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The futures market for water rights trading in California: Analyzing the
emergence of a controversial experiment
Charlotte Christen
a,*
, Michael B¨
ocher
b
, Petra Schneider
c
a
Chair of Political Science and International Relations, Institute for Social Sciences, Otto von Guericke University Magdeburg, Universit¨
atsplatz 2, Magdeburg 39106,
Germany
b
Chair of Political Science and Sustainable Development, Institute for Social Sciences, Otto von Guericke University Magdeburg, Universit¨
atsplatz 2, Magdeburg 39106,
Germany
c
Department of Water, Environment, Civil Engineering and Safety, Magdeburg-Stendal University of Applied Sciences, Breitscheidstraße 2, Magdeburg 39114, Germany
ARTICLE INFO
Keywords:
NQH2O index
Market environmentalism
Financialization
Water governance
Futures market
Political Process Inherent Dynamics Approach
ABSTRACT
This paper presents a qualitative case study of the world’s rst water futures contract in California, a market that
enables hedgers and speculators to bet on water prices. It is attempted to explain which factors shaped the
emergence of the unique market by applying the Political Process Inherent Dynamics Approach (PIDA), an
analytical framework from the eld of environmental policy analysis. In addition, the topics of heated debate
that have surrounded the new market are summarized and contextualized. To obtain the relevant information,
expert interviews, complemented by online sources, were subjected to a Qualitative Content Analysis. It is
concluded that the launch of the contract is an extreme case of private business actors shaping water governance,
made possible by a longstanding market philosophy in the US, that gives leeway for actors of nancialization to
create facts. In the political-administrative realm, a lack of accountability and will to interfere seems to prevail.
However, nongovernmental organizations (NGOs) and other actors have led efforts to abolish the market, crit-
icizing water futures in ways that resonate with broader debates about privatization and food futures.
1. Introduction
In many regions worldwide, shifting precipitation patterns due to
climate change threaten livelihoods and economic prosperity, acutely or
in the long term. Meanwhile, some have declared water the blue gold or
the oil of the 21st century, presenting opportunities for those willing to
take risks, particularly for those who enter the market early.
In California, the critical issue of "who gets what water, when, and
how" (SIWI, 2023) is heightened by extreme seasonal uctuations in
precipitation, high demand in particularly dry regions, intensive agri-
culture, and a dense population – challenges now worsened by climate
change and groundwater overdraft (see OEHHA, 2024; Peterson et al.,
2023). Like other western states, California partly relies on a relatively
free market for reallocating water rights through selling or leasing. This
system aims to nancially incentivize water conservation and ensure it is
directed toward its most valuable uses (see California Water Commis-
sion, 2022).
In December 2020, California introduced the world’s rst water fu-
tures contract, based on an index that tracks prices of surface water
transactions and four major groundwater basins (CME, 2020). This
cash-settled contract allows traders to speculate on future water prices,
offering nancial rewards for correct predictions without involving the
physical delivery of water (CME, 2020). It thus continues the logic of
similar attempts to turn climate risks into variables on the nancial
markets, such as weather derivatives and catastrophe bonds.
Although marketed as a risk-hedging tool for water users (see e.g.
CME Group, 2023a), the water futures market has attracted signicant
criticism and efforts to abolish it, particularly from those who fear
negative effects of speculation. However, so far the contract can only be
considered a pilot project since trading activity is remarkably low (see
CME Group, 2024). This matches Chiapello’s (2020) ndings about the
early phase of nancialization, a concept that shall be elaborated on in
this paper: “[…] the experiments […] can be accused of being no more
than ‘proofs of concept’ whose job is to support the ideological work and
general legitimacy of nancial activities”. However, Chiapello (2020)
adds: “The innovations being tried out grow more common and the new
nancial circuits become better-established”, which highlights the
importance of interdisciplinary academic attention to nancial
* Corresponding author.
E-mail address: ch.christen@mailbox.org (C. Christen).
Contents lists available at ScienceDirect
Environmental Challenges
journal homepage: www.elsevier.com/locate/envc
https://doi.org/10.1016/j.envc.2025.101125
Received 9 February 2025; Accepted 5 March 2025
Environmental Challenges 19 (2025) 101125
Available online 13 March 2025
2667-0100/© 2025 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (
http://creativecommons.org/licenses/by-
nc-nd/4.0/ ).
experiments with vital resources. Based on this need for research, the
paper presents a policy analysis of the conditions under which the water
futures contract came into being. We proceed as follows: First, we re-
view the state of research based on the existing literature and identify
the research gap. We continue by explaining our analytical framework
and the empirical methodology used. We then present our ndings
against the backdrop of the analytical PIDA-framework before drawing
conclusions.
2. State of research
2.1. Water futures in the tradition of market environmentalism and
nancialization
The Californian water futures (called NQH2O futures) have so far
been under-researched. A central, recent paper by Moore (2024) con-
textualizes the futures within the wider frame of water nancialization
tendencies in Chile, Australia and the US (see also C´
aceres, 2023). In a
similar vein, the UN Special Rapporteur on the rights to water and
sanitation explicitly denes the nancialization of water as its man-
agement “on the nancial markets, and in particular on the futures
market” (Agudo, 2021).
The term nancialization entered academic discourse in the 1990s
and gained prominence during the 2008–2009 nancial crisis (Plank,
2023). It describes the increasing signicance and impacts of the
nancial sector on economics and society, for example through the rapid
spread of new nancial instruments, the appearance of new institutional
investors and the rise of the shareholder-value paradigm (Plank, 2023).
The latter has been explicitly observed in the water sector, where private
companies involved in water services increasingly operate as stock
corporations that distribute most of their prots to nancial investors
that hold their shares (Alaerts, 2022; Fritel, 2023; Plank, 2023). Ac-
cording to Moore (2024), the water futures market aligns with these
trends to “abstract water from its hydro-social particularities”, embed-
ding it within global nancial circuits through processes of standardi-
zation and measurement.
