International volunteer service is defined as an organized period of engagement and contribution to society by individuals who volunteer across an international border. There is growing interest in the potential of international service to foster international understanding between peoples and nations and to promote global citizenship and intercultural cooperation. Studies suggest that international service develops skills, mindsets, behaviors and networks that prepare volunteers for living and working in a knowledge-based global economy. Many believe that even short-term experiences abroad can begin to prepare participants for longer-term engagement and future international service.

International service may be growing in prevalence worldwide. In the United States, more than one million Americans reported volunteering abroad in 2008. Despite the scale of international service, its impacts are not well understood. Although there is a growing body of descriptive evidence about the various models and intended outcomes of international service, the overwhelming majority of research is based on case and cross-sectional studies, which do not permit conclusions about the impacts of international service. Scholars and practitioners in the field have called for rigorous research that documents impacts.

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Executive Summary

If the main purpose of the Emergency Economic Stabilization Act of 2008 is to give banks confidence in each other, then enabling Treasury directly to bolster the capital positions of banks that need more capital may be an even more effective way to restoring confidence to the inter-bank market than the purchased of troubled assets. Whatever Congress may have intended about the pricing of the distressed assets, it also authorized a much more direct way to recapitalize the financial system and weak banks in particular: direct purchases by Treasury of securities that individual institutions may wish to issue to bolster their capital. At this writing, Treasury reportedly is considering ways do this. In this essay, we outline a specific bank recapitalization plan for Treasury to consider.

In particular, Treasury could announce its willingness to entertain applications for capital injections, using a set pricing formula. For publicly traded banks, Treasury could buy at the price as of a given date, such as the price one or more days before its plan was announced. For privately-owned banks, Treasury could use a price based on the average price-to-book value for publicly traded banks as of that date. To prevent government intrusion into the affairs of the banks, the stock should be non-voting. Treasury would make clear that it only would take minority positions. There should be no takeovers of more companies—AIG, Fannie and Freddie are quite enough. Treasury also should announce that it will dispose (or sell back to the bank) any stock acquired through these actions as soon as the financial system has stabilized and the bank is in sound financial condition (perhaps a time limit, such as three years, should be a working presumption).

We believe Treasury can accommodate a systematic recapitalization plan within the funding it has been given – initially $350 billion and another $350 billion later upon request to Congress (unless it disapproves) – by using the required disclosures about its asset purchases as a way of jump starting private sector pricing and trading of these securities. This should conserve Treasury’s resources it might otherwise use for asset purchases, and thus free up funds to recapitalize weak banks directly, but in an orderly fashion.

Treasury will have to be careful when it buys distressed assets to guard against the possibility that banks will just dump their worst stuff on taxpayers. The Department will also have to be careful when buying equity in banks. There cannot be an open invitation for bank owners to move assets out of the bank and then, in effect, say: “We don’t want this bank, you buy it.” To avoid this problem, Treasury should work closely with the FDIC and other regulators to determine whether or not a particular bank is eligible for an equity injection. The Department also may need to limit the scope of the recapitalization program to larger national banks, if it becomes infeasible to allow smaller banks to participate.

Making the Rescue Package Work: Asset and Equity Purchases [1]

The unprecedented financial rescue plan – technically the Emergency Economic Stabilization Act of 2008 (“EESA,” the “Act”, or the “plan”) -- has now been enacted by the Congress. One of the goals of the plan is to end the immediate panic in inter-bank lending markets, and on this basis several omens are not encouraging.

The Dow Jones stock index has been dropping daily, by large amounts, since EESA was enacted. The TED spread measures the difference between the interest rate on short term Treasury bills and the interest rate banks pay to borrow from each other (the LIBOR) and is a widely accepted measure of perceived risk in the financial sector. For several years this spread had hovered around 50 basis points or half a percentage point, reflecting the fact that lending to other financial institutions was considered almost as safe as buying Treasury bills. However, the spread shot up to 2.4 percentage points in July 2007 as the financial crisis hit, and it fluctuated widely in subsequent months. Following passage of the plan it remains even more elevated than it was last July—it was 3.8 percentage points as of October 7 and broke 4 percent on October 8. Financial institutions simply do not trust each other’s credit worthiness. Some of the market worries, of course, reflect the fragile state of the U.S. and global economies, but clearly the passage of the rescue plan itself has not calmed markets.

A second and related goal for the plan, according to media accounts, is to facilitate the recapitalization of the financial system, but the language of the bill is surprisingly coy about this. While the Act aims to “restore liquidity and stability to the financial system” it also directs the Treasury Secretary to prevent “unjust enrichment of financial institutions participating” in the asset purchase program. It is not yet clear whether Treasury will choose to recapitalize banks through its asset purchases – by buying them at prices above the values to which banks and other sellers have already written them down – or whether Treasury will simply use its purchases to stabilize prices for these securities and thus provide liquidity to the market, even if it may result in additional write-downs of their values (and thus additional reductions in capital).

Whatever Congress may have intended about the pricing of the distressed assets, it also authorized a much more direct way to recapitalize the financial system and weak banks in particular: direct purchases by Treasury of securities that individual institutions may wish to issue to bolster their capital. Of course, in normal times, such authority would be unnecessary because financial institutions would seek to tap private sources of capital first. But these are not normal times, to say the least.

If the main purpose of the plan is to give banks confidence in each other, then enabling Treasury directly to bolster the capital positions of banks that need more capital may be an even more effective way to restoring confidence to the inter-bank market. Accordingly, we outline here a possible supplementary bank recapitalization plan that we believe Treasury should pursue, at the same time it purchases distressed assets. As this paper is being completed on October 9, 2008, The New York Times reports that the Treasury is now considering such a move. We are encouraged by this and in this essay we provide both a rationale for doing so and some concrete suggestions for how such a direct recapitalization program might work. We do not support further nationalization of the banking system beyond what has already been done but we believe that the crisis has become so severe that the asset purchase plan on its own will not be enough to turn the current situation around. Additional capital is urgently needed and could be supplied by Treasury purchases of minority, non-voting equity stakes, or by warrants.

We believe Treasury can accommodate a systematic recapitalization plan within the funding it has been given – initially $350 billion and another $350 billion later upon request to Congress (unless it disapproves) – by using the required disclosures about its asset purchases as a way of jump starting private sector pricing and trading of these securities. This should conserve Treasury’s resources it might otherwise use for asset purchases, and thus free up funds to recapitalize weak banks directly, but in an orderly fashion, as we describe below.

Why Do Banks Need More Capital?

Financial institutions make money by borrowing money on favorable terms, that is, at low interest rates, and then lending it out at higher rates or by buying assets that yield higher returns. They may make money in other ways too, but the state of their balance sheets of assets and liabilities is crucial. In order to create a viable financial institution that can accommodate requests by depositors to take money out, someone has to put up capital and typically this comes from the equity in the company. The owners of the company have an incentive to keep this equity capital low and to build a large volume of borrowing and lending off a small base of capital—to increase leverage. This is because the profits earned are divided among the equity owners and the less capital there is, the higher the return on equity.

Governments for many years and in almost all countries have regulations in place setting capital requirements for banks in particular to stop them from taking too much risk in the pursuit of high returns and also protect any fund that insures their deposits against loss (the FDIC in this country). But some of our larger banks in recent years found a way around these rules by establishing “off-balance sheet” entities – Structured Investment Vehicles (“SIVs”) – to purchase mortgage-related and other asset-backed securities that the banks were issuing. In addition, large investment banks significantly increased their leverage in the years running up to the recent crisis, and were able to do so without mandated capital requirements. As a result, when the mortgage crisis hit, our financial system was weaker than was widely believed, and in the case of large banks in particular, than was officially reported.[2]

The mortgage crisis, which first surfaced in 2006 and has escalated rapidly since then, has hit bank balance sheets severely. As banks were forced to recognize losses on the mortgages they held in their portfolio, and especially to write down the values of their mortgage securities to their “market values” (even though the prices in those “markets” reflected relatively few “fire-sale” trades), they suffered reductions of their capital. Furthermore, the large banks that had created SIVs to escape such events found they could not hide from them when the SIVs could no longer roll over the commercial paper they had issued to finance their holdings of mortgage securities. To avoid dumping these securities on the market to satisfy their creditors, the banks took the SIVs back on their balance sheets, only to suffer further losses to their capital.

As we have seen, some of our largest banks – Washington Mutual and Wachovia, to name two – have not been able to survive all of this, and have been forced or are or being forced into the hands of stronger survivors. Other banks have been doing their best to shore up their capital bases by issuing new equity to replace the losses they have absorbed on delinquent loans and declining prices of their asset-backed securities. According to media reports, financial institutions (largely banks) worldwide have suffered over $700 billion in such losses to date, of which they replaced approximately $500 billion by issuing new equity.

But more losses are sure to come; indeed Secretary Paulson has said to expect further bank failures. Earlier this year, the International Monetary Fund projected that losses due to the credit crisis worldwide could hit $1 trillion. The IMF has recently upped that forecast to $1.4 trillion. If anything close to this latest forecast is realized, then many banks – here and abroad – will need to raise even more equity, but in a capital market that is now highly more risk averse than only a few months ago.

It is in this environment that banks have grown much less comfortable dealing with each other, even though they must to keep the financial system running. Every day, some banks have more cash on hand, or reserves, than they need to meet reserve requirements and ordinary demands for liquidity, while others are short of such funds. In the United States, banks thus trade with each other in the Federal Funds market while global banks borrow and lend to each other through the London Interbank market using the LIBOR rate of interest. The Federal Reserve’s main objective of monetary policy is to stabilize the “Fed funds” rate around a target, now just lowered to 1.5%, down from 2% where it has been for some months (and down from 5.25% before subprime mortgage crisis). To do so, the Fed has added a huge amount of liquidity to the financial system, even going so far this week as to buy up commercial paper issued by corporations, an unprecedented step. But the Fed does not and probably cannot control the longer term inter-bank market, in which banks lend to each other typically over a 3-month period.

The steep jump in the 3-month inter-bank lending rate – well over 4 percent – reflects two fundamental facts that EESA is designed to address. One is that banks don’t trust each others’ valuations of the mortgage and possibly other asset-backed securities they are all holding, precisely because the “markets” in those securities are so thin and thus not generating reliable prices. The second problem is that banks either are short of capital themselves, or fear that their counterparties are. No wonder that banks are so unwilling to lend to each other for a period even as short as three months – which in this environment, can seem like an eternity.

