̽��ֱ�� of Cambridge - Centre for Risk Studies

Solar storms could cost USA tens of billions of dollars

Anonymous — Thu, 19 Jan 2017 14:42:18 +0000

Previous studies have focused on direct economic costs within the blackout zone, failing to take account of indirect domestic and international supply chain loss from extreme space weather.

According to the study, published in the journal Space Weather, on average the direct economic cost incurred from disruption to electricity represents just under a half of the total potential macroeconomic cost.

̽��ֱ��paper was co-authored by researchers from the Cambridge Centre for Risk Studies at ̽��ֱ�� of Cambridge Judge Business School, British Antarctic Survey, the British Geological Survey and the ̽��ֱ�� of Cape Town.

Under the study’s most extreme blackout scenario, affecting two-thirds of the US population, the daily domestic economic loss could total $41.5 billion plus an additional $7 billion loss through the international supply chain.

Electrical engineering experts are divided on the possible severity of blackouts caused by “Coronal Mass Ejections,” or magnetic solar fields ejected during solar flares and other eruptions. Some believe that outages would last only hours or a few days because electrical collapse of the transmission system would protect electricity generating facilities, while others fear blackouts could last weeks or months because those transmission networks could in fact be knocked out and need replacement.

Extreme space weather events occur often, but only sometimes affecting Earth. ̽��ֱ��best-known geomagnetic storm affected Quebec in 1989, sparking the electrical collapse of the Hydro-Quebec power grid and causing a widespread blackout for about nine hours.

There was a very severe solar storm in 1859 known as the “Carrington event” (after the name of a British astronomer). A widely cited 2012 study by Pete Riley of Predictive Sciences Inc. said that the probability of another Carrington event occurring within the next decade is around 12 per cent; a 2013 report by insurer Lloyd’s, produced in collaboration with Atmospheric and Environmental Research, said that while the probability of an extreme solar storm is “relatively low at any given time, it is almost inevitable that one will occur eventually.”

“We felt it was important to look at how extreme space weather may affect domestic US production in various economic sectors, including manufacturing, government and finance, as well as the potential economic loss in other nations owing to supply chain linkages,” says study co-author Dr Edward Oughton of the Cambridge Centre for Risk Studies.

“It was surprising that there had been a lack of transparent research into these direct and indirect costs, given the uncertainty surrounding the vulnerability of electrical infrastructure to solar incidents.”

̽��ֱ��study looks at three geographical scenarios for blackouts caused by extreme space weather, depending on the latitudes affected by different types of incidents.

If only extreme northern states are affected, with 8 per cent of the US population, the economic loss per day could reach $6.2 billion supplemented by an international supply chain loss of $0.8 billion. A scenario affecting 23 per cent of the population could have a daily cost of $16.5 billion plus $2.2 billion internationally, while a scenario affecting 44 per cent of the population could have a daily cost of $37.7 billion in the US plus $4.8 billion globally.

Manufacturing is the US economic sector most affected by those solar-induced blackouts, followed by government, finance and insurance, and property. Outside of the US, China would be most affected by the indirect cost of such US blackouts, followed by Canada and Mexico as these countries provide a greater proportion of raw materials, and intermediate goods and services, used in production by US firms.

Reference
Oughton, EJ et al. Quantifying the daily economic impact of extreme space weather due to failure in electricity transmission infrastructure. Space Weather; 18 Jan 2017; DOI: 10.1002/2016SW001491

Adapted from a press release by the Cambridge Judge Business School.

̽��ֱ��daily economic cost to the USA from solar storm-induced electricity blackouts could be in the tens of billions of dollars, with more than half the loss from indirect costs outside the blackout zone, according to a new study led by ̽��ֱ�� of Cambridge researchers.

NASA Goddard Space Flight Center

Magnificent CME Erupts on the Sun - August 31

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Cities at risk

sc604 — Mon, 07 Sep 2015 10:00:00 +0000

Using a new metric, ‘GDP @Risk’, the ‘Catastronomics’ techniques developed by researchers at the ̽��ֱ�� of Cambridge reveal that major threats to the world’s most important cities could reduce economic output by some $4.56 trillion, equivalent to 1.2 per cent of the total GDP forecast to be generated by these cities in the next decade.

