The severe economic impacts of the Arctic melt


The ice melt in the Arctic is opening new roads and perspectives for a handful of countries and economic actors. But a team of researchers from Cambridge and the Erasmus University of Rotterdam warn that the eventual cost of Arctic change will exceed the gains… by far.


Last summer, an alarming record was set in the Arctic. Ice melt in Greenland attained greater proportions than ever before (almost the entire surface of the island), and lasted longer than ever before. And the situation was the same across the region. As the New York Times reported at the end of that summer,

the apparent low point for 2012 was reached Sunday, according to the National Snow and Ice Data Center, which said that sea ice that day covered about 1.32 million square miles, or 24 percent, of the surface of the Arctic Ocean. The previous low, set in 2007, was 29 percent.

It is too early in the summer to know if this new low will be beaten in 2013, but experts quoted in The Guardian are already indicating that “compared to the 1981 to 2010 average, ice extent on July 15 was 1.06m sqkm below average”. The ice melt in the Arctic is not “just” a seasonal problem, though. In 2000, it was established that the ice cap had lost 34% of its surface since 1979. This is one of the major and most publicised effects of global warming. The public is fairly well informed about its impacts on biodiversity (vulnerability of polar bears and other local species) and on human habitat (with the rise in sea levels and the multiplication of extreme climatic events). The economic impact of global warming, and more precisely of ice melt, is less discussed. The authors of a recent study presented in an article entitled “Climate science: Vast costs of Arctic change” published in the latest issue of Nature point this out. Gail Whiteman (from the Erasmus University of Rotterdam, the Netherlands), Chris Hope and Peter Wadhams (both from the University of Cambridge, UK) warn that the Arctic melt is an “economic time bomb” that requires urgent attention.


Short-term economic benefits…


As the three researchers wrote, “most economic discussion so far assumes that opening up the region will be beneficial”, because it will open new shipping routes and access to previously unattainable resources. It is estimated that 13% of the world’s undiscovered oil lies in the Arctic, as well as 30% of its undiscovered gas. Opening the arctic passage during the summer months would shorten the Shanghai-Hamburg route by 6400km – and subsequently facilitate and increase trade. As French researchers François Trual and Richard Labévière put it in their book La Bataille du Grand Nord a commencé (The Arctic Battle Has Begun, 2008),

the Arctic is about to become the interchange between what economists call the triad, that is the three main blocks of capitalist countries: Northern Asia, Northern America and Western Europe.

These perspectives have been feeding tensions between the Arctic countries (the United States, Russia, Norway, Denmark and Canada) for over a decade. Even though they founded the Arctic Council in 1996 and signed a declaration in 2008 that they would respect international maritime law to split the arctic territory between them, they are still, unofficially, preparing for the fight. Canadian researcher Rob Huebert thus wrote in 2010, in “The Newly Emerging Arctic Security Environment”: “All of the Arctic states have begun rebuilding their military forces and capabilities in order to operate in the region. (…) Notwithstanding the public statements of peace and cooperation in the Arctic issued by the Arctic states, the strategic value of the Arctic is growing. As this value grows, each state will attach a greater value to their own national interests in the region. The Arctic states may be talking cooperation, but they are preparing for conflict.” They are preparing for conflict because they see the economic interests attached to the Arctic melt. But what about the downsides? What are they? Are they massive enough to counter the advantages?


… that will come at a price in the long run


Whiteman, Hope and Wadhams’ answer to this last question is a massive “yes”. In fact, they wrote that “the costs of a melting Arctic will be huge”, mainly for environmental reasons. Ice melt has a consequence that is less familiar to the general public than the rise in sea levels: the release of methane sequestrated in the permafrost beneath the East Siberian Sea. Huge amounts of it: 50 gigatonnes. And methane, as a greenhouse gas, is one of the main agents of global warming.

Higher methane concentrations in the atmosphere will accelerate global warming and hasten local changes in the Arctic, speeding up sea-ice retreat, reducing the reflection of solar energy and accelerating the melting of the Greenland ice sheet.

The cost will be environmental of course. But the authors claim it will also be felt on an economic level. The release of methane alone “comes with an average global price tag of $60 trillion in the absence of mitigating action — a figure comparable to the size of the world economy in 2012 (about $70 trillion).” Even worse, the researchers warn that “the full impacts of a warming Arctic, including, for example, ocean acidification and altered ocean and atmospheric circulation, will be much greater than our cost estimate for methane release alone.” To reach these conclusions, they have considered the release of these 50Gt of methane (they detail the methodology in the article published in Nature) under two scenarios: the first one is “business as usual”, with no mitigating action, and the second one is a “low-emissions” case, where there is a 50% chance of keeping the rise in global temperatures below 2°C (that is, 2°C above pre-industrial levels).

In both cases, the methane pulse brings forward (by 15 and by 35 years) the estimated date at which the 2°C rise will be reached. In the no-mitigation scenario, the extra cost will be $60 trillion; in the low-emissions scenario, it will reach $37 trillion (that is almost half of the net present value of global climate change impacts). Their conclusion leaves no room for ambiguity: “In all of these cases there is a steep global price tag attached to physical changes in the Arctic, notwithstanding the short-term economic gains for Arctic nations and some industries.”


All aboard the same ship


The main question now is: who will pay the price? And this is where things become complicated. The entire planet may be affected by Arctic change, “because the region is pivotal to the functioning of Earth systems such as oceans and the climate.” But it will not be the countries which stand to benefit from the opening of the Arctic region (i.e. the Arctic states and the triad) which will suffer the most severe consequences. Whiteman, Hope and Wadhams in fact estimate that 80% of the economic fallout will be borne by the poorer economies of Africa, Asia and South America. Mainly because they will be subjected to more floods, heat stress, storms, droughts and other extreme climatic events. This will also mean “poorer health and lower agricultural production.”

We all inhabit the same planet. In the long run, it is in our common interest to preserve it for future generations. But the long run does not usually carry sufficient weight when we make social, political and economic choices. Short-term benefits tend to be more appealing, and to throw the fact that we are all aboard the same ship into deep shade.

At the end of their article, the authors advocate for the integration of the analyses of Arctic change into global economic discussions, deploring the fact that the World Economic Forum (WEF) and the International Monetary Fund have not yet recognised “the potential economic threat from changes in the Arctic.” They appeal to the WEF to

ask world leaders to consider the economic time bomb beyond short-term gains from shipping and extraction. Arctic science is a strategic asset for human economies, because the region drives critical effects in our biophysical, political and economic systems. Without this recognition, world leaders and economists will miss the big picture.

For them to be heard on this point would definitely be a good start.

Photo © Shutterstock / francesco de marco