The capital shortage in the banking system, in particular, has severe implications for the rest of the economy. An institution that is short of capital is forced to cut back on its lending and this shows up in denials of lines of credit to companies and reductions in credit limits for consumers. Households cut back on spending; it is difficult to get a mortgage or a car loan; and companies reduce investment and curtail operations. And as we learn in any college course on banking, the impact of a loss of capital on bank lending can be multiplied. Each dollar of bank capital supports roughly ten dollars of overall lending in the economy. Each dollar of lost capital thus can result in ten dollars of lending contraction. The impact of an economy-wide bank contraction can be devastating for Main Street. The Great Depression was greatly exacerbated by the collapse of banks. The long stagnation in Japan was in large part the result of a failure to recapitalize the banks.

How bad is the current problem? We do not know how many banks, insurance companies or other financial institutions are in a weakened state, or perhaps even more important, may become weakened as the overall economy deteriorates. The official data published so far don’t really help on this score. The FDIC compiles information on the number and collective assets held by “problem banks,” or those in danger in failing. As of the second quarter of 2008, there were 117 such banks with assets of $78 billion up from 90 in the second quarter with assets of $28 billion., These figures did not include Washington Mutual, which would have failed had it not been bought by J.P. Morgan, or Wachovia, which at this writing, looks like it will be acquired by Wells Fargo (but also was in danger of failing without being acquired by someone). Together these banks hold more than $500 billion in customer deposits. Furthermore, according to recent media reports, even some large insurance companies (beyond AIG) may be having capital problems, having suffered large losses on the securities they hold in reserve to meet future claims.

Can the Asset Purchase Plan Succeed in Recapitalizing the Banks?

In principle, there are two ways in which the original Treasury asset purchase plan would recapitalize the banks. The first method is premised on the view that private markets are unwilling to supply capital to the banks because investors do not know how much their assets are worth. The Treasury, it is argued, would use its asset purchase plan as a way of revealing the prices of the assets and once that information is known, the banks will be able to raise new capital again from private markets. But better pricing will only attract capital if there are investors out there who are willing to supply it. Given the dramatic downturn in equities markets, finding such willing investors will be difficult, to say the least. Those investors that provided capital to banks early on in the crisis have been hit hard by the subsequent decline in equity prices and are reluctant to get burned again. When Bank of America said it would raise $10 billion from the markets, for example, its stock price fell sharply, suggesting there is a lot of market resistance to be overcome before private investors are willing to recapitalize the banking system.

Second, in principle, Treasury could recapitalize the banks by buying distressed assets at prices above those at which the securities are currently carried on the books of the institutions that sell them (original book or purchase value minus any write-offs).[3] In this case, the bank would be able to report a capital gain from its sale to the Treasury, a gain that would reverse, at least in part, the capital losses it had taken in the past and thereby add to its capital.

Treasury has said it will use reverse auctions[4] when it buys assets, and it is possible that the Department will be able to construct some auctions that will enable some holders of troubled assets to sell them to the Treasury at prices that earn a capital gain. But we are somewhat skeptical how many securities will fall into this category. For one thing, asset-backed securities are not homogenous, like traditional equity or bonds. In addition, it would be surprising in the current environment if reverse auctions would reveal prices that are above the written-down values of many of these securities. After all, an auction does not necessarily produce valuations that reflect the “hold to maturity” price rather than the “liquidation” price for the securities, as Fed Chairman Ben Bernanke suggested the purchase plan would accomplish.

Accordingly, we strongly suspect that Treasury will have to purchase many securities in one-on-one deals rather than through auctions. But in doing this, it may be both legally and politically difficult for the Treasury to pay prices in negotiations that are above the valuations banks or other sellers already have given them. Section 101 (e) of EESA specifically requires the Treasury Secretary “to take such steps as may be necessary to prevent unjust enrichment” of participating financial institutions, and Congress could construe such language to preclude such sales.[5] Furthermore, even if there were not a specific prohibition in the EESA, Treasury may wish to avoid the public criticism it would face if it purchased assets at prices that would allow participating institutions to book gains. And, in the case of sales at prices below the explicit or implicit price of the securities carried on an institution’s books, the sales will trigger further accounting losses and thus additional deductions from reported capital.

In short, we are not at all confident that the Treasury’s planned purchases of troubled securities, by themselves, will do much to recapitalize the banking system. This does not mean that the planned asset purchases will not deliver some needed help. Although at this writing the inter-bank lending market remains frozen even though EESA has been enacted and signed into law, one reason why banks and others may not yet have confidence that it will lead to a thaw in credit markets is that the guidelines for the asset purchases have not yet been issued. Once these guidelines are announced and the purchases begin, and the markets start to see real results, it is possible that some of the missing trust in the banking system will come back.[6]

However, Treasury may not need to spend, and for reasons elaborated below we do not believe it should spend, anywhere near the full $700 billion, or perhaps even most of the initial $350 billion tranche in borrowing authority, to liquefy the markets for mortgage and other asset-backed securities. EESA requires Treasury to publish (within two days) information about each of these purchases. We urge the Department to include in such publications (presumably on its website) regular data on the defaults and delinquencies to date of the loans underlying each batch of securities it purchases. Such information should enable financial institutions that are still holding similar securities not only to price them more accurately, but also to give market participants enough confidence to begin trading these securities without further Treasury purchases.

Husbanding its resources should be a prime objective for Treasury. In conducting its purchases of troubled assets, it should target first those asset categories that are the most illiquid. The main objective always should be jump-starting private sector activity or at least bringing greater clarity to the pricing of particular classes of securities. There is no need for Treasury, therefore, to make repeat purchases of similar securities (such as collateralized debt obligations issued within several months of each other, structured in roughly a similar way). Rather, the aim should be to make a market in as many different asset categories as are reasonably necessary to provide guidance to market participants, no more, no less.

Yet no one can be confident at this point that asset purchases alone will give banks sufficient confidence to begin dealing with each other at much lower interest rates. If the asset purchases do the trick, fine. But if they don’t, Treasury should make sure it has enough financial ammunition to pursue a second, more direct, strategy for restoring banks’ confidence – the direct bank recapitalization strategy to which we now turn.

Recapitalizing the Financial System Directly

Having the government put capital into financial institutions directly is not a new idea. It is the approach followed in this crisis for Fannie and Freddie and has been used in other countries. Sweden recapitalized its banks by adding capital to them during its crisis in the 1980s. Most recently, the British government has announced a sweeping bank recapitalization amidst the current crisis. And of more relevance to the U.S. situation, Congress specifically added authority in EESA for Treasury to make direct capital injections into banks.

In recent days, Treasury Secretary Paulson has acknowledged that the Department may take advantage of this authority and thus use some of its funds to buy equity in troubled banks. This is a welcome development. Even if Treasury’s asset purchase program restores confidence in the pricing of troubled securities, many banks still believe that many other banks lack sufficient capital, and thus can still be reluctant to lend to them. The fact that the FDIC stands ready (especially with its new unlimited line of credit at the Treasury) to assist acquiring banks in taking over failing banks is probably not sufficient, even with a successful Treasury asset purchase program, to provide this confidence. Bank lenders to failed banks can still lose money in such transactions, or at the very least may have difficulty accessing their funds for some period, at times when all banks seem to want or need as much liquidity as they can get.

How might such a capital injection program work? Treasury could announce its willingness to entertain applications for capital injections, using a set pricing formula. For publicly traded banks, Treasury could buy at the price as of a given date, such as the price one or more days before its plan was announced, as has been suggested by former St. Louis Federal Reserve Bank President William Poole.[7] For privately-owned banks, Treasury could use a price based on the average price-to-book value for publicly traded banks as of that date. To prevent government intrusion into the affairs of the banks, the stock should be non-voting. Treasury would make clear that it only would take minority positions. There should be no takeovers of more companies—AIG, Fannie and Freddie are quite enough. Treasury also should announce that it will dispose (or sell back to the bank) any stock acquired through these actions as soon as the financial system has stabilized and the bank is in sound financial condition (perhaps a time limit, such as three years, should be a working presumption).

The Treasury will have to be careful when it buys distressed assets to guard against the possibility that banks will just dump their worst stuff on the taxpayers. The Department also will have to be careful when buying equity in banks, especially if it decides to go for a broad, nationwide program. There cannot be an open invitation for owners to move assets out of the bank and then, in effect, say: “We don’t want this bank, you buy it.” This problem suggests that Treasury would need to work closely with the FDIC and other regulators to determine whether or not a particular bank is eligible for an equity injection. Treasury also may need to limit the scope of the program to larger banks, if it becomes infeasible to allow smaller banks to participate.

We presume that Treasury did not initially embrace the idea of a more systematic recapitalization of the banking system out of concern not to have any further government involvement in the banking system, especially on the heels of the Fannie/Freddie conservatorship and the Fed’s rescue of AIG. That Treasury is now considering direct capital injections indicates that this may no longer be a concern. In our view, limiting Treasury’s purchases to non-voting stock in any event would address this concern directly.

Conclusion

Ben Bernanke has compared the current financial crisis to a heart attack in the economy. For some heart attacks, it is enough to administer drugs and change diet and exercise habits. But in acute cases, major surgery is needed and the current crisis is in the acute phase. Direct surgery in the form of capital injected into financial institutions, along with direct asset purchases, should help calm the inter-banking lending market.

Based on recent monthly data it appears that GDP started to fall in mid-year and the economy is moving into recession so the proposals made here will not change that. Nor can the proposals compel banks to make loans to their traditional customers – consumers and businesses – in the current climate of fear. But Treasury can do something to mitigate that fear and thus, along with the recent further easing of monetary policy, likely additional fiscal stimulus and further homeowner relief, the Department will help reduce the severity of the current recession if it uses all the tools in its financial arsenal.

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Editors’ Note: How do states manage their armed forces, domestic politics, and foreign affairs? Stephen Cohen, senior fellow with the India Project at Brookings, has studied this and a range of other issues in Southeast Asia since the 1960s. In a new book, titled “The South Asia Papers: A Critical Anthology of Writings,” Cohen reflects on more than a half-century of scholarship on India, describing the dramatic changes he has personally witnessed in the field of research. The following is an excerpt from the book’s preface.

[In the 1960s, questions about how states manage their armed forces] were not only unasked in the South Asian context by scholars; they were also frowned on by the Indian government. This made preparation both interesting and difficult. It was interesting because a burgeoning literature on civil–military relations in non-Western states could be applied to India. Most of it dealt with two themes: the “man on horseback,” or how the military came to power in a large number of new states, and how the military could assist in the developmental process. No one had asked these questions of India, although the first was relevant to Pakistan, then still governed by the Pakistani army in the form of Field Marshal Ayub Khan.

