Water is a basis of life, habitat and locational factor at the same time. For this reason, the available resources must be used in a sustainable way. Due to changes in the climate, a globally growing population and the correspondingly increasing demands for food and energy, the available water resources, water demand as well as the requirements regarding water infrastructures will change dramatically over the coming decades. Contaminations of waters with organic substances, nutrients and heavy metals as well as with organic micropollutants represent major challenges for water management. Due to the longevity of the mainly pipe-based infrastructure for water supply and waste water management, it is necessary to develop and implement – at an early stage – potential solutions also for future problems.

Against this background, the objective of the TAB project commissioned by the Committee on Education, Research and Technology Assessment of the German Bundestag was to describe the global dynamics of innovation with regard to water, to work out major challenges and trends with regard to industrialized and developing countries and to analyze in detail the innovation system in the field of water technologies.

Methodically, the project is based on a systematic literature evaluation, a comprehensive patent analysis for determining the dynamics of innovation and the degree of specialization of individual countries, complementary publication analyses as well as on evaluations of foreign trade statistics regarding competitiveness. With regard to the analysis of the innovation system, it was possible to refer – among others – to sectoral primary and secondary data as well as to the experiences of Fraunhofer ISI concerning the implementation of pilot and demonstration projects in the field of water management.

Results

The results of the innovation report show the high and even further increasing relevance of the issue of water: Increasing water demand, decreasing water availability in certain regions due to the climate change as well as considerable impairments of water quality are producing a strong and even further increasing need for action. Correspondingly, market forecasts for water technologies assume a high total volume with considerable growth rates.

Water availability and demand

Water demand and water availability vary considerably from region to region. Multifaceted factors as well as factors of different importance depending on the region influence these characteristics. Besides the natural prerequisites and framework conditions, e.g. the demographic development, economic structures and their changes, the implementation of technological progress, the existing water infrastructure or the institutional and political framework play an essential role with regard to the current and expected scarcity of water as a resource. In the past, the development of the pipe-based infrastructure could not keep pace with global urbanization and the significant increase of the share of the population living in megacities. According to estimates by the OECD, 1.6 billion people (approx. 30 % of the world population) suffered from water shortage in 2000. Taking into consideration the current development trends, it can be assumed that this share of the population will further increase in the future – up to 3.9 billion people by 2050 according to current OECD forecasts (i.e. more than 40 % of the world population). Due to the climate change, it has to be assumed at the same time that extreme events associated with the water cycle (floods, droughts) will increase as a result of which the water demand will be affected in turn.

In Europe as well, water availability and demand are distributed very unevenly. Today already, many European regions are facing water shortage, partly as a natural phenomenon, partly due to excessive exploitation of water resources. Though – in international comparison – Germany is a country with abundant water, the differences with regard to the availability of water are significant here as well. For East Germany, it is expected that the currently already unfavorable water balance will further deteriorate due to the climate change and that the risk of droughts and insufficient water availability will increase.

Challenges regarding water quality

Water quality is affected in different ways, but mainly due to discharges from selective, industrial or municipal waste water sources, pollution from agriculture as well as due to the input of pollutants from the air. These different inputs of pollutants contaminate the water cycle locally, regionally and globally. While the Millennium Development Goal regarding drinking water – halving the proportion of the population without sustainable access to safe drinking water between 1990 and 2015 – basically is considered to be achieved already, the corresponding goal with regard to basic sanitation presumably will not be achieved. At the same time, insufficient sanitation significantly contributes to a contamination of drinking water sources worldwide with severe consequences for the health of the population using this drinking water.

According to its 2000 Water Framework Directive (WFD), the EU pursues the objective of reaching a »good ecological status« for all water bodies by 2015. However, within the framework of the current inventory, more than half of the European flowing water bodies are classified as not being in a good condition. Whereas a positive development has taken place with regard to the quality of European bathing waters, the European bodies of groundwater are polluted to a high degree with inputs of nitrogen. In order to reduce the contamination with organic or inorganic micropollutants, a list of priority hazardous substances has been defined within the framework of the WFD which are relevant at the European level and for which uniform environmental quality standards have to be observed in future. Moreover, within the framework of the updating provided for in 2013, there is a discussion about an extension of the list by adding i.a. active pharmaceutical ingredients getting into the water bodies either via domestic waste water or due to insufficient elimination in waste water treatment plants. At the national level or for individual water catchment areas, further objectives can be defined regarding substances which are of particular relevance there.

