The Arctic, again

Juan Carlos Martínez Lázaro. Professor. IE Business School

11 December 2012

New studies suggest that the Arctic ice cap could disappear over the next three or four summers, which could have significant economic and political consequences.


Statements made to a British newspaper by Cambridge University professor Peter Wadhams claiming that the Arctic ice cap could melt completely over the next three or four summers have brought the delicate situation of this part of the planet back under the spotlight. Wadhams says that the acceleration of the thawing process, which previous studies reported would not take place until around 2030, is the result of damage caused by global warming. In the summer of 2007 the frozen surface area in the Arctic covered some 4.7 million square kilometers, but now the National Snow and Ice Center in the US has warned that at the end of last August the that area was now even smaller than the previous historic low of September 2007, standing at 3.5 million square kilometers. The Arctic ice melt therefore appears to indicate that fluctuations in the climate are not the result of natural processes, but rather of the emission of gases that produce the greenhouse effect.

Putting aside the serious impact this process has on the environment for a minute, I am going to focus on the economic repercussions. First, the summer melt opens the possibility for new shipping routes that could link the North of Europe with South East Asia, and the latter with America’s Atlantic coast, without having to go through the Suez and Panama canals, respectively, thereby saving on time and money. Russian Premier Vladimir Putin recently promulgated a law to regulate shipping on the maritime route that links the Atlantic Ocean with the Pacific along the Russian Coast, known as the Northern Sea Route or North East Passage, which will have its own administrative body responsible for managing shipping and overseeing the building of infrastructures to ensure it is commercially viable. This summer it also became possible to sail from the Pacific to the Atlantic along the Canadian coast via the North West route, without having to use ships equipped to plough through ice. Hence, if the melting process continues at the same vertiginous pace as that of the last few years, we will soon see a total revolution in the transglobal traffic of merchandise. The Suez and Panama canals – the latter of which is currently being expanded, will probably lose part of their economic and strategic importance, and plans for railways in Central America as an alternative to the Panama Canal suddenly make a lot less sense.

But the collapse of sea ice has even more significant economic consequences in the energy sector. According to the US Geological Service, the Arctic could hold between 13% and 30% of the world’s undiscovered oil and gas reserves, respectively. This makes it enormously attractive to the oil industry, hungry for new oil sites. The reduction in the frozen surface area coupled with advances in technology is starting to bring the old dream of exploiting the natural riches of this vast territory for commercial gain closer to reality. This will be possible in the near future provided that the price of hydrocarbons remain at the price we have got used to seeing in recent times. The Russians also seem to have taken the lead in this respect, although the Norwegians, Canadians and Americans have no intention of being left behind. 

Environmental issues first started to gain recognition in the mid eighties of the last century. The discovery of a hole in the ozone layer, the nuclear accident in Chernobyl, and oil spills like that caused by Exxon Valdez in Alaska, started to raise awareness among governments and societies of the importance  of protecting the environment. Then climate change came along, caused by increasing emissions of greenhouse gases into the atmosphere. There was an attempt to take measures to counteract this, as enshrined in the Kyoto Protocol. But then the crisis hit, and emissions, the green house effect and the fight against climate change took second place, as it still does today. However, news like the statement about the reduction in frozen surface area in the Arctic reminds us that the problem still exists, and that sooner or later we will have no alternative but to address it.



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