Decisions have to be made (20)

This is one of the homes in Nam-dong in Incheon which is facilitated with sublight energy panels which are gaining popularity around the world, mostly because it is environment-friendly and produces no greenhouse gases causing pollution. / Korea Times

We have seen an increasing number of severe storms and floods in the Northern hemisphere, and climate change scientists warn that extreme weather is worsening.

By Leena Ilmela

Not a single transaction between European banks is possible due to the once-in-a-century floods in Central Europe. One farm is contaminated; all food import from Europe to Russia cancelled. Climate change is a political challenge; 20 percent of exports are disappearing.

Three European examples of environment related shocks that shake the economy: How to make decisions in the world that is dominated by man-made (global financial system) and environment generated (climate change) uncertainties?

Climate change requires fast decisions. Climate change is studied widely, but still we have two groups of experts with totally opposite views. The Intergovernmental Panel on Climate Change (IPCC) anticipates that the critical level of global warming has already been reached, and the warming of the climate is faster than predicted.

At the same time, there are scientists that claim that a new small ice age is more of a potential threat to the existing temperatures. In between these two controversial groups there is a group of moderates that see the current warming trend as a normal cycle and they are expecting automatic balancing dynamics to take place.

Scientists are criticizing governments about their slow and non-sufficient reactions on the climate issues. But how can we as scientists expect that political decision makers are able to define risk levels and adequate actions, when even we cannot agree on the probabilities for the options presented above? Especially when we know that the climate change is only one topic on their agenda.

Politicians are fully occupied with the economic problems of the public sector, slow growth of the global economy, pensions, feeble financial sector and the fast increasing cost of national health care. And their primary attention is focused on the next elections.

First I will describe three different environment driven extreme events (by extreme event we mean a low probability and high impact event), and then I will present one way to meet these decision making challenges.

Surrender?

Decision makers can apply two different main strategies in this situation. The decision maker may invest in an anticipation system and try to detect early signs of these risks as early as possible. Or decision makers can surrender to increasing uncertainties and invest in resilience. The former strategy is the right one for risks that we know well enough to define probability, the latter is the only way to be prepared for the extreme events that have a low probability but potentially high impact. The systemic nature of both of the global environment and the global social system, generate surprises that you cannot manage with traditional risk management methods. Let me tell three examples, all of them from Europe. One about mitigation of climate warming, one weather problem and the third one describes the health safety challenge.

The European Union (EU) has set a very strict target to cut all the environmental emissions as fast as possible. This choice has been justified with alarming data about the climate change we receive daily. Europe wants to be a forerunner and carry its own share of responsibility.

The Baltic Sea is a very fragile ecosystem and the recent development has generated serious discussions about preventive actions. As the outcome, EU is planning to apply new, tighter CO2 emissions regulation that decreases the emissions as low as 0.1 percent by 2015. Sea transportation becomes more expensive. If the EU applies this regulation, it ends the pulp and paper industry in Finland (one third of the price of exported paper consists of transportation cost), and Finland loses 20 percent of its exports. The unemployment rates double and the country side will be desolated.

Efficiency has been for a long time the leading goal of the economic system. Financial institutions of the 32 European Union countries have built an efficient payment transaction system, called Inter European Payment System, that started its operations in 2011. Now Europeans can pay all their bills very easily to other European banks and pay with our debit cards across Europe. The efficiency emerges from the fact that all the payments between banks are cleared in one center, Luxemburg, that is in the heart of the Europe.

What does this have to with environmental risks? A lot. We have recently seen an increasing number of severe storms and floods in the Northern hemisphere, and the climate change scientists warn us that extreme weather is increasing. Let us presume that all of Central Europe will once again flood in next spring, but at this time the flood beats the 100 year record and destroys a vast amount of infrastructure. Too high a level of flooding water in the wrong place, can stop all the payment transactions in all of the 32 countries.

The third example is very different. In spring 2011 some people in southern Germany and people that have visited there got a very dangerous stomach disease, caused by e-Coli bacteria. Almost 40 victims died and the only information that was available was that the contamination had something to do with vegetables.