As will become clearer in the analysis, critics of water futures
perceive them as the latest attack on our water by neoliberals, following
and building up on privatization, commodication, and necessarily on
marketization, since every futures market requires the preexistence of
an underlying spot market. Privatization, however, does not have to go
hand in hand with nancialization, since Alaerts (2022) highlights how
the nance needs for water utilities are increasingly covered by com-
mercial nance, even where the utilities remain in the hands of the state.
Compared to privatization, identifying the new actors involved in and
benetting from nancialization is harder, and forming an opposition
thus more difcult (Moore, 2024).
As with marketization, nancialization is often justied by pro-
ponents of market environmentalism, who argue that the economic in-
struments of nancialization can address environmental concerns.
Discourse elements stemming from market environmentalism are not
only used by environmentalists whose work primarily focuses on
ecological concerns, but also by economic players to advertise new
nancial products. Meanwhile, nancialization has amplied the
toolbox for implementing market environmentalist ideas. Market envi-
ronmentalism combines neoliberalism with environmental concerns and
the recognition that resources are nite and sometimes scarce (see e.g.
Bakker, 2007; Hansen et al., 2015). At the heart lies the idea to deter-
mine “who owns the environment” (Hansen et al., 2015) by establishing
private property rights that can be traded and that incentivize the
owners to protect their property (Hansen et al., 2015). In addition to
gains from trade, this is supposed to generate accountability and to
incorporate externalities through pricing, thereby avoiding environ-
mental degradation through the tragedy of the commons (Bakker, 2007;
Hansen et al., 2015; Alaerts, 2022). In the words of Anderson and Leal
(2015), “those who succeed do good for the environment while doing
well for themselves”. Moreover, the trading of natural resources is
supposed to bring about an increase in efciency and move them into
the hands of those who make the most high-valued use of them
(Anderson and Leal, 2015; Hansen et al., 2015), thereby alleviating the
impact of reduced water availability on the economy (Bakker, 2014;
California Water Commission, 2022). Due to market environmentalist
ideas, Andrew and Cortese (2013) argue that rising environmental
concerns have been a driver of privatization and market-based solutions.
Such is the case in California, where changes and developments in the
water market have usually happened in response to the occurrence of
severe droughts (Payne, 2023), and the markets have received support
by environmental organizations (Fritel, 2023) that buy water for
ecological purposes.
These logics and discourses have been met with widespread critique,
for example by the movement that demanded the establishment of a
human right to water (Bakker, 2007). While most actors of that move-
ment consider commodication intrinsically contradictory to a human
right (Bakker, 2007), Bakker (2007, 2014) points out that calls for pri-
vatization and marketization have also made use of the human rights
and water security discourses, pointing to cases of failure or inefciency
in water governance by state authorities and arguing that excluding the
private sector from water provision is unethical if they are able to
outperform governments.
Since the water futures market is based on the existence of a spot
market for water rights, the launch of the NQH2O futures stands in the
tradition of market environmentalist ideas. However, while the spot
market directly deals with water distribution, the futures market only
addresses the very tip of the iceberg: water price risk. In 2024, this was
taken even further, when the companies Veles Water and Arbol offered
call spread options on the index that underlies the NQH2O futures
(Arbol, 2024). The purpose of call spread options is to offer traders a
cheap access to the futures market. Moreover, while the futures contract
allows to hedge against the price risk on the underlying spot market, the
options reduce the risk from betting incorrectly on the futures market.
Little information is public about this trade offer, mostly limited to the
companies’ own advertisement of their “groundbreaking step in man-
aging climate-related nancial risks” (Arbol, 2024). However, it dem-
onstrates the dynamics that nancialization can develop, with one
experiment triggering the next (see also Moore, 2024).
2.2. Research gap
The NQH2O futures have been analyzed from an economic angle, for
example by García Mendoza and Montesinos Quintero (2021) and P´
erez
Zabaleta and Sarti (2021). While Moore (2024) has already offered a
contextualization of the NQH2O futures from the social science
perspective, this article aims to ll a research gap by taking a closer look
at this particular case and at the political factors inuencing its devel-
opment from a public policy analysis perspective. Since potential rea-
sons for the low trading activity of water futures have been addressed
(see Bruno and Schweizer, 2022; Wang and Wang, 2023), this analysis
shifts focus to the factors that explain the emergence of a water futures
market in California, while also zooming in on the heated debate be-
tween the actors that advanced the futures and those that lead abol-
ishment efforts.
Our aim is to research the launch of the futures as a policy in the
wider frame of water governance, employing an analytical framework
from policy analysis to shed light on the factors that favored and shaped
their coming into being. Water futures are highly politically relevant,
since they have the potential to affect water affordability – be it through
reducing price risk, as defended by promotors, or through increased
price volatility, as afrmed by critics. Although the futures stem from
the nancial sector, the political sphere left space for their development
and to some extent paved the way. While it is common for politics to
share water governance with economic and social actors (Rogers, 2006),
it typically plays a more central role in setting the framework in which
C. Christen et al.
Environmental Challenges 19 (2025) 101125
2
other players can act and the rules by which they have to abide (Rogers,
2006).
By applying a policy analysis framework, this paper provides an
example of how to analyze the important political dynamics of market-
based governance experiments that fall outside traditional political
channels and are easily left up to nancial players. A better under-
standing of such developments is an important research gap, e.g. to
understand why they prevail or which actors inuence their emergence.
This is particularly urgent in the context of water scarcity and the
increasing pressure to nancialize water resources. With regards to the
spot market for water rights trading in California, the California Water
Commission (2022) writes: “The actions taken by early adopters will
generate lessons to be heeded by others; California may serve as an
example for other parts of the country and the world.”
3. Analytical framework
The research is guided by the Political Process Inherent Dynamics
Approach (PIDA) developed by B¨
ocher and T¨
oller, which aims to illu-
minate the causal mechanisms driving environmental policy. PIDA seeks
to explain why some policies emerge while others do not, identifying
ve key variables that inuence policy outcomes (see B¨
ocher and T¨
oller,
2015) (Fig. 1):
○ the structure of the problem that is claimed to be addressed,
○ institutions, understood as underlying formal or informal systems
of rules, that may have an action-restraining or an action-enabling
effect,
○ the range of policy instrument alternatives, that have to pass
institutional and ideological lters to be eligible for
implementation,
○ situational aspects, that might provide a window of opportunity for
a new policy,
○ and actors, that interplay with the other variables by means of
their actions.
