60 seconds with Charles Emmerson

Charles Emmerson

Charles Emmerson is Senior Research Fellow for the Energy, Environment and Development Programme at Chatham House.

He previously worked at the World Economic Forum as Associate Director and Head, Global Risks. Charles is lead author of Lloyd’s latest Risk Insight report – Arctic Opening: Opportunity and Risk in the High North.

Why are companies, particularly energy and shipping firms, showing an increased interest in the Arctic region?

The Arctic is a rapidly changing region. Access to some parts of the Arctic, particularly coastal areas of interest to oil and gas companies and to shippers, is expected to increase as a function of climate change and improved technologies.

As a consequence of this – plus high oil prices and concerns about exclusion from some parts of the world – the Arctic has increasingly come into focus for some companies, and countries, as a zone of economic and strategic opportunity. But we're a very, very, long way from the Arctic becoming a cold Saudi Arabia or a northern Panama Canal. The costs, environmental risks and uncertainties are acute.

What levels of investment and economic development are we likely to see in the Arctic in the next five to ten years?

This is highly uncertain. A lot of potential investment is in a few key projects which may or may not prove economically viable if global conditions change, or which may face political opposition. If something goes wrong in the Arctic – in terms of an environmental or human catastrophe – all bets are off.

Nonetheless, investment in oil and gas (onshore and offshore), infrastructure (both civilian and military) could reach as much as $100billion over ten years. That's a tiny fraction of overall investment in energy globally - but it's a huge number for many Arctic communities and countries.

What are the main risks and challenges facing companies in the Arctic?

The Arctic will remain a highly challenging operating environment and that contributes to normal business risks, but also to substantial environmental risk.

Companies face political risk in operating in some countries where the rule of law may be seen as not fully established and in operating in other countries where there may be political opposition to their operations on environmental or other grounds.

The state of knowledge – in terms of environmental baselines for example, or in terms of seabed mapping – has substantial gaps.

How can we ensure that future development in the Arctic is sustainable?

By making sure that knowledge gaps are closed, by making sure the social license to operate is there, that rules and regulations are based on sound principles of ecosystem management and by ensuring that these rules and regulations are properly applied.

We need to recognise that sustainable development is a multi-generational objective: it's not just about the next 10-20 years, but the next hundred years, when oil and gas may be far less substantial parts of the global economy.

Are we likely to see increasing competition for Arctic resources between nations and potentially future tensions?

Descriptions of the Arctic as an area of tensions between states are generally wide of the mark.

The Arctic states cooperate in the Arctic Council, amongst others, and they have agreed that the law of the sea sets the rules of the road when it comes to determining who owns what. There's always scope for disagreement, but that's relatively limited.

That said, there is quite rightly plenty of scope for intense political arguments within states about the pace or prospect of development of some non-renewable resources. As the Arctic becomes a more strategically-salient place there's a need for any increases in government presence – including military presence – to be well calibrated.

There are questions around the terms of which certain shipping lanes could become open. All of these are resolvable issues. But it does mean that the Arctic is out of the deep freeze geopolitically and strategically.

What role does risk management play in the future development of the Arctic?

Rigorous assessment and monitoring of risks is essential. Essential from a corporate perspective, but also from the perspective of setting sound regulations and ensuring that whatever development occurs does so in a way which benefits Arctic communities and countries, and does not cause unacceptable environmental harm.

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Arctic Report

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