̽��ֱ��techniques, developed by researchers at the Cambridge Centre for Risk Studies, provide the data and risk analysis for the Lloyd’s City Risk Index 2015-2025, which was launched last week.

“GDP @Risk makes it possible to combine and compare a very wide range of threats, including those that are disruptive and costly, such as market collapse, in addition to destructive and deadly natural catastrophes, and measure their impact on economic output,” said Professor Daniel Ralph, Academic Director of Cambridge Centre for Risk Studies, which is based at the Cambridge Judge Business School. “This 1.2 per cent is the estimated ‘catastrophe burden’ on the world’s economy – without this, the growth of global GDP, currently running at around three per cent a year, would be significantly higher.”

Lloyd’s City Risk Index encompasses 301 of the world’s leading cities, selected by economic, business and political importance. These cities are responsible for over half of global GDP today, and an estimated two-thirds of the world’s economic output by 2025.

̽��ֱ��analysis considers 18 different threats from manmade events, such as market crashes and technological catastrophes, to natural disasters to these urban centres. It examines the likelihood and severity of disruption of the output from the city as an economic engine, rather than metrics of physical destruction or repair cost loss – which is the traditional focus of conventional catastrophe models.

̽��ֱ��Centre’s analysis reflects the typologies of different economic activities in each city. ̽��ֱ��GDP growth history, demographics and other data are used to derive GDP projections out to 2025 for each city. GDP @Risk is a long run average: the economic loss caused by ‘all’ catastrophes that might occur in an average decade, baselined against economic performance between 2015 and 2025.

Professor Ralph added: “A framework to quantify the average damage caused by a Pandora’s box of all ills – a ‘universal’ set of catastrophes – can be used to calibrate the value of investing in resilience. This is what the GDP @Risk metric for 300 World Cities attempts to provide. We believe that it is possible to estimate the cost to a business, city, region or the global economy, from all catastrophic shocks. Such holistic approaches are an antidote to risk management that reacts to threats taken from yesterday’s news headlines. Our simple methodology suggests that between 10 per cent and 25 per cent of GDP @Risk could be recovered, in principle, by improving resilience of all cities.”

Adapted from an article originally published on the Cambridge Judge Business School website.

New model says world cities face expected losses of $4.6 trillion in economic output over the next decade as a result of natural or man-made catastrophes.

We believe that it is possible to estimate the cost to a business, city, region or the global economy, from all catastrophic shocks.

Daniel Ralph

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Planning for war: a guide for businesses

Anonymous — Thu, 19 Feb 2015 03:29:35 +0000

̽��ֱ��turmoil of 2014 was a timely reminder to businesses that they need to be prepared and have contingency plans for global conflict. ̽��ֱ��crisis in Ukraine brought Russia and the West to the brink of military confrontation; relations between Japan and China became more fraught; and the year ended with the US and North Korea in something approaching what headline writers like to call “cyber war”.

̽��ֱ��period since the end of World War II has seen no armed conflict between major military powers. Historians have dubbed this period “ ̽��ֱ��Long Peace” – but of course even this time span has not been conflict free. In fact, records suggest more than a million deaths in at least 700 conflicts in the past 25 years.

Last year’s tensions have alerted company leaders to this. They have reawakened to the potential for regional conflicts disrupting their international operations, playing havoc with a fragile global economy and causing chaos in the markets. When Malaysia Airlines flight MH17 was downed while flying over conflict zones in Ukraine, causing the deaths of 298 people travelling from Amsterdam to Kuala Lumpur, it reminded the international community of the ease with which what appear to be remote crises can touch us all.