This study adopts the assumption of PIDA that these variables are not
static but subject to inherent dynamics – including unpredictable factors
– that can inuence policy outcomes. We use the PIDA framework
because it is particularly suited to analyze the emergence and evolution
of policies and policy instruments (see e.g. Berker and B¨
ocher, 2022) and
has also been used to analyze water governance cases (see Pelaez Jara,
2020). A central tenet of PIDA is that actors’ motivations extend beyond
mere rational problem-solving, as considered in the policy cycle (B¨
ocher
and T¨
oller, 2015). The central role that B¨
ocher and T¨
oller attribute to
the actors coincides with Chiapello’s (2020) assertion that nanciali-
zation is not a passive development, but the result of work and efforts.
Chiapello’s outline of the steps involved in nancialization is reected in
the emergence of the NQH2O futures and could provide structure for
another insightful analysis.
4. Material and methods
Data for this case study were gathered from both online sources and
expert interviews, ensuring a triangulation of data that enhances the
reliability of the ndings. The strength of the interviews lies in gaining
otherwise non-accessible insights from experts of different elds on a
topic that is highly interdisciplinary. The online sources, in turn, were
used to extend the scope of the data and to verify information acquired
through the interviews. The term ‘online sources’ was broadly dened as
any information accessible on the internet, such as websites, newspaper
articles and webinars. The launch of the NQH2O futures generated far
more media articles than academic publications. Rather than in research
papers, that need more time to evolve, also the academic debate has
taken place in blog entries, webinars and short articles.
It was attempted to acquire a blend of different knowledge types
from the interviews and the online sources. In the following Figs. 2 and
3, the size of the bubbles demonstrates to what degree each knowledge
type shaped the overall knowledge aim from both datasets.
1
4.1. Expert interviews
While the status of an expert is traditionally associated with pro-
fessions and positions (Meuser and Nagel, 2009), forms of knowledge
production that are not tied to the latter have also gained increasing
recognition. Hence, Meuser and Nagel (2009) dene an expert as a
person with knowledge on the topic under study that is exclusive to a
specic circle of people, and as “active participants” in solving or
analyzing problems.
The latter denition showcases why, in this research, it was impos-
sible to distinguish between actors and experts. There hardly appeared
to be any neutral experts who did not take action at least by advocating
either for or against water futures. Bias was thus always to be expected
and reected on. Experts on the NQH2O futures could only be identied
through their involvement in the launch process or their public state-
ments about the new market, where they typically held clear pro or con
positions. Hence, nearly everyone contacted was regarded as both an
expert and an actor – either primary (involved in the design and launch)
or secondary (publicly debating the market or taking counter action).
It was attempted to include as many perspectives as possible,
speaking to both proponents and opponents of the market, and to pri-
mary and secondary actors. All identied primary actors were con-
tacted, along with the most engaged secondary actors. This resulted in a
diverse eld, ranging from large exchanges and company managers to
policy analysts, high-ranking politicians, NGOs and the UN Special
Rapporteur on the rights to water and sanitation. Additionally, parties
who had not taken action but were expected to have a stake, such as
water agencies and farm water associations, were contacted. Contact
was in all cases made via email.
The following experts were interviewed:
A1. A program director from the consumer advocacy organization
Public Citizen, furthermore advisor on two committees to the Com-
modity Futures Trading Commission (CFTC) and a public critic of the
NQH2O futures.
A2. A US assistant professor for Agricultural and Resource Economics,
co-author of a paper that welcomes the NQH2O futures as a hedging tool
and gives recommendations for improving their performance.
A3. A prominent critic of the NQH2O futures and campaign director at
Food and Water Watch (FWW), an organization that ghts “against
greedy corporations and reckless government agencies” (FWW, 2023)
and has been in the lead of the mobilization against the novel contract.
A4. A Policy Analyst from the Institute for Agriculture & Trade Policy
(IATP) who has publicly criticized the futures. The interviewee is also a
former advisor to the UN Special Rapporteur on the rights to water and
sanitation.
A5. Two leading staff members of the CFTC, which regulates the US
1
Detailed information on the four different knowledge types can be found in
Bogner et al. (2014) and Kaiser (2014). Briey speaking, the authors dene
technical knowledge as data and facts that are considered objective, process
knowledge as that which a person holds through having experienced and taken
part in a process under study, context knowledge as the surrounding circum-
stances that shaped or caused a process, and explanatory knowledge as opinions,
perspectives and interpretations.
C. Christen et al.
Environmental Challenges 19 (2025) 101125
3
derivatives markets. Both were involved in revising and approving the
NQH2O futures.
2
Moreover, unsuccessful interview requests led to email exchanges
with key actors, such as Californian water authorities, which will be
considered in the analysis. Another notable case was the continuous
two-month email correspondence with a leading staff member from one
of the involved exchanges, who had played a direct role in designing the
NQH2O index. Despite repeatedly expressing his willingness to be
interviewed, he was ultimately prevented from doing so by the legal
department of the exchange.
While all the interview partners held valuable knowledge on the
topic, the results were thus limited in the way that ultimately nobody
who had been directly involved in the design of the futures participated,
and there was a slight bias towards the side of the critics regarding
explanatory knowledge.
In the preparation and conduct of the interviews, the recommenda-
tions of van Audenhove and Donders (2019) and Meuser and Nagel
(2009) were followed. The authors consider semi-structured interviews
with a exible interview guide as typically appropriate for expert in-
terviews. On the one hand, using a guide as an orientation ensures not to
miss any important points. On the other hand, asking mostly open
questions and keeping the order exible allows the experts to give
valuable additional information (van Audenhove and Donders, 2019).
