Water trading is the buying and selling of water rights and quality credits, which has become a fully-fledged financial market. Australia has the most advanced system, while in California, it is contentious due to subsidized rates for farmers. Water quality trading incentivizes companies to improve water quality. Critics warn of the risks of putting low-income families at risk of losing necessary water resources.
Water trading refers to the buying and selling of water rights and rights. Though long concluded through informal agreements, water trading has become a fully-fledged type of financial market in the 21st century, where buyers are allowed to trade derivatives, buy long or short, and follow other trading patterns most common financial instruments in the Forex or stock market. Critics of the water trade warn that allowing what was once a primary means of ensuring equal access to water to become a haven of profits and skyrocketing prices could put low-income families at risk of losing their necessary water resources.
Many experts suggest that Australia has the most advanced water trading system in the world. The southern continent’s scarce water resources led to the first private deals to buy or share water rights across the country. If a stream crossed a person’s land, neighbors could pay to use the resource, thus ensuring a relatively equal division of resources and allowing for the enrichment of entire regions, rather than just the lucky few with direct access. In 1994, water rights were made separate from land rights in order to facilitate trade. Today, much commerce occurs between government and commercial enterprises rather than private individuals.
In California, water trading in the southern half of the state has always been a contentious issue. Farmers in the wide valleys of central California receive water at a subsidized rate in order to facilitate the necessary work of providing food and livestock through agriculture. Southern California, with several large cities and a history of long-lasting droughts, has often posed an interesting conundrum for farmers receiving cheap water: In some cases, it is much more profitable for farmers to sell the water to city vendors who actually grow crops.
Water trading can also sometimes be related to an environmental concept known as water quality trading. This is a means of incentivising companies to improve water quality according to established regulations. Water quality trading refers to the use of quality credits that can be traded between companies with high pollution abatement costs and others in the same watershed. Companies that have low-cost means of reducing pollution are paid to do so by companies that have high costs of reducing pollution, thus creating revenue for the seller and cost savings for the buyer.
The trade in water and even the trade in water quality remains quite controversial in some areas. While trade critics suggest that markets should not be allowed to roll dice with one of the few things absolutely necessary for human survival, water quality trade critics argue that allowing polluters to pay small businesses is a interim solution at best. Despite these severe criticisms, trading in water rights and pollution credits seems to be gaining popularity every year.
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