US Manufacturers Are Wasting Water That Could Be Reused

To get Industrial Strength delivered directly to your inbox, sign up here.

Water technology groups are trying to translate angst over data centers and widespread droughts into support for a new tax credit intended to spur projects that turn discharged water into reusable supply.

Backlash over data centers has exploded amid fears that the constant whir of servers will drain a community’s resources and leave residents stuck with higher bills. Already, this past summer was the hottest on record for the contiguous US in 132 years of data, according to the National Oceanic and Atmospheric Administration. Nearly 60% of the country was experiencing a drought as of Sept. 1. In August, the US sharply cut how much water Arizona, Nevada and California can draw from the Colorado River over the next two years in an effort to stabilize a shrinking supply buffeted by overuse and climate change.

Read More: AI’s Water Problem Needs More Attention

Data centers, semiconductor plants and power generation facilities will collectively require around 30 trillion additional liters of water by 2050, according to a January study from Global Water Intelligence and water treatment equipment company Xylem Inc. But more than half of that additional demand could theoretically be reused through utility partnerships, meaning it’s recycled back into a plant’s operations or is substituted for freshwater used to irrigate golf courses and agricultural fields. The problem is, the systems that make this water reuse possible aren’t cheap. And for private companies, the payoff from these investments has typically come in the form of making good on sustainability commitments, rather than economics.

So companies including Xylem and Veolia Environnement SA as well as major business groups including the US Chamber of Commerce are backing legislation that would create a 30% investment tax credit for qualifying water reuse projects developed by manufacturers and other industrial entities. These projects can be constructed to support water recycling onsite at a specific facility or in coordination with local utilities. Examples include treatment technology such as reverse osmosis and nanofiltration, water quality monitoring systems and pipes that could funnel water into municipal reclamation projects.

With many parts of the US facing unprecedented water stress, “it’s kind of a no-brainer to take water that’s being treated for discharge and bring it up to the place where it could be sustainably reused,” Al Cho, an executive vice president at Xylem and the company’s chief strategy and external affairs officer, said in an interview. “The technology exists to do that, but it all comes down to how do you incentivize people to make that investment?” Companies are unlikely to be swayed by sustainability arguments alone, especially with less pressure to make those commitments in the current political environment. Giving them a financial incentive, on the other hand, “is a really great way to bring some of these projects up in the queue,” Cho said.

Read More: AI Suppliers Prepare for Boom to Go Bust

The Senate bill, introduced in May as a companion to a House of Representatives proposal from 2025, is currently on ice, along with most other legislative business as Washington prepares for the pivotal November midterms. But the uproar over data centers and rising costs that’s dominating many key races could help give it fresh momentum after the election. Combined water and sewer bills across 50 major US cities rose 24.2% between 2020 and 2025 and water bills alone rose 6% just from 2024 to 2025, according to data from Bluefield Research.

“We are trying to capture this cost of inaction versus basically the cost of investing and the shift is starting to happen, but that’s via crisis — the cost of no water being a very good example,” Veolia Chief Executive Officer Estelle Brachlianoff said in an interview last month, speaking generally about the importance of water as critical infrastructure. With droughts affecting so much of the US, the risk is that “we have to choose between providing water to a data center, to a farmer, to the city. You don’t want to. Therefore you need to design the supply of water in a sustainable way.”

For example, most places in the US typically use drinking water to clean the streets and for irrigation when treated wastewater could be used instead, she said.

Read More: Data Center Pauses Help Filter What’s Real

Some companies have been proactive in installing water reuse projects. Veolia announced a partnership with Amazon.com Inc. in April to cool its data center operations in Mississippi with reclaimed water. The first facility is expected to reuse more than 83 million gallons of water a year once fully operational, roughly equivalent to what 760 US homes use annually and what the data center would otherwise be drawing from local groundwater and potable water supplies.

A medical device manufacturer in the US wanted to expand production at a particular plant but couldn’t because it was already approaching local discharge limits and the city had mandated a 10% reduction in industrial water consumption. Xylem (through the Evoqua Water Technologies business it acquired in 2023) helped the company, which it declined to identify, install a nanofiltration system to recover and reuse wastewater, saving it 52 million gallons of feedwater a year.

But such examples remain the exception. Globally, less than 10% of water is reused, according to Xylem. Existing federal incentives for water reuse investments primarily focus on municipal utilities — some of which President Donald Trump proposed cutting in his budget proposal for fiscal year 2027. Industrial companies, which use water to make pretty much everything, are an untapped source for reusable water, said Josh Mahan, senior director of government and industry relations at Xylem. The company estimates adoption of the tax credit could help the US save 3.6 trillion gallons of water by 2032.

The tax credit proposal is akin to the renewable energy investment incentives and tax credits in President Joe Biden’s Inflation Reduction Act that were significantly unwound under Trump. Water access and drought concerns tend to be less political than wind turbines, electric cars and solar panels though, Mahan said. The Senate’s Advancing Water Reuse Act was introduced by Democratic Senator Ben Ray Lujan of New Mexico and Alabama Republican Katie Britt.

