Climate Change Threatens Panama Canal And Global Maritime Trade

The Panama Canal is a conduit for 6% of the global maritime traffic. But climate change is disrupting that trade. While high temperatures and little rain are the primary causes, four hurricanes over seven years have been equally devastating.

The Panama Canal is in the midst of Panama’s rainforests, which cover 68% of its land or nearly 12.7 million acres. Both depend on precipitation for survival. If the rainforests do not get ample rainfall, it trickles down to the canal. The bad news is that the canal’s authorities say that 2019 was the fifth most arid in 70 years, with rainfall 20% less than the average, all compounded by depleted reservoirs.

Indeed, water levels fell in 2015 and 2016, and shippers had to reduce the amount of cargo on their vessels — money down the drain.

“The Panama Canal is the only interoceanic commerce route whose operation depends on the availability of freshwater, making it the most vulnerable to the adverse impacts of global climate change,” says Emilio Sempris, former minister of the environment for Panama from 2015 to 2017, in a talk with this writer. “There is no better natural solution to secure water in the Panama Canal watershed than protecting forests and planting more trees.”

The United States built the Panama Canal between 1904 and 1914 — a freshwater shortcut that allows ships to avoid sailing around the tip of South America. The Panamanians expanded the waterway this century. As a result, shippers cut their time at sea from two months to 10 hours. More than 10 million ships have accessed the canal since it opened.

In 2021, 517 million tons of goods went through the canal, generating $2.1 billion in contributions to Panama’s National Treasury. In 2022, those collections will hit $2.25 billion.

The expansion of the Panama Canal led to less time at sea, resulting in 16 million fewer tons of CO2 in 2021 and 650 million tons since 1914. Meanwhile, the rainforests have soaked up 18.3 million tons of CO2 between 2016 and 2020. Moreover, Panama’s rainforests absorb more CO2 than its national energy sector emits yearly. That’s why Panama has fastidiously safeguarded its trees: Between 1947 and 2014, the country lost 6.7 million acres of forest — a fraction of its total — mostly lost due to ranching and agriculture.

Despite these contributions, Sempris says that Panama has not received any direct payments or carbon credit monies for protecting its rainforests and curbing carbon emissions. “Since adopting the Paris Agreement in 2015, Panama has implemented legal and institutional arrangements to phase out deforestation and restore its forest cover. We know the trees host our rich biodiversity, prevent soil erosion, and regulate the water cycle.”

Show Us the Money

Panama has complied with the UN verification process, which requires countries to account for their trees and ascertain how much carbon they will absorb if left standing. Those are the rules of the Paris climate agreement if the rainforest nations want to sell carbon credits to countries and corporations. Panama says it is eligible to sell 18 million tons of CO2 credits under the REDD+ financing mechanism — credits based on prior achievements from 2016 to 2022.

The funds from carbon credit sales will protect and enhance the country’s tropical rainforests. Sempris says that the credits will be ready for sale in 2023 and that $250 million would initially get raised. After year one, he says the credits would bring in $50 million to $70 million annually.

Panama will also use the money to restore deforested land and create green jobs in everything from eco-tourism to biodiversity protection to scientific research. The funds will go into a transparent and professionally managed trust. “We expect thousands of new jobs,” Sempris says. “We need to get the money to the countryside — to feed those provinces, so they engage in reforestation.”

Panama’s primary industries are agribusiness, manufacturing, petroleum products, chemicals, and transport tied to the Panama Canal and Panama City’s airport, which serves 170 destinations worldwide. Tourism also contributes $4 billion in revenues. Meanwhile, international banking is significant along with mining, as the country is rich in minerals such as copper. The inefficient agricultural sector is the leading cause of the nation’s greenhouse gas emissions.

Among the multinationals with regional headquarters in Panama: shipping company Maersk, the Procter & Gamble Co., Chevron
Corp., ExxonMobil
, and BP, all of which vow to be carbon neutral and buy carbon credits.

Panama’s efforts will have a small global impact unless the bigger rainforest nations make the same commitments and sacrifices — ones that focus on keeping their trees alive and soaking up CO2. That means Africa, Australia, Brazil, China, India, Indonesia, and Russia must stop deforestation.

“Forests must be a bigger part of the global climate solution,” says Sempris. “It is why Panama protects its forests. If there is illegal logging elsewhere, we can’t just look the other way. The Panama Canal will suffer and 6% of the global maritime traffic will be adversely impacted.”

The rainforests are vital to Panama’s economic health — the driver that keeps the Panama Canal alive and well. Climate change is a threat to Panama and beyond. The battle is multifaceted. But protecting the rainforests and ensuring access to climate finance are the cornerstones to success.


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