Water hits Wall Street as a futures commodity

“Climate change, droughts, population growth, and pollution are likely to make water scarcity issues and pricing a hot topic for years to come.”

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Water is being traded on Wall Street. In a first, water officially joined as a futures commodity where farmers, investors and municipalities will bet on the future price and availability of this scarce resource.

The water market launched on Dec. 7 on the Chicago Mercantile Exchange and is “tied to the Nasdaq Veles California Water Index, which was started two years ago and measures the volume-weighted average price of water,” DownToEarth reported. These contracts, worth $1.1 billion, are connected to the California spot water market, Bloomberg reported.

“The NQH20 futures will be an innovative tool to provide agricultural, commercial, and municipal water users with greater transparency, price discovery, and risk transfer, which can help to more efficiently align supply and demand of this vital resource,” CME Group said.

While the new trading scheme was announced in September when California and the region was experiencing heightened temperatures, drought and wildfires, some people believe the trading of water could put a basic human right “into the hands of financial institutions and investors,” Yale Environment 360 reported.

“What this represents is a cynical attempt at setting up what’s almost like a betting casino so some people can make money from others suffering,” Basav Sen, climate justice project director at the Institute for Policy Studies, said. “My first reaction when I saw this was horror, but we’ve also seen this coming for quite some time.”

But proponents believe the new water market “will clear up some of the uncertainty around water prices for farmers and municipalities, helping them budget for the resource,” Yale Environment 360 reported.

“Climate change, droughts, population growth, and pollution are likely to make water scarcity issues and pricing a hot topic for years to come,” Deane Dray RBC Capital Markets managing director and analyst, said. “We are definitely going to watch how this new water futures contract develops.”

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