According to the knowledge aims, the main foci of the interview ques-
tions were on details about the preparation and launch process of the
NQH2O futures, but also on the actions that were taken by opponents to
stop the water futures market and on potentially inuential circum-
stances. The questions were structured along the factors considered in
PIDA, yet individually adapted to each of the interviewees’ eld of
expertise, connection to the topic and prior statements. Additionally, it
was attempted to nd out which arguments the interviewees put for-
ward in favor or against the market and how they viewed the arguments
of ‘the other side’.
4.2. Data processing
Both interviews and online sources were made subject to a Qualita-
tive Content Analysis based on Mayring. Key to the QCA method is the
conduct of qualitative research in a systematic, rule-bound manner that
is guided by a predened, theory-rooted research question and based on
Fig. 1. The interplay of explanatory factors according to PIDA.
Source: B¨
ocher and T¨
oller (2012), cit. in B¨
ocher and T¨
oller (2015).
Fig. 2. Importance of the knowledge aim in the analysis of online sources,
relative to bubble size.
Fig. 3. Importance of the knowledge aim in the conduct and analysis of the
expert interviews, relative to bubble size.
2
They declined to be recorded, so references to the interview are based on
notes and a memory protocol.
C. Christen et al.
Environmental Challenges 19 (2025) 101125
4
the development of a category system (Mayring, 2022). This distin-
guishes QCA from free, arbitrary analysis and builds a bridge to quan-
titative research (Mayring, 2022).
The main categories for the QCA were deduced from PIDA, while
subcategories emerged inductively from the material. Although Mayring
(2022) recommends precise predetermination of the dataset, it was
decided that such limitations would negatively impact the results in this
case. Instead, a large part of the existing sources on the topic was
examined, and only information relevant to the research aim was pro-
cessed. The interviews were fully codied with the software MAXQDA,
while the online sources were used for orientation, to prepare for the
interviews and to ll knowledge gaps left by the interviews. Although
the scope of the online sources did not allow for full codication of the
viewed material, the analysis was structured along the same coding
scheme that was applied to the interviews.
The analysis contains all three basic types of text interpretation
described by Mayring (2022) and Reh (1995), namely summary, expli-
cation and structuring. The overall approach was to structure the factors
that explain the emergence of the NQH2O futures along the variables
proposed by PIDA. Nonetheless, often additional material in the form of
online sources was consulted to explicate certain passages of the origi-
nally reviewed material that were not self-explanatory. Lastly, the
additional analysis of the controversy surrounding the water futures
demanded a summary of the opinions that were contained in a large part
of the reviewed material.
5. Results of the PIDA-analysis
5.1. Problem structures
B¨
ocher and T¨
oller (2015) argue that even the problem structures are
subject to inherent dynamics, insofar as a problem to be addressed is not
intrinsically determined as such. Instead, the denition of a problem can
already be contentious, and chance and action determine which issue
gains visibility as a problem (B¨
ocher and T¨
oller, 2015).
In the case of the NQH2O futures, water scarcity and water price risk,
which the actors claim to address, have clearly been dened as prob-
lems. However, it can be contested whether the launch of futures actu-
ally addresses them. In 2021, the New York Times (Howe, 2023) wrote:
“In the West, few issues carry the political charge of water. […]. It can
decide the fate of every part of the economy […]. And with the worst
drought in 1500 years parching the region, water anxiety is at an
all-time high.” In California, large parts of the water supply come from
the north of the state, while demand from agriculture and urban centers
is concentrated in the center and the south (CME, 2020; Fritel, 2023;
Schwabe et al., 2020). Changes between wet and dry conditions are
extreme, and climate change makes volatility increase even more
(Mount et al., 2023). Moreover, the state hosts intense agricultural ac-
tivity and a population larger than that of any other state in the US
(Johnson et al., 2023, drawing on data from the Census Bureau). Cali-
fornia accounts for over one third of the US’ vegetables and almost three
quarters of fruits and nuts grown in the country (CDFA, 2023). Ac-
cording to Peterson et al. (2023), the largest part of the farming revenue
comes from irrigated crops, which has contributed to excessive
groundwater pumping and its negative impacts, such as land subsidence
(Schwabe et al., 2020, see also White et al., 2010). According to Oro-
bello and Cirella (2021), “the United States uses more water than any
other country per capita, and California uses the most water of any
state.” In addition, Interviewee 4 points out that the Californian agri-
culture is responsible for water quality problems through the unregu-
lated use of nitrogen fertilizer that contaminates groundwater (A4, see
also SWRCB, 2023a).
This demonstrates that water has not only been naturally scarce, but
also managed unsustainably. Prominent examples are the very high
number of almond and pistachio trees cultivated in the state, which are
high-value crops yet distinctively thirsty (Howe, 2023; Tappe, 2023).
While the aforementioned factors lead to distributional conicts
between different water users and drive the need to reallocate water, the
water price spikes during droughts and has demonstrated enormous
volatility (Payne, 2023). High demand, questionable management and
uctuating precipitation are thus not only a threat to crops in California,
but go hand in hand with considerable price risk for those buying water
on the spot market (Characklis, 2017 ), opening the door to offer futures
as a solution. Payne (2023), on behalf of the company providing the data
for the settlement of the futures, comments: “That’s the risk that the
NQH2O index and futures are really trying to address”.
Although Californian households do not have to buy water on mar-
kets, they can still be affected by price spikes. According to Mount and
Hanak (2019), southern Californian cities acquired almost 15% of their
supplies through trade by the time their report was released. Both
publicly and privately owned water providers in California pass the costs
for obtaining and purchasing water on to their customers (CWA, 2023,
see LADWP, 2023a; LADWP, 2023b). This underpins the signicance of
water market prices, and therefore of the introduction of new nancial
products.
While all western states allow for the transfer of water rights
(Hartley, 2017), with a tendency toward growing markets, the Cali-
fornian market outnumbers those in other states by almost four times in
terms of value and volume (CME, 2020). However, still only around 2%
of the annually allocated water volume was traded in California between
2009 and 2018, according to the calculations of Schwabe et al. (2020).
