Executive Summary
To this day, the general public thinks of the Arctic in visions of unspoiled ocean and landscapes, expansive ice, clean water, unique species and aboriginal cultures – essentially, it reminds everyone that a true wilderness still exists. In addition to important natural resources, the Arctic provides inspiration by maintaining its irreplaceable cultures, a pristine environment, healthy ecosystem and ground-breaking collaborative governance models. As such, it is a global asset that should be maintained.
While largely true, this vision is not the complete picture. With a population of about 4 million people and an annual economy of roughly US$ 230 billion, the Arctic falls under the jurisdiction of eight modern countries with a long history of governance in the region. Development over the past decades has included major expansions of oil and gas activity since the 1960s. These and other facts are often surprising for people not familiar with the area, and indeed the Global Agenda Council on the Arctic has identified five particularly pervasive myths about the region that need correction (see Appendix). For example, the region’s wealth of natural resources is not readily available for development, and the Arctic will not become immediately accessible even as summer sea ice continues to retreat in response to climate change. Moreover, the Arctic is neither a tense area with geopolitical disputes nor a likely flashpoint for the world's next military conflict.
On the contrary, the region is a powerful example of international collaboration; its countries largely conform to standard international treaties, confer regularly at regional forums such as the Arctic Council and use normal diplomatic channels to resolve differences. The widely publicized seafloor-sovereignty extensions now under way for the Arctic Ocean, for example, are science-based and not controversial, except possibly for the potential overlapping claims of several Arctic states at the North Pole. The parties involved are simply following the same United Nations (UN) procedure used to settle continental-shelf disputes around the globe. Some outstanding boundary and jurisdiction issues among the Arctic states have yet to create geopolitical friction at a level comparable to most similar disputes in the world. Indeed, the Council's Members consider the region to be a leading example of international collaboration.
The Arctic is an emerging market in a well-governed but challenging environment, offering a host of major investment opportunities in the coming years as well as special risks. While its raw materials present many indisputable benefits, the potential negative global impacts of attempting to exploit those materials unsustainably are serious. This dichotomy may be the driving force of strong passions around Arctic matters in the public debate.
In this context, at least two important economic pressures will affect ongoing development in the region:
Natural resources: Conventional hydrocarbons (natural gas, condensate and oil) and metals are critical and abundant natural resources in the Arctic. Several large projects with considerable potential for future development already exist, including the supply of one-fifth of the world's nickel from the Russian Arctic and one of the world's largest zinc mines located in the Alaskan Arctic. Other valuable resources include fish, high-value minerals (diamonds and rare earths) and fresh water.
Growing viability of seasonal shipping in Arctic waters: Recent climate model projections reveal near-universal agreement that thinner, less-extensive sea ice will make Arctic waters more accessible in summer to lightly strengthened ships. While a highly seasonal phenomenon, this raises prospects for plausible new trans-Arctic shipping routes between the North Atlantic Ocean and Bering Strait, offering substantial savings compared to longer passages using either the Suez or Panama Canal. Such new lanes could possibly supplement existing global trade routes in summer, saving fuel and cutting logistics supply-chain time, with potential benefits for industries and consumers. Perhaps most significantly of all, new routes would increase the possibility of local “destinational” (bulk and cruise) marine activity, including resource development and extraction for global commodity markets. Cruise-ship tourism is a growing industry in the region.
While opportunities in the Arctic exist for both resource development and shipping, numerous important challenges must be addressed to ensure that any future plans unfold sustainably, so that the unique and vulnerable Arctic environment is maintained for future generations.
Challenge 1: The Arctic needs protection from environmental damage, resolution on certain global agreements, and new collaborative models to secure sustainable growth.
Primarily external factors – from world commodity prices to rising greenhouse gas emissions – drive long-term changes in the Arctic. Policy and business decisions made outside the region, at national and international levels, will be critical for future environmental, economic and social developments, such as progress in climate change negotiations. Strong disparities exist among national policies on economic development, aboriginal rights, climate change and environmental protection. Because the region is ecologically fragile, such inequalities heighten risks to all stakeholders, for example if strong protections against oil-spill risks are implemented in some but not all Arctic countries.
Challenge 2: The Arctic needs investment.
A critical deficiency and area of great strategic importance is the development of infrastructure projects and logistical hubs. Except for certain areas of Norway and the western Russian Federation, the region remains vastly underserved by transportation, port and other critical infrastructure. For further economic growth and overall development to occur, both public and private actors need to boost investment on necessary projects. Increasing the Arctic's attractiveness for investment can be pursued in many ways, as in stable, transparent political governance and judicial systems, and a consistent, clearly defined regulatory regime. For many reasons, large industrial projects must often be “transborder”, involving several Arctic states and even consumer countries. While currently lacking within the region, a framework to streamline such transborder collaboration would greatly facilitate investment.
Challenge 3: The Arctic needs measures to better ensure human and environmental safety in the face of increased shipping and offshore activity.
The extent of summer sea ice in the Arctic is decreasing sharply, raising the likelihood of increased traffic from moderately ice-strengthened vessels (e.g. those currently used in the Baltic Sea) and, potentially, from ordinary open-water ships on one of the world's most remote and dangerous oceans. Furthermore, for an ocean that is arguably the most pristine on earth, serious concerns exist about the safety of human life, property and the environment. In particular, the prospect of common open-water ships entering the Arctic Ocean, Northern Sea Route and Northwest Passage heightens the urgency to establish a comprehensive regulatory framework under the International Maritime Organization (IMO) to ensure that adequate vessel safety standards, navigation control systems, environmental protections and search-and-rescue capability are in place. The current lack of quality bathymetric information, navigation control and communication capacity must also be addressed.
Challenge 4: The Arctic needs science.
Natural resource development, sustainable economic growth, ecosystem protection and an understanding of the impacts of climate change in the Arctic all have one thing in common: a pressing need for more science. Despite intense global interest, the Arctic remains one of the world's least-studied environments. While a few areas have received a relatively high level of attention and funding (e.g. Arctic Alaska, the Greenland ice sheet, ocean-floor bathymetric mapping to support Article 76 claims of the UN Convention on the Law of the Sea [UNCLOS], the Barents Sea), the vast majority of Arctic landscapes, oceans and ecosystems, as well as the climate, have received little field study. The lack of basic scientific understanding and datasets now pose a challenge for both business and environmental interests. An urgent need exists among public and private actors for new scientific observations, including long-term monitoring and mapping programmes, improved computer modelling and development of new technologies, ranging from autonomous sampling platforms to satellite observing systems. Moreover, climate change in the Arctic affects climate elsewhere in the northern hemisphere, meaning that understanding the Arctic region will have a positive impact on managing the environment in non-Arctic areas.
The Global Agenda Council on the Arctic develops these four key challenges for sustainable Arctic development further in this report, and proposes opportunities that warrant greater attention and debate.
Authored by the Members of the World Economic Forum Global Agenda Council on the Arctic
Davos-Klosters, Switzerland 22-25 January, 2014