The threat of a future with no water is looming and some people are capitalizing on it. Across the United States, raging wildfires, drought, and record high temperatures are contributing to water scarcity. As if natural disasters were not enough to convince us all that climate change is causing major problems in the world, Wall Street is now trading on water futures.
A futures contract represents an agreement to purchase and sell an asset such as water at a particular date in the future at a price that has already been agreed upon. In the past, futures have been traded for food, oil, as well as precious metals. Water joining these resources signifies a much bigger problem because this means that it is expected to become scarce across the world.
Hedge funds, municipalities, and farmers can now bet on the availability of water in the future. Why? The world’s biggest futures exchange, CME, has made it possible to bet on the resource. Each contract represents the level of water required to cover an acre of land with a foot of water. Contracts are tied to water prices in California.
With two-thirds of the world population expected to face a water shortage by the year 2025, scarcity is a growing risk for many communities and businesses around the world. A first of their kind, these water futures contracts were announced at the end of an 8-year drought, as wildfires and heat devastated the US. Population growth, climate change, as well as pollution are likely to turn water shortage problems into a hot topic for many years to come.
Demand and Supply
According to scientists, tensions about water shortages are already rising around the world. The need for this precious resource needs to be balanced with the need for crop irrigation, production of energy, and supplying our homes. If supplies run very low or an imbalance happens, violence can be a real consequence as people fight over water.
Proponents of water futures trading argue that it might help to align the supply and demand of this important resource. The contracts will help municipalities and farmers to budget for water. Currently, forty percent of the water in California goes towards the irrigation of crops on over 3.5 million hectares. CME states that water future trading will allow agricultural businesses and farmers to have a fixed water price even during shortages. The company also says that purchasing futures contracts will aid businesses that require water to operate to manage climate change risks; thus keeping the costs low and helping customers as well.
On the other hand, the opponents say that making water a tradable commodity will put basic human rights into the hands of just a few people, which is a dangerous arrangement as climate change makes water shortage rampant.
Water Solutions for EEP Clients
EEP’s Data Management platform and efficiency upgrade services can help commercial real estate owners across the country monitor and reduce their water usage to combat potential water shortages. The platform provides a detailed view of water usage trends across our clients’ portfolios, allowing organizations to identify properties and bills with abnormalities in usage. Our energy efficiency team can use that information to identify water and energy-saving opportunities at those properties, such as low flow showerheads, faucet aerators, and other creative solutions as part of a multi-pronged approach to increasing a building’s resource usage.
Contact the EEP team today to learn about the benefits of our Data Management Platform.