. By cutting waste, boosting efficiency, going digital, and making water count, we can scale existing solutions to secure human well-being, enhance climate resilience, and strengthen industrial competitiveness.

Only got two minutes?

These are the key takeaways

Water waste is amplifying the climate crisis and threatening economic resilience

Current practices and infrastructure for water management are both inefficient and insufficient. By 2040, the water sector’s energy consumption is expected to more than double, while the energy sector’s water demand could rise by almost 60%.

Inefficient water consumption is draining the world’s freshwater resources

Inefficient technologies and outdated processes mean that nearly all industries are consuming water at unsustainable rates. For example, growing demand for data processing has led to a corresponding growth in the energy and water consumption of data centers.

Investments in the water sector to boost competitiveness and security

Water is crucial to competitiveness and security. As climate change worsens, reduced access to clean water, sanitation, and declining water storage could cause high-income countries to see an 8% reduction in their GDPs by 2050.10 For the US, 8% of GDP was equal to almost one-third of government spending in 2024. Lower-income countries could experience a more acute reduction of 10-15%.

Water scarcity and rising demand require more energy-efficient forms of water management, treatment, and production

By 2030, global water demand is set to outpace supply by 40%. To meet this demand, many regions will need to increase supply with energy-intensive methods of water production — namely, desalination and wastewater treatment.

The good news is that incredible potential exists today to increase the efficiency, resilience, and economic competitiveness of the water sector.
Kim Fausing, President & CEO, Danfoss

Policy recommendations

By 2030, global water demand will outpace supply by 40%, while the water sector’s energy use is set to more than double. On top of this, in many countries, more than 30% of treated water does not make it to the end user. This is not just a climate risk — it’s a competitiveness and security challenge. For policymakers to address the need to save more water, an integrated approach to the water-energy nexus is needed at all levels of government. Tackling the water-energy nexus means acting on four fronts: cutting waste, boosting efficiency, going digital, and making water count.

Minimize water loss

Set up ambitious national targets on lowering water abstraction, leakage, and consumption.
Invest in proven technologies for leak detection, pressure management, and smart metering to reduce non-revenue water.
Recognize that water loss is also energy and revenue loss —infrastructure upgrades should be guided by total cost of ownership, not just upfront price.

Embed energy efficiency in water policies

Install data collection requirements and sharing platforms to show the real value of water.
Require Minimum Performance Standards (MPS) for wastewater treatment plants, desalination facilities, and data centers.
Consider integrating water efficiency into energy audits, taking into account local resource impacts.
Set up guidelines and share best practices for industrial water reuse, and establish a national industrial water reuse target.

Incentivize digitalization

Fund digital solutions which can relay real-time data on energy prices, distribution costs, and tariffs. Transparency in water prices and the correlation between price and wasted water and energy is critical for decision makers to take informed decisions to improve efficiency.
Establish targets for data collection. The digital tools to increase the efficiency of water management exist, yet they are not widely adopted.

Make water count

Encourage decentralized and flexible supply solutions to strengthen resilience against drought, climate shocks, and geopolitical risks.
Support water reuse, fit-for-purpose treatment, and desalination with clear efficiency requirements.
Match water quality to end use: high-purity water for drinking, lower-purity water for irrigation or cooling.

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The potential of the water-energy nexus: Tapping into efficiency