Climate Change-driven drought could put the Panama Canal at risk

Abstract

This study investigates the economic consequences of climate change on the Panama Canal, a vital global trade artery. Utilizing a two-stage least squares model, we analyze the nonlinear relationship between Lake Gatun levels and waterway traffic, incorporating a hydrological model to understand the impact of climate change on lake levels. Our findings demonstrate a significant negative correlation, revealing that lower lake levels, exacerbated by the current El Niño event, lead to substantial reductions in waterway traffic. Specifically, an additional day with Lake levels below 81 feet can reduce daily transits by up to 20%, translating to significant economic losses. These results underscore the critical need for proactive adaptation strategies, including water conservation measures, infrastructure upgrades to enhance water storage and distribution, and the exploration of alternative trade routes to mitigate the economic and environmental consequences of climate change on the Panama Canal and global trade.