Arctic Today
Figure 1: Greenhouse gas emissions trend
Whilst data from 2014 to 2017 suggested global annual emissions of CO2 had approximately stabilized, data from the Global Carbon Project reported a further annual increase of 2.7%, and 0.6% in 2018 and 2019, respectively.
Source: Our World in Data
In this chapter we will revisit key challenges, patterns and trends which historically have affected the regional landscape and will likely remain the strongest factors for Arctic development until 2050, regardless of which development pathway is chosen.
Those factors reflect a wider context, and include the climate crisis, social and economic development, geopolitics, the innovation landscape and an enabling environment. We will also map the key stakeholders who are driving the regional development today to better understand how their interest will change in different scenarios.
Regional landscape
Climate crisis
Over the past decades the world has started to experience a climate crisis driven by an increased volume of the greenhouse gas emissions into the atmosphere. There is a global consensus over the climate change emergency. Almost 97% of scientists believe the climate crisis is caused by human activity. Moreover, more than 190 countries signed a landmark environmental pact to limit global warming, to well below 2°C degrees above pre-industrial levels. In 2016 this so-called Paris Agreement came into force. [2]
. Despite the experts' view that the world community should decrease emissions and cut its impact on the environment, holding warming to 1,5°C degree to avoid significant damage, recent statistics show that greenhouse emissions have not declined yet (figure 1).
Figure 2: Permafrost in the Northern Hemisphere
Source: Nunataryuk project
Climate change poses an urgent and serious threat to traditional ways of life, jeopardizing not only the planet's unique environment, but also the economy. It will affect stability around the globe, causing massive natural disasters, refugee flows and tensions over key resources. There will be many long-lasting impacts of progressive climate change, including increasing temperatures, rising sea levels, droughts, floods and storms. There will also be major impacts on wildlife and ecosystems, as well as political and security risks and risks to human health. [3] Climate change will affect the Arctic too, with the average surface air temperature increasing at twice the rate of the rest of the world. [4] Ice-covered surfaces reflect about 80% of the Sun's energy back into the space, preventing warming. [5] Melting ice in the Arctic is already responsible for the 25% of global warming, causing the so-called albedo-effect as the ice-covered area diminishes. By contrast, the darker surfaces of land and ocean absorb up to 90% of solar energy, thus intensifying global warming. According to the Carbon Brief research, Arctic ice-sheet disintegration and melting permafrost are listed among the nine 'tipping points' which could "push parts of the Earth system into abrupt or irreversible change" [6]
The pace of climate change in the Arctic, and the melting of ice and permafrost, have been largely underestimated. It appears to be happening faster there than anywhere else in the world and having a significant impact on other regions' development. Only in 2007 did scientists first predict that Arctic waters could be ice-free within a century, while recent estimates show it might occur within 20 to 30 years.
On the one hand rising sea levels and changes in climate open up new opportunities for Arctic development, making its natural resources accessible and unlocking the transit potential. But on the other hand, increasingly severe weather events, loss of fish stocks and of unique mammals will profoundly affect the region's ecosystem and the traditional way of life of the indigenous people. Moreover, melting permafrost poses a growing threat to the existing industrial infrastructure and urban environment.
Melting ice and rising sea levels significantly affect the ecosystems of the region, putting more and more land and sea species on the endangered list, and destroying the natural living environment of indigenous peoples of the North. Arctic warming affects indigenous people by restricting their access to subsistence foods, and making it more hazardous to hunt and fish. [7]
The transformation of the Arctic environment by the climate crisis will result in profound changes to the usual habitats of its flora and fauna. Diminishing ice-cover will impact the core of the Arctic food-chain – algae which grow under the sea ice and are consumed by zooplanktons. This is a basic material for the whole food chain for the Polar region, from zooplankton to fish, baleen whales, seals and polar bears. The melting sea ice reduces the volume of algae and zooplankton needed to keep the region's wildlife safe and stable. The effects of climate change can be observed in tundra greening and extreme weather events. In summer 2020, the Arctic suffered unusually intense wildfires compared to other years since 2003. [8]
This is not the only threat that global warming poses to the Arctic. The Arctic ice sheet is critical for mammal migration routes. Getting together in large packs is essential for reproduction and the genetic well-being of polar wolves and foxes. With summers getting longer and with less ice, it becomes harder for them to travel. So they stay separated from each other, which leads to degradation of the population. Stable ice platforms are also very important for polar bears and harp seals. These species use the sea ice-sheets to hunt and live on. Moreover, harp seals give birth only on mounds of snow on sea ice and weakened ice platforms lead to population decline.
