Preparing for High-Impact, Low-Probability Events
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Preparing for High-impact, Low-probability Events: Lessons from Eyjafjallajökull Bernice Lee and Felix Preston, with Gemma Green Preparing for High-impact, Low-probability Events Lessons from Eyjafjallajökull A Chatham House Report Bernice Lee and Felix Preston, with Gemma Green ISBN 9781862032538 Chatham House, 10 St James’s Square, London SW1Y 4LE T: +44 (0)20 7957 5700 E: [email protected] www.chathamhouse.org F: +44 (0)20 7957 5710 www.chathamhouse.org Charity Registration Number: 208223 9 781862 032538 Preparing for High-impact, Low-probability Events Lessons from Eyjafjallajökull Bernice Lee and Felix Preston, with Gemma Green A Chatham House Report December 2011 www.chathamhouse.org Chatham House has been the home of the Royal Institute of International Affairs for ninety years. Our mission is to be a world-leading source of independent analysis, informed debate and influential ideas on how to build a prosperous and secure world for all. © The Royal Institute of International Affairs, 2011 Chatham House (The Royal Institute of International Affairs) in London promotes the rigorous study of international questions and is independent of government and other vested interests. It is precluded by its Charter from having an institutional view. The opinions expressed in this publication are the responsibility of the authors. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical including photocopying, recording or any information storage or retrieval system, without the prior written permission of the copyright holder. Please direct all enquiries to the publishers. The Royal Institute of International Affairs Chatham House 10 St James’s Square London SW1Y 4LE T: +44 (0) 20 7957 5700 F: + 44 (0) 20 7957 5710 www.chathamhouse.org Charity Registration No. 208223 ISBN 978 1 86203 253 8 A catalogue record for this title is available from the British Library. Designed and typeset by Soapbox, www.soapbox.co.uk Printed and bound in Great Britain by Latimer Trend and Co Ltd The material selected for the printing of this report is Elemental Chlorine Free and has been sourced from sustainable forests. It has been manufactured by an ISO 14001 certified mill under EMAS. ii www.chathamhouse.org Contents About the Authors v Acknowledgments vi Executive Summary and Recommendations vii 1 Introduction 1 1.1 Spotlight on systemic resilience 1 1.2 Questions and dilemmas 3 1.3 Preparing for high-impact, low-probability events 4 1.4 Outline of the report 5 2 Mapping Economic Impacts and the Role of Business Resilience 7 2.1 How shocks cascade through the global ecomony 7 2.2 The vulnerability of manufacturing industries 9 2.3 The consequences of a prolonged disruption 11 2.4 Uneven impacts across regions and society 13 2.5 The importance of business resilience 15 3 The Contest over Science, Certainty and Legitimacy 17 3.1 Scientific uncertainty in high-impact, low-probability events 17 3.2 Understanding risk and decision-making during crises 18 3.3 Competing stakeholder interests 21 4 The Battle for the Airwaves 23 4.1 Crisis management in the age of social media 24 4.2 Lessons for stakeholders 25 5 Conclusions and Policy Implications 29 Strengthening processes and transparency 29 Stepping up communications in a crisis 29 Enhancing business resilience and responses to shocks 30 iii www.chathamhouse.org Appendices Appendix 1: Acronyms 32 Appendix 2: Methodology 33 Appendix 3: Chatham House Survey – Questions and Responses 35 Appendix 4: Measuring the Economic Costs of a High-impact Event: the Stylized GDP Model 37 Appendix 5: Agencies and Institutions Involved in an Ash-cloud Crisis (Selected Countries) and Decision-making Linkages during the Ash-cloud Event 39 Appendix 6: National Approaches to Decision-making during the Ash-cloud Event 44 iv www.chathamhouse.org About the Authors Bernice Lee OBE is Research Director, Energy, Environment and Resource Governance at Chatham House Felix Preston is Research Fellow, Energy, Environment and Resource Governance at Chatham House. Gemma Green is Programme Manager, Energy, Environment and Resource Governance at Chatham House. Contributing Authors Rob Bailey (Chatham House) Suw Charman-Anderson (Independent consultant) Charles Emmerson (Chatham House) Antony Froggatt (Chatham House) Sarah Helm (Cambridge IP) Ilian Iliev (Cambridge IP) William Jackson (Chatham House) Cleo Paskal (Chatham House) Vanessa Rossi (Chatham House) v www.chathamhouse.org Acknowledgments The authors would like to thank the contributing authors for their substantial input into the report, particularly Vanessa Rossi and William Jackson for their work on the economic consequences of high-impact events, and Suw Charman-Anderson