Panama's drought: a canal in crisis

Louie Parker | Latin America Fellow

For over a year, Panama has been experiencing a severe drought. Ordinarily, the ecological experiences of a small Central American state do not garner the intrigue of global media outlets or foreign policy figureheads. But, the importance of the Panama Canal to global trade has forced these stakeholders to sit up and take notice.


The drought’s severity is not to be underestimated. The rainfall in 2019 was 20 per cent below the historic average, making it the fifth driest year in 70 years. In addition, the average temperature of Gatún Lake, the main tributary of the canal, has increased by 0.5-1.5 degrees Celsius over the past 10 years, and led to a significant loss of water by evaporation.


Underlying the drought is the occurrence of an El Niño weather phase; a phenomenon where warmer sea surface temperatures in the Pacific Ocean lead to drier conditions in countries like Panama. An extended El Niño episode from 2014-16, and again in 2019, has made the task of managing the crisis all the more difficult.


Panama’s experience is instructive as it shows the ability of small Latin American states to respond to ecological predicaments. For many years, the United States administered the canal. However, from 1999 the Torrijos-Carter Treaties of 1977 granted control of the canal to the Panamanian government’s Panama Canal Authority (PCA). Although this transfer of ownership improved the economic autonomy of Panama, it also exposed the developing country to the risks of managing a colossal piece of global infrastructure without the technical expertise of a superpower like the US.


Even so, Panama is responding to the drought in an active and measured way. In early 2019, the PCA imposed cargo limits to ensure vessels ride higher in the water. Fees and surcharges have also been introduced, among other measures, to better anticipate the number and type of ships transiting the passage, and to allocate water resources accordingly.


The PCA has also stated its commitment to “expand its investment program to include projects focused on addressing the sustainability of the water supply”. However, such a vague statement of intent should not be taken as a comprehensive policy proposal on its part.


Panamanians’ concern over climate change highlights an acute trepidation of the drought. According to a survey from a 2018 report by Claire Evans and Elizabeth Zechmeister of Vanderbilt University, 79 per cent of Panamanian people view climate change as a “very serious” problem.


If the drought continues to affect the canal’s operations, the public’s concern will continue to grow due to the canal’s importance to Panama’s economy. It generated revenues of over $2.8 billion USD in 2017. Given Panama’s total government revenues for that year were $12.43 billion USD, the canal represents over 22 per cent of the country’s revenue base. Thus, any detrimental impacts on its operations will have a tangible effect on the Panamanian people’s standard of living.


Moving forward, the PCA is considering two potential solutions for the canal. The first is the installation of a pipeline to source water from a lake approximately 100 miles away with higher water levels, at a cost of more than $1 billion USD. The second involves the construction of a dam to increase water stores and regulate flows, at a cost of approximately $2 billion USD.


Both proposals present workable partial solutions to the current water shortage, although whichever solution is ultimately adopted must be optimal for the canal’s long-term financial, ecological and operational security. The stark reality is that any policies enacted within Panama are at best mitigation strategies. The transboundary effects of climate change and unrelenting weather patterns leave Panama at the mercy of high-polluting states and the natural world. Thus, Panama should also engage with other states and institutions to lobby for greater global action on climate change.


Panama should also work with other drought-affected states to understand their failures and successes in dealing with severe water shortages. There is already a precedent for such a collaborative approach to this issue. A 2016 report co-authored by three organisations examined lessons learned from Australia’s drought and how these could be implemented in response to the drought in California. These lessons included robust data collection, clear communication with the public, and water pricing mechanisms.


A failure to address the drought could have far-reaching implications for global trade. A constrained or non-functioning canal would remove the main passageway connecting the Atlantic with the Pacific. In such an event, maritime freight companies would have to consider navigating past the southern tip of South America; blowing out costs and shipping times considerably. Alternatively, these companies might reconsider their need to navigate through either route entirely.


Louie Parker is the Latin America Fellow for Young Australians in International Affairs.

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