Arctic 2050

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box 8: Map of key factors that have the potential to shape the Arctic regional development

Source: SKOLKOVO Institute for Emerging Market Studies

In this chapter we analyse the most important factors that will shape the Arctic’s future. We will map those factors by their uncertainty and impact, and select the most critical ones that inform alternative scenarios for the Arctic region.

Mapping the future: critical uncertainties.

The pace of climate change

Global warming will make a significant impact on the Arctic. Increasing air and water temperatures. The melting of sea-ice and permafrost will all transform natural wildlife habitat, change the living environment of the indigenous peoples, and cause damage to urban and industrial infrastructure. These changes are happening right now, and they are proceeding much faster than expected. The Arctic region is probably one of the most fragile ecosystems. Although the change is evident, it is still hard to predict the extent, and the dynamics, of the possible damage. The pace of global warming affects decision-making processes and the business environment. This creates an incentive for innovation. How strong will this impact be?

Key factors to watch: rising sea levels, melting ice and permafrost, infrastructure degradation, transformation of the natural environment, physical accessibility of resources and routes.

Economic development in the region

The future of economic development in the Arctic will depend on the availability of sustainable solutions and technologies that encourage responsible business activities that are respectful of the environment while giving opportunities for indigenous and local populations. How will the Arctic economy change? Is it going to grow because of the overall interest in developing Arctic resources and shipping goods via the Northern Sea Route, or it is going to stagnate because of the environmental and social pressure on business and governments not to expand in the Arctic? Will the Arctic economy remain resource-based or it is going to be diversified and balanced?

Key factors to watch: level of knowledge generation, intensifying race for Arctic resources, pace of economic diversification, freight traffic activities

The trajectory of social development

The prospect of social development is not certain in the Arctic given the demographic and social challenges that Arctic people are facing. Both incoming and outgoing migration bring new dynamics to the region. Social development involves strategic planning for the Arctic communities that includes long-term demographic policies, increasing the attractiveness of the region by providing education and work opportunities, securing housing and access to health services. However, the lagging position of most Arctic regions and the slow integration of indigenous knowledge make for a high degree of uncertainty about the sustainable future of the Arctic. What will be the level of commitment by the Arctic states in terms of investment available for increasing the well-being of Arctic communities? How will the interests of local communities be protected?

Key factors to watch: population dynamic and outmigration, changing labour migration pattern, indigenous peoples urbanization, Increasing social disparities ("Arctic paradox").

Quality of the institutional environment

For sustainable growth, the Arctic needs a comprehensive and coordinated enabling environment – a set of laws, regulations, policies, international trade agreements, and other soft infrastructure, like public awareness and acceptance, that facilitate the economy and sustainable development in the Arctic region. However, it is unclear how adequate and balanced these institutions will be, looking ahead to a 2050 horizon. Will stakeholders reach a consensus? Will a joint Arctic investment platform be created? What if one of the most influential Arctic states stops economic activity in the Arctic completely due to environmental and social considerations? What if e.g. Russia halts exploitative activities in the Arctic in the next 30 years?

Key factors to watch: environmental policies and regulations, effectiveness of disaster response, demographic and social policies, financial and non-financial incentives, public acceptance of business in Arctic, international consensus and governance.

Pace of technology development and innovation

Harsh weather conditions require special technologies for each industry and sector. Social and environmental considerations add more requirements that new technologies should meet. Technologies required for the future development of the Arctic require substantial funding, political will, and entrepreneurial risk for their implementation. Will the Arctic innovations be the spearhead of economic development? Or will the innovations be slow and restrict the progress in the Arctic?

Key factors to watch: pace of digitization and connectivity of Arctic, energy transition in Arctic, commercialization of sustainable shipping technologies, advancement in extraction technologies, cost of doing business in Arctic.

Dynamics of geopolitics and international consensus

Shifting geopolitics defines Arctic stability and will stay as one of the critical uncertainties of the region's development. Geopolitical intensification fuelled by the national interests of the Arctic states and non-regional actors could transform current cooperation models. It is unclear whether the quality of consensus will increase or decrease, and how it will change the regional landscape in terms of political cooperation and further economic development. How will international cooperation develop in the Arctic? Will geopolitics facilitate or complicate economic development and trade in the Arctic?

