• In 2018, a trader listed water on the Chicago Mercantile Exchange and then in 2020 introduced a futures market so consumers can factor the cost of water into their investment plans. After a slow start, traders expect the market to grow more strongly in 2023.
• Some analysts see this as a positive step, allowing market adjustments to provide consumers with the cheapest and most efficient way of buying water. Others disagree, saying that water, like air, should not be commodified as it is a fundamental human right and must be available to all.
• Critics fear that creating a water market is a first step toward a future in which just a few companies will be able to charge market rents for what should be a free natural resource. Huge questions remain over water allocations for industry, agribusiness and smallholders, cities, and traditional and Indigenous peoples.
• The clash between these economic and socioenvironmental worldviews isn’t just occurring internationally. The conflict over water regulation is evident in many nations, including Brazil, which lays claim to the world’s biggest supply of freshwater, and Chile, currently suffering from its most severe drought ever.

“Record heat and droughts are exposing millions to growing water and food scarcity issues across all continents,” the U.N. Intergovernmental Panel on Climate Change (IPCC) warned in a February 2022 report. “About half of the world’s population already experiences severe water scarcity for some part of the year.”

But while there is near consensus on the gravity of the world water crisis, there is fierce disagreement on what needs to be done.

Some analysts believe the situation can best be resolved economically, by involving the market and commodifying water — a very controversial proposal.

Lance Coogan, for example, a trader on the futures market, was aghast to discover several years ago that there was no publicly listed price for water. “How on earth are you meant to cost [out] anything, with respect to [water] infrastructure or anything else, without knowing the price of water?” he asked. “It’s an essential part of the modern world. We have to know the price of water.”

In 2018, Coogan moved to fill this gap. “We did a deal with NASDAQ and listed something called NQH20 on the Chicago Mercantile Exchange. It’s an index giving the average price of volume-weighted water in Southern California,” explained Coogan. The value of doing so, he said, is that it provides farmers and other water consumers with a baseline water price. In addition, when “there is less water [available], the price goes up and [the market] can be used as a fire alert indicator,” letting policymakers, investors and others know that there’s a problem.

Listing was only the first step. “To trade water, you need futures,” Coogan explained. Futures are forward-looking contracts whereby a buyer and a seller agree to exchange a commodity for a fixed price (called a “futures price”) on a fixed, agreed-on date. Exchange-traded commodities contracts are typically set for crops, such as wheat, and based on harvest expectations that account for risk forecasts. Futures are part of the so-called derivatives market, where futures contracts, options and other financial instruments are traded.

In January 2020, Coogan helped list water futures on the Chicago Mercantile Exchange (CME), opening up a new phase of global financial speculation for water.

The market got off to a slow start. This is partly because the very nature of water makes it hard to commodify. Unlike gold and oil, water cannot be readily moved or stored. So, while contracts track water prices, the trade is settled in money, not water, so they don’t help farmers when there is a serious shortage of water in the real world.

Even so, the CME believes the launch was a success. Tim McCourt, the CME’s global head of equity index and alternative investment products, said: “Even though we’re not necessarily seeing volume grow … people are now able to make more informed decisions. It still is relatively early days.”

Coogan also sees the difficulties as teething problems and says that in the longer term the futures market will prove to be an essential tool for protecting water consumers. He explains: “In March 2019, the water index was $219 and now [August 2022] it’s $1,273. That’s a lot of volatility.” He goes on: “If farmers arrange a fixed price for the water they will buy in a year’s time, they may be able to reduce costs.” Coogan believes that these futures water markets are needed throughout the world and is advising some African governments on how to take this step.

Unleashing a freshwater firestorm

While Coogan’s arguments may sound cogent to some, his actions, and those of others seeking to commodify water, have unleashed a global howl from critics who say that market speculation will hurt, not help, smallholders, while also being heavily tipped in favor of global industries, such as mining and large-scale commodities agribusiness.

Pedro Arrojo-Agudo, the U.N.’s special rapporteur on the human rights to safe water and sanitation, is highly critical of what he calls “the neoliberal vision, in which water is managed as a commodity.” He worries that doing so “turns the 2.2 billion people who lack guaranteed access [to freshwater] into impoverished clients” of private companies and investors.

In a recent report, Arrojo-Agudo emphasized the need for a global priority that will “guarantee the [fundamental] human right to safe drinking water and sanitation.”

