Friday, March 07, 2008

A "Must Read" Article on Economic Impacts of Arctic Ice Melt

Tyler Cowen suggests that if you read only 5 magazine articles this year, this article in Foreign Affairs should be one of them.

Here's the article summary:
Thanks to global warming, the Arctic icecap is rapidly melting, opening up access to massive natural resources and creating shipping shortcuts that could save billions of dollars a year. But there are currently no clear rules governing this economically and strategically vital region. Unless Washington leads the way toward a multilateral diplomatic solution, the Arctic could descend into armed conflict.
And some of the details of the economic tradeoffs associated with ice melt:

The environmental impact of the melting Arctic has been dramatic. Polar bears are becoming an endangered species, fish never before found in the Arctic are migrating to its warming waters, and thawing tundra is being replaced with temperate forests. Greenland is experiencing a farming boom, as once-barren soil now yields broccoli, hay, and potatoes. Less ice also means increased access to Arctic fish, timber, and minerals, such as lead, magnesium, nickel, and zinc -- not to mention immense freshwater reserves, which could become increasingly valuable in a warming world. If the Arctic is the barometer by which to measure the earth's health, these symptoms point to a very sick planet indeed.

Ironically, the great melt is likely to yield more of the very commodities that precipitated it: fossil fuels. As oil prices exceed $100 a barrel, geologists are scrambling to determine exactly how much oil and gas lies beneath the melting icecap. More is known about the surface of Mars than about the Arctic Ocean's deep, but early returns indicate that the Arctic could hold the last remaining undiscovered hydrocarbon resources on earth. The U.S. Geological Survey and the Norwegian company StatoilHydro estimate that the Arctic holds as much as one-quarter of the world's remaining undiscovered oil and gas deposits. Some Arctic wildcatters believe this estimate could increase substantially as more is learned about the region's geology. The Arctic Ocean's long, outstretched continental shelf is another indication of the potential for commercially accessible offshore oil and gas resources. And, much to their chagrin, climate-change scientists have recently found material in ice-core samples suggesting that the Arctic once hosted all kinds of organic material that, after cooking under intense seabed pressure for millennia, would likely produce vast storehouses of fossil fuels.


The shipping shortcuts of the Northern Sea Route (over Eurasia) and the Northwest Passage (over North America) would cut existing oceanic transit times by days, saving shipping companies -- not to mention navies and smugglers -- thousands of miles in travel. The Northern Sea Route would reduce the sailing distance between Rotterdam and Yokohama from 11,200 nautical miles -- via the current route, through the Suez Canal -- to only 6,500 nautical miles, a savings of more than 40 percent. Likewise, the Northwest Passage would trim a voyage from Seattle to Rotterdam by 2,000 nautical miles, making it nearly 25 percent shorter than the current route, via the Panama Canal. Taking into account canal fees, fuel costs, and other variables that determine freight rates, these shortcuts could cut the cost of a single voyage by a large container ship by as much as 20 percent -- from approximately $17.5 million to $14 million -- saving the shipping industry billions of dollars a year. The savings would be even greater for the megaships that are unable to fit through the Panama and Suez Canals and so currently sail around the Cape of Good Hope and Cape Horn. Moreover, these Arctic routes would also allow commercial and military vessels to avoid sailing through politically unstable Middle Eastern waters and the pirate-infested South China Sea. An Iranian provocation in the Strait of Hormuz, such as the one that occurred in January, would be considered far less of a threat in an age of trans-Arctic shipping.

Because of the increasing importance of energy development, its interesting to see a case where the United States in an attempt to remain "sovereign" against international law is finally getting its just deserts. Not ratifying UNCLOS earlier was a somewhat silly, isolationist, approach to maritime issues before, and now that the Arctic is opening, not being a member may prove incredibly detrimental. While the United States is still the world's lone superpower, as the rise of other nations threaten that status the US must see the logic in upholding some part of international law, even if it is justified by real politiks to gain some advantage. The US is no longer threatened by foreign military might, and generally better communication leads to a more efficient economic outcome, not signing on to international agreements will cost the US more than its pride.

The final paragraph also seems to hint at the fact that DoD papers suggest that climate change may be the biggest security threat to the US. Nice to see some agreement that climate change isn't simply the pet issue of the environmental movement.
What a dangerous thought! Climate change= warmer arctic = more efficiency. Setting aside the idea of major cities underwater andeveryone on the equator burning up.
But the fossil fuel idea is most scary of all, I hope some oil baron won't read this article and buy a fleet of hummers to get those ice caps melting. Finding an extra stock of fossil fuels sounds a lot like the bacteria quadrupling their food reserves- didn't solve their problem for long did it?
I agree with Jasin in that this is a totally different view on global warming, I’ve definitely never thought about the benefits. Of course these benefits don’t diminish the costs of global warming but I wonder how they do compare? I also don’t understand why the US seems to be so out of the loop, what are the reasons for not signing the UNCLOS and why have such a massive navy but only one ice capable vessel? Obviously this topic seems to raise many questions.
The article briefly describes the type of R&D that is now going into revolutionary ships that will make the transport of arctic oil a very possible and lucrative. While this research is motivated by shipping interests, it is also very motivated by the projected oil wealth of the region. Billions of dollars are being invested to make the exploitation of some of the earth's last untapped oil fields possible. I think that this reflects the idea that technology is fueled by necessity. However, it is ironic that the technological breakthroughs are being made for oil extraction rather than alternative energy sources.
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