Risk analysis

This is reflected in the World Economic Forum’s annual survey of threats of concern to world leaders and captains of industry. ̽��ֱ��WEF’s Global Risks 2015 report finds that interstate conflict is now the highest concern – with infectious diseases, water crises, extreme weather events, cyber attacks, unemployment and failures of national governments as other top worries. Only a year ago, interstate conflict didn’t make the WEF’s top 10 risks at all.

In fact, though, the rise of interstate conflict as an area of top concern is long overdue. As 2014 has shown, today’s business leaders need to be aware of the kinds of crises and conflicts that might be expected over the business cycle of the next five to 10 years.

It would certainly be remarkable – unprecedented even – if there were no conflicts during the next decade. Even the most peaceful decades in history have seen minor conflicts every few years. Most decades since the mid-19th century have seen an average of two conflicts involving at least medium-ranked powers. At least one decade in five could be expected to see a regional war involving a G20 nation, most typically a proxy war between superpowers. History shows that supposedly “unthinkable” wars have a nasty habit of surprising people – even the war leaders who instigate them.

Risk hotspots

Analysis for our risk studies centre by Cytora Ltd, a research partner specialising in geopolitical risk, identifies more than 100 potential scenarios for two nation states to spark off a military conflict in the next decade – gauged from recent antagonist statements towards each other, antithetical values and historical enmity.

̽��ֱ��risk map of future conflicts identifies a number of regional hot-spots, including the obvious Middle East, central and eastern Africa, the eastern European margins, the Indian subcontinent, parts of Latin America and the emerging South-East Asian powers. Wherever they can get the information from, businesses would do well to incorporate this kind of research into their strategic thinking. Forewarned is forearmed. Conflicts threaten employees in the theatre of war, they disrupt supply chains, reduce demand for goods, and unsettle investment markets.

̽��ֱ��various stress tests we have developed – for interstate conflict, pandemics, social unrest and more – illustrate what a company might experience from a catastrophic event such as regional war.

Hypothetical stress test scenario

In the hypothetical “what-if” scenario to help businesses assess their resilience to interstate conflict, we imagine an escalating spiral of military tension between China and Japan, based on Pentagon war games. ̽��ֱ��ensuing outbreak of hostilities disrupts trade across a wide area of South-East Asia.

Many US and European businesses have strong economic stakes in the region, including outsourced manufacturing to the region, providing services to growing markets there, and managing supply chains through and around the region.

China and Japan are the world’s second and third largest economies and they create US$120 billion of exports, much of which are shipped through the South China Sea. ̽��ֱ��scenario envisions much of this being halted by a naval sea exclusion zone that freezes the activities of six of the world’s largest ports, and prevents almost half of the world’s container traffic passing through it.

Militarised restricted air space prevents commercial air traffic across the combatant countries, which stops flights from five of the world’s top 20 airports, handling 8% of world passenger traffic and 46% of air freight.

̽��ֱ��scenario tests the ability of businesses to manage this type and scale of crisis. Supply chains, major markets and regional offices have to be reconfigured quickly. Businesses have to review their global exposures and identify concentration risks and choke points in their operations that could be impacted. Currency exchange rates will fluctuate wildly. Business counter-parties could find themselves in distress, so companies need to consider credit-risk tolerance and cash flows during a crisis of this kind.

Company boards might be tempted to skirt round the idea of such unthinkable catastrophes? But for thoughtful businesses, it is certainly something worth thinking about.

̽��ֱ��risk of interstate conflict and its impact on business is presented in the proceedings of a Cambridge Centre for Risk Studies seminar, held in London on February 19, 2015.

This article was originally published on ̽��ֱ��Conversation. Read the original article.

Dr Andrew Coburn of the Cambridge Judge Business School writes on ̽��ֱ��Conversation website about how business leaders have reawakened to the risk of regional conflict, and discusses research carried out at the Centre for Risk Studies on bad-news scenarios ranging from cyber war to regional conflict to pandemic.

̽��ֱ��World Economic Forum’s annual survey of threats of concern to world leaders and captains of industry... finds that interstate conflict is now the highest concern.

Andrew Coburn

Vladimir Pletenev

Still ̽��ֱ��Brave Tin Soldiers

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