In Germany as well, a significant contamination of the water cycle with noxious substances has to be observed. The high level of nitrogen inputs from agriculture represents a problem both for the groundwater and for surface waters. Besides, contamination with inputs of phosphorus, pesticides, industrial chemicals as well as pharmaceutical residues are of particular importance. Throughout Germany, the contamination of surface waters with mercury mainly transferred via the air exceeds the environmental quality standards applicable for biota. Additional hazards due to the input of chemicals might arise from the so-called »fracking«, i.e. the extraction of natural gas from unconventional reservoirs in the rock pores.

Performance of German water technology manufacturers

In international comparison, German water technology industry has been considered to have a high level of efficiency so far. The TAB project investigated the competitiveness and technological performance of the industry by means of various innovation indicators in order to evaluate its future development. In this context, competitiveness refers to the present performance and is measured by means of current foreign trade figures, whereas the technological performance is determined by means of patent applications and publications thus indicating the state of research and development as well as the future innovation capacity.

Competitiveness

German manufacturers of technology goods relevant for water management dispose of the biggest foreign trade share worldwide as well as of a highly significant specialization in all fields of technology. Today – just as ten years ago – their performance in terms of exports can be considered to be excellent. Intermediate shifts between the different fields of technology have not changed the overall picture to any extent. In world trade, the main competitors are China, the USA, Japan and Italy (see figure 1). The most important target region of German exports still is Europe, followed by Asia and North America. As in the two latter regions the share of imports from Germany still is relatively low, these are the regions with the highest potential with regard to a further increase of exports.

Fig. 1: World trade share in % of major exporting nations with regard to technologies relevant for water management (2011)

 

Technological performance

A different picture emerges with regard to Germany's technological performance which is measured by means of patent applications and publications. However, by the turn of the millennium, it was quite high, but stagnates since that time or even is decreasing in relation to the increasing activities of other relevant countries (figure 2). Thus, between 1990 and 2010, the German share of relevant patent applications worldwide was halved.

So far, this relative decrease did not have any negative influence regarding the competitiveness of German products. However, particularly in the context of international trade, such a decoupling between technological performance and competitiveness cannot be assumed in the long term.

Fig. 2: Changed distribution of patent applications relevant for water management (in %)

 

Water management as innovation system

Basically, water technologies are environmental technologies for which requirements from environmental legislation traditionally represent decisive driving forces regarding the implementation of technical innovations. Against the background of the international dimension of water issues, interactions with other infrastructural areas and global changes (amounts of precipitation and their distribution due to the climate change, demographic development and increasing water quality problems), further areas such as infrastructure policy, foreign and development policy as well as research policy play an important role besides the actual environmental policy.

From the market perspective, the innovation system in Germany is primarily characterized by mainly municipally organized water supply and waste water disposal companies which thus partly have a very fragmented structure. These structures might reduce the pressure to innovate e.g. due to their resulting information asymmetry between management (agent) and decision makers (political bodies or the population as principal) as well as due to limited competitive opportunities. However, these public structures might also alleviate environmentally friendly long-term innovations.

Besides the water supply and waste water disposal companies, households and industrial water management play an important role on the user side particularly with regard to the acceptance and adoption of innovative systems. In this context, the technical particularities of water technologies as a part of large infrastructure systems consisting of a multitude of various components partly with a useful life of more than 50 years have to be taken into consideration. The implementation of innovations in such »slow« systems is problematic, particularly if the associated changes have implications for the overall system. For the functioning of such complex technical systems, standards and technical regulations are of particular importance, which define the interaction between the individual components, but which – however – will even increase the inertia of the overall system simultaneously unless innovative approaches will be taken into consideration in good time.

