Panama Canal – drought forced $8.5 billion investment

Kanał Panamski

Faced with the climate crisis, the Panama Canal Authority has decided to initiate measures leading to net zero carbon emissions by 2050. This involves integrating sustainability into more than $8.5 billion worth of capital investments planned over the next five years. Why have so many resources been allocated to measures to minimize the environmental impact of Panama Canal operations?

Lowest water level since 1950.

Last year, the Republic of Panama was hit by the worst drought since 1950. It has had a significant impact on lowering the water level in the artificial Gatún Lake, which feeds the Panama Canal. In October, despite the ongoing rainy season, rainfall was 41 percent lower. than in previous years. With total water outflows of 10 millioncubic meters, resulting from canal service, evaporation and consumption, the daily deficit is 3 millioncubic meters. What were the consequences?

Lake Gatún is one of the world’s largest artificial reservoirs. Not only does it provide the reservoir necessary for the operation of the Canal, but more importantly, it is a source of drinking water for the residents of the surrounding cities. When the water table dropped below safe levels, the Panama Canal Authority reduced the capacity of daily transits.

Panama Canal. Fewer ships – fewer goods

To ensure smooth navigation, at the end of October the Panama Canal Authority announced that daily transits would be gradually reduced from 32 to 24 in November, 22 in December, 20 in January and 18 in February. Since this waterway connects the east coast of the US with Asia and the west coast of South America, less ship capacity could increase the price of products shipped between these regions. In such a scenario, the United States would suffer the most. As much as 40 percent. of all U.S. container transport flows through the Canal. These are loads of approx. 270 billion dollars.

On the other hand, less transit traffic would severely deplete Panama’s revenue from this source, which is approx. 4.6 billion dollars. annually. However, the efforts of policymakers and the population, as well as a change in the weather, led to a breakthrough in mid-December. As a result, a month later, daily transits were increased to 24 ships, instead of being reduced as previously planned. Ships from all over the world pass through the 80-kilometer-long Panama Canal every day. Each year it is used by 13,000 or more. Up to 14,000. ships. With about 9,000. Employees this waterway operates continuously throughout the year. In the meantime, it serves more than 180 sea routes, connecting 1,920 ports in 170 countries. How did the Panama Canal become so important in international trade?

French history of the construction of the Panama Canal

The dream of digging a water passage across the Isthmus of Panama, connecting the Atlantic and Pacific oceans, dates back to the early 16th century. Vasco Nuñez de Balboa, who was the first to cross the Isthmus in 1513, discovered that only a narrow strip of land separated the two oceans. Shortly thereafter, Roman Emperor Charles V (Charles I of Spain) commissioned a study of the feasibility of building a passage across the Isthmus. At the time, it was deemed impossible.

Not until 1879. French diplomat and builder of the Suez Canal, Ferdinand de Lesseps, held an international congress to present his plan to build a sea-level crossing. In 1879. the originator founded the Compagnie Universelle du Canal Interocéanique de Panama, which began work on the diversion. They were not easy due to the difficult terrain, lack of suitable equipment, tropical diseases plaguing the workers and financial problems. In 1888. The company declared bankruptcy. Only 10 percent were dug up. overall. In 1894. a new company, Compagnie Nouvelle de Canal de Panama, was formed to try to complete the project. She presented the concept of building a canal with castles and lakes, but was unable to raise sufficient funds and in 1904. sold its construction rights to the United States for $40 million.

US takes over construction

When the U.S. acquired the construction rights from the French company, it began negotiations with Colombia, which included Panama. When the country rejected a treaty with the United States, President Roosevelt in retaliation supported the Panamanian independence movement. In 1903. sent warships to both ends of the Isthmus, blocking Colombian military access and allowing Panama to declare independence. The newly-formed republic signed a treaty with the U.S. under which it was granted a perpetual concession to operate the canal and a 10-mile-wide zone around it, plus $10 million. payment.

Work on the canal began on May 4, 1904. The venture’s chief engineer, Washington Goethals, recruited builders from the Caribbean and the United States. With the information, experience and infrastructure left behind by the French, construction was completed six months ahead of schedule. The entire project cost $352 million. On August 15, 1914. The first ship, the SS Ancon, passed through the Panama Canal. The canal shortened travel time and distance between the Atlantic and Pacific, reducing transportation and trade costs. It is considered one of the greatest engineering achievements and a symbol of American genius and determination. Until now, the Canal’s key element of locks has been considered an engineering marvel. They allow ships to be raised and lowered to an altitude of 25.9 meters above sea level, the level of Gatún Lake.

Sustainability in the face of drought

On January 24, 2024, in response to the climate change emergency, Ilya Espino de Marotta was appointed as the first Director of Climate Change. Sustainable development of the Panama Canal. Its main goals include decarbonization, adaptation to rapid change and equitable transformation. The Canal Board, in line with global goals, has decided to aim for zero net carbon emissions by 2050.

The Panama Canal Authority is already working with the World Bank and the International Finance Corporation (IFC) to finalize an inventory of greenhouse gas emissions. It will be published within six months. This year, the Canal will complete a climate risk assessment and engage in the Science Based Targets (SBTi) initiative, which includes both short- and medium-term reduction targets.

Investment in a green global trade system

Between 2024 and 2030, the Panama Canal Authority plans to include sustainable development in capital investments worth more than $8.5 billion . This is more than the $5.4 billion required by the Panama Canal Expansion Program. The board will spend the largest portion ($3.5 billion) on infrastructure and equipment, meaning the installation of a photovoltaic power plant, the purchase of electric vehicles and hybrid tugboats. The remaining funds will support sustainability initiatives: implementation of a better water management system, digital transformation and improvements to decarbonize transportation on this waterway.

Director Ilya Espino de Marotta comments on these ventures as follows: “As an international trade hub, we have the opportunity not only to drive sustainable development in the Panama Canal, but also to help shape a more sustainable and productive ecosystem for global trade.”

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