Both ground- and surface water rights can be traded; however, surface
water trading is far more established while groundwater trading pro-
grams are in their early stages (see California Water Commission, 2022;
Hartley, 2017).
It should be added that the structure of the problem that the actors
claim to address has also been found to complicate the functioning of a
futures market. According to Moore (2024), the underlying water mar-
ket is non-transparent, illiquid and segmented – shortcomings that relate
to the difculties with storing, transporting and quantifying water.
Moreover, the water price varies within California, so the average price
used for the settlement of the futures does not always reect the actual
price at each locality [A2]. This hampers their attractiveness for hedging
and impedes the setup of an even larger futures market [A5].
In conclusion, the introduction of the futures market certainly
touched a nerve, relating to one of the most pressing problems in Cali-
fornia. This problem might have given the impression that a futures
market would be an accepted, logical next step and attract interest from
potential traders.
5.2. Actors and their actions
5.2.1. Primary actors
The most prominent primary actor (involved in preparation and
launch of the NQH2O futures) is the Chicago Mercantile Exchange
(CME), on which the futures are traded. CME specializes in commod-
ities, such as oil, precious metals and agricultural goods (CME Group,
2023b). By launching the world’s rst futures contract for water, CME
believes to have “really hit the sweet spot” (McCourt, 2023). On being
questioned about possible motivations to launch this novel contract, the
interviewees for this research pointed to CME’s nancial benets from
offering new nancial products, as exchanges like CME are for-prot
entities (A1, A2). For CME and the following players, the introduction
of water futures is an opportunity to create a new and potentially
lucrative nancial instrument that can attract a range of new market
participants.
The price index upon which the futures are based was launched by
Nasdaq, the world’s second largest stock exchange by market capitali-
zation (statista, 2023), and Veles Water, a small, London-based com-
pany that specializes in the development of water nancial products
(Veles Water, 2023a). The initial idea for the index came from Veles,
who approached Nasdaq (Wolf, 2023). Public face and CEO of Veles is
C. Christen et al.
Environmental Challenges 19 (2025) 101125
5
Lance Coogan, who claims to have worked for the World Bank and many
governments on matters like water and carbon trading (Veles Water,
2023b). On Veles’ website, the launching of the futures contract by CME
is called “an important step with the aim to develop many water
nancial instruments in the US and the rest of the world” (Veles Water,
2023a).
The last clearly identiable primary actor is a US-based company
called WestWater Research, specializing in water market research and
consultancy (WestWater Research, 2023). As the exclusive data provider
for the NQH2O index (WestWater Research, 2023), Westwater also
participates in advocating for the futures (see CME Group, 2024; Nas-
daq, 2023).
Three of the interviewees for this paper pointed out that speculators,
private equity rms and investment banks would certainly be highly
interested in the water futures contract if it started to become more
liquid [A1, A3, A5], yet whether they actively lobbied for the launch is
unclear.
One may also group Arbol with the primary actors, due to the recent
launch of options on the NQH2O index with Veles. This might be an
attempt to revive interest in water derivatives in times of very low
trading volume.
While it is common for governance to be shaped by a variety of ac-
tors, this is an extreme example for the inuence of actors that are
neither insiders of the water sector nor politicians, but private, for-prot
companies. According to Chiapello (2020), it is typical for nanciali-
zation to be implemented by those who themselves expect to benet
from it. These actors pursue economic self-interests rather than public or
collective ones, and do not have a democratic mandate to solve envi-
ronmental or other problems. Nonetheless, the NQH2O actors do present
the futures as a solution to the problem of price volatility. Thus, they
relate to a public interest, arguably to make their product attractive to
hedgers. Framing a situation or a crisis as an investment problem is once
again a typical step taken by actors in nancialization (Chiapello, 2020).
5.2.2. Secondary actors
The eld of secondary actors, which participate in the public debate,
lead abolishment efforts or are directly involved in the Californian water
spot market, is naturally more diverse and less clearly identiable.
Building the bridge between primary and secondary actors, the CFTC
was responsible for checking and approving the NQH2O contract before
its launch and thereby played a key role in the creation of the market. A
federal agency, the CFTC holds the mission to “promote the integrity,
resilience and vibrancy of the U.S. derivatives markets” by “protect[ing]
the public from fraud, manipulation and abusive practices” (CFTC,
2023; usa gov, 2023). Although CME was able to self-certify the con-
tract, the interviewed CFTC staff stated that the contract received sig-
nicant internal attention and was checked for susceptibility to
manipulation, with no issues identied [A5]. Furthermore, they
mentioned that CME had informed the CFTC about their endeavor
before handing in the self-certication form [A5]. The other in-
terviewees pointed out that the Commission rarely stops a derivative
contract from trading, which was conrmed by the interviewees from
the CFTC [A1, A3, A4, A5]. According to Interviewee 4 [A4], the
Commission staff “is ooded with new product self-certications” ever
since legislation was “slipped in and at midnight” that allows exchanges
to self-certify their contracts. They furthermore stated:
Congress systematically makes the CFTC the poorest nancial regu-
latory agency. […] Even though the notional value of its contracts is
far in excess of the Securities Exchange Commission. The banks and
the exchanges like to keep the CFTC under-resourced. So this under-
resourced staff barely has time to look at the applications for the new
products. [A4]
As further actors were identied a UN Special Rapporteur, the media,
non-governmental organizations (NGOs), politicians, spot market par-
ticipants and water agencies. Scholars also contribute by analyzing,
giving recommendations and sometimes opinions, yet they are not
further described as an actor group since they heavily overlap with
NGOs.
While some NGOs support market environmentalist ideas and thus
welcome new market-based approaches to resource governance (e.g. the
Property and Environment Research Center), many took a critical stance
or even networked to take action against water futures. One example is a
letter to the CFTC calling for suspension of the futures, signed by well
over a hundred representatives of remarkably diverse organizations (see
Hauter, 2021). The interviewee from Food & Water Watch describes
how they “pulled together an ad hoc network of folks who are very
interested in water nancialization issues, water privatization issues, to
discuss what this market means” [A3].