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Box 9: Critical uncertainties

Source: SKOLKOVO Institute for Emerging Market Studies

Based on the impact vs uncertainty matrix above, two sets of critical uncertainties clearly stand out as having the highest level and impact: a) quality of the institutional environment, and b) pace of technological development and innovation.

The quality of the institutional environment will be critical in defining economic and social development and defining the effectiveness of measures to mitigate impacts and adapt to accelerating climate change. The pace of technological development and innovation will be critical to economic intensification in an environmentally sustainable and socially just manner.

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Box 10: Black Swans events

Source: EY 2011

BThe extent of these uncertainties varies significantly, which creates numerous possible futures for the Arctic by 2050. While we can develop different scenarios to engage with wider and deeper assumptions underlying development of the region, "black swan" events are hard to predict (box 10).

The outbreak of COVID-19 reflects a new reality of the world. Although the crisis is just a temporary phenomenon, it has caused fundamental shifts that entirely change our system of beliefs, behaviour, consumption needs, paving the way for new policies, regulations, etc. The virus outbreak and recent Arctic developments such as the catastrophe in Norilsk made us think about hard-to-predict events, which because they are unexpected could have a major effect on the Arctic future development.

Such events have several distinguished features: nothing in the past suggests that they may happen and if they happen their impact is massive. Examples of possible black swans for the Arctic region include natural disasters and another pandemic.

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Box 11: Scenarios matrix

Source: SKOLKOVO Institute for Emerging Market Studies

All the factors described above will have a tremendous impact on how the Arctic region will evolve up to 2050. From multiple futures that can be created in an interplay of critical uncertainties, we selected four scenarios which seem to be the most challenging and thus the most interesting to explore. These plausible futures will help create a safe space for strategic leadership dialogue and drive the joint actions of diverse stakeholders.

The matrix below describes four scenarios in a nutshell followed by detailed stories of how the region might evolve to 2050.

Scenario 1. Dark Ages

Lack of coordinated national and supranational frameworks and governance and the low pace of innovations and deployment of new technologies literally freeze Arctic development, which remains static for a decade and then quickly deteriorates, leaving the Arctic a depopulated and devastated industrial site for ruthless exploitation of the scarce deposits of fossil resources.

Regional players – the Arctic Five – are very protective of what they believe is their exclusive right to Arctic riches. They collectively manage to constrain access to resources and routes for non-regional actors. Perhaps this is the only example of effective collaboration in the Arctic.

Overall, governments fail to create an enabling environment that would normalize the risks of doing business in the Arctic. As a result, private business gets no significant incentives to invest in the region.

The Arctic economy remains dominated by the national states and large companies, either state-owned or private national champions. The extractive industries prevail, taking away the opportunity for diversification and new market development, cutting the global Arctic GDP by half from its current volume to near $220 billion.[116]

Very limited innovation and the vast deployment of obsolete and hazardous technologies and operational practices cause inevitable damage to the environment. Despite rising protests by the local population and the growing alarmism of social and environmental non-governmental organizations, unsustainable practices continue as they prove to be the only economically rational ones in the context of the short-term planning that dominates the boardrooms.

The natural environment is continuously damaged by economic activity and accelerating climate change. Melting permafrost triggers natural and technogenic disasters that gradually destroy Arctic biodiversity and indigenous peoples' traditional way of life. Indigenous people assimilate and out-migrate, leaving only artefacts behind. The Arctic population will have declined by 60% by 2050.[117] Most of it now is shift workers from the southern regions of the world who bring no families with them, but make Islam a growing power in the region.

Scientists state that for animals it is becoming harder to find proper nutrition due to global warming. Caribou, muskox and other mammals of the Arctic face danger as a significant seasonal shift in the Arctic ecosystem has been observed recently. Springs start earlier, bringing the crucial nutrition plants to bloom ahead of time, while the 'internal clocks' of the animals remain the same. Rain falls more often and then freezes, blocking the access to food and damaging species whose coats are not capable of protecting them from freezing rain.

Scenario 2. Age of Discovery

Fierce competition for the resources of the Arctic fuelled by state-funded innovation reaps Arctic riches making the economy grow and attracting opportunity-seekers to the region. Fragmented environmental regulation and weak disaster response fail to slow the damage to the Arctic ecosystem. The natural habitat and livelihoods of the indigenous people deteriorate amidst an accelerating climate crisis.