According to the WWF Arctic Programme, the population of polar bears will decrease by 30% by 2050. [9] But recent studies show that climate change due to greenhouse gasses poses an even more serious threat. By the end of this century, polar bears could become extinct [10] and be the dinosaurs of our era if greenhouse gas emissions do not decrease. Only those polar bears who live on the Queen Elizabeth Islands will manage to survive. But even if global warming slows down, the ice will still melt, and many groups of bears will begin to experience serious reproductive failure by 2040. [11]
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.
Social development
Scientists usually define the Arctic as the region above the Arctic Circle, an imaginary line that circles the globe at approximately 66° 34' N. [12] The definition of the Arctic used in this report is broader and includes territories designated as Arctic by each Arctic state. For instance, in the Russian Federation the Arctic includes regions as part of the Arctic Zone of the Russian Federation. Arctic societies in the Nordic and Russian Arctic and are experiencing a demographic shift with a decreasing population of children and young adults, which will threaten sustainably functioning and resilient societies in the future [13] . In the Russian Arctic, the transition to a market economy after the collapse of the Soviet Union meant that the cost of Arctic development (based on a planned economy) became unaffordable as the wages and incentives for working there were not available any more. [14] Assessing how well the Arctic regions of Finland, Norway, Sweden and Russia are doing in achieving the three pillars of sustainability (economic, social and environmental), the latest Business Index North [15] report finds that performance is worse on social indicators, and the Arctic areas lag their respective countries in terms of sustainable development.
Arctic communities have disparities in levels of health and education observed across regions and ethnic groups, where health (chronic diseases and mental health) and levels of education attainment are lower on average for the Arctic peoples than the states' national averages. [16]
While social development is affected by migration, trends in population, unemployment and dependency ratios, it is also impacted by the change in the physical environment such as changing sea ice levels, permafrost melting, coastal erosion. These changes lead to the inability to practice subsistence livelihoods, and damage community infrastructure and housing. [17]
Social development is closely linked to economic well-being. The future social development of the Arctic people will depend on the solutions which enable them to break away from "the Arctic paradox", where local and indigenous people do not benefit from economic development. [18] The paradox implies that the Arctic regions have a high growth of GDP per capita, while the level of disposable income per capita is low and poverty rates are considerably higher than the corresponding national averages.
The document "Guidance for responsible investments in the Arctic" [19] outlines major principles that business needs to follow to promote sustainable and equitable economic growth in the region and to enhance community well-being. It includes promoting capacity-building for indigenous people and local communities, creating job opportunities and developing human capital, amongst other things.
Social development involves strategic planning for 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.
Demographic changes
Demographic projections in the Arctic show a very small population increase, in the range of 1%, until 2055. [20] Still, very big regional differences are expected to remain, with some regions having positive and some regions having negative trends. The Arctic is becoming more urbanized and more multicultural. Arctic cities are vulnerable to climate change and require adaptation policies to integrate indigenous and migrant workers.
The population of the Arctic is 4.5 -10 mil people depending on the definition of the Arctic used. The process of urbanization started in the 1950s-1960s, when population growth in the region occurred in urban centres due to both in-migration and natural increase. [21] Big cities during Soviet times were established in close proximity to places where natural resources were extracted. In addition to practical motivations, ideology played an important role in their emergence. [22]
The urbanization of the Arctic reflects its economic structure, where larger shares of population are employed in mining, manufacturing, and the service sector than in agriculture. The Arctic has large mining, forestry, or resource extraction sectors that tend to be concentrated in or near urban areas, or which in turn develop urban areas by their presence. [23] Urban areas in the Arctic grow because of their attractiveness for work, education and cultural life.
Population change in the Arctic has three identifiable patterns:
- growing population in the North American Arctic, Alaska and the three northern territories of Canada due to natural increase, and a growing population in Iceland due to positive net migration
- moderately growing population in Sweden, Finland and Norway
- declining population in the Russian Arctic (box 3)
Box 1: Decline of Russian Arctic population
Population change 1990-2018 in the Arctic regions in absolute numbers
Source: calculated using data from Nordregio[24]
The largest population decrease happened in the Russian Arctic, with 1.7 mil fewer people living there in 2018 than in the 1990s. The break-up of the Soviet Union and the transition to a market economy are the main drivers behind population decline. Russian Arctic cities are much larger than those in other Arctic regions as a result of the Soviet Union's central planning system. The population decline in the Russian part of the Arctic is a result of the adjustment to new economic conditions, through large-scale outmigration. Thus, nearly a quarter of the population and many settlements across the Russian Arctic were closed or abandoned when they became depopulated.
