Clearly, no one who ever had to go without a glass of water for a few hours on a hot summer day needs to be told how invaluable water is. In fact, we all know that water is essential for life itself. There is the truism water is life! So, why this emphasis on “valuing” water?
According to the World Water Day website, “The value of water is about much more than its price — water has enormous and complex value for our households, culture, health, education, economics and the integrity of our natural environment. If we overlook any of these values, we risk mismanaging this finite, irreplaceable resource.” The Special Rapporteur on Right to Water is even more clear: “Beyond the issues of pricing, this topic includes the environmental, social and cultural value people place on water. For instance, in daily life, water can mean health, hygiene, dignity and productivity. In cultural, religious and spiritual places, water can mean a connection with creation or community. And in natural spaces, water can mean peace and preservation. Water means different things to different people in different settings.”
However, policy makers tend to focus only on the economic value of water, almost forgetting all else. The idea of treating water as an economic good is not that old. It was first articulated in 1992 at the International Conference on Water and Environment (ICWE), as one of the four Dublin principles, which said: “Water has an economic value in all its competing uses and should be recognized as an economic good.” The pushback was almost immediate. The United Nations Conference on Environment and Development (UNCED) in Rio a few months later, with broad civil society participation, emphasized the need for balancing economic development with environmental protection. It also recommended establishing a day to celebrate freshwater; since 1993, March 22 is celebrated as World Water Day. Instead of calling water an economic good, UNCED described water as “a social and economic good.”
The idea of water as an economic goodwas contested then, and remains highly contested still. Through the 2000s, from Accra to Cochabamba, from Delhi to Manilla, water services privatization was met with resistance. While more recently there have been calls suggesting that, “[t]he Human Right to Water and Sanitation should now either be expanded to include subsistence and productive uses while conserving ecosystem functions and supporting climate resilience or a separate human right for water for livelihood and subsistence purposes considered,” it is noteworthy that a decade-long campaign was successful in getting the United Nations General Assembly in July 2010 to recognize drinking water and sanitation as a fundamental human right. Initiatives such as the Blue Communities are developing new ethos around water. Yet, the attempts to commodify water, to reduce it simply to an economic good, are pervasive across policy spaces and practice. In this context, the call to valuing water always reminds us that “the devil is in the details.”
In fact, “valuing” in the sense of putting an economic value to natural resources, or as it is called “natural capital,” seems to be part of a broader trend. The trend started in the mid-2000s with the call for green economy. The World Bank-led initiatives such as the Wealth Accounting and the Valuation of Ecosystem Services (WAVES) in 2011 led to the development of a framework, the System of Environmental-Economic Accounting — Ecosystem Accounting (SEEA EA), to help assess and put a monetary value to the benefits from the ecosystems. If any such tool is selectively applied to cherry-picked projects in a country, it should not surprise us if economic objectives trump overall social and ecological goals. SEEA EA was adopted by the U.N. Statistical Commission earlier this month, as a methodology to help nations in their development planning.
In the Western United States, Water Asset Management (WAM), a hedge fund which invests in water-related ventures globally, is buying up water rights in Colorado. Another firm Greenstone, “a subsidiary of a subsidiary of the financial-services conglomerate MassMutual, quietly bought the rights to most of Cibola’s water” and is currently seeking permission to permanently sell the water to a suburban development. These developments have brought the various factions — water managers whose priorities differ, be it irrigation, recreation, tourism or municipal uses of water — together to form a united front to stop Wall Street from diverting water away from beneficial use and public interest. While Greenstone is selling water outright, WAM says it is seeking to own water-rich agricultural properties with superior water rights in the water-stressed Western U.S.. In both cases of water financialization, the companies are trading in actual water rights.
If the rush to agricultural-related land investments and the resultant land and water grabbing in developing countries worsened local food insecurity, to some extent these investments were driven by the global food crisis, and to a larger extent, also by global financial speculation. In fact, even though futures trading is supposed to reduce the price risk of the underlying physical commodity, excessive speculation in agricultural futures contracts, especially those in commodity index funds, resulted in high prices for basic foodstuffs, such as wheat, particularly in import dependent low-income countries.
It is against these developments that we need to assess the recent launch of the Chicago Mercantile Exchange (CME) futures contractto manage water scarcity related price risks. It will use the Nasdaq Veles California Water Index (ticker symbol: NQH2O), which tracks the price of water rights leases and sales transactions across the five largest and most actively traded regions in California. Unlike what is described here, as a hypothetical example water futures trade, CME transactions will not be one of simple trading of futures contract between a hedger who hopes to get water at a lower price despite scarcity and a seller who has excess, trying to manage their water scarcity risk, even though that is what is being claimed by various proponents. It would be rather “investors with no direct or even indirect commercial interest in water prices, who are likely to become dominant investors in water futures contracts,” as my colleague Steve Suppan has pointed out in an article exploring these developments in the context of U.S. Commodity Futures Trading Commission (CFTC). He describes the terms of the contract and how current regulation and lack of regulation (e.g., of automated trading systems) could lead to higher water futures prices and make it very difficult for commercial hedgers of water to use the contract to manage their price risks; he adds that “excessive speculation in water futures trading can also disrupt current water rights and use contracts governing water sale prices.”
Water future contracts are also being launched in the context of a recently released CFTC report on managing climate-related financial risk, which seemed to celebrate them as a solution, suggesting that “commodity derivatives exchanges could address climate and sustainability issues by incorporating sustainability elements into existing contracts and by developing new derivatives contracts to hedge climate-related risks.” But this is no solution. There is no movement of physical water, nor any increase in supply of water, or transformation towards sustainable water management practices.
And yet, developments such as derivative trading in water futures, where there are no underlying physical assets, could pave the way for equally false solutions in response to crises in other areas such as climate and biodiversity. When the assessment framework (such as the SEEA EA) for valuing natural capital is uncritically applied to such nature-based solutions (NBS) being promoted, it could miss crucial insights that could be detrimental to the wellbeing of the local communities (as we saw in the case of land and water grabbing in the ten member countries that are part of the WAVES partnership). More than ever before, we cannot forget the difference between the two senses of “value” — the valuing involved in treating something we cherish as invaluable, and the valuing involved in trading economic goods. Even when we value embeddedwater as an economic good, we owe it to ourselves and future generations to treat water in a way that recognizes it first and foremost as invaluable.