The Arctic Five fail to agree on protecting the region, which has become a global battlefield for superpowers. Global competition is always one step away from confrontation. The growing militarization of the region is a new reality. In the lack of efficient governance and supranational institutions, the situation gets more and more fragile. Some start calling the Arctic 'the new Middle East' – any spark could cause a disaster.

The race for Arctic domination triggers the direction of government funds into research and development. The rapid development of technology and the increasing availability of diverse innovative solutions make Arctic resources better accessible and thus open up new business opportunities. This boost to innovation makes economic activity in the Arctic more and more profitable and attractive for private investors. Enormous government guarantees cover all risks. Although the Arctic economy remains predominately resource-based, now it is as hi-tech and digitally loaded as possible. This is largely responsible for rapid GDP growth in the first 15-17 years and a recession after 2035, when growth slows down by 15-17% and the GDP volume slumps by 30%.

Economic benefits have been prioritized over environmental considerations, so the extractive practices remain damaging for the Arctic ecosystem. Natural disasters happen more often but the ongoing global climate crisis forces regional actors to consider whether it is they who are causing damage or whether the Arctic is just one part of a much wider deterioration.

Arctic society splits: urban communities and professional opportunity-seekers flourish, while indigenous peoples suffer. Social and environmental organizations keep raising concerns on international platforms, but their voice is not heard. Greenwashing and purchasing the silence of the local population in exchange for short-term economic benefits are tacitly accepted by the major actors in the region. By 2050 the Arctic population declines up to 2.7-6 million people from what it is now.

The global level of public acceptance of Arctic exploitation is at a record low and multiple consumer and financial brands not only exclude companies involved in any business in the Arctic from their operations but also support growing global consumer/citizen activist movement MAFA: 'Make the Arctic Freeze Again'.

Scenario 3. Romanticism

The world of successful environmentalism has made the Arctic a showcase for all things good for the ecosystem – only sustainable energy and transport, no mining and extracting, going back to nature. Money stops flowing to the Arctic. What once was a global magnet for business has turned out to be just like a film set, as it were, for the National Geographic.

The Paris Agreement followed by the New Green Deal laid firm foundations for prioritization of long-term environmental returns over short-term economic gains. The global consensus on preserving the unique Arctic ecosystem has led to the development of what are probably the strictest environmental regulatory frameworks and enforcement mechanisms on the planet.

The social and environmental non-government organizations work together with academia to provide a better understanding of the Arctic ecosystem, coming up with guidelines for all types of human activities in the region. The pace of climate change is monitored to mitigate the possible risks for the natural environment. The Arctic Council has become one of the most powerful supranational bodies, with legislative and regulatory authority in the region.

Economic activity in the Arctic has been limited to sustainable fishing and herding, local crafts, and sustainable tourism. Indigenous peoples maintain their traditional way of life and receive social payments from the governments. All extraction activity has been stopped and Arctic GDP has declined by 80% from what it was in 2020 and accounts only about $ 88 billion.[118]

Innovations have been mainly driven by the strengthening of sustainability standards and heavily subsidized by governments and international development agencies. The Northern Sea Route is being operated by green fuel-driven vessels only. Energy for local needs is 100% produced by CO2-free technologies.

Global public acceptance is high as people in other countries see the Arctic as the world's biggest national park. While it does a lot of good for the natural habitat and indigenous peoples, the Arctic cities are abandoned, and local infrastructure deteriorates. No big companies work in the Arctic anymore and therefore all social and infrastructure burdens have been handed over to governments, which struggle to justify the growing budgetary expenses.

Lack of economic opportunity and a declining living standards have led to an accelerated out-migration of professionals and the urban population. No talent is attracted to the region, apart from scientists and environmentalists working in shifts. The natural decline of the indigenous peoples has slowed but not stopped, so by 2050 the Arctic population is barely 20%[119] of what it was in 2020.

Scenario 4. Renaissance

A Russian saying goes 'it is good to be healthy and prosperous' - and there is a grain of truth in every joke. In this scenario, the nations agreed to make exploration of the Arctic – just as much as space exploration – a symbol of international cooperation and humanity's eternal striving for progress and invention. Governments agreed on standards for doing business in the Arctic, incentivizing using best available technologies and innovations to prove decoupling is possible. Ambitious dreams attract talent, and the Arctic has become a magnet for those willing to prove that "impossible" is just fake news.