Politicians have stayed remarkably silent. Interviewee 3 indicated
that state legislators that are directly involved in regulating California’s
water market expressed concern about the contract, yet felt they had no
leverage to interfere in the futures market [A3]. California’s Governor,
while he did not comment on the water futures, has expressed himself in
favor of the expansion of water markets (see Newsom et al., 2020). At
state level, no political statement on the futures was found, yet at the
federal level, a bill was introduced by Senator Elizabeth Warren from
Massachusetts and Californian Representative Ro Khanna in March 2022
to “prohibit the trading of water and water rights for future delivery”
(Future of Water Act, H. R., 2022, H. R. 7182, 117th Cong.). Though
unsuccessful, the bill was reintroduced in the 118th Congress (Singh,
2024).
Meanwhile, Pedro Arrojo Agudo, the Special Rapporteur for the
rights to water and sanitation, issued a report to the UN General As-
sembly about the “risks and impacts of the commodication and
nancialization of water”, in which he calls to prevent water speculation
from having the same effect on the most impoverished as food specu-
lation does (Agudo, 2021).
Furthermore, the media plays several roles. Firstly, it spreads in-
formation about the NQH2O futures and thereby provides the basis for
the public to develop an opinion and discuss. Secondly, the media pro-
vides a platform for actors to publicly express their opinions, and lastly,
journalists also give their own opinions. While many articles express
concern over the water futures, others welcome the new tool or are
merely informative.
Strikingly, the primary actors seem to see a lot of interest in their new
nancial product (see McCourt and Wolf in Malandrino (2023a, 2023b))
and the interviewed professor [A2] assumes that the interest of “people
in the industry” had motivated CME to launch the futures. Yet a look at
the remarkably low volume and open interest casts a shadow of doubt
regarding the spot market participants’ interest. In this vein, the
representative California Farm Water Coalition (CFWC, 2023) doubts
that farmers are willing “to gamble a lot of upfront capital under the
assumption that prices will rise”.
Lastly, the term water agencies summarizes a vast network of
Californian and a few federal agencies that govern and manage water in
California. They execute an administrative function for the water spot
market and may also be involved in preparing expansions of the latter
(see e.g. California Water Commission, 2022). Such support for trade
expansion, as shown by the California Water Commission, can also be
seen on the federal level, where the US Department of Agriculture holds
an ofce with the mission “to catalyze the development of markets for
ecosystem services” (USDA, 2023). Remarkably, no statements by water
agencies on the launch of water futures were found. Upon interview
requests, two central water agencies replied that they were “not able to
provide any insight” and that it “would not be appropriate for [them] to
weigh in on this emerging market”. However, the inaction on the matter
shown by water agencies can be seen as one decisive element allowing
for the development of water futures.
Fig. 4 provides an overview of the presented actors. It is an own,
simplied elaboration without claim to be exhaustive.
C. Christen et al.
Environmental Challenges 19 (2025) 101125
6
5.2.3. Topics of debate
During the QCA, eight interrelated topics were identied that are
repeatedly brought up in the controversy over water futures. The
following is a brief synopsis of these points of debate, in which the
primary actors typically represent the “pro”-side and secondary actors
the “con”-side:
1. Market manipulation: While opponents often voice concern that the
underlying spot market is susceptible to manipulation by speculators
(see e.g. Elizabeth Warren Senate Website, 2023), proponents like
Coogan from Veles (in Malandrino (2023c)) have assured that “the
market is most probably the most difcult market in the world to
manipulate”.
2. Price discovery: A central argument used to promote the futures is
that they send price signals for different points in time and thereby
help water users in planning ahead [e.g. A2]. This argument is
invalid to many critics, who fear the futures’ prices to be distorted by
excessive speculation (see e.g. Hauter, 2023).
3. Appropriateness: While the underlying market paradigm is typically
declared a necessity or simply not questioned by proponents, oppo-
nents tend to call for more political regulation to “allocate water to
the highest public benet, not the highest nancial benet” [A3].
4. Speculators: Potential interest by speculators in the NQH2O futures
is a central target for critique and labeled as “mak[ing] money from
others suffering” (Basav Sen in Harris (2023)). Yet proponents
describe a win-win scenario, in which hedgers benet from the
liquidity provided by speculators to offset their price risk in times of
growing scarcity (see e.g. McCourt, 2023).
5. Competition distortion: Critics expect an advantage for large cities
and agrobusinesses with means to hire trading experts, as compared
to small, inexperienced water users who would only participate
because “otherwise, you know, you’re gonna get killed” [A1]. Yet
Coogan from Veles assures that small users will also “work out how
this works” (in Harris (2023)).
6. Price distortion and opacity: A key fear for critics is that the futures
market could blow up water prices on the underlying spot market, e.
g. through a speculative bubble (see e.g. Hauter, 2021). Yet, CME
(2020) describes the market as being well protected through
regulation.
7. Transparency: Proponents advocate for the NQH2O index as a
contribution to greater market transparency (see e.g. Wolf, 2023).
However, opponents deplore a lack of transparency in the underlying
spot market and in the composition of the index (see e.g. DiFelice,
2024).
8. Regulation: While the interviewed CFTC staff assured that every new
contract is reviewed [A5], opponents criticize a lack of regulatory
overview. According to Grant (in Schlehuber and Witte (2020)), the
futures trading extracts water from the regulatory framework that
applies to the spot market.
This synopsis of the controversy shows its resemblance to two much
older debates with which it shares actors and arguments. Firstly, the
debate around food futures, where scholars have not given a unied
answer to the question of whether futures markets have the power to
distort prices for essential goods on the underlying spot market (see
Wimmer et al., 2021). Secondly, it resembles the debates around pri-
vatization and the human right to water by generally discussing
market-based approaches to water governance. Interestingly, pro-
ponents and opponents of water futures trading share parts of their
discourses by frequently emphasizing the vitalness and scarcity of water.
However, both then head into diametrically different directions, with
one side declaring market approaches a necessity, while the other views
them as a threat to accessibility for all.
