Is there an economic advantage to increased Arctic navigability?

Methods

Summary

We adopt a multi-disciplinary approach that draws on the broad expertise of the research team. 

(1) Multivariate ice analysis. The technique to be applied is the reduced form model approach of Lynch et al. (2001b; 2008). The choice of the form of the model is not pre-determined, a critical feature when the response is complex. Employing the assumption that the target predictors, denoted collectively by y, satisfy a normal distribution, a nonlinear reduced form model ŷ is specified by minimizing a chi-squared merit function. The target predictors will be adjusted according to identified definitions, characteristics and features of the ice edge identified as decision relevant in interviews with operations managers

(2) Economic analysis. To specify the model, the actual amount of goods needed to be transported to or from Svalbard and along the Northern Sea Route (NSR) will be determined based on the Norwegian Coastal Administration Automatic Identification System database and interviews with operations managers. The shipping problem can be reduced to look like pricing a form of options known as a “put”. The benefit of the Black-Scholes model we will employ is that it provides a cost that considers both the expected value of what nature will provide as well as the cost of the variance that comes with that assumption. In addition, it can easily describe what the change in costs might be due to changes in either the expected value (as the shipping season length varies with ice edge evolution) as well as the change in cost if the variance increases even if the mean climate does not change.

Challenges

Interviews will be conducted in Norwegian and English. Several of our collaborators are native Norwegian speakers and will assist with both translation in semi-structured interviews and for documentation that may be provided.

Pre Analysis Plan

Will will conduct a test ice forecast and costing for  next year and will send these results to operations managers for their candid assessment to allow refinement of the approach.