***

During my first and second trips [in the 1960s] my research was as a historian, albeit one interested in the army’s social, cultural, and policy dimensions. I discovered, by accident, that this was part of the movement toward the “new military history.” Over the years I have thus interacted with those historians who were interested in Indian military history, including several of my own students. 

While the standard of historians in India was high in places like the University of Calcutta, military history was a minor field, just as it was in the West. Military historians are often dismissed as the “drums and trumpets” crowd, interested in battles, regiments, and hardware, but not much else. My own self-tutoring in military history uncovered something quite different: a number of scholars, especially sociologists, had written on the social and cultural impact of armed forces, a literature largely ignored by the historians. While none of this group was interested in India, the connection between one of the world’s most complicated and subtle societies, the state’s use of force, and the emergence of a democratic India was self-evident. 

***

A new generation of scholars and experts, many of them Indians (some trained in the United States) and Indian Americans who have done research in India, have it right: this is a complex civilizational-state with expanding power, and its rise is dependent on its domestic stability, its policies toward neighbors (notably Pakistan), the rise of China, and the policies of the United States. 

The literature that predicts a conflict between the rising powers (India and China), and between them and America the “hegemon,” is misguided: the existence of nuclear weapons by all three states, plus Pakistan, ensures that barring insanity, any rivalries between rising and established states will be channeled into “ordinary” diplomatic posturing, ruthless economic competition, and the clash of soft power. In this competition, India has some liabilities and many advantages, and the structure of the emerging world suggests a closer relationship between the United States and India, without ruling out much closer ties between China and India. 

There remain some questions: Can the present Indian leadership show magnanimity in dealing with Pakistan, and does it have the foresight to look ahead to new challenges, notably environmental and energy issues that require new skills and new international arrangements? Importantly, some of the best work on answering these questions is being done in India itself, and the work of Kanti Bajpai, Amitabh Mattoo, Harsh Pant, C. Raja Mohan, Rajesh Basrur, and others reveals the maturity of Indian thinking on strategic issues. It has not come too soon, as the challenges that India will face are growing, and those of Pakistan are even more daunting.

      

As of last week, it has been a full year since the U.S. Export-Import (Ex-Im) Bank—the government export credit agency which lends money to foreign buyers of American exports—has been unable to approve loans over $10 million. This is because Senator Richard Shelby, Republican of Alabama, is single-handedly holding up the nomination of a third member to the Ex-Im Bank’s five person board; all transactions over $10 million require board approval, and short of its required quorum of three members, no major loans can get through. Looking beyond the immediate fight over Ex-Im, however, underlying trends in both American and international politics suggest commercial diplomacy is on the rise.

The Ex-Im Bank is but one of many instruments of American commercial diplomacy; there is a wide range of policies the government uses to actively help individual American companies compete abroad. Through the Overseas Private Investment Corporation (OPIC), the U.S. government sells political risk insurance to American firms investing in “risky” developing countries. Moreover, U.S. ambassadors frequently lobby foreign governments to award procurement contracts to American firms. Similarly, officials from the Department of State, Department of Commerce, and Office of the U.S. Trade Representative often advocate for U.S. companies involved in investment disputes with foreign governments. What distinguishes active commercial diplomacy from general foreign economic policy—such as signing trade agreements—is that in involves deploying the resources and reputation of the government to help specific firms in particular transactions, rather than broadly setting the rules of the road for all firms to follow. It represents a significantly greater co-mingling of interests and activities between public and private actors.

While both Secretary of State John Kerry and Secretary of Commerce Penny Pritzker have placed considerable emphasis on advancing commercial diplomacy, the long running struggle to keep Ex-Im operating underlines the political fault lines that cut through the issue. On the one hand, as highlighted in the Ex-Im fight, commercial diplomacy can be criticized as crony capitalism or corporate welfare. Government resources are being used to support private gains. Thus those who prefer free and unfettered markets may see commercial diplomacy as simply another form of unnecessary government intervention, akin to industrial policy. At the same time, as globalization has come under attack from both the left and the right in this election cycle, it is easy to see how encouraging further globalization through commercial diplomacy could face populist pushback. Those supporting commercial diplomacy tend to favor greater integration in the global economy—a view which has found little support in the 2016 campaigns to date.

And yet, the current trends in American political debates over globalization may ultimately presage more, not less, reliance on commercial diplomacy. If politicians increasingly view the global economy through a zero-sum, mercantilist lens, they may be more eager to use the power and purse of the U.S. government to help American firms “win” abroad. Indeed, Congress, which has historically been more protectionist than the executive branch, has also consistently pushed the State Department to do more to actively defend the interests of U.S. companies operating overseas (see, for example, here and here). Aggressively fighting to help U.S. companies win contracts and compete abroad could be one plank of an “America First” policy. Thus even if America, and the world, becomes more protectionist, foreign economic policy may become even more preoccupied with assertive commercial diplomacy, even as interest in seeking mutual benefits through economic liberalization subsides.

If the U.S. government does start to prioritize more actively helping American firms in their foreign operations, it will still have a ways to go to catch up to many other countries. China, of course, is well known for using state resources to advance the commercial goals of Chinese firms venturing abroad—which should not be surprising, given that many of these firms are state-owned enterprises. But a number of other advanced democracies—including Japan, Korea, Germany, and France—also have closer and more coordinated relationships between big business and government than the U.S. does. And most of these countries show no signs of slowing down. As a recent report (PDF) from the Ex-Im bank notes, “In the wake of slowing global growth, foreign export credit agencies are becoming more aggressive.” In fact, some of these agencies are capitalizing on Ex-Im’s current plight, offering American companies export financing in return for the promise of job creation. General Electric Co., for instance, recently announced it would expand production in France because Coface, the French equivalent of Ex-Im, will finance GE projects in a number of emerging markets—the type of financing that GE used to get from Ex-Im.

Looking forward, unilateral disarmament in the competitive world of commercial diplomacy—as the U.S. is currently doing with the Ex-Im Bank—is likely to become increasingly rare. The ultimate effects of this accelerating international competition, in both economic and political terms, remain to be seen.

       

The Pakistani intelligence service is behind the recent attack on a major Indian air force base in Punjab using a terrorist group it created 15 years ago, according to well-informed press and other knowledgeable sources. The attack is designed to prevent any detente between India and Pakistan after Prime Minister Narendra Modi’s surprise Christmas Day visit to Pakistan.

The escalating violence between the two nuclear-weapons states, which have already fought four wars, threatens to get worse. The Pakistani intelligence service has the capability to launch more attacks with little notice, at some point prompting a vigorous Indian response.

On Dec. 31, a team of terrorists infiltrated across the Pakistani border into India. On Saturday they assaulted the Pathankot air base, one of India’s largest air force installations near the border. At least seven Indian soldiers were killed in the fighting, which lasted for days. On Sunday, the Indian Consulate in Mazar-e Sharif in northern Afghanistan was also attacked by gunmen.

Both attacks are the work of the Pakistani terror group Jaish e Muhammad, according to reliable press reports. JEM was created in 2000 by Mualana Masoud Azhar, a longtime Pakistani terrorist leader. Azhar was captured in India in 1994 after taking western hostages in Kashmir. In December 1999 a group of terrorists hijacked an Air India jet flying from Nepal to India and diverted it to Afghanistan. They demanded the release of Azhar and his colleagues in return for the passengers and crew.

And they got it, thanks to help from the Pakistani intelligence service ISI and al Qaeda leader Osama bin Laden, according to accounts of the hijacking based on the Indian officials who negotiated with the terrorists for the hostages’ freedom.

The Afghan Taliban assisted the hijackers once they got to Afghanistan. Once Azhar was traded for the hostages, the ISI took him on a public victory tour through Pakistan to raise money for the jihad against India, and he announced the formation of Jaish e Muhammad, or the Army of Muhammad, in early 2000. JEM received training and weapons from the ISI and worked closely with al Qaeda.

In December 2001, JEM terrorists working with terrorists from another ISI-backed group, Lashkar e Tayyiba (LET), attacked the Indian parliament building in New Delhi. That attack prompted India to mobilize its military, and a tense standoff went on for nine months. Only intense mediation by President Bush’s national security team averted war.

Azhar kept a low profile for several years after LET’s 2008 attack on Mumbai, but he reappeared publicly in 2014, giving fiery calls for more attacks on India and the United States. His group is technically illegal in Pakistan but enjoys the continuing patronage of the ISI.

The ISI is under the generals’ command and is composed of army officers, so the spies are controlled by the Pakistani army, which justifies its large budget and nuclear weapons program by citing the Indian menace. Any diminution in tensions with India might risk the army’s lock on its control of Pakistan’s national security policy. The army continues to distinguish between “good” terrorists like JEM and LET and “bad” terrorists like the Pakistani Taliban, despite decades of lectures from American leaders.

The army has long distrusted Prime Minister Nawaz Sharif, who has advocated a detente with India since the 1990s. An army coup in 1999 sent him into exile in Saudi Arabia for a decade. His warm embrace of Modi on Christmas Day in his home in Lahore undoubtedly angered the generals.

Modi’s visit was the first by an Indian prime minister in more than a decade. It was also Sharif’s birthday and the birthday of Pakistan’s founder, Muhammad Jinnah. Modi’s decision to visit and the warm family greeting Sharif extended set the stage for a planned resumption of formal diplomatic negotiations between the two countries scheduled for later this month.

So far New Delhi has not canceled the planned talks. Modi’s advisers are well aware of the double game the Pakistani army plays and the differences inside the Pakistani establishment. After four wars with Pakistan and a nuclear arms race, Indian experts understand the complexity of the dynamics inside Islamabad. The Indians have accepted Prime Minister Sharif’s public condemnation of the attack and promised to provide evidence of JEM’s role to his government, including cellphones captured in the attack.

Washington put JEM on the terrorist sanctions list years ago—but it continues to coddle the Pakistani army. Gen. Raheel Sharif, the army’s boss (and no relation to the prime minister) got a warm embrace from the Pentagon last fall—despite the ISI’s support for the Afghan Taliban’s offensive against the Kabul government and despite the Pakistani military’s backing of terror groups like JEM.

This piece was originally published by The Daily Beast.

       

Editor’s Note: The following chapter is part of the report, "After the Drug Wars," published in February 2016 by the London School of Economics and Political Science's Expert Group on the Economics of Drug Policy.

Even as the administration of Mexico’s President Enrique Peña Nieto has scored important reform successes in the economic sphere, its security and law enforcement policy toward organized crime remains incomplete and ill-defined. Despite the early commitments of his administration to focus on reducing drug violence, combating corruption, and redesigning counternarcotics policies, little significant progress has been achieved. Major human rights violations related to the drug violence, whether perpetrated by organized crime groups or military and police forces, persist – such as at Iguala, Guerrero, where 43 students were abducted by a cabal of local government officials, police forces and organized crime groups. This has also been seen in Tatlaya and Tanhuato, Michoacán, where military forces have likely been engaged in extrajudicial killings of tens of people. Meanwhile, although drug violence has abated in the north of the country, such as in Ciudad Juárez, Monterrey and Tijuana, government policies have played only a minor role. Much of the violence reduction is the result of the vulnerable and unsatisfactory narcopeace – the victory of the Sinaloa or Gulf Cartels. 

The July 2015 spectacular escape of the leader of the Sinaloa Cartel and the world’s most notorious drug trafficker – Joaquín Guzmán Loera, known as El Chapo – from a Mexican high-security prison was a massive embarrassment for the Peña Nieto government. Yet it serves as another reminder of the deep structural deficiencies of Mexico’s law enforcement and rule-of law system which persists more than a decade after Mexico declared its war on the drug cartels.

The Peña Nieto administration often pointed to the February 2014 capture of El Chapo as the symbol of its effectiveness in fighting drug cartels and violent criminal groups in Mexico. The Peña Nieto administration’s highlighting of Chapo’s capture was both ironic and revealing: ironic, because the new government came into office criticizing the anti-crime policy of the previous administration of Felipe Calderón of killing or capturing top capos to decapitate their cartels; and revealing, because despite the limitations and outright counterproductive effects of this high-value-targeting policy and despite promises of a very different strategy, the Peña Nieto administration fell back into relying on the pre-existing approach. In fact, such high-value-targeting has been at the core of Pena Nieto’s anti-crime policy. Moreover, Chapo’s escape from Mexico’s most secure prison through a sophisticated tunnel (a method he had also pioneered for smuggling drugs and previously used for escapes) showed the laxity and perhaps complicity at the prison, and again spotlighted the continuing inadequate state of Mexico’s corrections system.

Read the full chapter here.

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Global warming is changing environmental conditions in the Arctic and opening new opportunities for resource extraction. Greenland, long thought to have excellent potential for iron ore, copper, zinc, lead, gold, rubies, rare earth elements and oil, has looked to strengthen its economy through the development of these resources. For many in Greenland, including the current government, resource extraction is seen as a necessary step toward the ultimate goal of independence from Denmark.

On September 24, the Energy Security Initiative (ESI) and the John L. Thornton China Center at Brookings hosted Premier Aleqa Hammond of Greenland for an Alan and Jane Batkin International Leaders Forum address on the future of natural resource extraction in Greenland. Following her address, a panel discussion highlighted the findings of a new Brookings report, “The Greenland Gold Rush: Promise and Pitfalls of Greenland’s Energy and Mineral Resources.” Report co-author Kevin Foley, a doctoral candidate at Cornell University, was joined on the panel by ESI Director Charles Ebinger and University of Copenhagen Professor Minik Rosing, who served as a discussant. The panel was moderated by Jonathan Pollack, a senior fellow with the China Center and Center for East Asia Policy Studies at Brookings.

This event was part of the Alan and Jane Batkin International Leaders Forum Series, a new event series hosted by Foreign Policy at Brookings which brings global political, diplomatic and thought leaders to Washington, D.C. for major policy addresses.

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Is it possible to isolate the well-established mode of Arctic cooperation from the disruptive impact of the Ukraine crisis? Many stake-holders in cooperative projects with Russia keep insisting on an affirmative answer and seek to bracket out tensions emanating from such obscure locations as Debaltsevo or Mariupol. The European Union (EU), which is due to adopt a new Arctic Policy by the end of the year, would have been content to maintain the focus on environmental protection and economic development; the discussions in Brussels, however, have increasingly shifted to far less appealing “hard security” matters. Officials from the European Commission seem deeply reluctant to deal with Russia’s military activities in the high north but have to acknowledge that they are making it much more difficult to cooperate with Russia. As April’s Arctic Council ministerial meetings approach, the United States and Europe must be realistic about the ways in which far away events will negatively affect the possible achievement of their goals. 

Moscow is expanding rather than camouflaging the scope of exercises undertaken by its newly-formed Arctic Joint Strategic Command. Russian President Vladimir Putin used to proudly proclaim Russia’s abiding interest in Arctic cooperation, but even the most pro-engagement Arctic partners cannot fail to see that Russia’s interest is clearly slackening. This may be partly due to the disappearing attractiveness of exploration of the Arctic resources, since the estimated production costs of the off-shore platforms go far beyond the expected returns on the current level of oil prices. Another reason may be the disappointment in the commercial prospects of the Northern Sea Route (or Sevmorput), where maritime transit contracted by an astounding 77 percent in 2014, after several years of promising growth. A further reason may be Moscow’s recognition that the much trumpeted (and still not submitted) claim for expanding its “ownership” over the Arctic shelf cannot be legally approved because Denmark has presented its own claim, and the U.N. Commission on the Limits of the Continental Shelf cannot make any recommendations on clashing claims.

It is hard to find an active lobby in Russia for sustaining cooperative projects or at least the joint work in the Arctic Council, as many actors who promoted the Barents Cooperation in the 1990s, are either on a short leash (as is the case with regional governors) or branded as “foreign agents” (the NGOs that want to avoid such branding have to curtail or cut ties with Western colleagues). The appointment of Dmitri Rogozin as a chair of the new government commission on Arctic matters bodes ill for the cooperative endeavors because this firebrand “patriot” deservedly holds a spot on U.S., EU, and Canadian sanctions lists. 

The Russian Foreign Ministry is still circulating a message of commitment to the Arctic dialogue. The forthcoming session of the Arctic Council ministers in Iqaluit, Nunavut, Canada, might test this commitment with the issue of granting observer status to the EU. It was Canada who blocked the resolution of this issue at the previous meeting in Kiruna, Sweden, in 2013, but the controversy about seal products has been resolved, and Canada is ready to put the question on the agenda as its chairmanship of the Council expires. European Commission officials expect that during the 2015 meeting, Russia will raise objections because the EU is now seen as an antagonist, but EU officials still feel it is important to force Moscow to put their opposition on the record.

One external party that aims at enhancing and also at reformatting the Arctic cooperation is China, and while Moscow has to show eager attention to Beijing’s opinions, it cannot be comfortable with this “encroachment.” Russia’s traditional position has been that Arctic matters were the responsibility of the littoral states, but China insists on having a say and even entertains notions of the high north as a “global common,” a prospect which Moscow finds hard to swallow. 

It is indeed futile to praise the value of cooperative ties when seven members of the Arctic Council are compelled to tighten step by step the regime of sanctions against the eighth member, which is sinking into a deep economic crisis but persists in building its power projection capabilities in the High North. The usefulness of engaging Russia is beyond doubt, but it would be irresponsible to expect that joint projects in monitoring climate change could reduce the risks from expanding Russian military activities. The high north is one area where Moscow fancies itself to be in a position of power, but so far it has not found a way to enjoy it. It is not my intention to give the Kremlin war-mongers ideas about putting this military advantage to good political use, but when the likes of Rogozin or Nikolai Patrushev (secretary of the Security Council and former head of the Russian Federal Security Service) profess particular interest in the Arctic, it is only prudent to expect a brainstorm of sorts. The technique of “hybrid war” is not only the continuation but also a driver of Putin’s politics of confrontation, and this drive transforms the unique Arctic landscapes into just another “theater.”

      

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This April, the United States will assume chairmanship of the Arctic Council for a two-year term. Since the last U.S. chairmanship fifteen years ago, the Arctic has changed dramatically. Melting sea ice has impacted indigenous communities as well as wildlife in significant ways. New Arctic transportation corridors have opened and new prospects for offshore oil and gas development have emerged. The region’s growing strategic, economic, and environmental importance has made U.S. policy toward the Arctic more of a priority than ever before. Recent statements from the White House have emphasized the opportunity for the United States to lead in global efforts to mitigate climate change impacts in the region, govern resources responsibly, and protect Arctic ecosystems and inhabitants.

On March 12, the Energy Security and Climate Initiative (ESCI) at Brookings will host Admiral Robert J. Papp, Jr., the U.S. special representative for the Arctic, for a keynote address on the future of U.S. policy for the region. Deputy Director for Foreign Policy at Brookings Bruce Jones will provide introductory remarks, and ESCI Senior Fellow Charles Ebinger will moderate the discussion and audience Q&A. 

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This weekend the United States will assume the chairmanship of the Arctic Council for a two-year term. While the Obama administration has been preparing for this for several years, it remains to be seen how the president will balance the concerns of most Arctic residents who view development of the region as vital to improving their economic and social livelihood and those individuals inside and outside the administration who want to limit development out of concern for the how economic development may cause local environmental degradation while also accelerating climate change.

The National Strategy for the Arctic Region

As part of this preparation, in May 2013, the president launched a new National Strategy for the Arctic Region based on three principles

1. Advancement of U.S. security interests defined as ensuring the ability of our aircraft and vessels to operate, in a manner consistent with international law through, under, and over the airspace and waters of the Arctic; to support lawful commerce; to achieve greater awareness of activities in the region; and to intelligently evolve our Arctic infrastructure and capabilities including ice-capable platforms as needed;
2. Pursue responsible Arctic regional stewardship defined as protection of the Arctic environment and conservation of its resources, establishment of an integrated Arctic management framework, charting of the Arctic region, and employment of scientific research and traditional knowledge to increase understanding of the Arctic;
3. Strengthen international cooperation defined as working through bilateral relationships and multilateral institutions, including the Arctic Council, to advance collective interests, promote shared Arctic state prosperity, protect the Arctic environment, and enhance regional security, and to work toward U.S. accession to the United Nations Convention on the Law of the Sea.

Undergirding these principles were commitments to make decisions using the best available information, to foster cooperation with the state of Alaska, other international partners, the private sector, and to consult and coordinate with Alaskan natives to gain traditional knowledge. As part of this new strategy, the president appointed Admiral Robert J. Papp Jr. as the U.S. special representative for the Arctic in July 2014. Shortly after his appointment, and in several major speeches since, including one at Brookings, the admiral has stated that the administration’s agenda centers on stewardship of the Arctic Ocean including insuring its safety and security, improving economic and living conditions for the regions’ inhabitants, and addressing the impacts of climate change on the region. 

The administration’s new policy was buttressed in January 2015 by an executive order designed to enhance coordination of all the various agencies responsible for different aspects of federal oversight of the Arctic (Alaska). Paradoxically, however, the fact that the reorganization came nearly in tandem with the announcement of new wilderness restrictions on the exploration of oil and gas in the Arctic National Wildlife Refuge (ANWR) and the Arctic Coastal Plain. This announcement left many Alaskans skeptical on how further restrictions on development of the state’s resources could be viewed as improving economic and living conditions of people in the region. In a February 2015 meeting of Arctic Council Senior Arctic Officials (SAOs) in Yellowknife, Canada, the administration looked to put meat on the bones of what it intended to pursue upon assumption of the chairmanship of the Arctic Council. This resulted in an additional elucidation of 15 broad themes that had originally been presented in a Virtual Stakeholder Outreach Forum on December 2, 2014 in Washington, D.C..

Streamlining Arctic policy and key questions

The announced reorganization of government agencies and lines of authority dealing with U.S. Arctic and Arctic Council policy has done little or nothing to streamline the overlapping and sometimes conflicting policies governing natural resource development or energy projects in Alaska. These overlapping jurisdictions are well highlighted in a major new National Petroleum Council (NPC) report, Arctic Potential: Realizing the Promise of U.S. Arctic Oil and Gas Resources. This report was prepared at the request of Energy Secretary Moniz to address how best to pursue prudent development of Alaska’s offshore oil and gas resources and ironically issued shortly after the president’s closing of ANWR. Whether or not the White House was even aware of the NPC’s report, which represented months of substantive work by many people, remains open to question.

The Arctic reorganization plan did little to resolve some key questions as to actually who is in charge of Arctic policy in the United States. While Admiral Papp was named “Coordinator” of the U.S. Arctic Council Chairmanship, this position is not listed in the Council’s enabling documents. Historically, the foreign minister or the secretary of state of the country chairs the Council while a career diplomat chairs the meetings of the senior officials dealing with the day-to-day activities of the Council. It appears that Admiral Papp has neither of these positions. In any case, it looks from the organizational chart that the White House science advisor will be the real coordinator of U.S. Arctic policy.

The chief problem that U.S. Arctic policy must resolve is that while in the Arctic Council we have to address issues affecting the entire Circumpolar North, our domestic Arctic policy centers only on Alaska, where a slew of domestic agencies have overlapping and often conflicting oversight and regulatory responsibilities. The situation is made still more complex by the large amount of the state that is owned by the federal government. This makes it almost inevitable that any resource development project by private or state interests will run into federal government restrictions, in terms of needing to cross federal land to get a resource to market, permitting to ensure that water resources are not polluted, or making sure that fish and wildlife habitats are not disturbed, etc.

Our Arctic policy also suffers from an acute lack of awareness by most Americans that we are an Arctic nation with a huge maritime boundary and very limited resources (ice-worthy ships, proper navigation charts and aids, lack of port facilities, lack of search and rescue capabilities, lack of knowledge of what fishery resources we possess) to protect it. While many of these issues lie outside the scope of the Arctic Council, many are cross-cutting with our Arctic neighbors, most notably with increased traffic in the region (from tourism, fishing, energy development, and shipping) comes the increased possibility of an accident. Currently, the United States does not have the capable means (both in terms of timely response and adequate infrastructure) to respond to an accident in the Arctic, which could be catastrophic, as all of these industries are active and gaining popularity every day.

Core questions for the administration

As the United States takes the helm of the Arctic Council, there are several core issues that the administration must address. Some critical questions are: What is the U.S. position on the development of the Arctic’s oil, gas, mineral, and fishery resources? What specific action is the United States prepared to support in the Arctic Council to uplift the standard of living of Arctic people across the Circumpolar North? Given that each icebreaker costs at least $700 million and that we only have one in operation, what resources are we prepared to expand to build a fleet capable to respond to events in the Arctic? Should any of these expenses be viewed as vital to our national security and defense, and if so, which budget should they be taken out of? What role does the United States in its chairmanship role see for closer interaction between the Arctic Council and the Arctic Economic Council? Would the United States support the closing off of certain ecologically sensitive parts of the Arctic to all commercial exploitation? Finally, how does the administration in its Arctic Council leadership role get its Arctic policy in sync with that of the state of Alaska in its recently released Alaska Arctic Policy Implementation Plan?

Other Arctic nations surpass the United States in terms of Arctic policies. Norway, Russia, Canada, and even Denmark (through complicated ties with Greenland’s claim on the Arctic) all have the Arctic at the front and center of policymaking decisions. I hope to see these issues addressed as the United States moves to enact effective policy on the Arctic over the next two years as the alternative is too great a risk and too great a wasted opportunity. 

      

As the United States readies to assume chairmanship of the Arctic Council today, it is timely to assess where the United States stands in terms of its ability and commitment to lead in the region. While there are many important elements of Arctic leadership outlined in the U.S. National Arctic Strategy, the ultimate metric of state leadership comes not from policy alone but also willingness to commit the resources needed to advance national interests and shape favorable global norms for peace, stability, and responsibility. In this context, the United States has yet to demonstrate a strong commitment to 21st century Arctic leadership. Nowhere is this more apparent than in the decaying state of the U.S. heavy icebreaking “fleet”—currently consisting of just one operational heavy icebreaker—and the lack of a credible national strategy to expand, much less sustain, this capacity.

Although the Arctic Council framework focuses specifically on shared, non-military interests, it would be a mistake to assume the region will be immune from future incidents, whether from eventual increases in tourism and shipping, energy development, or even limited geopolitical conflict. The United States must sustain heavy icebreaking capability to assure year-round access to the region and to be ready to respond in the event of a safety, security, or environmental threat.

Commercial activity in the Arctic

While commercial activity in the Arctic remains limited today, signs of increased economic investment are on the rise, including Royal Dutch Shell’s announcement of intent to resume Arctic drilling later this year and Crystal Cruises’ planned 2016 traverse of the Northwest Passage with its 820 foot, 1,000 passenger cruise ship Crystal Serenity. The Arctic’s vast untapped resources and opening sea lanes are beginning to drive previously-unheard of levels of human activity.

Some have suggested companies like Shell can and will invest in their own icebreaking and emergency response capabilities for Arctic drilling, rendering a U.S. government asset superfluous. This is a shortsighted view that fails to recognize the fundamental risks associated with abdicating prevention and response capabilities solely to the private sector.

While a single icebreaker obviously has neither the capacity nor capability to clean up a large oil spill in the Arctic, or anywhere else for that matter, in certain scenarios it could help prevent a spill from happening in the first place, mitigate the severity of a spill, and provide a means to ensure on-scene government oversight and command of any incident.

In the case of Arctic tourism, it is important to recognize that a mass rescue operation involving hundreds of passengers on a cruise ship—already one of the most difficult scenarios for search and rescue professionals—becomes exponentially more difficult in the remote and harsh Arctic environment.

Finally, although unlikely in the near-term, a future scenario can also be envisioned in which U.S. Navy surface ships need access to the Arctic, and icebreaking capacity is necessary to execute the mission. This is perhaps a distant possibility in the context of today’s Arctic but is a contingency for which the nation should be prepared in the future.

Access to the polar regions

The Coast Guard’s nearly 40-year old and recently reactivated Polar Star is the only U.S. icebreaker with the size and horsepower to provide unfettered access to the polar regions. The reactivation of this vessel, built in the 1970s, cost nearly $60 million and is estimated to have extended its lifetime by only 7 to 10 years. This presents a difficult and unique challenge in an emergency; if for example, the aging Polar Star has a machinery failure and gets stuck in the ice, the United States does not have the means to extract it and may have to resort to assistance from a foreign country. Coast Guard Commandant Admiral Paul Zukunft recently put it bluntly, saying the Coast Guard “has no self-rescue for its Arctic mission, for its Antarctic mission."

While dozens of small and medium sized icebreakers operate successfully in other parts of the world, heavy icebreakers—generally classified as those that exceed 45,000 horsepower—are needed to assure unrestricted access to the Arctic at any time of the year. Additionally, for the United States, heavy icebreaking capacity is also needed for missions like the annual resupply of McMurdo Station in Antarctica, an operation sponsored by the National Science Foundation and executed by the Coast Guard.

Sustaining the capability to access any region of the globe has been a fundamental tenet of U.S. national security policy for decades, and the Arctic should be no exception. The United States is falling behind other Arctic nations, like Russia, that have demonstrated an enduring commitment to maintaining access to the Arctic with heavy icebreakers.

These investments may be considered consistent with the size of Russia’s Arctic coastline and associated Exclusive Economic Zone, both of which are substantially larger than those of the United States or any other Arctic Nation. Indeed, there is certainly room to debate how many heavy icebreakers the United States will ultimately need in the future. A 2011 Coast Guard study concluded that meeting the tenets of the 2010 Naval Operations Concept—which calls for constant, year-round presence in both polar regions—would require six heavy and four medium icebreakers. Likewise, the study indicated three heavy and three medium icebreakers are needed for Arctic presence. Putting the debate in perspective, the Obama administration’s special representative for the Arctic, retired Coast Guard Commandant Admiral Robert Papp, recently gave a keynote address at the Brookings Institution stressing that “we should at least build one,” acknowledging the critical state of U.S. capability.

Replacing the Polar Star presents a unique challenge. Such vessels have not been built in four decades in the United States, and most estimates suggest a 10-year, $1 billion program to build just one in a U.S. shipyard under the federal government’s arduous acquisitions process. This places delivery of a new heavy icebreaker beyond the Polar Star’s remaining service life and adds to the urgency of the current situation.

U.S. engagement in the Arctic

In short, the United States must have the ability to access and engage in the polar regions on its own terms. No entity is better positioned to fulfill this national security imperative than the United States Coast Guard, which has the authority and organizational ethos to advance high latitude safety, security, and environmental interests without a corresponding threat of excessive militarization. The Coast Guard also remains one of few governmental entities capable of collaborative engagement with the Russians, built on years of maritime cooperation with their border guard.

While the case for icebreaker investment is clear, the Coast Guard lacks the resources to move forward on its own. For the Coast Guard, a new icebreaker is at best a distant runner-up to other recapitalization imperatives within the chronically underfunded service. The Coast Guard’s Medium Endurance Cutters are the cornerstone of the service’s offshore presence in the Western Hemisphere and are even older than the icebreakers. Replacing these 1960s-era cutters is justifiably the service’s top acquisition priority. The question here is not whether the Coast Guard wants new icebreaking capability, but rather how a new icebreaker stacks up against other, more urgent priorities in the context of current budget constraints.

The most appropriate funding solution is one that reflects the full breadth of inherently governmental interests in the Arctic, including safety, security, environmental protection, facilitation of maritime commerce and responsible economic development, national defense, and scientific research. In other words: funding from across the government to deliver a national, multi-mission asset.