Social development
In future projections to 2055, the population of the Arctic will change little, with a projected increase of just 1%. However, there will be considerable variations in growth rates among the Arctic regions. [25]
Transforming urban environment and sustainability
The population of the Arctic lives predominantly in urban areas, with some regional variations. In total the level of urbanization [26] in the Arctic equalled 67%, with Russia (78%) and Iceland (77%) having the highest level of urbanization and Faroe Islands (26%) and Greenland (40%) having the lowest ones (figure 3).
Source: Zamyatina, N & Goncharov, R, 2019. "Arctic urbanization: resilience in a condition of permanent instability – the case of Russian Arctic cities," Chapters, in Resilience and Urban Disasters, chapter 7, pages 136-153, Edward Elgar Publishing.
The level of urbanization is calculated using urbanization levels according to common criteria (referring only to a city population with more than 5,000 inhabitants)
This urbanization process in the Arctic has been uneven: in North America and Scandinavia, while small settlements tend to lose population, large urban centres such as Anchorage, Whitehorse, Nuuk, Reykjavik, Akureyri, Tromsø, Bodø and Luleå are growing rapidly. [27] Nunavut in Canada, as well as the Faroe Islands, based on a more dispersed economy, are still mainly rural; the other Arctic regions have between two-thirds and three-quarters of their populations residing in urban areas. [28] In Russia, the population declined significantly in Murmansk and Arkhangelsk and continued to grow in cities with expanding oil and gas industries, e.g. Novyi Urengoy, Noyabrsk and Sabetta.
The accelerated urbanization of the Arctic creates significant challenges, i.e. out-migration from rural communities toward larger settlements and urban centres, and increased concentration of the population. Rural depopulation and "brain drain" are among the most visible challenges. A stable population is usually the result of a dynamic balance between large flows of incoming and outgoing migration. The Russian Arctic cities are characterized by a constant "flowing" or "churning" mode of migration as compared to the southern cities, with a predominance of long-distance migration flows above other types of population flow.
In the Arctic, there is also a problem of single-industry towns (mono-towns). [29] These have employment structured around one industry, such as ferrous ore mining, hydrocarbon development, etc. In Russia, 18 such towns are located in the Arctic region. Mono-towns suffer harsh socio-economic consequences of production decline, out-migration, depletion of the mineral base and the environmental crisis. [30] Some solutions for the single-industry town problem in the Arctic include urban environmental improvement and investment promotion for the local business community.
Large cities in the Russian part of the Arctic maintain their population by the large incoming labour flows. This, on the one hand, introduces problems of migrant adaptation; on the other, new knowledge is introduced to these industrial cities, promoting urban resilience and creativity. Urbanism in the Arctic can be viewed in the context of a new phase of industrialization related to extractive industries and a changing geopolitical environment.
Box 2: New Cultural Communities in the Arctic
In the Russian Arctic, there is the phenomenon of "Arctic Islam", which involves large migration flows of workers from the Caucasus and Central Asia. These migrants usually have essential and relatively low-paid jobs, such as street cleaners, workers on building sites, vendors in street kiosks, taxi and bus drivers, and waiters in cafes and restaurants. [31] There is also an emerging Chinese community in the Russian Arctic in such cities as Murmansk, where Chinese citizens have been buying real estate in the recent years. It is mostly connected to the growing interest of Chinese tourists to the region as well as increasing involvement of the Chinese companies in Arctic projects. Arctic communities no longer consist of local and indigenous population but are multicultural with large inflows of migrants. This leads to a blending of different theological traditions and religious practices and creates a new urban reality in the Arctic. In the Scandinavian Arctic, urban centres are multicultural and provide proximity to both culture and nature. [32]
Figure 4: Indigenous and non-indigenous population in the Arctic.
Source: Arctic Human Development Report 2004.
Indigenous people account for 9-10% of the Arctic population. Arctic indigenous people have inhabited the Arctic for thousands of years and have a specific connection to land that they inhabit. Other features, for example distinct language, culture and traditional livelihoods such as reindeer herding, fishing and hunting are characteristics of indigenous peoples in the Arctic. [33]
Almost all of them live today as minorities within the borders of nation-states (figure 4). There are over 40 different ethnic groups living in the Arctic. Only in Greenland is the Inuit population a majority, accounting for 88% of the population. In Canada half of the population in the northern regions is indigenous. In Scandinavia and north Russia, indigenous peoples represent only a small fraction of the population: around 4-5%, whereas Alaska has an indigenous population of around 20%. [34] Arctic indigenous population livelihoods are affected by the effects of climate change and increased industrial activities in the Arctic, while traditional ways of living are being compromised. Melting ice and permafrost limits the possibility of using bioresources as a result of hunting and reindeer herding, fishing, and gathering. Furthermore, the safe movement is impeded when the parameters of ice and weather conditions change significantly. [35]
The urbanization of indigenous peoples started in the 1950s and 1960s, first in the Soviet Union and then in North America and Scandinavia, continuing into the 1990s and 2000s. [36] The most urbanized indigenous peoples are in Greenland, where the Greenlandic Inuit are 85% urbanized, followed by Alaskan natives at 60%, Canadian Inuit at 50%, and Sámi in the three Scandinavian countries at about 36%. [37] In Russia, several trends have appeared: the Nenets remain rural, while Mansy, Komi and Sámi are more urbanized. However, the Nenets are also becoming urbanized, with just 1000 people living in the tundra and engaged in traditional reindeer husbandry. The general trend demonstrates the rapid urbanization of indigenous peoples across all Arctic states.
