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AES Corporation, a US based company, has plans to build a hydroelectric dam in Panama near the Costa Rica border. The company has applied for carbon credits as hydroelectric power generation does not burn fossil fuels. However, a number of environmental groups are opposing the project based upon research showing that flooding area with tropical vegetation produces methane emission as the flooded vegetation decomposes.

According a blog for Amistad International Park, “The United Nations Clean Development Mechanism (CDM) which is a scheme that provides funds to projects that reduce emissions in developing nations, may be used to finance a hydroelectric dam in Panama which, according to environmentalists, threatens a biologically rich World Heritage site and an indigenous tribe, the Ngobe.’

The blog goes on to note that, “AES Corporation, a Virginia-based company, is overseeing the dam’s construction in the Palo Seco Protected Forest on the Rio Changuinola. The river flows out from La Amistad International Peace Park and Biosphere Reserve (UNESCO World Heritage sight), a park that is shared by Panama and Costa Rica.”

Carbon Credits in Panama and around the World

AES has requested carbon credit certification under the CDM as a hydroelectric dam generates power without using fossil fuels thus helping prevent global warming through greenhouse gas emission. Carbon credits are a key component of national and international emissions trading schemes that have been implemented to mitigate global warming. They provide a way to reduce greenhouse gas emissions on an industrial scale by capping total annual greenhouse gas emissions and letting the market assign a monetary value to any shortfall through trading.

Credits can be exchanged between businesses or bought and sold in international markets at the prevailing market price. Credits can be used to finance carbon reduction schemes between trading partners and around the world. Thus the certification of a hydroelectric dam in Panama has a monetary value in that the credits earned can be sold to another company that typically exceeds its carbon and greenhouse gas emission allowance under its own nation’s laws.

Carbon Dioxide and Methane Greenhouse Gas Emission from Dam Sites

Carbon dioxide and methane can be a problem from dam sites because large amounts of carbon tied up in trees and other plants are released when the reservoir is initially flooded and the plants rot. Then after this first pulse of decay, plant matter settling on the reservoir's bottom decomposes without oxygen, resulting in a build-up of dissolved methane. With the Panama dam the methane would be released into the atmosphere when water passes through the dam's turbines.

Depending on the amount of submerged organic matter a dam could for many years produce more greenhouse gases than a fossil fuel plant generating equal amount of electricity. The problem with methane in a project such as Panama’s in rain forest is that the methane is said to have more than twenty times the global warming potential as carbon dioxide.

Other issues with the proposed hydroelectric project include the displacement of roughly 1,000 people of the Ngobe indigenous group and the loss of migratory route to the ocean for all shrimp and several fish species in the river.

Fifty environmental groups wrote to AES last years asking them to withdraw from the project but as of September 2008 the project was going ahead.

Panama has several hydroelectric and wind farm projects in the works in an effort to reduce Panama’s dependence on imported fossil fuels. With Panama’s economic and real estate investment boom likely to go on for years Panama will need reliable sources of electricity. As such Panama is likely to invest in more wind and hydroelectric power to reduce its dependence on imported oil. For insights on Panama’s growth and investment opportunities come to see us at ABPanama where we have over 23 years experience managing real estate portfolios.