Robust management of systemic risks and food-water-energy-environmental security in interacting natural and anthropogenic systems

Ermolieva, T., Havlik, P. ORCID: https://orcid.org/0000-0001-5551-5085, Ermoliev, Y., Kahil, T. ORCID: https://orcid.org/0000-0002-7812-5271, Rovenskaya, E. ORCID: https://orcid.org/0000-0002-2761-3443, Obersteiner, M. ORCID: https://orcid.org/0000-0001-6981-2769, Borodina, O., Gorbachuk, V., Knopov, P., & Bogdanov, O. (2021). Robust management of systemic risks and food-water-energy-environmental security in interacting natural and anthropogenic systems. In: 31st European Conference on Operational Research, 11-14 July, 2021, Athens, Greece.

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Abstract

In the presentation we discuss critical issues related to the design of resilient and robust food, water, energy, environmental systems in the presence of interdependent systemic risks. We introduce the notions of systemic risks, security, resilience and robustness in FWEE systems. We emphasize the need for the two-stage preventive-adaptive stochastic optimization (STO) approaches enabling to design a robust portfolio of precautionary strategic and operational adaptive decisions making the interdependent systems flexible and robust with respect to risks of all kinds. We establish a connection between the robust quantile-based nonsmooth estimation problem in statistics and the two-stage nonsmooth STO problem of robust strategic-adaptive decision making. The coexistence of complementary strategic ex-ante and adaptive ex-post decisions induces systemic risk aversion in the form of Value-at-Risk quantile-based risk constraints. Using examples from research studies on integrated management of catastrophic dependent risks, integrated agricultural-water-energy nexus security, multidisciplinary water resource management we argue that coping with systemic risks can be addressed by solving a system of implicit probabilistic security equations. Selected numerical results from the studies illustrate that a robust combination of interdependent strategic and adaptive solutions presents qualitatively new policy recommendations contributing to the overall welfare increase.

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