The negative impacts of urbanization for the indigenous community include: [38]
- transformation of indigenous identity
- disconnection from a traditional subsistence economy
- loss of native languages and traditional ecological knowledge
- social marginalization, unemployment, suicide and alcoholism rates
Recently, there have been some attempts made to take a more holistic view, in which indigenous peoples are seen as part of the city and can benefit from both the traditional and the urban worlds. The aim is to shift perceptions of indigenous peoples from their being seen exclusively as victims. This includes an appreciation of both urban and traditional ways of living for indigenous peoples. In Russia, Nenets living in Yamalo-Nenets cities such as Salekhard consider, for instance, that every young person can choose freely between an urban and a rural way of life, which are both valued equally. Examples of successful ways of creating new indigenous identities include, e.g., young indigenous cultural entrepreneurs in the Arctic cities working with the authorities to create a city "brand" that builds on its indigenous heritage. [39]
The changing patterns of migration and demographics, the consequences of climate change and socio-economic development also affect the future of urban sustainability in the Arctic. The factors that need to be considered are complex and inter-connected, but they include governance and economic development, demographic changes, environmental changes and land use, and changes in ecosystems and ecosystems services. [40]
The most visible effect of climate change in Arctic urban centres is the damage to infrastructure as a result of melting permafrost. In the Russian Arctic, the effect of melting permafrost on infrastructure is especially pronounced since the population is concentrated largely in urban centers located in regions with permafrost (such as Vorkuta, Salekhard, Nadym, Novyi Urengoi, Norilsk, Magadan, and Yakutsk). [41] The design life of the buildings in these cities averages 30-50 years. However, they are usually used for much longer. Climate-induced near-surface permafrost warming, was not anticipated at the time of construction. It can reduce the capacity of frozen ground to support structures and contribute to the corrosion of foundation materials. Already a large number of structural collapses have been reported in Russian Arctic communities. Deterioration of buildings negatively affects the socio-economic life of Arctic urban communities. In Russia alone, thawing permafrost affecting buildings, pipelines, and other infrastructure is estimated to result in an economic loss of $2.3 billion. [42] Thawing permafrost was the most likely reason for one of the largest ecological accidents in the Arctic: in May 2020, an oil tank collapsed near the city of Norilsk, releasing 21,000 tons [43] of oil which leaked into nearby Ambarnaya River, polluting an area of 180,000 sq m. [44]
Furthermore, climate change affects changes in freshwater ice and the hydrological regime. Cities and settlements located in the coastal zone (80% of settlements in the Russian Arctic) become extremely susceptible to floods. New research has identified a phenomenon of "urban heat islands", i.e. centers of warmth surrounded by rings of greening fuelled by human activity. These heat islands trigger significantly faster warming in cities than in rural areas and cause permafrost melting. As much as 80% of runways, roads, and other infrastructure in some parts of the Arctic has already been damaged. [45]
Economic value of the Arctic region
Figure 5: Shares of the Arctic states, by land area, population and GRP, 2012
Source: The Economy of the North 2015, p. 29.
Despite being a remote region, the Arctic is integrated into the world economy. According to the Arctic Human Development Report (AHDR) from 2004, the Arctic economy can be divided into three constituent parts: [46]
- Reservoir of natural resources serving the world market via extractive industries,
- Public sector that is supported by transfer payments from central to regional governments,
- Subsistence economy, i.e. customary use of living resources in activities such as family-based fishing, hunting and animal breeding, which is now inextricably linked with the market economy.
The Arctic Gross Regional Product (GRP) [47] of all Arctic states in 2010 was $ 442.8 billion, which equalled the total GDP of Malaysia. The Arctic's contribution to world output was four times its share of population; the Arctic produced 0.6% of world GDP and had 0.15% of world population (Figure 5). On a per capita basis, Arctic GRP in 2010 was $ 45,360 per person. This was comparable to the United States and greater than most European countries. [48] In real terms, Arctic GRP increased by 42.2% between 2000 and 2010, meaning annual average growth rate of 3.5%. The Arctic Economy grew twice as fast as those of the eight Arctic nations.