Public incentive policy might also have a large influence on the innovation system both in the field of research funding and concerning investment incentives with regard to the implementation of water management measures. The analyses regarding research funding show the great significance of the German Federal Ministry of Education and Research (BMBF) in the field of project-related water research. The objective of the Federal Ministry's funding priority »Sustainable Water Management« (NaWaM) is to investigate key technologies and management concepts across relevant thematic areas and to strengthen Germany's leading position in the lead market of »Water Management«. An evaluation of the BMBF's funding catalogue shows considerable fluctuations regarding the number of funded projects (20 to 100 projects) and of the funding amounts (between 20 and almost 70 million euros) per year. Nominally, the funding amount has slightly increased in recent years. However, in real terms, it has decreased considerably over the whole period since 1990. A significant increase has been observed for the shares of joint research projects (to more than 50 %) and projects with international reference (almost 40 % in 2012) – two major developments against the background of global market requirements and the complex problems. In view of other research funding institutions, it can be revealed that further Federal Ministries (Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety [BMU], Federal Ministry for Economic Affairs and Energy [BMWi]), the German Research Foundation (DFG) and the German Federal Environmental Foundation (DBU) are funding project research in the field of water to a considerable extent. Summarized, the dimension of these grants is equal to the funding granted by the BMBF. And here as well, stronger short-term fluctuations regarding the corresponding funding amounts could be observed.

The framework for the funding of infrastructure measures with regard to water management is determined mainly by the German Länder. A considerable part of the funding used in this field comes from the waste water levy, the revenue of which has to be used as earmarked financial means for measures aiming at maintaining and improving water quality. In 2008, the revenue of the levy amounted to 254 million euros corresponding to 5.5 % of the investment amount in the waste water sector. The innovation effects associated with the waste water levy are caused by direct incentives existing for the payment of the levy on the one hand and by the funding of measures financed by the revenue of the levy. In some Federal Länder, guidelines are specifically expressed for this in the Land regulations concerning the waste water levy in order to use these means for the funding of innovative technologies or systems or funding programs with a corresponding orientation have been launched. Within the framework of the intended amendment to the waste water levy, aspects supporting innovation might be given a considerably stronger consideration. A major approach for stronger promotion and funding of innovative technologies and concepts also results from the increasing number of interactions between the water and energy infrastructures. Thus, e.g. innovative water infrastructure measures supporting energy and resource efficiency might be included in programs aiming at reducing greenhouse gas emissions.

Germany's potential as leading provider

The expected global market development for water technologies – estimations assume future investment requirements of more than 500 billion euros per year – involves an enormous export potential for providers of such technologies. With regard to technology-intensive goods such as in the field of water management, foreign trade success is determined not only by price competitiveness, but particularly by competition on quality. In this context, those countries having set up an efficient and sophisticated innovation system and having adapted this system to the needs of the world market are most likely to become a leading provider on export markets and to remain in this position in the long term. To assess the capability of a country of being able to act as a leading provider on the world markets in the future, the combination of various factors has to be evaluated in a general overview. Within the framework of the TAB project, this evaluation has been carried out taking into consideration the following factors (fig. 3):

• market contextual factors on the demand side,
• market contextual factors on the supply side,
• technological performance,
• stakeholder and system structures,
• regulation

Fig. 3: Water technologies: assessment of Germany's future capability to be a leading provider

Concerning the market contextual factors on the demand side, the early anticipation of global trends (demand-side competitive advantage) as well as the dynamics of the domestic market in terms of achieving economies of scale have to be observed. With regard to the demand-side competitive advantage, Germany still plays a pioneering role for the introduction of innovations particularly in fields such as micropollutants, energy-efficient water technologies and system concepts as well as phosphorus recycling. Regarding the growth of the domestic market, a rather average development can be observed.

Among the market contextual factors on the supply side, transfer and export advantages have to be evaluated. Due to the awareness level of German technologies determined by means of the transfer advantage and due to the market knowledge of German manufacturers, Germany has an excellent starting position as leading exporter. However, not only the rate of absolute exports is important, but also their regional distribution. With regard to water technologies, the geographical concentration of German exports on the target countries corresponds approximately to the average of all industrial goods. However, Germany exports mainly to EU Member States and other OECD states, i.e. not to those states for which a large growth of the water technology market is to be expected. In an overall evaluation of the market contextual factors related to the supply side, this leads to an overall result between »very good« and »good«.

Future foreign trade success regarding technology-intensive goods implies a high technological performance. With regard to the patent share, Germany's position has worsened in recent years. Meanwhile, the USA and Japan are clearly ahead of Germany. Furthermore, the specialization concerning patents and publications is below average, so that meanwhile Germany's technological performance is evaluated to be between »fair« and »good«.