and Ilian Iliev and the team at Cambridge IP for their extensive analysis of media and communication during a crisis. James Norman supported the team with data analysis and designed many of the diagrams and tables in the report. Cleo Paskal, Rob Bailey, Charles Emmerson, Antony Froggatt, Jens Hein, John Mitchell, Estelle Rouhaud, Elizabeth Stevens, Grant Rudgley, David Heymann and Sudeep Chand at Chatham House all provided valuable input to the drafts, and we are also grateful to Nick Mabey, Shane Tomlinson, Jonathan Haslam and Sam Hardy for their comments. Specials thanks to the team at Skoll for providing guidance and critical feedback. The authors would also like to thank the companies and organizations that participated in inter- views and completed the survey. Thanks also to Margaret May and Nicolas Bouchet for copy-editing the report and overseeing the production process at Chatham House.This study was conducted with funding received from the Skoll Global Threats Fund. BL, FP, GG vi www.chathamhouse.org and to the just-in-time business model. The consequences of HILP events spread rapidly across sectors and borders, often with second- or third-order impacts that are hard or impos- sible to predict. The 2003 SARS outbreak, for example, cost businesses $60 billion, about 2 per cent of East Asian GDP. Executive The devastating earthquake in March 2011 may have lost Japan 10 per cent of its capital stock – equivalent to around Summary and 20 per cent of the country's GDP – with wider knock-on impacts for global companies such as Toyota and Sony, Recommendations which were forced to halt production. In an increasingly connected global economy and society more people are (and will continue to be) affected by shocks, irrespective of whether ‘high-impact events’ are actually becoming more frequent or not. To explore our preparedness for HILP events in this context, The frequency of ‘high-impact, low-probability’ (HILP) Chatham House has examined the ash cloud that spread events in the last decade signals the emergence of a new across Europe in April 2010 to draw lessons for other ‘normal’. Apparent one-off high-profile crises such as 9/11, HILP events. In particular the analysis considered the Hurricane Katrina, the Macondo oil spill and the Japanese nature of decision-making and coordination before, earthquake and tsunami were all mega-disasters requiring during and after the ash cloud; the impact of scientific rapid responses at a global level, marking the beginning of uncertainty; the economic consequences and the role of a crisis trend. But lower-profile, persistent events such as communications. flooding, droughts and cyclones have been shown to have equally serious impacts, raising new questions about the way in which we perceive risk and prepare for disruptive events. A complex risk environment These events can manifest themselves not only as ‘black swans’ – which by nature are impossible to predict Despite considerable efforts to improve scientific under- – but also as known hazards such as floods, hurricanes standing and reform risk management approaches, or earthquakes, which, owing to the low likelihood of governments and businesses remain insufficiently occurrence or the high cost of mitigating action, remain prepared to confront HILP crises and effectively manage un- or under-prepared for. There are also crises such as their economic, social, political and humanitarian conse- pandemics which typically unfold over weeks, months or a quences. few years, for which the scope or timing remains unknown Current contingency planning often assumes the return even with preparations. Events such as the 2011 drought of the status quo ante after a crisis. But this approach may and subsequent food crisis in East Africa have also raised be inadequate in a world of complex economic and social troubling questions about the way in which the interna- risks, especially when combined with slow-motion crises tional community responds to ‘slow-motion’ disasters like climate change and water scarcity. Slow-motion crises which build up over several or many years. such as these build over many years, but are likely to result The globalization of production and optimization of in a higher frequency and greater severity of shocks. Often supply chains have increased systemic efficiencies in the there are several steps between an event ‘trigger’ and the global economy but have exacerbated the speed and scope of social consequences that result. contagion in the event of shocks. They pose particular threats National risk management structures – based on vii to key industries – especially high-value manufacturing – classifying events by tiered levels of threat and imple- www.chathamhouse.org Preparing for High-impact, Low-probability Events: