Sustainable Strategies for Arctic Lifelines: Funding Decisions in the Face of Climate-Change Uncertainty

Abstract

Remote Arctic communities rely on ephemeral winter roads for the affordable delivery of essential goods. As climate change destabilizes the physical foundation of these supply chains, policymakers face a complex stochastic allocation problem: how to optimally divide a constrained budget between supply-side infrastructure investments (to extend road duration) and demand-side consumer subsidies (to bolster household purchasing power).

In this thesis, we develop a stylized stochastic optimization model to analyze this trade-off, formulating a capacity-budget gap parameter to capture the dual-bottlenecks of physical throughput versus financial liquidity. We prove that the optimal funding strategy, serving as a stochastic hedge, is strictly bounded between the supply-constrained and demand-constrained deterministic solutions. Through comparative statics, we uncover counter-intuitive operational tradeoffs, including a price-affordability tradeoff and a logistics efficiency tradeoff, where improvements in supply chain economics rationally trigger infrastructure divestment due to an underlying income saturation effect. Furthermore, we analyze the compound effect of climate change: a secular decline in mean winter duration combined with rising interannual volatility. We demonstrate that for the most vulnerable communities, this compound shock pushes the system into a dilution state where higher volatility counter-intuitively reduces the optimal investment level.

Our findings suggest that as climate uncertainty accelerates and mean operational windows shrink, relying on winter road infrastructure becomes economically unsustainable, necessitating a strategic policy pivot toward direct income support and alternative logistics.