Basav Sen, climate justice project director at the Institute for Policy Studies, agrees. He argues that commodification is “a cynical attempt at setting up what’s almost like a betting casino, so some people can make money from others’ suffering.”

Riccardo Petrella, an Italian political scientist and economist and author of The Water Manifesto, says that water is “an essential good to which all people have a right,” and that its use “should be controlled by communities in the public interest” without involvement of the market.

Coogan accepts some of his opponents’ arguments. “The right to water is a human right,” he states emphatically. “No one agrees with that more than me.” But, he believes, if commodification is introduced with proper regulations, the market can be the most efficient way of protecting that basic right: “I’m making it cheaper and more efficient for everyone to get water,” he said.

The concern that the world’s poor will find themselves unable to afford a pricey but vital commodity, is easy to deal with, he explains. “The amount of water they need is very little in the greater scheme of things. So let them have it for free.”

He goes on: “It’s not wicked to make a profit. Construction companies make a profit when providing housing. Pharmaceutical companies make a profit when providing medicines. And these are both human rights. The market makes these products cheaper.”

But Arrojo-Agudo worries that a futures market allows in speculators who will — as global droughts deepen, for example — push prices out of reach in many nations. Something similar may have occurred when Russia invaded Ukraine, as the market valuation of wheat soared, potentially threatening hunger in Africa and the Middle East.

Controversially, Coogan defends speculation. “To work properly, a market has to have speculators or there won’t be enough buyers and sellers,” he explained. “The real risk is market manipulation,” by which he means members of a cartel working together to fix prices. But, he adds, “the authorities, such as the CME, can pick this up and deal with it.”

The clash between these fundamentally divergent worldviews isn’t only a theoretical discussion for mercantile exchanges. It is already creating real-world conflicts in nations around the globe. Experiences in Chile and Brazil, for example, show that there is no consensus on water commodification, even within the same nation.

Chile eliminates the public right to water

Until 1981, water was regarded in Chile as a public good that authorities had to make accessible to all. But then, following the U.S.-supported overthrow of Salvador Allende, military dictator and general Augusto Pinochet opened the door to water privatization as part of the country’s new Constitution — though in a clandestine way.

“The Constitution [still] says that water is a national good for public use, but this is a legal ploy because it also gives private entities the right to use water. So, in practice, water is privatized,” Chilean climate activist Juan José Martin told Mongabay.

“What the 1981 Constitution did was to prioritize economic needs over social and environmental ones,” Martin explained.

He cited the emblematic case of Petorca, a town of 9,000 inhabitants, where fences separate families without water from immense avocado plantations, grown for export. According to projections by the U.S. Department of Agriculture, Chile is the world’s No. 3 avocado exporter, producing 220,000 tons in 2021. About 60% is grown in Petorca.

“The [plantations] consume all the water from the Petorca River, while the inhabitants have to pump water from wells or be supplied with water trucks,” Martin said. Some people only receive 15 to 20 liters (4-5 gallons), which has to last them one to two days, even though the Supreme Court set a minimum of 100 l (26 gal) per day. Growing a single avocado takes 320 l (84.5 gal).

Over the years, more and more sectors of water supply were privatized, even after the end of Chile’s military dictatorship in 1990 and its long transition back to democratic rule. By 2005, Chile became the only country in Latin America to have privatized its entire urban water supply and sanitation sector. Effectively, the idea of water as a public right was eliminated.

The Copiapó River Valley has been particularly badly affected by the government’s failure to regard water as a public right. The valley is located in the Atacama Desert, one of the country’s leading copper-producing areas and the driest non-polar desert in the world, with average annual rainfall of only 15 millimeters (0.6 inches).

The river has run completely dry in several places along its length, but that intermittent disappearance isn’t due to climate change, according to researcher Francisco Astudillo Pizarro at the Institute of Geography of the University of Buenos Aires. The Copiapó River has vanished due to “sequestration” — the deliberate looting of water by the large-scale extractive sectors of the economy since the early 2000s. He says that more than half (53%) of the water was consumed by agribusiness and another third (31%) by mining companies.

The impact on poor communities has intensified over the past decade as Chile has experienced its worst drought in history, with rain levels dropping by 20-40%.

