Water Is Being Traded on the Stock Market for the First Time
Some say trading water as a commodity could help mitigate future water crises, but others are highly skeptical
This is The Color of Climate, a weekly column from Future Human exploring how climate change and other environmental issues uniquely impact the future of communities of color.
In 2016, California experienced one of the worst droughts in the history of the state. Over 100 million trees died and billions of dollars in agriculture were lost. Farmers across the state were stuck between a rock and dry place: They needed more water for their crops, but the price of water was higher and more uncertain because of the drought.
Now, despite a powerful recent winter storm that brought rain and snow to California, the state is once again experiencing some form of drought. This is a recurring and growing problem for local farmers, especially in Southern California, as the historically dry state becomes even drier as a result of climate change. And in December 2020, to address the dire need for water, the Chicago Mercantile Exchange recently made a historical move: For the first time, it allowed investors to trade water as a commodity on the stock market. Some say trading water as a commodity will partially help improve California’s water crisis, but others are highly skeptical of the move.
The Chicago Mercantile Exchange partnered with two companies — WestWater Research, a consulting firm that generates the pricing data used for the market, and Nasdaq — to make this possible. These companies say the move will help farmers and water districts in Southern California have more price certainty during dry periods and could help mitigate the state’s water scarcity problem.
“This isn’t going to solve any water problems. This isn’t going to produce more water.”
California previously divided its water supply through “water rights.” Whoever holds the rights to the water in a certain location can pump it from the state’s ground and reservoirs. Districts with surplus water supply can sell their water rights to other…