Climate risk notes - May 2024
2024 is a particularly bad year for climate risks in Latin America. Sustainable solutions aren't at the top of most politicians' agendas.
Water shortage stories are adding up in Latin America this year.
The government of Panama has limited shipments through the Panama Canal due to low water levels, disrupting global trade.
Bogota has rationed water to various city neighborhoods as the key reservoirs that supply the capital are near record lows.
Ecuador had days of electricity rationing, partially due to local drought limiting hydropower and partially due to Colombia cutting electricity exports to the country.
In Venezuela, demand outstripped supply yet again in April. Part of this is due to drought, which has also increased forest fires in the country, but part is due to government failure. The hydropower systems at the Guri reservoir are far from fully functional and repairs that should have been done years ago have stalled.
Brazil's Amazon faces a multi-year drought that is drying up rivers and increasing fire risks.
Paraguay has a record soy crop that they can't fully export due to the low water levels on the river.
The drought in northern Chile has gone on for nearly a decade. Climate change, means disappearing glaciers, and one estimate suggests parts of the country could completely run out of drinking water by 2040.
Mexico City is approaching a date at which water rationing measures will be required or it will run out of water.
El Niño and climate change mean 2024 will be the warmest year on record. Major weather events hit some part of the region every year, but the extreme weather events are particularly bad and more widespread this year. However, it's not a good idea to look at the list above and blame one bad year. Many of the trends have been building for years if not decades and will likely worsen in years to come. Unfortunately, most of the region's politicians have treated their particular issue as a crisis of the week rather than the crisis of the decade. A city the size of Bogota can't fix its water shortage problem over the coming decade by asking people to take shorter showers. Ecuador can't cut days of school every time drought causes electricity shortages. Those aren't sustainable solutions.
The short term risk in 2024 is that more water and electricity shortages are on the way. Various rivers and lakes used for logistics including the Panama Canal are not going to return to 100% capacity any time soon (the Panama rainy season just began, but the lifting of all restrictions on the numbers of ships and tonnage could take months). We're not just one rain storm away from fixed on any of the above. Worse, the higher than usual sea temperatures right now raise the potential for powerful tropical storms in the coming months and the flooding will hit harder in places where the ground is dry.
The medium term risk is that all of those challenges remain next year. Mexico City's water supply isn't going to return after a single season of rain. Bogota's water supply is on an unsustainable path. Electricity demand is increasing rapidly and hydropower can't be scaled to meet the demand, particularly if rivers and reservoirs are running lower than the average levels when those dams were built.
There are political risks here as well. A recent Wilson Center report highlighted how the combination of a long-term drought and extreme weather events harms democratic governance in Central America. Some of the conclusions, such as the fact weak governance has led to deforestation by ranchers that disrupts ecosystems, can also be seen in South America. The report offered models for local programs that have helped improve the situation, such as local governance structures that reduce deforestation in Guatemala. I like the programs that are highlighted, but they don't scale to deal with water shortages that impact millions of citizens and agricultural yields that are key to reducing food insecurity.
Sure, this could all be a call for addressing climate change globally. Please do that. But in the meantime, with limited leverage in the international debate, Latin America needs to address the immediate and building crises that these water shortages are creating. Even if the rest of the world surprisingly committed to net zero tomorrow, increasing urbanization and electricity demands would still stress water supplies in many countries.
There is an opportunity here for companies and investors who focus on the sort of infrastructure needed to address these challenges. For every other company operating in the region, the risk is that local politicians continue treating this as the crisis of the week. There will be rationing, brownouts, and failed disaster responses ahead later this year. The political fallout hasn't hit yet, but citizens will eventually blame local and national governments for failing to act and those levels of government will point fingers at each other, adding to the political polarization in several of the countries above.