NEW YORK (TheStreet) -- "Water may turn out to be the biggest commodity story of the 21st century," says Edward Kerschner, a consultant to Morgan Stanley.
Water futures do not currently exist, although the idea has been floated. The Australian Securities Exchange has a concept designed that envisions water futures. It suggests that farmers have no means of hedging against drought conditions and this would provide for that. 70% of all water globally is used for agriculture. The CME's ( CME) Green Exchange believes that monetizing water is years away, if ever. Although the green exchange trades in greenhouse gases and carbon trading was also once considered a fantasy. One issue is the need to upgrade the country's aging water infrastructure, and another is the shift in attitudes toward water departments in municipalities. Expenditures on water infrastructure will rise from $90 billion in 2010 to $131 billion in 2016, according to Global Water Intelligence. GWI also estimates that sales of water and wastewater-treatment equipment will increase from $14 billion in 2010 to $22 billion in 2016. Cities have always provided clean drinking water and then billed their citizens. However, less than half the money received actually pays for the water services. Strapped governments now want those water departments to be financially independent. Governments will expect operating cash flow for water utilities to rise from 44% in 2010 to 62% in 2016, according to GWI. Capital expenditures on water infrastructure will also increase from $90 billion in 2010 to $131 billion in 2016. If the cities aren't leaning on the departments to pay for themselves, they are outsourcing the water service -- a model similar to power companies. Demand is increasing for companies that can upgrade a water facility and take over the operations altogether. The right of private entities to own water rights was discussed in Washington last Tuesday by the House Subcommittee on National Parks, Forests and Public Lands. Privatization allows the local governments to get an injection of money into their coffers and unload their water problems to the highest bidder. Citizens predictably become upset when their water bills rise, but usually the new water company is addressing decades of neglect. --Written by Debra Borchardt in New York >To contact the writer of this article, click here: Debra Borchardt.