Both Buiter and Issumo have made clear that it is thegoal of the nance sector to develop nancial instru
ments on the ground for these new commodities. If trades on a globalized water market can serve as thebasis of water-asset derivatives, as Buiter suggests, thenso can trades involving a variety of pollution credits. Inother words, these new assets, based on commoditizednature, will work in the nancial markets like any othercommodity. And, their prices will be subject to the sameforces as those commodities.
Examples of Financialization of Nature
Cap-and-trade is a radical shift in how environmentalregulation works. Traditional environmental regulationrelies on permission, prohibition, standard setting andenforcement to meet environmental ends.
Regulatedsectors need to meet the standard set or face enforce
ment penalties. Most classic U.S. regulation, includingthe Clean Air Act, rst enacted in 1970, and the CleanWater Act, rst enacted in 1972, ts that mold.In contrast, cap-and-trade attempts to create markets in
actual or potential pollution to create an economic in-
centive to pollute less.
Many, but not all, systems alsoinclude a cap, a system-wide limit to the amount of pol
lution that can be emitted. Instead of limiting what anindividual plant may emit, each polluter is given an allo
cation of emissions. If it doesn’t use up that allocation ina year, it may sell those emission allowances to anothercompany that polluted more than its allocation.
Cap-and-trade is commonly proposed by those whooppose simply regulating pollution as a more “free mar
ket” approach to environmental problems. The marketis used to allocate costs, rather than using the perfor
mance-based indicator of meeting a regulated standard.Proposals for cap-and-trade systems range from using
them to limit greenhouse gases to using them to control
Trading Water Quality
In theory, water quality trading, a type of cap-and-trade,reduces pollution of our waters by allowing polluters tobuy offsets from other polluters who act to reduce theirown pollution. In practice, water quality trading is justa great way, as Delmarva Poultry Industry, Inc. says, “tohelp farmers earn money while providing polluters withthe opportunity to increase their pollution.”
Pollution trading is an attempt to introduce market-based principles to pollution control — an activity thathas been achieved historically through strict regulatoryoversight of pollutant sources under federal laws like theClean Water Act and the Clean Air Act. These and otherair and water laws are premised on the notion that it isillegal to pollute, and they employ a “technology-driv
ing” effort to force more stringent and more protectivedischarge standards on polluting industries. In responseto these laws, industry has had to develop new means toreduce production advancing their technology. Pollutiontrading, in contrast, allows polluters to buy and sell fromone another the right to pollute our common resources.The Obama administration has been promoting waterquality trading in the Chesapeake Bay watershed. Theplan is to establish an interstate market in nitrogen andphosphorous runoff. Once established, the ChesapeakeBay model could then be taken to watersheds through
out the country.
In Europe, the European Commissionis planning to propose similar water quality tradingschemes, as well as water trading, in its Blueprint toSafeguard Europe’s Waters.
In 2009, the Organisation for Economic Co-operationand Development (OECD), an international economicassociation of wealthy nations, released a report thatpromoted the use of market-based water pricing reformsto combat water scarcity, address environmental con
cerns and efciently allocate water resources.
This wasanother attempt to shoehorn water into a market modelthat cannot accommodate its unique, life-sustainingqualities and to bring water under what one WorldBank water expert calls “the hegemony of the marketmodel.”
But in the United States, household water use consti
tutes a tiny fraction of total water withdrawals, so anywater savings would have little impact on scarcity. Do
mestic water use was 8 percent of freshwater withdraw
als, compared to 40 percent for irrigation, livestock andaquaculture and 52 percent for industrial, commercial,mining and electric utilities in 2005.
This means thateven a 5 percent increase in agricultural water efcien
cy could make enough water available to supply a quar
ter of America’s residential consumers with water.While unlikely to have much of an effect on householdwater use, water pricing could pave the way for theintegrated water markets that Willem Buiter foresees.Once residents have been conditioned to view water asa commodity with the aid of water pricing, the market
ing of water could become much easier. This processof commodication got started with the introduction of portable bottled water in the 1970s and 1980s. But thepricing of household water would bring all water undermarket forces.
Trading the Right to Fish
When people think of shing, they probably imagine anindependent sea captain and his crew braving the ele
-ments in a small vessel to bring a fresh catch to shore
and to our plates. But the current focus of global policyfor managing our sheries, called catch shares, is de