Arctic development fraught with risks: Lloyd’s of London
"Significant level of uncertainty about the Arctic‘s future, both environmentally and economically"
The Arctic is likely to attract “substantial investment” over the next 10 years, possibly up to $100 billion or more, says a new report prepared for Lloyd’s of London, the world’s leading specialist insurance company.
But given the high risk nature of investing in the Arctic, this figure could be significantly higher or lower.
The “rapid and disruptive change in the Arctic environment” means the prospects for investment and economic development are uneven, says the 60-page report, called The Arctic opening: Opportunity and Risk in the High North.
Political support for development will continue to represent an uncertainty for businesses seeking to invest in Arctic projects, the report predicts.
Making money will also be difficult because everything will cost more, especially insurance.
And, all across the Arctic, climate change will create new vulnerabilities and present new design challenges for infrastructure, the report’s authors found.
So, it will remain “challenging and often unpredictable” to develop the Arctic.
“One thing that stands out most clearly from this report is the significant level of uncertainty about the Arctic‘s future, both environmentally and economically,” said Richard Ward, the chief executive officer of Lloyd’s, in his introduction to the report.
“The businesses which will succeed will be those which take their responsibilities to the region’s communities and environment seriously, working with other stakeholders to manage the wide range of Arctic risks and ensuring that future development is sustainable.”
Environmental disasters in the Arctic are likely be worse than in other regions.
While events — such as an oil spill — are not necessarily more likely in the Arctic than in other extreme environments, the report says, the potential environmental consequences and the difficulty and cost of clean-up may be “significantly greater,” affecting governments, businesses and the insurance industry, the report’s authors from Chatham House, an independent think tank in the U.K. say.
As well, a catastrophic event, such as an oil spill between Greenland and Nunavut, could affect more than one jurisdiction (in this case, Denmark and Canada), adding further complications.
The report says companies that want to be successful will have to manage their own risks, by using technologies and services most adapted to Arctic conditions.
At the same time, governments, bodies such as the Arctic Council, and industry groups will need to set rules and regulations on what constitutes appropriate development.
Cruise vessels present a particular challenge for shipowners, regulators and insurers in the Arctic, the report notes.
Specifically, larger cruise ships that are moved from the Caribbean, Europe or Mediterranean to operate in the Arctic represent a “genuine challenge.”
The report mentions the 2010 grounding of the Clipper Adventurer near Kugluktuk on at least two occasions, as an example of the risks presented by cruise traffic.
“Clearly there is a need for protocols and strategies within the cruise ship industry to tackle the enhanced risks in the Arctic.” In shipping, search and rescue, infrastructure is “currently insufficient to meet the expected demands of economic development.” the report states.
You can download the report here.