Germans blamed Spanish vegetables (Spain is a big exporter of farming products in Europe). And Russia used the situation in order to deny all the vegetable product imports from the EU region. It is easy to understand that as an outcome 80 percent of Spanish vegetables were driven to the garbage dump, but the same happened also in France. And French farmers did not have anything to do with the problem! After three weeks of trouble, the origin of the problem proved to be in a small farm in the Southern Germany. This plot was far too absurd for any risk management professional even to imagine.

All of these examples reveal how intertwined different systems of our world are. All of the cases are describing only the linkages between the environment system and the socio-economic system, but still the dynamics are varying a lot. The first example is an interplay between environment and regulation, the next one describes technology's vulnerability for changing weather patterns and the third one was almost totally composed within a social system, media. None of these were covered by traditional risk management methods.

Resilience as a solution?

At the beginning of the article, I mentioned two different strategies for the management of such surprises. Anticipation is problematic for these three low probability events, but what about resilience?

In our studies resilience consists of three elements; adaptability, agility and active learning. To be resilient means that we are able to adapt to changed environments. We are agile enough to use the opportunities the new kind of environment offers. We use the surprise – or a shock – to actively improve our system.

The challenge is that even for the three examples I presented above it is very hard to be prepared. Each one of them requires a totally different kind of resilience. The forest industry should have recognized early enough that the structure that relies on transportation is not sustainable in the long run. But the efficiency requirements have led to large units and long logistic distances.

The EU regulation is only going to speed up the development that was going on. Efficiency is also the driver of the second example; Inter European payment contract leads to the centralized system, that is fast, but a temporal failure disrupts the entire continent. The third example is more challenging. French farmers could not be prepared for this situation. Or could they?

Surprises are increasing

Surprises are increasing and there is no way that we could invest in building dedicated buffers for all of the shocks the environmental system presents to our brittle centralized systems. The only solution is to try to find actions that increase resilience across all of these different events.

The method developed in collaboration with Aalto University (Finland) and International Institute of Applied Systems analysis (IIASA) is based on portfolio analysis. Method in a nutshell: the chosen uncertainties/shocks (such as climate change) are used for describing two extreme outcomes of the uncertainty in question (average temperatures rise at 6 degrees Centigrade, temperature drop representing a mini ice age). In the next phase we describe success strategies for both of the extreme situations and then choose those actions that are useful in both of the environments. All this is done across all of the uncertainties to be analyzed.

Let us do the test and analyze these three cases and try to find a couple of examples of actions that are worth investing. It is very evident that the increasing logistical cost would be more bearable if the exported products are either more valuable or lighter.

Many backup centers for the SEPA system may be expensive, but needed if weather is getting extreme. Extensive quality checks for all of the food will allow also the French farmers to prove that their products are safe. But all of these examples do not help for the other two cases. And they are expensive to implement.

In our analysis, we found out one common feature in successful actions across all of these shocks. If you have a distributed production model; the paper production takes place in local mills that are able to use various raw materials, the SEPA system is organized as a distributed network of national computer centers (as Internet is operating now) so that if one center fails, there are other centers that automatically take care of the duties of the failed unit, and to arrange distributed food production so that we use mainly local food, is not only ecological, but also safer.

The generic feature of all of these solutions is a distributed structure. Perhaps the distributed structure is not as efficient as a centralized system, but much more resilient. We may not be able to control weather, but we are able to make decisions that build a resilient and weather proof society.

Environment info
Waste management

Waste management is an industry which revolves around the collection, storage, and disposal of waste, ranging from ordinary household waste to the waste generated at nuclear power plants. Developing effective waste management strategies is critical for nations all over the world, as many forms of waste can develop into a major problem when they are not handled properly. Numerous firms provide waste management services of a variety of types, and several governments also regulate the waste management industry for safety and efficacy.

Humans generate a great deal of waste as a byproduct of their existence, and they always have, as evidence at dumping pits located in or around archaeological sites can attest. Every task, from preparing a meal to

manufacturing a car, is accompanied with the production of waste material, which cannot be used for other things and needs to be disposed of effectively. If not contained and handled appropriately, waste can balloon into a huge problem, as for example when garbage ends up in the open ocean where it can make animals and birds sick.

Leena Ilmola is a senior researcher in the International Institute for Applied Systems Analysis (IIASA) in Vienna, Austria. IIASA’s research is funded by 20 countries, South-Korea is one of them. Leena Ilmola’s research theme is uncertainty and her group is developing pragmatic tools for decision making.