Bettin’ on Global Warming : The Water Wars

Even as floods ravage so many places on earth, from tropical storms to completely reconfigured weather patterns, so many other vast tracts of the planet are plagued with wildfires and seemingly unending drought. That drought drove farmers from once fertile land in Syria and Iraq, forced migration and set the stage for ISIS to attempt to take over those abandoned lands and rule the dispossessed farmers. In large sections of the United States, including California, the battle for who gets aquifer, river and lake water has raged ever since the war waters in the early years of the 20th century. Through what many believed was corrupt skullduggery, Los Angeles then secured the water rights to the Owens Valley (in eastern California), a fact that enabled LA to become the metropolis it is today.

Global climate change has moved water from a public utilities’ necessity into an increasingly tradeable commodity. As fossil fuels slide down the value scale with the growth of alternative energy, oil may well be replaced by water and the nation-making value elixir. Literal wars may be fought over water rights and access. As Michael Hiltzik, writing for the January 3rd Los Angeles Times explains, Wall Street sees a huge financial opportunity in trading with one of the most precious necessities of life: “Wall Street’s reputation as one of America’s premier innovation machines can only be enhanced by a new futures contract that began trading publicly on Dec. 7. It allows investors to bet on the price of water in California.

“Those who take the gamble are effectively betting that the spot price for water will rise during the life of the contract; they’ll pocket the difference. Sellers are betting that the price will fall… The new commodities contract has inspired not a few projections of a ‘Mad Max’ dystopia in which precious resources become the objects of violent tribal battles.

“The United Nations raised a similar concern, through Pedro Arrojo-Agudo, its expert on water and human rights… ‘I am very concerned that water is now being treated as gold, oil and other commodities that are traded on Wall Street futures markets,’ Arrojo-Agudo said.” Indeed, the thought of “enough water” becoming the province only for those who can afford to pay for it raises an exceptional moral specter. Rich countries? Rich individuals? Rich agricultural interests? Small farmers vs major agribusiness corporations? The notion of buying water from poor and deprived areas and moving it to richer venues is disturbing.

But it’s not as if you can buy a pile of water and ship it to where the buyers are. Water, as anyone who has lifted a bucket of it can attest, is heavy… and very expensive to move and ship. It takes the California Aqueduct (including pumping stations to move water uphill when necessary) and a lot of electrical power to take water from one California region to the large urban centers, often very long distances away. Hiltzik continues:

“Let’s try to put this in perspective. The futures market that opened for trading on Dec. 7 isn’t a harbinger of savage bloodletting over dwindling water supplies… In fact, there’s reason to question whether the market will work anywhere on Earth outside of California, where billions of dollars’ worth of agricultural production competes with burgeoning residential development, industrial demand and environmental needs for increasingly doubtful water supply.

“‘The hysteria is ill-founded,’ says Lance Coogan, CEO of Veles Water, the London financial firm that created the investment index on which the futures contract is based and designed the contract, which is traded through the Chicago-based CME Group… ‘This is doing good,’ Coogan told me, explaining that the contract’s purpose is to give farmers and other major users a way to limit exposure to price increases. ‘If you’re an almond farmer and you’ve been ravaged by three droughts over the last decade, to be able to hedge your price is something you want.’

“Coogan is right, as far as that goes. But it’s proper to observe that the contract wouldn’t be needed except for the scarcity of water in the state’s agricultural zone and the prospects that supplies will only get tighter.” Traders will watch weather reports like a hawk, and prices are expected to vacillate significantly. This is very, very risky stuff. Those areas with ample or spare water, obviously mostly regional sourced particularly where existing water movement infrastructure exists, stand to make a buck. Traders can make a buck (or lose more), but is the very existence of this trading option literally just another of a flock of canaries in the proverbial coal mine?

I’m Peter Dekom, and something makes me feel exceptionally wary of a trading structure that will make intermediaries rich if global climate change is not contained.