At circumpolar level the Arctic regions with 0.1% of the world population generated 0.5% of global Gross Domestic Product (GDP) in 2012. The Arctic covers as much as 8% of the global surface area, however, Arctic states hold different shares of the Arctic in terms of land area, population and GRP.
The Gross Value Added (GVA) is the measure of the value of goods and services produced in an area, industry, or sector of an economy. The GVA at basic prices is the economic output valued at basic prices minus intermediate consumption valued at purchaser's prices. The GVA is linked to the GDP, as both are measures of economic output. The GVA is sector specific, and the GDP is the sum of the GVA from all sectors of economy (including taxes and excluding subsidies). [51]
Source: Nordregio.
Cartographer/GIS Analyst: Shinan Wang
Russia's Arctic area covers slightly more than half of the total Arctic land area. The Russian GRP equalled over 70% of the total Arctic economy, with 70% of the Arctic population living in the Russian part of the Arctic. United States is the second-largest country by GRP contributing over 11%. Canada has the second largest share by land area (29 % of the Arctic surface area) but has disproportionally low population density and economic activity levels.
In terms of GVA [49] per capita in PPP, the variation is high in the Arctic regions, ranging from under €15,000 per person to over €45,000 [50] (figure 6). Northwest territories, Nunavut, Iceland, Svalbard and Yamalo-Nenets Autonomous Okrug are the regions with the highest GVA per capita over €45,000. It is difficult to assess what share of GDP is available in the region for consumption and investment. While GVA per capita indicates economic efficiency, for evaluating human well-being the levels of disposable income per capita are more useful. Much of the income produced in the North leaves the region through rents, taxes, and wages paid to owners of resources in other regions. The structure of the GVA demonstrates that the Arctic economy is dominated by industrial activities such as fishing, mining and quarrying, manufacturing, electricity, gas, steam and air conditioning supply, water supply, sewage, waste management and remedial activities and construction. The second-largest sector is divided between public sector activities (including public administration and defence, education, human health and social work, etc.) and services, including wholesale and retail trade, transport and storage, accommodation, food provision and communication. Financial, real estate, scientific and technical activities, administrative and supportive services as well as agriculture, forestry and fishing contribute to a lesser extent to the GVA of the Arctic regions.
Economic development in the Arctic is often linked to the future of Arctic shipping, e.g. via the Northern Sea Route. Development of the NSR will require substantial investment in icebreakers, search and rescue, communications and safety. The estimated budget for "Comprehensive Long-Haul Infrastructure Modernization and Expansion Plan" would be over $ 9.25 billion. [52] Uncertainty concerning the development of Arctic shipping is due to increased public focus on environmental concerns. The Arctic Shipping Corporate Pledge, initiated by the Ocean Conservancy in 2019, invites businesses and industry to commit themselves to not shipping through the Arctic Ocean. So far, the pledge has been supported by fashion companies (Nike, Bestseller, Columbia, Gap Inc., H&M Group, etc.); and big ocean carriers (CMA CGM, Evergreen, Hapag-Lloyd and Mediterranean Shipping Company). [53]
Box 3: Carbon footprint of LNG production
Source: SKOLKOVO Energy Center
The economic development of the Arctic is impacted by several factors. First, there is no consensus on whether hydrocarbon reserves there should be further explored and exploited, or left untouched. Adherence to the Paris Agreement means a significant reduction of CO2 emissions via the reduced use of hydrocarbons and transitioning to renewable energy sources. Researchers argue that the development of oil and gas resources in the Arctic is incompatible with the efforts to limit average global warming to 2°C.
The carbon footprint of LNG projects in the Arctic is significantly lower than for projects in the US and Australia. Energy transformation and stricter environmental regulations are affecting usage of all fossil fuels. Recently allegations of insufficient environmental safety have been voiced against natural gas. Despite technological advances along the entire production chain, which increase energy efficiency and reduce the carbon footprint, there are significant opportunities to improve the environmental efficiency of LNG production by using external cold, electric drives and low-carbon sources to generate electricity.
In Norway a project was carried out with an installed capacity of 4.3 million tons / year, using electric drives for LNG production. It was also a common technological solution for the Calcasieu LNG project (the US), which includes 18 LNG production lines and the Plaquemines LNG project (the US), which includes 20 lines. [54] Canada is promoting the use of hydroelectric power for LNG production as one of the competitive advantages for green LNG production. For the Shtokman LNG project in Russia experts planned to use nuclear energy for power supply. The project was not commissioned. [55] The ongoing and announced Arctic LNG projects up to 2030 will have a total installed capacity of about 80 million tons per year. On the one hand, climate conditions complicate the implementation of LNG projects, but on the other hand, they also allow to significantly reduce energy costs for LNG production through the use of external cold.
