The Nasdaq Veles California Water Index (NQH2O) is based on the average weekly price of water in California’s five main watersheds.
The Chicago Mercantile Exchange (CME) Group on Tuesday reported that trading with water began to take place in the commodity futures market. This means that prices of water futures will fluctuate according to supply and demand as with the futures of other commodities such as oil, gold, or wheat.
The Nasdaq Veles California Water Index (NQH2O), which is based on the average weekly price of water in California’s five main watersheds, traded at about US$486,53 per Acre Foot ($/AF) on Tuesday morning.
The CME group holds that trading water futures in the commodities market will allow better management of the risk linked to the shortage of this natural good.
“The NQH20 futures will be an innovative tool to provide agricultural, commercial, and municipal water users with greater transparency, price discovery, and risk transfer, which can help to more efficiently align supply and demand of this vital resource,” the CME Group says.
They also argue that the new index will avoid having an arbitrary estimate of the future price of water because its value will be linked to the expectations of the main players in this market.
Previously, the United Nations warned that 2 billion people live in countries with serious problems of access to water, and two-thirds of the planet could experience water scarcity in the coming decades. Currently, China and the United States are the world’s main consumers of water.