5.3. Institutions
T¨
oller et al. (2021) dene institutions as formal or informal systems
of rules, which can be action-enabling or action-constraining.
A necessary precondition for the launch of a futures market, the
Californian spot market for water rights is not only the result of ad hoc
political decisions, but also of longstanding institutions. Most centrally,
the market evolved from California’s “unique blend” of water right
types, including appropriative rights. Appropriative rights in California
emerged during the mid-19th century gold rush, allowing the rst
Fig. 4. Actors map. Information taken from the above quoted sources and own interviews.
C. Christen et al.
Environmental Challenges 19 (2025) 101125
7
claimant to use and transport water away from its source (SWRCB,
2023b). Despite many changes in water law, the private property
character of appropriative rights and the separation of water from land
remain the foundation for surface water trading (see Dellapenna, 2009;
Donohew, 2009; Varghese, 2013). According to Varghese (2013), the
prior appropriation doctrine is not only crucial for the tradability of
water rights, but also a main reason why such markets became neces-
sary. The author argues that the generous granting of senior water rights
required a voluntary reallocation system once additional water sources
were exhausted.
Moreover, inadequate or nonexistent groundwater pumping regula-
tions have led to overdraft, prompting political support for establishing
and expanding groundwater markets as part of cap-and-trade systems
(see e.g. California Water Commission, 2022). In this vein, the Sus-
tainable Groundwater Management Act (SGMA) of 2014 tasks local
agencies with elaborating sustainability plans, granting them the au-
thority to establish local markets and underpinning the decentralized
approach (California Water Commission, 2022). According to the Cali-
fornia Water Commission (2022), “with SGMA as a catalyst, ground-
water trading in California is entering a period of expansion and
experimentation”.
Meanwhile, critics of water futures interpret California’s legally
recognized human right to water as an institution conicting with the
water futures market (see e.g. DiFelice, 2024). The right explicitly refers
to water affordability (California Water Code §106.3), which would
conict with blown-up water prices. However, the California Water
Commission (2022) rejects any intrinsic contradiction between a human
right and markets when writing that “[…] the State has a role to play in
ensuring that […] groundwater trading […] supports the Human Right
to Water, and protects and enhances the public trust resources”. The
public trust doctrine is another legal institution that Interviewee 3,
amongst others, considers undermined by water futures trading [A3].
Anchored in state common law, the doctrine determines that certain
natural resources, like shing-grounds and navigable waters, be owned
by the public yet entrusted to the state for protection (Legal Information
Institute, 2023; Rollins, 2023). However, water bodies held in trust can
still be subject to private property rights, which are usually usufruct and
do not include ownership of the water itself (see California Water Code
§1253; Blumm, 2010; Callies and Smith, 2020; Saxer, 2010).
Meanwhile, the US futures market is directly regulated by the CFTC,
operating under the Commodity Exchange Act. Although the Act ex-
cludes certain commodities from futures trading, water is currently not
among them (see Commodity Exchange Act 7 U.S.C. §1a). While oppo-
nents still interpret the Act’s principles as running counter to the
NQH2O futures (see e.g. Hauter, 2021), the CFTC, in approving them,
apparently did not see such a contradiction.
Hence, it appears that certain institutions have facilitated the
development of water futures, while others that could constrain the
market exist but seem to be ineffective in fully enforcing restrictions. It is
thus striking how few institutional hurdles stood in the way of launching
the NQH2O futures. Instead, it seems that institutional frameworks, such
as the outdated water rights system and political decentralization, have
developed dynamics that ultimately favored the emergence of a futures
market. However, what does limit the potential of the futures are the
complexity of the different types of water rights, as well as trade regu-
lations and high transaction costs on the water spot market (see e.g.
Bruno and Schweizer, 2022; Hauter, 2021; Mount and Hanak, 2019,
A5). Thus, the absence of a national, clearly dened and consistently
implemented market-based approach to water governance leads to thin,
local, non-integrated spot markets barely supportive of a futures market.
5.4. Situational aspects
The Qualitative Content Analysis identied several factors that may
have opened a window of opportunity for launching the water futures
market. However, the extent to which these factors directly inuenced
the decision remains unclear.
Most interviewees indicated they were not surprised by the launch,
noting that the idea had been discussed for years [A1, A3]. In fact, the
CFTC staff voiced surprise that the rst water futures contract had not
been launched earlier, calling it a natural evolution from having water
spot markets [A5]. Yet, the timing of the launch, during the COVID-19
pandemic and the transition from the Trump to the Biden Presidency,
may have created a particularly favorable moment. This at least is
suggested by Interviewee 3: “It was, you know, in the middle of the
pandemic, kind of done – trying to be quiet about it I think, in a way”
[A3]. However, the most mentioned circumstance is that the launch was
preceded by the worst wildre season in California’s modern history,
giving particular visibility to the topic of water scarcity (see e.g. Harris,
2023). Plimmer (2023) explicitly writes: “As heat and wildres ravaged
the US in the summer of 2020, Wall Street spotted an opportunity”. In
fact, when McCourt from CME (in Malandrino (2023a)), after
announcing the futures, was asked: “Why now?”, he pointed out the high
number of people facing “water scarcity issues” and emphasized that
“it’s a vital resource”.
Furthermore, the IATP (2023) points to a report released by the CFTC
the month before the futures’ launch, that encourages exchanges to
“address climate and sustainability issues […] by developing new de-
rivatives contracts to hedge climate-related risks” (CRMRS, 2020). It can
be assumed that the primary actors knew about the CFTC’s favorable
attitude towards such endeavors, which must be considered part of the
growing global tendency in the nancial sector to frame climate change
and water risk as a threat to nancial stability (see CRMRS, 2020;
Leaive et al., 2022, A4). This trend has gained momentum in the wake
of increasing climate-related disruptions. Accordingly, the CFTC’s
chairman Rostin Behnam welcomed the NQH2O futures as a vital
management tool (Times, 2020).