On top of that, current oil prices do not create a sufficient incentive to invest in Arctic oil and gas extraction. Pressures from environmental NGOs and citizens are high. They favour putting a halt to oil and gas extraction in the Arctic. For instance, WWF is demanding that new offshore drilling is kept out of America's Arctic. [56] In Norway, a lawsuit initiated by Greenpeace, Friends of the Earth Norway, the Grandparents Climate Campaign and Young Friends of the Earth against the Norwegian government for issuing new licenses for the Arctic drilling received support from more than half a million Norwegians. [57]
Financing oil and gas projects in the Arctic can be challenging. For instance, the European Investment Bank has declared that it will stop financing fossil fuel energy projects from the end of 2021. [58] The large asset management company, Blackrock, announced in January 2020 that it would exit investments with high environmental risks. Furthermore, some of the biggest banks, such as Morgan Stanley, Goldman Sachs, JP Morgan Chase, Wells Fargo, and Citigroup, have announced that they will not support new financing for Arctic energy projects. [59]
Second, the prospects of the Arctic Ocean becoming a significant international trade artery remain dependent on technological, economic, social, and political factors. Public opinion regarding extractive industries and shipping in the Arctic has been fluctuating in recent years and it remains unclear whether the public debate around these industries will result in increasing or decreasing support.
Finally, the long-discussed diversification of the Arctic economy has not yet materialized and the future pace and scale of the new economy in the Arctic remain open questions.
Technologies and innovation
Several elements of technological and innovation development can be identified that particularly relate to the Arctic: transport technologies and infrastructure, connectivity, space technologies, renewable energy, climate-resistant technologies, level of innovation and R&D in the Arctic, integration of innovations and indigenous knowledge.
The development of transportation is essential in the Arctic for extractive industries, tourism and the service industry. For instance, according to 2019 estimates, Northern Sea Route (NSR) development alone requires $11.7 billion in investment. [60] This is expected to come from the Russian federal budget, from companies and from banks, but the specific investors are not yet known. The International Maritime Organization (IMO) is working on adopting a ban on Heavy Fuel Oil (HFO) in the Arctic by 2021. [61] Hence, vessels operating in Arctic waters will have to be designed with safety in mind, as well as security and environmental risk.
The Arctic requires better solutions for connectivity. Firstly, by closing the digital connectivity gap, Arctic peoples would have affordable connectivity of sufficient quality to participate in today's digital economy, and to have access to digital education and telemedicine. [62] Uncertainty surrounds many connectivity questions, such as the availability of public-private financing models, multiple solutions for connectivity (e.g. fibre, mobile networks etc.), a lack of regulatory clarity, and the scarcity of data on connectivity in the Arctic. Connectivity solutions are needed for the data centres industry which sees the Nordic Arctic regions as attractive because of an efficient renewable electricity system, political stability, access to affordable land, a cool climate and innovative energy solutions. [63] However, the Nordic Arctic regions lack sufficient telecommunications infrastructure capacity and diversity, which is a requirement of data center players. The connectivity issue needs to be solved before the data center value proposition can be fulfilled in the Arctic. [64]
Space technologies can be one part of the technological solution for improving communication in the Arctic. As it stands, high bandwidth communication links are non-existent north of around 80° latitude. At the same time, the research community, tourism, fisheries, resource extraction and search-and-rescue (SAR) teams require reliable communication in the high latitudes. [65] . The challenge results from incomplete land-based infrastructure and a lack of suitable satellite systems. While the lack of coverage in the Arctic area is widely recognized, there are only a few proposed systems which might mitigate this situation, and none are close to realization. For instance, the launch of the first satellite as part of a Russian unique satellite network dedicated to monitoring the Arctic has been postponed to 2021. [66] Grasping future opportunities in the Arctic space domain, in 2016 China established its first overseas land satellite receiving station in the Swedish town of Kiruna. [67] In 2019, it launched the BNU-1 micro satellite (Ice Pathfinder) to track ice drifts and iceberg thaw rates in the Arctic and Antarctic. [68] Norway plans to launch two satellites offering mobile broadband coverage to civilian and military users in the Arctic in late 2022. [69]
The transition to renewable energy sources worldwide is affecting the Arctic by highlighting challenges relevant to the region. The Arctic has two models of power distribution: centralized and distributed. Sweden, Norway, Finland, and some parts of the Russian Arctic are grid-connected to the larger European Union energy network or the Russian National Energy Grid and do not rely on microgrids. The second, distributed, model is present in Alaska, Greenland, the Canadian Arctic, and large portions of the Russian Arctic settlements, but they are not connected to a traditional power grid. Over 1,500 communities with a total population exceeding 1.5 million across the region rely on locally generated power. [70] A large proportion of the population in remote Arctic communities lives in "off-grid settlements" that rely on diesel for their energy needs. While renewable energy in the form of wind, solar, tidal and hydropower energy is abundant in the Arctic, communities there that are "off-grid" face big challenges installing renewable energy infrastructure. The Arctic has been portrayed as the "last frontier for hydrocarbon exploitation". [71] But despite the abundance of hydrocarbons, minerals and bioresources, the Arctic is not a place where exploration and extraction can be conducted using standard methods. Harsh climatic conditions and climate change add to the complexity of technologies that are required in the Arctic.