The United States is considered an “Arctic Nation,” a term proudly used by policymakers to highlight our intrinsic national interests in the region and a profoundly basic yet important acknowledgement that Alaska and its associated territory above the Arctic Circle are indeed part of the United States. Unfortunately, the United States has yet to advance from this most basic construct of high latitude stakeholder to a proactive leadership and investment posture for the future. Not because of a lack of “skin in the game,” the United States has a legacy of well-documented interests in the Arctic, but a lack of consensus to make it a national priority in the context of the current budget environment.

Whether via national crisis or a comprehensive budget deal, polar icebreakers must eventually become the subject of serious resource discussions, and should ultimately garner broad bipartisan support. At that time, additional funding should be appropriated to the Coast Guard to support the acquisition of the much-needed heavy icebreakers, but not at the expense of its other, more pressing recapitalization programs. Until then, let’s be more realistic about our ability and commitment to lead in the Arctic.

       

President Obama should be congratulated for highlighting the growing links between U.S. national security and climate change in his address before the U.S. Coast Guard Academy’s graduation ceremony earlier this week. The president’s speech drew upon earlier administration documents (the Third National Climate Assessment, the White House’s 2015 National Security Strategy, the Department of Defense’s 2014 Quadrennial Defense Review, and the 2014 Department of Homeland Security’s Quadrennial Homeland Security Review) to highlight the numerous challenges posed to our nation and the world by climate change, including:

• Threats to the world’s coastal infrastructure
• Rising temperatures and extreme weather
• Creation of failed states
• Degradation to the marine environment and critical ecological regions around the globe
• Threats to our energy production and delivery systems
• The devastating impact on native Arctic inhabitants

While these issues are important and deserve attention, the president was singularly silent on how best to manage threats, posed to the Arctic and the global environment by the rush to develop or utilize its resources (including energy, minerals, fish, and tourism) as the region opens with the melting of sea ice. I raise none of these issues to disagree with the president’s policies, or to suggest we should not develop the region’s resources or allow enhanced international maritime trade through our waters. In fact, I have often called for the economic development of Alaska with high safety standards for oil and gas production. If we allow these activities to proceed, we must be willing to provide the resources for infrastructure of all kinds: pipelines, onshore and offshore, and including ports, airfields, housing, etc., in order to be prepared for all contingencies.

Additionally, the president did not make any mention of the financial demands posed to the country to even meet the challenges in our own Arctic region of Alaska, let alone the many commitments we have already made in the Arctic Council, vis-à-vis instituting a true search and rescue capability and an oil spill prevention and response mechanism. The sad reality is that for all intents and purposes the United States has one heavy icebreaker to patrol our entire Arctic region. With cruise ships now sailing into very dangerous areas without adequate sea mapping, the prospect of a disaster occurring at least 800 miles from our nearest port in the Aleutians looms large. Were a cruise ship to run into ice, there is no logistical infrastructure in Northwest Alaska even to off lift passengers to on shore by helicopter. With icebreakers likely to cost at least $800 million to $1.5 billion each and take many years to build, where is the president's clarion call to the Congress on the need for more revenue for our Coast Guard to deal with the challenges highlighted in his speech?

Likewise, with many Asian nations interested in the fish resources of the Arctic, where are the funds both to determine what fish exist in Arctic waters including fish migrating from the Pacific as well as their volumes and assessments of how to insure their sustainability? If the president is serious about the threat of climate change on America’s front door to the Arctic, where are the U.S. Coast Guard and the State of Alaska as well as the myriad of federal agencies responsible for various activities in Alaska going to get the requisite resources to carry out their mandates?

Lacking preparedness and response

As a result of the administration’s commendable recent decision, Shell will be allowed to proceed with drilling several wells in the Chukchi Sea, allowing for development that benefits not only Alaskans but also the entire United States. While Shell will be subject to stringent regulatory oversight, Russia also plans to drill in its area of the Chukchi as well. What would happen if the Russians had an accident and the current brought oil into Alaskan waters? Would the United States, in concert with the Russians have the capability to contain it? Similarly, if there were a major maritime disaster in the Bering Strait where a South Korean ship literally disappeared several years ago, what response capability would we have if a ship containing hazardous cargo sank? While I applaud the decision of the administration to allow Shell to drill in the Chukchi, I am apprehensive of the U.S. commitment and ability to respond to any matter of national security in the Arctic, in part due to the severe lack of federal funds going to support this region.

Consequently, while recognizing that the American and broader Arctic is only a small part of the myriad of issues you identified in your Coast Guard address, I would urge that you begin to inform Congress and the American people of the large costs we may have to incur to protect ourselves against the forthcoming economic and social ravages of climate change.

Recommendations for Arctic funding

As a first step to begin to prepare for the direct “existential” challenges posed to Alaska and our broader responsibilities as chair of the Arctic Council, I would recommend the following:

1. A request to Congress for $1.2 billion dollars a year for 10 years to build a new fleet of ice worthy ships to deal with various contingencies in the Arctic (as defined by the Coast Guard) financed by an overall increase in the gasoline tax of $0.20/gallon of which $0.02 would go for Arctic infrastructure development;
2. As an interim step before these ships can be built, the appropriation of funds for the leasing of two Arctic worthy vessels per year;
3. An increase in alcohol and tobacco taxes (or perhaps a tax alongside the legalization of marijuana at the federal level) totaling $500 million dollars a year for 10 years for ancillary infrastructure development of ports, airfields, roads, etc. in Alaska to improve our ability to responds to climate contingencies both in  Alaska and throughout the circumpolar north;
4. A surcharge of one percent on all adjusted federal taxable incomes in excess of $200,000 and two percent on incomes above $500,000.

While there will be hews and cries by climate deniers and other opponents of any tax increase if as the president says the changing climate poses graves threat to our own and other nations security, these are modest proposals (particularly in comparison to an outright price on carbon) and should be passed with the greatest urgency.

       

U.S. chairmanship in the Arctic Council will receive a needed boost from the upcoming conference in Anchorage, which President Barack Obama is due to address on August 31. His message is predictable: He’ll talk about climate change. Russia has received an invitation to the conference, but decided to send a fairly low-level delegation. Russia certainly has important interests in the Arctic region and even higher ambitions, but its Arctic agenda has little to do with climate change. Instead, it can be best described in the old-fashioned and often quite unhelpful terms of geopolitics.

An Arctic superpower stymied

By just about any measure, Russia is an Arctic superpower. It has an enormous coastline, a significant number of people living above the Arctic Circle, six nuclear-powered icebreakers in the region, and industrial centers in Nikel and Norilsk (which produce a high volume of industrial pollution). 

Russia used to play up this status, staging large-scale annual conferences, graced by President Vladimir Putin’s presence. Not anymore, and it is not just the fallout from the Ukraine crisis that has poisoned that climate of cooperation. Russia has experienced two major setbacks in its vision for “conquering” the High North.

The first setback came from the seriously reduced value of the natural resources that are presumed to be hidden in the depths of the Arctic shelf. Putin’s lieutenants—including Nikolai Patrushev, the secretary of the Security Council of Russia—loved to engage in speculations about the fierce competition for access to the rich oil and gas fields that were certain to be discovered there. The problem is not only that the U.S. and EU sanctions have made it impossible for the state-owned oil giant Rosneft to continue the exploration of Arctic seas. (Sanctions prevent the import of technology and know-how, and U.S. companies—such as Exxon Mobil—who had worked in partnership with Rosneft have left.) The real problem is that estimated production costs and low oil prices add huge liabilities to any off-shore project. 

The second disappointment has to do with international maritime transit along the Northern Sea Route (called Sevmorput in Russian). Many politicians in Moscow expected that climate change would shrink the Arctic ice, increase the commercial viability of a shorter connection between China and Europe, and provide useful employment for Russian icebreakers. The problem is that the old Soviet infrastructure along the Sevmorput is so rotten that navigation in the difficult northern waters remains too risky. Egypt, in the meantime, has swiftly constructed the New Suez Canal, which offers a far more reliable route for tanker and container traffic.

Military means for geopolitical ends

As the economic rationale for high political attention to the Arctic disappears, Moscow focuses on the game it knows best: military power plays. As the crowd of environmentalists and climate-concerned politicians prepare to gather in Anchorage, a Russian navy squadron executed a large series of exercises along the Sevmorput. Although the ships are 30-plus years old and their hulls have no ice protection, Russia is determined to show readiness to deploy the newly-created Arctic brigade to any desolate shore in the northern seas. This follows the revised Maritime Doctrine that Putin approved a month ago, which places a heavy emphasis on protecting Russia’s interests in the Arctic.

It takes a lot of strategic imagination to construct threats to these interests. Aleksandr Bortnikov, the director of the Federal Security Service (FSB), has argued that there is an urgent need to upgrade defenses against terrorist attacks. In fact, the only challenge Russia has encountered in the area was the Greenpeace protest against Gazprom’s drilling platform in the Pechora Sea in September 2013. The FSB launched a swift operation to arrest the eco-activists and their ship Arctic Sunrise on the charge of piracy. The permanent court of arbitration in The Hague then ordered Russia to pay damages for that harsh arrest, much to the consternation of Russian authorities. 

What Moscow really worries about is the examination of its claim for expanding the continental shelf under its control all the way to the North Pole (a claim currently sitting with the U.N. Commission on the Limits of the Continental Shelf, or CLCS). After many years of preparation, this revised claim was finally submitted on August 3, and the success is a matter of high political prestige. But it is very doubtful that demonstrations of military might would help that process. Further complicating matters is that Denmark has submitted an overlapping claim and Canada is finalizing its own—and the CLCS cannot make a recommendation on competing claims unless parties agree on a compromise.

Russia appears firmly set on its course of militarization of the Arctic. In a region where economic activities are mostly declining and where environmental challenges are on the rise, Russia appears to be engaged in a one-sided arms race. It is glaringly obvious to observers outside the Kremlin that Russia’s severe economic recession makes this course unsustainable. Russia may aspire to Arctic greatness, but there is little there to achieve and Russia is unlikely to be able to achieve it. 

       

Editors' Note: America has fallen behind its economic competitors—namely Russia and China—in Arctic resource and infrastructure investment. Charles Ebinger argues that the United States must better define its resource development policies and priorities in order to ensure U.S. leadership in the Arctic. This piece was originally published on Forbes. 

The recent decision by the United States to allow energy exploration drilling to re-commence in the Alaskan Arctic’s Chukchi Sea this summer is a welcome development. Here’s why: Federal waters in offshore Alaska are estimated to hold roughly 27 billion barrels of oil and 132 trillion cubic feet of natural gas, the vast majority of which is located in the Arctic. Experts believe that the Chukchi in particular, which holds more resources than any other undeveloped U.S. energy basin, may represent one of the world’s largest sources of untapped oil and gas.

