The Real Value of Water: Valuing the Invaluable and the Threat of Pricing Water

What is the ‘value of water’? 

According to the World Water Day website (hosted by UN Water), “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.”

The Special Rapporteur on the Human Rights to Water and Sanitation expands this definition further: “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.”

When was water as an economic good articulated? And how does mainstream global water governance value water? 

The idea of treating water as an economic good 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.” Policymakers–including global governance institutions, states, and powerful multinational corporations–tend to focus only on the economic value of water, almost forgetting all else.

What was the response to defining water as an economic good?

In June 1992, the United Nations Conference on Environment and Development (UNCED) in Rio, 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.

How did the trend of ‘valuing’ water as an economic good develop?

Established in the mid-1990s, the trend of ‘valuing’ water as an economic good was initially confined to drinking water and sanitation sector. It started to spread to other sectors such as agriculture and the environment in the mid-2000s with the calls for a green economy. “Valuing” in the sense of putting an economic value to natural resources, or as it is called “natural capital,” was a key part of this broader trend.

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 ecosystems. The current manifestations of this approach, of ‘valuing’ water as an economic good, is visible as corporations and states focus on nature based solutions.  

What are some of the different ways water is increasingly being commodified as a part of this agenda which seeks to reduce it simply to an economic good

The outright privatization of drinking water services and sanitation has given way to new forms, including corporatization, of public sector water utilities; bottled water mining has been steadily growing, too. The practice of trading in water (access rights) has continued in the handful of regions where conducive legal framework are in place.

Another newer development is the increase in land and water grabbing (as distinct from older forms of colonization) or at times even green grabbing. How has ‘water grabbing’ manifested globally, and what have been the consequences? 

While land and water grabbing has happened across all continents, including in the United States, the highest number of incidences have been in the developing countries in Africa, Asia and Latin America, including Botswana, Costa Rica, Colombia, Guatemala, Indonesia, Madagascar, Philippines, Rwanda, Uganda and Zambia, all members of the World-Bank led WAVES partnership.

Such investments, foreign or domestic, often displace communities from their ancestral lands and impact their livelihoods be it farming, fishing or herding. 

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; to a larger extent, also by global financial speculation.

What is futures trading supposed to do and what has really happened?

Futures trading is supposed to reduce the price risk of the underlying physical commodity, however, excessive speculation in agricultural futures contracts, especially those in commodity index funds, has contributed to high prices for basic foodstuffs, such as wheat, particularly in import-dependent low-income countries.

What is the Chicago Mercantile Exchange and why does it matter to the future of water? 

The Chicago Mercantile Exchange (CME) futures contract plans to 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. It would include “investors with no direct or even indirect commercial interest in water prices, who are likely to become dominant investors in water futures contracts,” says Steve Suppan, Senior Policy Analyst with the Institute for agriculture and Trade Policy, and author of  Futurizing water prices: How, why and who may benefit?

How will such contracts play out and how do they affect water rights and prices? 

Steve Suppan describes the terms of futures contracts and how the 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 expects it would include “investors with no direct or even indirect commercial interest in water prices, who are likely to become dominant investors in water futures contracts” and he adds that “excessive speculation in water futures trading can also disrupt current water rights and use contracts governing water sale prices.”

Are water contracts a solution to manage climate-related financial risk through water future contracts? 

Water future contracts have been celebrated in the CFTC report on managing climate-related financial risk, which views the contracts 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. Potential developments such as derivative trading in water futures (where there are no underlying physical assets), could distort price signals and divert public investments away from finding effective solutions to real life problems. They could also pave the way for false solutions in response to crises as is happening in other areas such as climate and biodiversity. 

What are the two senses of “value”? And how should we value water?

There is the ‘valuing’ involved in treating something we cherish as invaluable, and then there is the valuing involved in trading economic goods.

Even when we value embedded water 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.

 

This Q&A is based on Varghese, Shiney. 2021. ‘The Real value of water.’ Institute for Agriculture & Trade Policy, March 23 and was adapted from the original by Husnah Mad-hy, intern at the Blue Planet Project and Master of Global Affairs Candidate at the MUNK School, University of Toronto.

Leave a Reply

Your email address will not be published.