Climate resistant technologies are vital for the Arctic as it faces the consequences of the climate change in an accelerated manner; there is a need for technologies to build infrastructure resistant to melting permafrost, floods and coastal erosion. Research has identified two measures: non-structural (relocation, land use regulation and soft-armouring approaches such as beach nourishment) and structural (the use of sea walls, dikes, groins, flood-proofing, and storm surge-resistant construction). However, due to the remoteness of Arctic communities, the costs associated with structural changes often make them non-viable. [72]
Arctic communities have low levels of R&D activity, which is one of the major drivers of economic growth in the knowledge-based economy. In northern parts of Norway, Sweden, Finland (apart from North Ostrobothnia) and Russia, the number of R&D staff in the business sector per 1000 people employed, and the number of patent applications to national and European offices, are both considerably lower than their countries' averages. [73] Without investment in R&D and innovative capacity, Arctic regions would fail either to commercialize new knowledge or to become attractive to highly-skilled people.
The integration of innovation and indigenous knowledge will play an important part in the future of Arctic development. The tacit knowledge of indigenous peoples related to traditional practices, institutions, and rituals of the local communities. The integration of innovation and indigenous knowledge will play an important part in the future of Arctic development. The tacit knowledge of indigenous peoples related to traditional practices, institutions, and rituals of the local communities. [74] This has long helped indigenous peoples survive in extreme conditions and adapt to a changing environment. Some models of the effective integration of traditional and indigenous knowledge into governance structures have been demonstrated by hybrid or cooperative forms of administration (e.g. collective ownership of natural resources for the local community). These models include ecosystem management and co-administration. It is, however, uncertain whether these models can be generally accepted and implemented in the Arctic.
Overall, the technologies required for the future development of the Arctic are advanced and require substantial funding and political will for their realization. The lagging position of most Arctic regions and the slow integration of indigenous knowledge will tend to retard the development of a sustainable future for the Arctic.
The Arctic region plays a key role for the global climate, reflecting solar radiation back out into space and acting as a carbon sink. [75] If climate-altering technologies were, as is suggested by theoretical research and modelling, capable of slowing or reversing this vicious circle, It will make the region an area of special interest for technological advancement. The availability and application of new cutting-edge technologies are critical for reducing the pace of climate change. The future of the Arctic region depends on balanced economic, social and environmental development. Moreover, such technological development is essential for connectivity, resource development, shipping, search and rescue, environmental monitoring and disaster response. [76]
Source:** Arctic projects by Harvard; [79] Startups from this region; [80] IT in Arctica: Russian outlook; [81] Marine technologies for Arctic; [82] PMEL: Marine technologies for Arctic; [83] Rosatom: Russian marine technologies for Arctic; [84] Minpromtorg's catalogue of Russian goods for Arctic; [85] Unique Russian robotic vehicle for Arctic; [86] Russian systems of ensure engine ignition; [87] Russian technologies for environmental monitoring of Arctic sea; [88] Penoplex; [89] AWtech [90]
*This table includes fields for technologies rather than a variety of examples of specific Arctic innovations.
** The list of sources includes some specific cases applied for the Arctic context.
Geopolitical landscape
The Arctic has become and will remain a geopolitical playground for a number of national and international actors. The increasing complexity of the geopolitical game defines the security and international relations context of the Arctic.
Shifting international policy contexts and globalization impose new realities on a region which for the decades has been characterized by a high level of geopolitical stability based on common interests in economic growth and decreasing military tensions after the Cold War (box 5). This stability was achieved due to the partial institutionalization of the Arctic, mainly within the Arctic Council (established in 1996) and other international organizations, broadening the pool of the actors, and extending the Arctic agenda beyond resource extraction and exceptional transboundary cooperation to climate change, environment protection, science and technology, culture, etc.