The global consensus on the need for an economically prosperous and environmentally sustainable Arctic has led to the development of an effective enabling environment for business initiatives. Arctic resources have become more accessible not only physically but also institutionally. Governments incentivize businesses to invest in research and development with an overall vision of creating an Arctic technological platform, just as unique as the Arctic ecosystem.

Businesses have created cutting-edge technologies across the number of industries, including advanced extraction and construction, sustainable energy and shipping, digital technologies, etc. resulting not only in the economic growth in the Arctic but also in a significant reduction of the man-made environmental pressure. The Arctic has become a showcase for decoupling: economic growth does not increase environmental footprint anymore. Arctic GDP has doubled by 2050 and accounts more than US$ 880 billion[120].

The Arctic ecosystem responds slowly but surely. Global warming cannot be stopped in a single area, even one as big as the Arctic, but local measures have helped to slow it down, leaving more time for the habitat to adapt to the new reality. The combination of the regulatory framework, behavioural changes, and the use of advanced technologies has enabled the environment to recover.

Public acceptance of economic activity in the Arctic has significantly increased. Talent moves to the Arctic, attracted by opportunities in innovative and creative industries. Arctic cities grow and prosper, integrating the best available technologies in sustainable construction, energy, transport, as well as social space and community areas. The cities and local communities go beyond technologies by enhancement of the social patterns and practices: now all across the Arctic, the indigenous peoples not only maintain their traditional ways of life, languages and cultures, but they are also participating in civic life and the decision-making processes. The Arctic population has doubled to 9-18 million, from what it was in 2020.

Triple-bottom line implications

The so-called triple bottom line profile (box 12)[121] – is a holistic approach to the integrated impact assessment of each scenario. The overall meaning of the triple bottom line concept[122] is not only that any given course action should be considered in the context of the whole complexity of its outcomes, but the balance in the system is more important than the performance of each separate dimension. In other words, none of the effects can be prioritized over another as this will not be sustainable in the long term. With this in mind, here is how the scenarios look through the prism of the triple bottom line:

  • Dark Ages. This scenario resembles a stalemate in chess, when the game ends because neither player has a safe move open to him. When there is no unity among the stakeholders, and no agreement on the way forward, the Arctic is not a safe place in which to invest, create a family, or migrate to. In chess, stalemate is a draw. But the Dark Ages scenario is not a draw for the Arctic as it leads to slow degradation of the region. While some stakeholders can just walk away, the Arctic cannot.
  • Age of Discovery. In this scenario, the economic dimension is prioritized over the other two – the social and the environmental. This leads to a short-term rise in the Arctic economy but soon brings social and environmental catastrophe, rendering economic activity in the Arctic barely possible. Irresponsible profiteering never works in the long term. In the case of the Arctic, short-termism not only fails its original intention to earn more but also makes a devastating impact on the region that will stay long after the profits have been spent, if not forever.
  • Romanticism. In this scenario, the view of the Arctic as a pleasant TV picture of white snow and "free-range" reindeer without any signs of industry prevails. The ideas of preserving nature and maintaining a traditional living environment for the indigenous peoples is prioritized over economic rationality, and over common sense too. This approach gives a short-term rise of hope for the environmentalists and certain groups of indigenous population but soon produces a disastrous development: without any reason to be there, business withdraws from the Arctic, and no state is capable of funding this biggest-ever nobody's national park. Depopulation, devastation, and deteriorating infrastructure is what the Arctic is left with.
  • Romanticism. In this scenario, the view of the Arctic as a pleasant TV picture of white snow and "free-range" reindeer without any signs of industry prevails. The ideas of preserving nature and maintaining a traditional living environment for the indigenous peoples is prioritized over economic rationality, and over common sense too. This approach gives a short-term rise of hope for the environmentalists and certain groups of indigenous population but soon produces a disastrous development: without any reason to be there, business withdraws from the Arctic, and no state is capable of funding this biggest-ever nobody's national park. Depopulation, devastation, and deteriorating infrastructure is what the Arctic is left with.
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Box12: Regional triple bottom line performance under each scenario

Source: SKOLKOVO Institute for Emerging Market Studies

As said already, prioritizing one dimension over another does not work. In the military, the common sense view is that collective defence protects all, while the individual puts everyone at risk. The same is true of the triple bottom line: pursuing only one dimension without proper consideration for the others jeopardizes the whole ecosystem and therefore threatens each and every aspect of it. The ability to think long-term, and to maintain a balance between all three dimensions, is what is called a 'sustainable mindset' and this is exactly what the Arctic needs from leaders now and in the future.