In 2016, popular movements in Chile began calling for radical change. Activists argued that, 40 years after the dictatorship ended, the Pinochet Constitution was still in force. “What we need is transformation away from the private model of water ownership, and instead, recognition that water is a human right,” Francisca Fernández, spokeswoman for the Social Movement for the Recovery of Water and Life, told The Guardiannewspaper in September that year.

In 2019, the ongoing drought, along with economic and civil liberties concerns, drew millions into the streets to protest water shortages and other social injustices. As a result, a popularly elected body won the right to rewrite the Constitution.

Juan José Martin coordinated the environment commission of the Constituent Assembly, in charge of drawing up the new text. He explained to Mongabay that the assembly had proposed an extra element in the definition for water: Water would continue to be a “national good of public use,” as in the 1980 Constitution, but also “a common natural good,” which would mean that no sector could appropriate it. Sectors could be authorized to use it but not to own it.

But, on Sept. 4 that year, 62% of Chileans said “no” to the new Constitution in a national referendum that, among other things, would have given more autonomy to Indigenous peoples, strengthened the regulation of mining activities, and given rights to nature. Things continue as before, with water rights still held by the powerful, not the people.

Brazil fights to keep water as a public right

On the other side of South America, in Brazil, the concept of water as a public right is enshrined in the progressive 1988 Constitution, approved soon after the country’s return to civilian rule after its own era of military dictatorship. But that legal designation hasn’t prevented conflicts between big companies and rural communities.

“The fact that Brazil has 12% of the planet’s freshwater means that the country is at the heart of the world’s geopolitical dispute over water,” Dalila Calisto, a member of the national coordination of the Movement of People Affected by Dams (MAB), told Mongabay.

Under the presidencies of Michel Temer and Jair Bolsonaro, water market advocates have gained momentum. One indication of this is the move to introduce water markets — which, while not privatizing the entire water market (which would violate the Constitution), would allow authorities to set up markets for specific purposes.

Tasso Jereissati, a senator, has proposed a bill to this end (PL 495/2017), which is now moving through Congress. The legislation, if passed, will “introduce water markets as an instrument for promoting the efficiency of water distribution,” he said. He justifies creating a water market by referring to the “successful experience” of Chile and other countries.

The bill is couched in the language of sustainability and talks about the “efficient use of hydric resources in activities that promote employment and income in order to maximise socioenvironmental and economic benefits.”

But some critics say that, behind the rhetoric, the bill does little to protect poor consumers. Social scientist Flavio José Rocha says the problem is that “the bill doesn’t put living beings, the community, in charge, but prioritizes instead technical, market principles.”

Dalila Calisto agrees. She said the bill would turn large volumes of water into “financial assets” that would be negotiated by companies “as if they were securities.” Companies, she explained, would “make a profit by speculating with water using the logic of strategic risk management and efficient management of resources.” She added: “Agribusiness and hydroelectric companies, the biggest users of water in the country, would benefit most. It [the bill] would also bring good returns to banks and pension funds, as they have invested heavily in these companies.”

Vicente Andreu, former president of the National Water Agency, the state body in charge of water policy, sees the bill as no more than a “devious way” of getting around the constitutional ban on privatization.

The fate of the bill will depend on the result of the legislative and presidential elections in October. It will only be approved if agribusiness, mining companies and the banking sector maintain a strong presence in Congress.

Dispute over water in the Amazon

Jereissati’s bill, according to some critics, will do nothing to prevent water conflicts from arising, but it will provide a framework for institutionalizing the unfair distribution of water — once powerful players have fully grabbed the lion’s share. What is needed, they say, is for local inhabitants to be consulted before work on a big infrastructure or mining project is allowed to begin — something that is legally required under the 1988 Constitution, but is often not done.

A prime example of the dangers inherent in an elite few controlling water usage can be found in the Amazon rainforest, say analysts. The Belo Monte mega dam, Brazil’s largest hydroelectric facility, diverted the course of the Xingu River to generate energy, forcing the relocation of thousands of traditional and Indigenous river people. In September 2022, Brazil’s Supreme Federal Court (STF) recognized that the right of the Indigenous population to be heard before Belo Monte’s construction had been violated.

“This dam steals 80% of our water so it can generate energy. All we are left with is 20%,” said Sara Rodrigues Lima, who lives along the river. “We live today in an ecosystem that has been harmed by lack of water, fish shortages, diseases and hunger,” she told Mongabay.

