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Investors Can Now Bet On The Future Of Water Prices In California


This week in California, water became a commodity. That means it can be traded now just like oil or gold. It's a testament to how important water is in a state that's suffering from droughts and wildfires. Here's NPR's Jim Zarroli.

JIM ZARROLI, BYLINE: In California, water is a source of great power and wealth, a theme immortalized in the classic movie "Chinatown."


JACK NICHOLSON: (As J.J. Gittes) Going to be a lot of irate citizens when they find out that they're paying for water that they're not going to get.

JOHN HUSTON: (As Noah Cross) Oh, that's all taken care of. See, Mr. Gittes, either you bring the water to LA or you bring LA to the water.

ZARROLI: Each year, California struggles with months of dry weather, followed by a few weeks of torrential rain and melting snow from the mountains. Patrick Wolf oversees the Nasdaq Veles Water Index, which tracks the price of water in the state.

PATRICK WOLF: There are periods of hydrologically dry conditions for extended periods of time, punctuated by periods of extremely wet weather when water is very plentiful.

ZARROLI: But there can be years when no rain comes at all, says Ellen Hanak of the Public Policy Institute of California.

ELLEN HANAK: The next drought is always just around the corner.

ZARROLI: The impact of droughts were driven home recently when California suffered through its worst wildfire season in modern history - 4.3 million acres burned in August and September of this year. It went on for weeks. When the smoke cleared, the CME Group, a financial exchange, came up with a way to bet on the price of California water. Starting this week, investors can buy and sell the right to purchase water at a particular price. The water that helps almonds and lettuce grow in the state's Central Valley will be purchased like silver or copper or any other commodity. Ellen Hanak says this may end up helping farmers protect themselves against sudden price changes.

HANAK: What this could allow you to do is to lock in a price that covers your financial risk for a dry year when the water might become more expensive.

ZARROLI: But most of the people who end up buying and selling water contracts won't be farmers. They'll be investors in New York and London and all over the world trading on the CME exchange. They'll never actually see the water they're buying. They're just betting on the water's future price, and those bets can be very lucrative. Basav Sen, Climate Justice Project director for the Institute for Policy Studies, says the whole notion of profiting off water sales is atrocious.

BASAV SEN: What we need to be doing instead is changing agricultural practices so they are not so water intensive, especially in more arid regions.

ZARROLI: And Erin Brockovich, the consumer activist played by Julia Roberts in the movie, lamented in a tweet that her father had warned of the day when water would become a monetized commodity. For California water, at least, that's very much the case. Jim Zarroli, NPR News.

(SOUNDBITE OF MAREE DOCIA'S "AT LAST, SUNRISE") Transcript provided by NPR, Copyright NPR.

Jim Zarroli is an NPR correspondent based in New York. He covers economics and business news.