The improvement of the own position in the competition on quality requires the existence of efficient actors as well as their intensive networking within the innovation system. In Germany, indeed, the entire value-added chain is represented by domestic providers, but system providers are barely available compared to foreign competitors. With regard to improving the networking of the water technology sector which is mainly characterized by small and medium-sized structures, various initiatives have been launched in recent years in order to strengthen particularly the (international) competitiveness of the sector and to improve the innovative capacity. In 2009, the »German Water Partnership« (GWP) was founded as a meanwhile also internationally established network consisting of private and public enterprises, professional associations and institutions from economy, science and research. With regard to interactions between science and economy, the funding activities of the BMBF (German Federal Ministry of Education and Research) play an important role. Concerning the potentials for knowledge spill-overs from complementary sectors, mechanical engineering – a sector traditionally being very efficient in Germany – is a major player with regard to water technologies. Altogether, Germany's starting position with regard to the system structure can be evaluated to be slightly better than good.

In many ways, innovations depend on the requirements of regulation which might influence the demand in the field of water management to a considerable extent. In the past, Germany played a pioneering role in this regard. However, the focus of new regulation approaches meanwhile has been shifted more and more to the EU level. In some subareas of water management (handling of micropollutants, improvement of energy and resource efficiency), Germany still has an important signalling function. For an evaluation regarding the innovation effects of regulation, both its stability and predictability are decisive which – for Germany – have to be classified as positive so far. However, there are uncertainties e.g. regarding detailed provisions, particularly if those are implemented in very different ways even between the individual German Federal Länder. Overall, with regard to regulation components, Germany currently can be evaluated to be »good« with a tendency towards »very good«.

Figure 3 results from a translation of the qualitative assessment of Germany's capability to be a leading provider into a rating scale ranging from 1 (fair) to 3 (very good). Whereas, on the one hand, the market contextual factors both on the supply and demand side stand out positively and also the system and actor-related elements as well as the regulation side all in all are evaluated to be still slightly better than good, the technological performance declines on the other hand. Concerning this factor, Germany's position has worsened significantly since 1990. This suggests the interpretation that, however, Germany's excellent positioning in the past still is reflected in a considerable export success today, but that Germany's prospects of being able to act as a leading provider on the world markets in the future have worsened.

Conclusions and options for action

The results of the innovation report show the high and even further increasing relevance of the issue of water: Increasing water demand, decreasing water availability in certain regions due to the climate change as well as enormous impairments of water quality are producing a significant and even further increasing need for action. Correspondingly, market forecasts for water technologies indicate a high total volume with considerable growth rates.

Currently, this market is one of the pillars of Germany's foreign trade success. However, due to latest developments concerning technological performance – a considerable decrease of the share of patent applications and publications – there is reason to fear that in the medium to long term the international competitiveness of German manufacturers will drop and that the foreign trade share will decline as well. These developments will be influenced by global changes of the market. Demand will shift more and more towards newly industrialized and developing countries combined with an increase of the demand for innovative system solutions which are adapted to the corresponding framework conditions. On the provider side, major newly industrialized countries such as China, India and Brazil are further developing their knowledge capacities and are increasingly able to serve the newly developing markets. For this reason, increased efforts are required in Germany to support the innovation system in the field of water technologies. This concerns research funding which should be strengthened and perpetuated in the long term according to analyses. At the same time, a continuous adaptation of the contents of research programs to the requirements for action as well as a coordination of activities of the different funding sources are necessary.

The targeted funding of the implementation of research results into practice is the second approach for improving the innovation system. This includes sufficient networking between science and economy, but also a close integration of environmental policy and research funding. In this context, it should be investigated whether it is justified to include the water sector in the priority fields of action of the High-Tech Strategy. Moreover, the intended revision of the waste water levy offers the opportunity to provide for targeted incentives for funding the development and implementation of innovative concepts.

The third approach is the strengthening and sustained support of the international competitiveness comparable to that applied in other fields of environmental engineering (e.g. regarding export promotion in the field of renewable energies). On the basis of the organizational framework of the »German Water Partnership« (GWP), tangible points have been identified which might significantly improve the world market orientation of the German water sector mainly consisting of small and medium-sized companies (e.g. additional activities and market analyses for target regions, advisory programs particularly with regard to potential financial instruments, coordination of comprehensive measures). In contrast, global requirements on the demand side would have to be identified very precisely and would have to be taken into consideration e.g. in terms of focusing and coordinating national research activities. In parallel, the particular role of KfW (German Development Loan Corporation) might be used in the field of international water projects in order to fund innovative solutions in a targeted way and to implement high-quality sustainable approaches on a large scale.