CME Group, the company that has designed the new futures contracts, the trading would help plan for both expected and unexpected shortages and disruptions in water supply, that are becoming increasingly frequent.
Starting this week, the price of water will fluctuate just like oil, gold or wheat, CME Group reported. With this, water’s journey from an abundant, free resource to a metered, valued resource and now, possibly a ‘precious’ resource that will be coveted and even hoarded, is complete.
Water prices in California have doubled in the last year, based on the Nasdaq Velez California Water Index . To that extent, allowing futures trading in it like any other commodity like gold, oil etc, will allow for better management of the resource.
The current market in the US state is estimated at 1.1 billion dollars. With the NQH2O ticker , the price of water futures in California in first trades was trading today at about $ 486.53 per acre-foot , which is equivalent to 1,233 cubic meters. These futures contracts do not require physical delivery of water and are purely financial. They are based on the weekly price averaged across California’s top five watersheds through 2022. California has been a pioneer state when it comes to action on emissions, renewable energy, and now water. Expect the move to be followed in more states in due course.
.@Nasdaq Veles California Water Index (NQH2O) futures are here, the first-of-its kind tool to help market participants manage water supply and demand risk.
— CME Group (@CMEGroup) December 7, 2020
Water management has become an increasingly tricky issue across countries, and the effort to bring in a level of market dynamics into the field is a welcome experiment to see if that helps. Wars have been predicted, and fought over the precious resource now, with climate change only making things more difficult.
Thus, seasonal rainfall numbers don’t show the variability that is creeping in now, which is hurting both farmers and urban consumers alike. Thus India’s monsoons which have been normal to plentiful in the past three years, have been characterised by fewer but more intense ‘rainy’ days.
On the other end, you have China, the world’s second largest consumer, doing its best to perfect weather modification technologies which seek, among other things, to control rainfall over specific areas. Without a full understanding of its long term impact and impact on surrounding geographies beyond that country’s boundaries.
Market pricing of water is a distant dream for most countries for now, as even metering is not welcome, or not been done in most of the developing world. With close to 2 billion of the global population under water stress, the emotive issue offers no easy answers, beyond the obvious. Value the commodity, and use it sustainably.