One problem, she said, has been the deep decline of the piracema, the annual migration of fish so important to subsistence diets. The fish need to be able to swim upstream to lay their eggs and reproduce, a critical process for maintaining fish populations. But, says Lima, for the fish to travel upstream, “the water needs to reach the right level, at the right time, and this hasn’t been happening for seven years,” since Belo Monte was built.

“A ‘stretch of river with a reduced water flow’ is a sad name for what was a beautiful place like the Volta Grande do Xingu [the Big Bend in the Xingu River],” said biologist Jansen Zuanon, with the National Institute for Amazon Research (INPA), during a public hearing on Aug. 16 and 17 in the city of Altamira.

“What lies behind this is the hydrograph [the means used to chart changing reservoir water levels], which decides the way the water must be divided between the turbines and Volta Grande,” where people fish, Zuanon said.

The 1,300 fishers at the hearing all stressed that their way of life is over: “I have lived my whole life on the Xingu River and today I can no longer fish because the river has been destroyed. Norte Energia [the company operating Belo Monte] has killed off our species, killed off our islands and beaches, killed off our leisure activities and now is killing off the fishermen,” protested Raimundo Gomes.

Luciana Soares, from Norte Energia’s socioenvironmental department, said the company was looking for the best ways to mitigate the impacts. She said: “We don’t want just to be an energy generator, but to make a positive transformation in the region.” Local communities might find little to agree with in that statement.

Thaís Santi, a prosecutor with the Federal Public Ministry (MPF), the group of independent government litigators who convened the hearings, is convinced that the flow of the Xingu River must be increased, and that the monopolization of water by the energy company must end if traditional communities and nature are to survive. Santi has been warning since 2014 that what is happening in Volta Grande do Xingu is the extermination of an entire ecosystem. “It’s both ecocide and genocide,” she says.

She believes that the conflict involves a fundamental principle: “How do you calculate the cost, for the current inhabitants and also their children and grandchildren, of destroying their way of life?” she asked during the hearing.

Others believe that the impacts must be monetized so that rational decisions can be made, and water shared with communities, industries and agriculture for the greater good. In a recent study, the Escolhas Institute, which works to translate the economic, social and environmental impacts of public and private decisions into statistics, calculated that the annual loss to Norte Energia due to reduced power generation from providing a greater river flow for traditional communities and nature, as demanded by the MPF, would be 2 billion reais ($370 million).

Creeping financialization and coming water wars

The conflict over Belo Monte is not directly related to the listing of water on the Chicago Mercantile Exchange and the introduction of a futures market. But some see it as part of the creeping financialization of the natural world, what Saskia Sassen, professor of sociology at Columbia University, calls the “transformation of nature into a collection of assets that can be bought and sold by financiers many times in a day.”

Some analysts expect phenomenal growth in the water market. In 2011, Willem Buiter, chief economist at Citigroup at the time, “a globally integrated market for freshwater within 25 to 30 years.” Once the market is fully established, he said, water will “become the single most important physical-commodity based asset class, dwarfing oil, copper, agricultural commodities and precious metals.”

John Bellamy Foster, professor of sociology at the University of Oregon, believes that, as a result of this extension, “the world’s sources of freshwater, representing one of the planetary boundaries designated by natural science, will be monopolized as natural capital by relatively few companies who will be able to charge market rents for the ecosystem services.” It is this fear that lies behind many of the criticisms made by environmentalists and social activists of the establishment of water markets and the listing of water prices on stock exchanges.

Of even greater concern to some scientists is that unregulated overuse of water by large-scale industry, agribusiness and cities could force Earth’s water cycle past the breaking point, leading to the destabilization, and even failure, of this vital planetary life-support system.

The chasm that divides market advocates and their socioenvironmental opponents seems uncrossable. It is difficult to see how one model can prevail without eliminating the other. But as climate change-driven water shortages escalate, the conflicts — whether in the U.S. Southwest, the Congo, Chile or Brazil — are sure to intensify.

(Sue Branford specialises in environmental reporting, particularly on the Amazon. Courtesy: Mongabay. Thaís Borges is a freelance journalist and an independent filmmaker who focuses on socio-environmental conflicts and human rights. Mongabay is a U.S.-based non-profit conservation and environmental science news platform.)