The Real Stranded Assets of Carbon Lock-in – Panama Canal Edition

This is the third installment of The Real Stranded Assets of Carbon Lock-in article series. You can read the previous articles here and here.

As climate change advances, many of the world's critical infrastructures are at risk of becoming "stranded assets." The Panama Canal is a prime example.

A “stranded asset" is an investment that loses its value before the end of its operational life. The Panama Canal, one of the most significant technological achievements of the 20th century, is an engineering marvel that revolutionized global trade by providing a direct waterway between the Atlantic and Pacific Oceans. However, it was built for a different climatic era.

The canal's intricate system of locks and lakes lift and lower ships through the waterway. Gatun Lake, an artificial reservior, is an essential component of the canal's operation, supplying the millions of liters of water discharged each time the canal's locks are opened. Unfortunately, drought affects the lake’s water levels, and climate change is expected to significantly decrease rainfall in Central America, threatening the canal's functionality.

This is not a speculative future scenario. In response to dropping water levels this year, the Panama Canal Authority has already been forced to reduce the number of daily ship crossings and impose strict draft restrictions that limit the size, load, and quantity of vessels passing through the canal. These disruptions have resulted in long queues and delays that affect shipping schedules.

If the drought persists, the Panama Canal could further decrease the number of daily vessel transits. Analysts do not expect the situation to improve in the short term. In fact, conditions might worsen, further impacting the shipping industry and the canal's operation.

Should the Panama Canal become non-functional, the implications would be global. It's not just about the disruption of trade routes; it's about the economic ripple effects worldwide. Countries dependent on the canal for trade would face increased costs and delays, impacting economies at both local and global scales.

While the Panama Canal Authority (ACP) is taking proactive measures to ensure the canal's continued operation, short-term options are limited. Longer-term solutions would depend on additional construction to deepen existing artificial lakes or costly desalination of seawater to compensate for reduced rainwater. While measures are being proposed, the potential of the canal becoming unoperational in extreme climate scenarios is a real possibility.

If so, this would be one of humanity’s largest assets stranded by climate change.

For more insights into the concept of stranded assets and carbon lock-in, check out the full article, "The Real Stranded Assets of Carbon Lock-in."