The Volkswagen Group loves its EA888 engine, found in popular models such as the Volkswagen Golf and Audi A3.
This is the turbocharged inline-4 available as a 1.8-liter or a 2.0-liter and with power outputs ranging from about 170 to a bit over 300 horsepower. It also has a unique exhaust manifold that's embedded right into the cylinder head. This allows VW to use water cooling to calm down the temperatures of the exhaust gases.
The result? The system improves on cold starts, warms up the cabin quicker, and reduces wear on the engine itself. This water-cooling system also allows for colder air entering the turbocharger. When you have colder air coming into the turbocharger, you can run a more lean air-fuel mixture. This allows for improved fuel economy.
The benefits of this water-cooling system are found in many cars from the VW and Audi brands making use of the EA888 setup. It's a compact setup as well, since parts that would normally be hanging farther off are more greatly integrated into the packing and design of the engine itself.
We've come a long way from the era of air-cooled Volkswagens. Now you have water cooling not just the engine itself, but the exhaust manifold and the gases it produces.