While it appears that these primary actors, coming from the private
sector, did not depend on situational factors to provide a window of
opportunity for implementing their ‘policy’, they certainly chose a
favorable moment, whether by design or coincidence.
5.5. Instrument alternatives
Since the primary actors were not politicians tasked with solving a
specic problem, the water futures market did not directly compete with
alternative policies. Even other nancial instruments to offset water
scarcity risks, such as insurance contracts (as suggested by Interviewee
2), would likely have been implemented by different actors.
Certainly, the most central question is why the presented problem of
water price risk was picked up by nancial actors instead of politicians.
Critics of water futures call for a political approach [e.g. A1, A3, A4],
which could range from “simple” price regulation to addressing the
mismatch between demand and supply at its roots, e.g. by reforming
agriculture. Yet, the interviewed professor calls such structural changes
“very difcult” [A2], since they would be met with strong opposition by
those with “powerful economic interests” [A1]. Sure enough, changes in
water usage could theoretically also evolve from the bottom-up instead
of the top-down.
In the U.S., favoring nancial solutions over political regulation
appears to be a consistent trend, matching what B¨
ocher and T¨
oller
(2015) call an "ideological lter." They argue that the selection of policy
instruments often aligns more with prevailing beliefs and discourses
than with the most effective solutions to problems. Additionally, new
policies are shaped to align with existing ones, called the “institutional
lter” (B¨
ocher and T¨
oller, 2015). Thus, after establishing a spot market
for water, launching a futures market to manage price risk on that
market is a logical continuation.
6. Conclusion
Despite so far very limited success in terms of trading activity, the
C. Christen et al.
Environmental Challenges 19 (2025) 101125
8
introduction of water futures marks a key moment in the nancialization
of natural resources. The nancialization of water builds on a long-
standing trend towards its commercialization, while the perceived value
of water increases due to growing scarcity and competition for re-
sources. The water futures market reects this trend, as it allows
nancial actors to prot from uctuations in water prices or to hedge
against the associated price risk. Instead of constituting a traditional
environmental policy, the introduction of water futures effectively
substitutes one, and nancialization represents one of the most signi-
cant challenges to traditional models of water management. Regions like
California, where an already existing mismatch between demand and
supply is exacerbated by climate change, are particularly prone to such
trends.
By integrating insights from interviewed key actors, this analysis
provides a comprehensive view of the causal mechanisms driving the
development of the water futures market, even if not all inuencing
factors may have been identied. The PIDA framework, borrowed from
policy analysis, has proven exible enough to be applied to this unique
case. All ve variables considered in PIDA contribute to explaining the
emergence of the water futures market. The factors’ interplay and dy-
namics, outlined in the previous chapter, constituted a process that
clearly was, and continues to be, more complex than linear problem
solving.
It appears that the intersectoral nature of water futures makes them
fall into an accountability gap, where water authorities and politicians
do not feel in charge – while nancial authorities are not responsible for
protecting water as a common good. Yet the bill introduced to abolish
water futures showcases that the power to do so ultimately still resides
with politics – if there is sufcient will. However, skepticism towards
political regulation and faith in self-regulating markets constitute a
strong ideological lter for any new policy in the US, making it unsur-
prising that the world’s rst water futures market was launched here.
The market builds on the proclaimed objective to keep the economy
running despite ecological limits (see e.g. California Water Commission,
2022; CRMRS, 2020], instead of implementing potentially expensive
reforms.
As the central variable considered in PIDA, the primary actors oc-
casionally make use of market environmentalist discourse elements to
push their project, with Coogan from Veles calling himself a “brilliant
environmentalist” (Harris, 2023). These actors were able and powerful
enough to pursue their own economic interests by linking them to cur-
rent environmental issues. However, Moore (2024) points out the
intrinsic contradiction in market environmentalist governance ap-
proaches: While the claim is to protect the environment by increasing
resource efciency, actors rely on growing scarcity to prot from the
markets they created. Opponents of the NQH2O futures have further-
more criticized them with a variety of both ethical and practical argu-
ments that resemble those raised in the older debates around water
privatization and food futures. The tensions between proponents and
opponents of water futures furthermore reect the current broader de-
bates about how to manage water scarcity in an era of climate change.
While nancial markets may provide a way to mitigate risk and incen-
tivize conservation, they introduce new challenges in terms of equity,
environmental protection, and the governance of a vital public resource.
An important task for future research would certainly be to assess the
impacts on society if this or another water futures contract attracts high
trading activity. For now, further spreading of the concept is unpre-
dictable. Due to the demonstrated complexity of policy processes and
the very unique geographical, political and socioeconomic conditions in
different regions worldwide, the ndings of this paper are in their details
specic to the Californian case. However, the results of the analysis hint
to what could contribute to the development of more water futures
markets. With regards to the question of possible expansion, all in-
terviewees for this research expected more attempts to establish water
futures markets, potentially changing certain variables to achieve more
commercial success [A1, A2, A3, A4, A5]. Possibly, the focus could shift
to Asia, home to the most populous and some of the most water-stressed
countries in the world. In fact, water derivatives have already been
discussed as an option for India by scholars and the government agency
Niti Aayog (see Ghosh, 2022; Madhav and Dwivedi, 2022; Sharma,
2022).
CRediT authorship contribution statement
Charlotte Christen: Conceptualization, Data curation, Formal
analysis, Investigation, Methodology, Visualization, Writing – original
draft, Writing – review & editing. Michael B¨
ocher: Conceptualization,
Methodology, Supervision, Writing – review & editing. Petra
Schneider: Conceptualization, Methodology, Supervision, Writing –
review & editing.
Declaration of competing interest
The authors declare that they have no known competing nancial
interests or personal relationships that could have appeared to inuence
the work reported in this paper.
Acknowledgements
Sincere gratitude and appreciation are extended to Muhammad
Othman Ghani for technological and language support in the prepara-
tion of this scientic paper. His expertise greatly contributed to
enhancing the clarity and quality of the work.
Supplementary materials
Supplementary material associated with this article can be found, in
the online version, at doi:10.1016/j.envc.2025.101125.
Data availability
Data will be made available on request.
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