A new leadership agenda emerges in each and every sector, reflecting the paradigm shift:

  • policymakers will have to work towards creating an enabling environment, incentivizing more responsible investment in the Arctic, instead of trying to find a balance between economic activity and environmental footprint
  • business needs to turn away from the cost reduction imperative and concentrate on creating innovation in technology and business models that together will make it possible to do business in the Arctic sustainably, which means both at the new level of productivity as well as in an environmentally and socially responsible manner
  • NGOs must concentrate on facilitating multi-stakeholder dialogs aimed at finding a balance of interests, rather than lobbying for limiting policies and challenging business activity in the region.

What is more important, is that, just as with the triple bottom line, these paradigm shifts should be synchronized and synergetic. The sustainable future of the Arctic starts with the sustainable thinking of the leaders of today.

Conclusions

The strategic importance of the Arctic is continuing to increase. The complex combination of natural, political, social, economic, and technological factors makes Arctic dynamics unpredictable and uncertain. Why is now different from any other time? There are basically two reasons for this. The first is that accelerating climate change is transforming the Arctic not only as a natural ecosystem but also as a place for doing business. The second is that different players have started to explore the economic potential of the Arctic, and this has turned into a race for Arctic riches, not only without clear rules but even without clear track markings.

With this level of complexity and uncertainty, there is no single future for regional development. Many pathways are possible. Using two sets of critical uncertainties, the quality of the institutional environment and pace of innovation development, four scenarios have been developed. Those scenarios are The Dark Ages, The Age of Discovery, Romanticism, and The Renaissance. These are four different Arctics in aspects such as economic growth and prosperity, the livelihoods of the indigenous peoples and the broader Arctic population, urban development, environmental status, and many others. Putting the distinguishing characteristics of the scenarios into a sustainability perspective, the key observation is that all these possible futures have different triple bottom line strategies at their core. The sustainable strategy is the one where the balance of all three dimensions – economic, social, and environmental – is prioritized and supported with long-term thinking, which can only be achieved as a result of the collaboration of all the stakeholders. When stakeholders fail to agree and the balance is not sustained, what is left are different forms of decline of the Arctic. The scenario approach does not help to predict the future, but it definitely helps to map future development. In a way, scenarios are the road markings for the future. They are meant to help leaders of today and tomorrow navigate towards a better future for the Arctic.

One may say, that the difference between the scenarios reflects the difference in the leaders' mindsets. The sustainable mindset is the one that is centred around the balance of all three dimensions of the triple bottom line, and is long-term in its nature. In many ways, this new way of thinking reflects a paradigm shift: the traditional thinking varies considerably depending on where the leader is coming from – business, policymaking, or environmental/social NGO. Now, leaders in all three sectors will have to share the same sustainable thinking if they are to come to an agreement and ensure a sustainable future for the Arctic. All four scenarios highlight the emerging leadership agenda, and urgent need for action:

  • The need for collaborative innovation between diverse stakeholders, including state and non-state actors, cities and local communities
  • The need to identify and leverage integrated policy innovation opportunities towards balancing economic prosperity, environmental sustainability, and social development in the Arctic region
  • The need to manage the risk of increasing fragmentation in governance, geopolitics and approaches

As noted above, the future cannot be predicted, but it can be influenced. The major use of scenarios is to define strategic choices more sharply and to inform better decision-making. The leaders of today and tomorrow can benefit from using these scenarios to shape policies and develop business strategies that will eventually make the Arctic a better place for people and business. The sustainable future of the Arctic will start with the sustainable thinking of the leaders of today. This report is aimed at inspiring, guiding and supporting leaders in search of a new agenda for the Sustainable Future of the Arctic.