Innovation needed to solve water’s dirty secret

By Clayton MacDougald, Investment Manager, Water

Water is the world’s most essential resource, yet few appreciate the extensive infrastructure that has been built up around it. A vast system comprised of treatment facilities, piping, pumping stations, associated equipment and an extremely dedicated workforce makes water drinkable, and wastewater manageable, for billions around the planet. Yet this miracle of modern sanitation comes at a cost, in the form of high greenhouse gas (GHG) emissions.

According to various sources, the global municipal water and wastewater sector emits over 800 million metric tons (Mt) of carbon dioxide equivalent (CO2e) per year, eclipsing the global shipping (~650 Mt) and aviation (~750 Mt) sectors. Including water demand from agriculture, industry, wetlands and peatlands, the global “hydrosphere” (excluding oceans) may be responsible for as much as a tenth of all global GHG emissions. Yet as a climate lever, water receives little attention compared with nearly every other sector.


Due to the magnitude of the situation, the industry requires more innovation, investment and focus on the GHG problem. There are several reasons for this: first, in addition to carbon dioxide, wastewater facilities are also significant sources of methane and nitrous oxide, two GHGs that have greater global warming potentials than CO2—as much as 30 times for methane and 300 times for nitrous oxide, over a 100-year period. Second, although the industry is starting to see an increase in innovation focused on tackling GHGs, the rates of adoption are currently very slow and can be partly attributed to the lack of regulations in place to drive adoption. Greater global involvement (from governments, private entities and utilities) should help these solutions gain more traction globally.

Plugging leaks in the system

Fortunately, the water sector is slowly starting to recognize the urgency of the task. More and more water utilities (including some large and influential ones) are issuing net-zero pledges, although this unfortunately still remains only a fraction of the total. Governments are starting to look at ways to incentivize their water systems to reduce their GHG footprint, including several countries in Europe that are exploring the possibility of taxing utilities on certain GHG emissions, with Denmark leading the way.

As awareness spreads about the need to take action, several touchpoints for decarbonization are emerging. Start with energy: pumping drinking water through pipes and running it through treatment systems take massive amounts of power. This results in high emissions: almost 40% of total water sector CO2e per year comes from the energy required to pump and treat water and wastewater, a figure only slightly lower than the total emissions of California in 2020. Finding and fixing leaks to help these systems run more efficiently—as Emerald portfolio companies Aganova and FIDO do—is a good first step. So too is switching from fossil-based power sources to renewal ones like wind and solar.

Waste not, want not

Treatment of wastewater from municipal sewer systems emits over 200 Mt CO2e per year—smaller than the other categories but an area where innovation and new technology could make a big potential impact. Today, as much as 80% of all wastewater remains untreated globally, a huge threat to ecosystem and human health. Cleaning up these waste streams should be a top priority, but so too should mitigating the emissions produced in the process.

Startups that focus on this problem could tap into a huge and fast-growing market, one worth up to $600 billion per year by 2030, roughly double this year’s level. These solutions will need to address CO2 as well as methane and nitrous oxide, the latter two of which are largely unmonitored and so could prove particularly thorny. CO2 emerges from a variety of processes, in particular aeration, a process that promotes biodegradation of organic compounds in the wastewater. The energy used to pump wastewater is also a big emitter.

A wide range of CO2 solutions exist, from switching to renewables, to software-based solutions that optimize energy and aeration schedules, to leveraging membranes and/or specialized bacteria to reduce the intensity of aeration. Methane and nitrous oxide, meanwhile, also arise during biological wastewater treatment; methane could potentially be captured and used to produce biogas, while the nutrients associated with nitrous oxide emissions could be removed from wastewater and used to make valuable byproducts such as fertilizer. To capture the full potential of the latter two, however, requires much more robust monitoring and measurement of both gases—a space that intrepid companies are just starting to enter.

Any GHG reduction campaign, however, will face tradeoffs; strategies to reduce nitrous oxide could lead to higher CO2 or methane emissions. The appetite for big capital expenditures in the utility world is not unlimited, and the sheer number of unknowns—especially when looking at methane and nitrous oxide—may make several players hesitant to adopt bold solutions in the near-term. But there is no doubt that as the world’s water systems expand to satisfy a growing, thirstier world, addressing their climate impacts will become an ever more urgent priority.