BABSON RESEARCH: ECONOMIC IMPORTANCE OF ICE IN THE ARCTIC
Babson College Finance Professor Michael Goldstein’s research concerning the ice road economy in the Arctic finds:
- Road construction and maintenance techniques can lengthen ice road seasons, saving between $6 million and $27 million a year in transportation costs.
- Reliance on ice roads also entails significant economic risk: modeling indicates the roads may fail to deliver sufficient supplies almost 27% of the years examined at a potential additional cost of up to $84 million for each failed year.
- While engineering can make marginal changes, it cannot adapt sufficiently to account for additional costs due to rapid climate changes or variability.
- To ensure future operations, mines will either be shut or alternative transportation modalities will be required.
Goldstein presented “Cold Hard Cash: The Economic Importance of Ice in the Arctic” and “Grateful Dettah: The Value of an Ice Road to a Small Community in the Northwest Territories of Canada,” at the 7th International Congress of Arctic Social Sciences (ICASS VII), in Akureyri, Iceland.
The Congress, whose theme was “Circumpolar Perspectives in Global Dialogue: Social Sciences beyond the International Polar Year,” was held at the University of Akureyri, 60 miles from the Arctic Circle, on June 22.
Goldstein led co-presenter Nick Pineda, Class of 2011, and other Babson students on a research project last March in Yellowknife, Northwest Territories, where they studied the economic impact of ice roads near the Arctic Circle. View the course web site athttp://faculty.babson.edu/goldstein/goldsteingroup/.
The effort, funded by a National Science Foundation (NSF) grant, was part of the Babson course, Arctic Economics: Environment and Seasonality.
Goldstein presented research from both papers, and Pineda presented results from a survey he conducted during the March Yellowknife project as part of the “Grateful Dettah” presentation. See abstracts below.
Cold Hard Cash: The Economic Value of Ice in the Arctic
We are studying the effect of changing seasonality on the Arctic economy by examining a unique 600-km "ice road" over frozen lakes and tundra constructed yearly in northwestern Canada. The road supplies three diamond mines with fuel and material. The mines account for 30% of the Gross Domestic Product of Canada’s Northwest Territories, employing 4,000 people, roughly 35% of whom are Aboriginal. Winter operations of the ice roads hinge on predictable seasonal transitions (summer-to winter; winter-to-summer) and cryospheric conditions. Seasonal shifts are already adversely impacting minerals activities in the North with a trickle down impact on local and Northern economies.
Using data from 1959 to 1996, we examined how anticipated changes in seasonality will affect economic performance in the next decade and whether adaptive strategies can reduce the economic sensitivity of this key industrial sector to longer or shorter seasons, or a warmer, wetter, or more variable climate.
We find road construction and maintenance techniques can lengthen ice road seasons, saving between $6 million and $27 million a year in transportation costs. However, reliance on ice roads also entails significant economic risk: modeling indicates the roads may fail to deliver sufficient supplies almost 27% of the years examined at a potential additional cost of up to $84 million for each failed year. While engineering can make marginal changes, it cannot adapt sufficiently to account for additional costs due to rapid climate changes or variability. To ensure future operations, mines will either be shut or alternative transportation modalities will be required.
Grateful Dettah: The Value of an Ice Road to a Small Community in the Northwest Territories of Canada
We study the social and economic value of short ice road that the Department of Transportation of the Government of Northwest Territories (NWT) builds each year between Yellowknife, the capital of NWT, and Dettah, a small native first-nation community across an inlet of Great Slave Lake, even though there is a longer all weather road available year-round. The Dettah ice road is only open for about 115 days a year on average and about 58,500 trips are taken on the road each year on average. When the Dettah ice road is open, trips on the all-weather road drop precipitously. Estimates suggest that, of the 460 average daily trips on the Dettah ice road, about 150 per day would have otherwise been on the all-weather road had the Dettah ice road not existed, and about 330 trips a day occurred only because the Dettah ice road was open.
Since the 7.8 km Dettah ice road is shorter than the 23.3 km all-weather road, a trip on the Dettah ice road saves both distance (15.5 km) and time (11 minutes and 15 seconds). Cumulatively, on average the Dettah ice road saves an average of about 811,000 km and a year and 44 days of time per year over taking the same number of trips on the all-weather road. As a result, taking the Dettah ice road saves about C$160,000 in gas savings and about C$88,000 in time (if time is valued at the NWT minimum wage). In addition, about 2.2 million kg of CO2 emissions are avoided, valued at an average of $4,000 per year. Collectively, these values far exceed the C$10,000 that it costs the NWT to build the road.
A survey of 106 unique drivers on the Dettah ice road also indicates who is driving the Dettah ice road and why. This survey was designed and conducted on the Dettah ice road on March 17, 2010 by Babson students at the request of the Government of Northwest Territories. It suggests that 48% of the drivers take the road for business or work, while others take it for recreation, shopping, or going to school. However, travelers who live in Yellowknife were more likely to use the road for business and recreation, while Dettah residents were more likely to use the road for going to school and for shopping. Age ranges of travelers on the road were reasonably distributed by age groups from 20 to 50+.
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