Until now America has regrettably been on the sidelines of Arctic resource and infrastructure investment while our economic competitors—Russia and China included—have moved forward. This policy vacuum was highlighted in a recent National Petroleum Council (NPC) report to the U.S. Secretary of Energy in which I participated and which warned that if we effect no policy changes on an urgent basis we will not stay ahead of or even keep pace with our foreign rivals, remain globally competitive, or provide global leadership and influence in this critical region.

America is more energy self-sufficient than it has ever been

The report comes at a time when the U.S. has cut imports, drastically transforming our nation into the biggest producer of oil and natural gas by tapping huge reserves in shale rock formations across the country. As such, America is more energy self-sufficient than it has ever been. Even so, as evidenced by strong public support for Arctic offshore development in states ranging from Alaska to Iowa, South Carolina and New Hampshire, the American people recognize that we cannot rely solely on shale oil and gas to meet our energy needs.

To that point, as the NPC noted, if we fail to develop the enormous trove of reserves in Arctic waters off Alaska, the U.S. risks a renewed reliance on overseas energy in the future and will have missed a prime opportunity to keep domestic production high and imports and consumer costs low.

As President Obama rightly stated shortly after the Chukchi drilling plan was conditionally approved in May, “When it can be done safely and appropriately, U.S. production of oil and natural gas is important. I would rather us—with all the safeguards and standards that we have—be producing our oil and gas, rather than importing it, which is bad for our people, but is also potentially purchased from places that have much lower environmental standards than we do.

We have to take actions that allow exploration to commence now 

Indeed, given the long lead time necessary to develop resources in this region, the NPC study stressed that it is vital for the U.S. to take actions now that allow exploration in Alaskan Arctic waters to commence. In that regard, the recent approval for Arctic offshore drilling to occur this summer was a win for both Alaska, which is dependent on the petroleum industry to fund approximately 90 percent of its coffers, and the country at large, which leans on Alaskan energy to meet our daily needs, especially on the West Coast.

To ensure the long-term feasibility of offshore development in the region, Interior Department regulations for the U.S. Arctic in part must facilitate the use of proven technologies and also encourage innovation by providing the flexibility to incorporate future technologies as advances occur and their capacities are demonstrated. In addition, and all the more significant given our accession to chairmanship of the Arctic Council in May, U.S. policies governing natural resource development in the Arctic must be defined and streamlined.

Questions Washington has to answer if the U.S. wants to ensure its leadership in the Arctic

For example, what is the country’s official position on the development of oil, gas, mineral and fishery resources in the Arctic? Does it align with Alaska’s policies? How will resource development affect standards of living for those residing in the region?

In addition to resource development policies, other important questions must be addressed to ensure U.S. leadership in the Arctic. With Prudhoe Bay production in serious decline and the Trans-Alaska Pipeline System running at historically low throughput levels, how will the U.S. ensure access to new sources like Alaska’s Arctic offshore that can help all Americans? With just one heavy icebreaker in operation, and the cost of another tallying at least $700 million, what actions are we prepared to take to build a fleet capable of meeting the demands in an increasingly active region?

These are just a few of the questions and concerns that Washington, D.C. will have to answer soon if the U.S. stands a chance of catching up to or surpassing other nations that have so far leapt ahead to the front of the Arctic line. Will President Obama rise to the occasion and make the right decisions?

       

This week, Royal Dutch Shell announced that it would postpone oil drilling in the Chukchi Sea and the broader American Arctic indefinitely. The decision came in the wake of disappointing output from its Burger field, the high costs associated with the project (already nearing $7 billion), the “challenging and unpredictable federal regulatory environment in offshore Alaska,” and a growing public relations problem with environmental groups opposed to Arctic drilling.

This decision is a momentous one—both for the future of the U.S. energy policy and the ability of the international oil industry to balance global oil supply and demand. The announcement came only days after Hillary Clinton spoke out against the Keystone Pipeline, not only because it would lead to the consumption of more fossil fuels but also because much of the oil might be exported. With broader opposition to lifting the ban on crude oil exports gaining momentum in the White House, it is clear that at least part of the nation’s political leadership is moving in a nationalistic direction. This means that the United States—with its vast resources—is unwilling to help meet the burgeoning energy needs of the world’s population: especially the 1.2 billion people who have no access to commercial energy.

Shell’s decision highlights four significant and diverse areas of concern for the future of energy globally and energy policy here in the United States.

Mapping supply and demand

Shell and much of the rest of the international petroleum industry had viewed the Chukchi Sea as one of the last great oil frontiers. The Chukchi and adjoining Beaufort Seas are vital for meeting the estimated 12 to 15 million barrels per day (mmbd) of additional oil demand projected by almost all oil forecasts (both inside and outside the industry) needed between 2035 and 2040. 

Without the U.S. Arctic, the other areas projected to make major contributions by this time are Iraq, Iran, Saudi Arabia, shale oil around the world (including North America), the Orinoco region of Venezuela, and the pre-salt offshore Brazil. Needless to say, given the political turmoil in Iraq, Iran, Venezuela, and Brazil—as well as concerns about the long term stability of Saudi Arabia—one has to wonder: Where will the world discover additional, reliable crude oil supplies without a major contribution from the Arctic?

Many in the environmental community argue that we will not need fossil fuels in the future, predicting a turn to renewables, enhanced energy efficiency, large scale battery storage, and electric vehicles. Unfortunately, this has no basis in fact. Clearly renewables will grow exponentially as their prices fall, new technologies will increase energy efficiency, large scale battery storage will commence, and many electric vehicles will hit the road. But there are currently more than 260 million gas and diesel vehicles running on U.S. roads alone, with less than 1 percent of these running on electricity. With transportation fuel demand mushrooming globally, it’s unlikely that oil consumption in the transportation sector will die or even decline significantly. 

Fossil fuels for development

Drilling in the Arctic poses unique environmental risks which must be managed through state-of–the-art technology and accompanied by the most stringent regulatory enforcement. A recent National Petroleum Council examination of all possible challenges involved in Arctic offshore drilling found that drilling can be done safely. Yet despite these findings, most major national environmental groups have opposed any drilling in the Arctic and have even asserted that Shell’s decision is a vindication of their position. But these groups don’t seem concerned or even thoughtful about the long-term implications of the U.S. energy industry’s abandonment of the Arctic.

With the world’s population forecast to rise by 1.6 billion people by 2035, do we really think global oil demand won’t continue to rise? While I recognize that we must do everything to limit the growing use of fossil fuels to attack climate change, do we really have no moral obligation to help countries emerge from poverty, which will almost certainly involve continued use of fossil fuels? 

During his recent visit to America, Pope Francis called for the world to make a renewed commitment to help the “poorest of the poor,” and the United Nations has also put forward new sustainable development goals that include an expansion of energy access to those who are either unserved or underserved. Focusing our policies exclusively on shutting down U.S. fossil fuel development, as some environmental groups advocate, takes away resources that can be used to improve global health, education, clean water, and women’s empowerment—all of which are all directly related to energy access. In looking at girl’s education, for example, increasing energy availability allows water to be pumped up from the river, obviating the need for arduous, tedious work for the women and girls that would otherwise have to carry this water by hand to their communities, limiting time for education. The availability of energy allows vaccines to be safely stored, crops to be refrigerated, and children to have the electricity available to study at night. 

All of these benefits—and many others—cannot happen without improving electricity access, which still involves fossil fuel. The United States can and should play a role in this effort.

Jostling for Arctic access

Shell is not the only company to experience setbacks in the Arctic. Italy’s ENI SpA and Norway’s Statoil ASA just yesterday had another regulatory setback due to delays in obtaining permission from Norway to commence production. In June, a consortium including Exxon and BP PLC suspended its Canadian Arctic exploration, noting insufficient time to begin test drilling before the expiration of its lease in 2020. In addition, Exxon had to curtail its plans to drill in the Russian Arctic after the United States imposed sanctions on Moscow and its energy industry following the annexation of Crimea. 

Russia, though, remains active in the Arctic, and it can be assumed that once sanctions are lifted, many oil companies will try to gain a toehold. China, Korea, India, and Singapore, among other countries, have expressed interest in gaining access to the region’s mineral, energy, and/or marine resources. In several cases, they are building ice-worthy vessels to give them the capability to do so. The Bering Strait is emerging as a significant new maritime route in desperate need of enhanced regulation.

In a report last year, my colleagues and I looked at key recommendations for offshore oil and gas governance as the United States assumed chairmanship of the Arctic Council. Beyond highlighting the resource potential of the region, our work looked at increasing needs for safety and security as a result of increasing transportation across the Arctic. Even as the United States stands to be less involved in Arctic energy development, it is our duty as chair of the Arctic Council to lead in region. 

Alaska is a state, not a park

The promise of the Arctic has inspired adventurers, explorers, geographers, scientists, and entrepreneurs for generations and will continue to do so in the future. The United States should be actively involved in helping to ensure that Arctic resources are developed and used prudently—rather than sit on the sidelines with myopic dreams of leaving the region a pristine wilderness. Arctic inhabitants—both natives and others—of course want to keep the Arctic safe, but they do not want to make it a museum. 

Development of the region’s resources accounts for nearly 95 percent of Alaska’s revenues. If we deny its development, are we prepared to make a line item in the federal budget to pay for Alaska to remain a park? 

       

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Japan’s presence in the Arctic is not new, but it has been limited mostly to scientific research. Japan has stepped up its engagement after it gained observer status to the Arctic Council and appointed its first Arctic ambassador in 2013. However, Japan has yet to flesh out a full-blown Arctic strategy that identifies the range of its national interests in the polar region and actionable strategies to achieve them. The Arctic offers Japan an opportunity to expand cooperation with the United States in an uncharted area, poses hard questions on how to interact with Russia in the post-Ukraine era, and creates the interesting proposition of whether China and Japan can cooperate in articulating the views of non-Arctic states.

On October 19, the Center for East Asia Policy Studies at Brookings hosted a panel of distinguished experts for a discussion on what components should be included in Japan’s Arctic strategy, ranging from resource development, environmental preservation, and scientific research, to securing access to expanding shipping lanes and managing a complex diplomatic chessboard. 