Potential paths for the bill’s passage include being bundled into a post-election tax bill focused on affordability or an end-of-term bill, such as the National Defense Authorization Act, Mahan said.

Read More: Saudi Tycoons Built $9 Billion Fortune Off Water Instead of Oil

“A lot of those ideological fault lines on the solar and wind tax credit really evaporate when it comes to water scarcity,” he said. The states that depend on the Colorado River water are represented by a mix of Democratic and Republican politicians, for example. “There’s a lot of incentives on both sides of the aisle to take a look at this kind of proposal,” Mahan said.

Chart of the Week

Schneider Electric SE announced this week that it would acquire PTC Inc. for an equity value of $22.6 billion (€20.1 billion), deepening its industrial software operations in an effort to help it better compete in the push to bring AI to the factory floor. PTC has long been bandied about as a potential target. Rockwell Automation Inc. took a stake in the company in 2018 and put its CEO on the board of directors, sparking takeover speculation, but eventually sold its holdings. Autodesk Inc. was pursuing PTC last year but shelved a potential deal in favor of smaller tuck-ins. Investors weren’t immediately thrilled that Schneider Electric was the one to take the leap, sending the shares down by the most since March 2020 when Covid-19 was declared a pandemic. Read More: Siemens Ties Factory Past to Digital Future

The deal fills gaps for Schneider Electric in design and lifecycle management software and gives it access to more discrete and hybrid manufacturing work, branching out from its focus on process industries through the multi-part purchase of software maker Aveva, said Jefferies analyst Lucas Ferhani. Discrete manufacturing deals with distinct, countable items such as appliances or cars, while process work focuses on products produced in batches, such as chemicals or oil derivatives. Hybrid involves a combination of the two for goods like bottles of laundry detergent or buckets of paint. But many investors prefer Schneider Electric’s business supplying electrical equipment to data centers, Ferhani said. Doubling down on the factory floor will reduce the portion of the company’s revenue that’s devoted to that market.

Read More: AI Isn’t Eating Factory Software Yet

The deal is also just big, requiring as much as €6 billion of equity issuance and as much as €17 billion of new debt. And investors are still wary of the potential disruption risks posed by AI to existing software offerings, although products tied to the factory floor are generally thought of as better insulated given their integration with critical hardware. PTC shares had fallen 17% this year through the end of last week on those AI concerns and the implied valuation is lower than what it might have been a few years ago. But Schneider Electric’s offer still works out to a more than 40% premium, valuing the company at a stock price last seen about a year ago.

Deals, Activists and Corporate Governance

CH Robinson Worldwide Inc. agreed to buy rival trucking brokerage RXO Inc. in a cash and stock transaction valued at $5.8 billion. The deal is a bet that CH Robinson can take the lessons it’s learned using AI to improve its own efficiency and apply them to a broader business, with the acquirer targeting $300 million of cost savings within two years. Mergers typically rely on cost-cutting to make the math work but this is one of the first AI-led spins on that approach. While CH Robinson specializes in freight forwarding, RXO has expertise in last-mile and expedited delivery, giving the combined company a more complete offering of services.

But CH Robinson shares sank 11% on the deal news, its third-worst day on record. That may reflect concerns about the impact of expected equity dilution and its plans to take on new debt to pay for the deal in a rising interest rate environment. A deal of this magnitude also carries execution risks in a freight market struggling with high diesel costs and elevated liability risks following a Supreme Court decision earlier this year that opened up brokers to lawsuits over collisions involving drivers at contracted carriers.

What I’m Reading

UPS worker missed email, letting China get F-35 partsTruckers are using every trick they can to survive soaring diesel pricesDrone maker Anduril pushes into subs with Maryland factoryLockheed’s ‘big bet’ tests CEO plan to move at Skunk Works speedGM loses ground to Toyota as high prices reshape US marketSpaceX push on spectrum access gets aerospace industry backlashAir Liquide sells debt at better rate than French government Google takes the AI data center race to outer spaceAnxiety over gas prices points to ‘looming EV comeback’ in USJetBlue wins FAA approval to take on Spirit’s slots at LaGuardiaRare Arctic tanker trip hints at Russia’s growing refinery woesNo lights, no radio: getting oil through Hormuz is a risky jobBoeing white-collar workers ratify new offer, avert strikeElite $30,000 sheepdogs are putting tiny UK town on global mapMaine’s $1,500 heating bills upend drama-filled Senate race GOP risks first Senate loss in 94 years in reliably red KansasAspen’s airport renovation has become a fight for the city’s futureAmerica bets on backyard bungalows to ease its housing crunch

More from Bloomberg

Like Industrial Strength? Check out these newsletters:

Supply Lines for daily insights into supply chains and global tradeBusiness of Space for inside stories of investments beyond EarthCFO Briefing for what finance leaders need to know

Explore all newsletters at Bloomberg.com.