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Can the United States and Russia actually cooperate in the Arctic? It might seem like wishful thinking, given that Russian Prime Minister Dmitry Medvedev asserted that there is in fact a “New Cold War” between the two countries in a speech at the Munich Security Conference. Many people—at that conference and elsewhere—see the idea as far-fetched. Sure, Russia is launching air strikes in what has become an all-out proxy war in Syria, continues to be aggressive against Ukraine, and has increased its military build-up in the High North. To many observers, the notion of cooperating with Russia in the Arctic was a non-starter as recently as the mid-2015. There have been, however, significant changes in Russia’s behavior in the last several months—so, maybe it is possible to bracket the Arctic out of the evolving confrontation.

These and other matters were the subject of discussion at a recent conference at the Harriman Institute of Columbia University in New York, in which we had the pleasure to partake last week.

Moscow learns its limitations

Russia steadily increased its military activities and deployments in the High North until autumn 2015, including by creating a new Arctic Joint Strategic Command. There have been, however, indirect but accumulating signs of a possible break from this trend. Instead of moving forward with building the Arctic brigades, Russian top brass now aim at reconstituting three divisions and a tank army headquarters at the “Western front” in Russia. News from the newly-reactivated airbases in Novaya Zemlya and other remote locations are primarily about workers’ protests due to non-payments and non-delivery of supplies. Snap exercises that used to be so worrisome for Finland and Norway are now conducted in the Southern military district, which faces acute security challenges. Russia’s new National Security Strategy approved by President Vladimir Putin on the last day of 2015 elaborates at length on the threat from NATO and the chaos of “color revolutions,” but says next to nothing about the Arctic.

The shift of attention away from the Arctic coincided with the launch of Russia’s military intervention in Syria, and was strengthened by the sharp conflict with Turkey. Deputy Prime Minister Dmitri Rogozin—who used to preside over the military build-up in the High North—is these days travelling to Baghdad, instead. Sustaining the Syrian intervention is a serious logistical challenge on its own—add low oil prices into the mix, which threw the Russian state budget and funding for major rearmament programs into disarray, and it’s clear that Russia is in trouble. 

The shift of attention away from the Arctic coincided with the launch of Russia’s military intervention in Syria, and was strengthened by the sharp conflict with Turkey.

The government is struggling with allocating painful cuts in cash flow, and many ambitious projects in the High North are apparently being curtailed. In the squabbles for dwindling resources, some in the Russian bureaucracy point to the high geopolitical stakes in the Arctic—but that argument has lost convincing power. The threats to Russian Arctic interests are in fact quite low, and its claim to expanding its control over the continental shelf (presented at the U.N. earlier this month) depends upon consent from its Arctic neighbors.

Let’s work together

Chances for cooperation in the Arctic are numerous, as we and our colleagues have described in previous studies. The current economic climate (i.e. falling oil prices, which makes additional energy resource extraction in most of the Arctic a distant-future scenario), geopolitical climate (sanctions on Russia targeting, amongst others, Arctic energy extraction), and budget constraints on both ends (Russia for obvious reasons, the United States because it chooses not to prioritize Arctic matters) urge us to prioritize realistically.

• Improving vessel emergency response mechanisms. Though many analysts like to focus on upcoming resource struggles in the Arctic, the chief concern of naval and coast guard forces there is actually increased tourism. Conditions are very harsh most of the year and can change dramatically and unexpectedly. Given the limited capacity of all Arctic states to navigate Arctic waters, a tourist vessel in distress is probably the main nightmare scenario for the short term. Increased cooperation to optimize search and rescue capabilities is one way to prepare as much as possible for such an undesirable event. 
• Additional research on climate change and methane leakage. Many questions remain regarding the changing climate, its effects on local flora and fauna, and long-term consequences for indigenous communities. Increasingly appreciated in the scientific community, an elephant in the room is trapped methane in permafrost layers. As the Arctic ice thaws, significant amounts of methane may be released into the atmosphere, further exacerbating global warming.
• Expanding oil emergency response preparedness. The current oil price slump likely put the brakes on most Arctic exploration in the short term. We also believe that, unless all long-term demand forecasts are false, an additional 15 million barrels of oil per day will be needed by 2035 or so—the Arctic is still viewed as one of the last frontiers where this precious resource may be found. At the moment, Arctic states are ill-prepared to deal with a future oil spill, and more has to be learned about, for instance, oil recovery on ice and in snow. The Agreement on Cooperation on Marine Oil Pollution Preparedness and Response in the Arctic was an important first step.
• Preparing Bering Strait for increased sea traffic. As the Arctic warms, increased sea traffic is only a matter of time. The Bering Strait, which is only 50 miles wide at its narrowest point, lacks basic communication infrastructure, sea lane designation, and other critical features. This marks another important and urgent area of cooperation between the United States and Russia, even if dialogue at the highest political level is constrained. 

Can the Arctic be siloed?

There is no doubt that the current cooled climate between Russia and the other Arctic states, in particular the United States, complicates an ongoing dialogue. It is even true that it may prohibit a meaningful conversation about certain issues that have already been discussed. 

Skeptics will argue that it is unrealistic to isolate the Arctic from the wider realm of international relations. Though we agree, we don’t think leaders should shy away from political dialogue altogether. To the contrary, in complicated political times, the stakes are even higher: Leaders should continue existing dialogues where possible and go the extra mile to preserve what can be preserved. Russia’s desire for expanding its control over the Arctic shelf is entirely legitimate—and opens promising opportunities for conversations on issues of concern for many states, including China, for that matter.

Realists in the United States prefer to focus on expanding American military capabilities, their prime argument being that Russia has significantly more capacity in the Arctic. While we would surely agree that America’s current Arctic capabilities are woefully poor, as our colleagues have described, an exclusive focus on that shortcoming may send the wrong signal. 

We would therefore argue in favor of a combined strategy: making additional investments in U.S. Arctic capabilities while doubling down on diplomatic efforts to preserve the U.S.-Russian dialogue in the Arctic. That may not be easy, but given the tremendous success of a constructive approach in the Arctic in recent years, this is something worth fighting for. Figuratively speaking, that is.

       

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An address from U.S. Special Representative for the Arctic Admiral Robert J. Papp Jr.

On April 24, 2015, the United States assumed chairmanship of the Arctic Council for a two-year term. Over the course of the last year, the United States has outlined plans within three central priorities: improving economic and living conditions for Arctic communities; Arctic Ocean safety, security, and stewardship; and addressing the impacts of climate change. Working with partners on the Council, U.S. leaders have moved forward policies ranging from joint efforts to curb black carbon emissions to guidelines for unmanned aerial systems conducting scientific research. With half of its short chairmanship behind it, what has the United States accomplished over the last 12 months? What work remains to be done?

On April 25, the Energy Security and Climate Initiative (ESCI) at Brookings hosted U.S. Special Representative for the Arctic Admiral Robert J. Papp, Jr. for a keynote address on the state and future of U.S. leadership in the Arctic. ESCI Senior Fellow Charles Ebinger moderated the discussion and audience Q&A.

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• The halfway point of the U.S. Arctic Council chairmanship: Where do we go from here?

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• The halfway point of the U.S. Arctic Council chairmanship: Where do we go from here?

       

       

       

       

ABSTRACT

The overall economic efficiency of a quantity-based approach to greenhouse gas mitigation depends strongly on the extent to which such a program provides opportunities for compliance flexibility, particularly with regard to the timing of emissions abatement. Here I consider a program in which annual targets are determined by choosing the optimal time path of reductions consistent with an exogenously prescribed cumulative reduction target and fixed technology set. I then show that if the availability of low-carbon technology is initially more constrained than anticipated, the optimal reduction path shifts abatement toward later compliance periods. For this reason, a rigid policy in which fixed annual targets are strictly enforced in every year yields a cumulative environmental outcome identical to the optimal policy but an economic outcome worse than the optimal policy. On the other hand, a policy that aligns actual prices (or equivalently, costs) with expected prices by simply imposing an explicit price ceiling (often referred to as a "safety valve") yields the opposite result. Comparison among these multiple scenarios implies that there are significant gains to realizing the optimal path but that further refinement of the actual regulatory instrument will be necessary to achieve that goal in a real cap-and-trade system.

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Two years after the country entered the Great Recession, there are signs the national economy has slowly begun to recover. Thus far recovery has meant the return of economic growth, but not the return of jobs. And just as some communities have felt the downturn more than others, recovery has not and will not be shared equally across the nation’s diverse metropolitan economies.

Within metropolitan areas, many communities continue to struggle with high unemployment and increasing economic and fiscal challenges, while at the same time poverty and the need for emergency and support services continue to rise. Even under the best case scenario of a sustained and robust recovery, cities and suburbs throughout the nation will be dealing with the social and economic aftermath of such a deep and lengthy recession for some time to come.

An analysis of unemployment, initial Unemployment Insurance claims, and receipt of Supplementary Nutritional Assistance Program (SNAP, formerly known as food stamps) benefits in urban and suburban communities over the course of the Great Recession reveals that:

• Between December 2007 and December 2009, city and suburban unemployment rates in large metro areas increased by roughly the same degree (5.1 versus 4.8 percentage points, respectively). By December 2009, the gap between city and suburban unemployment rates was one percentage point (10.3 percent versus 9.3 percent)—smaller than 24 months after the start of the first recession of the decade (1.7 percentage points) and the downturn in the early 1990s (2.2 percentage points).
  
  
• Western metro areas exhibited the greatest increases in city and suburban unemployment rates—5.8 and 5.6 percentage points—over the two-year period ending in December of 2009. Increases in unemployment rates tilted more toward primary cities in Northeastern metro areas (a 5.3 percentage-point increase versus 4.2 percentage points in the suburbs), while suburbs saw slightly larger increases in the South (5.0 versus 4.4 percentage points).
  
  
• Initial Unemployment Insurance (UI) claims increased considerably between December 2007 and December 2009 in urban and suburban areas alike. The largest increases in requests for UI occurred in the first year of the downturn—led by lower-density suburbs—with new claims beginning to taper off between December of 2008 and 2009.
  
  
• SNAP receipt increased steeply and steadily between January 2008 and July 2009 across both urban and suburban counties. Urban counties remain home to the largest number of SNAP recipients, though suburban counties saw enrollment increase at a slightly faster pace during the downturn—36.1 percent compared to 29.4 percent in urban counties.
  

Even as signs point to a tentative economic recovery for the nation, metropolitan areas throughout the country continue to struggle with high unemployment. Within these regions, the negative effects of this downturn—as measured by changes in unemployment and demand for safety net services—have been shared across cities and suburbs alike. Standardizing sub-state data collection and reporting across programs would better enable policymakers and services providers to effectively track indicators of recovery and need in the nation’s largest labor markets.

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Read the Related Report: Job Sprawl and the Suburbanization of Poverty »

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