Box 5: Major Stages of Arctic Geopolitics
Source: Lassi Heininen (2018) Arctic Geopolitics from classical to critical approach - importance of immaterial factors. Geography, Environment, Sustainability, Vol.11, No1, p.171-186
DOI-10.24057/2071-9388-2018-11-1-171-186
Even though the Arctic is still one of the most stable regions on earth, its geopolitical environment has been significantly affected by the revival of great power competition. [91] However, the current geopolitical reality is very different from that at during the Cold War. The pace of globalization, the trends for sustainable development, energy security and increasing the role of international organizations, NGOs and other non-conventional actors in international relations has changed the geopolitical approach towards a more critical one. Recent developments show that in a globalized and more interdependent world the so-called "Arctic issue" is no longer a matter of concern only for the Arctic states. Rather: "What happens in the Arctic, doesn't stay there".
These trends have brought forward discussion of the limits of the Arctic Council in addressing the pace of change in the region. Some of the newer ideas include, e.g. creation of an Arctic League as a major regional peace-making institution of the 21st century working with Arctic states, the EU and several Asian states in order to provide an organising framework and the "rules of the game" for peaceful international commerce, transport, travel, science, culture, energy, and people-to-people and environmental relations. [92] There are several reasons why the Arctic geopolitical context is shifting. First of all, the climate crisis and the melting ice are having a disruptive impact worldwide. This issue raises questions not only of environmental protection, but also of food and human security. [93] At the same time, projections of an ice-free Arctic hold out the prospect of significant revenue as the Arctic region is still viewed as a "Storehouse of resources" for the world. Mineral and biological resources will become more accessible, and the strategic position of the region connecting three continents – America, Asia and Europe – will offer new opportunities for extraction and shipping. While the melting ice increases the Arctic's transport potential, "the opening up of what used to be ice-covered territories, shipping lanes and resources has sparked debates over questions of sovereignty and international law, activating the process of submitting territorial claims on the extent of the continental shelf, under the United Nations Commission on the Limits of the Continental Shelf (UNCLOS)". [94] This will make the region a new geopolitical arena over the coming decades, reflecting not only the classical approach of hegemony, sovereignty, exploration and force, but also globalism, technology, environmental and sophisticated power (knowledge, image, civil society).
The Arctic is also increasingly viewed as an area of geopolitical competition between Russia, the US, China, the EU and others. In addition, there is the growing interest of non-regional states in Arctic resources in terms of energy security, concerns over the global climate crisis and enlargement of the Arctic Council. Not only Arctic states have official Arctic strategies and policies. The EU, some European countries, China, Japan, South Korea, Singapore and other countries have published official policies based on their priorities in the Arctic region. Each of them is trying to redefine its geopolitical position in relation to the Arctic region, and have its own definition of the Arctic. [95] Several non-regional actors are self-identifying themselves as Arctic stakeholders in order to establish a legal claim over Arctic resource allocation.
Box 6: Militarization in the Arctic
Enhanced military presence within the Arctic circle sparked a new discourse about the state domination approach and the region's militarization. The militarization of the Russian Arctic territories became a special matter of concern for US military forces. [96] A recent military exercise on Franz Josef Land archipelago, [97] the large-scale military exercises Vostok 2018, [98] the re-opening of military bases [99] and modernization of the icebreaker fleet were seen as a challenge for Arctic security and led to significant changes in US Arctic policy. In a 2019 speech Secretary of State Mike Pompeo pointed out that Russia's actions in the Arctic were illegitimate and could led to a new Cold War. [100] According to the Secretary of State, Canadian sovereignty claims over the Northwest passage in the Arctic was illegitimate as well, as these territories are considered to be international waters in accordance with international law. [101] In order to secure the US national interests in the Arctic and take control of the situation, the Trump Administration adopted a new Memorandum on Safeguarding US National Interests in the Arctic and the Antarctic regions, [102] under which at least three heavy and three medium icebreakers will be built by 2029. The Memorandum suggests "the US look into leasing arrangements while the new fleet is being built". [103] The plan also includes the construction of new support bases: two on the US territory and two more on foreign land. At the same time, the majority of experts presume that the main geopolitical game will be between the United States, Russia, and China, as China's growing activities in the Arctic have become a matter of increasing concern. [104] China has already become one of the major stakeholders in Arctic LNG projects in Russia and it is eager to actively participate in the Northern Sea Route development. Moreover, China has always supported the concept of a Global Arctic as it guarantees access to the resources and potential routes. The US establishment is quite hostile toward Chinese engagement in the Arctic, [105] while the perception of China within the Arctic states differs. Scandinavian countries such as Sweden, Finland, and Iceland adopt more flexible policy towards the involvement of non-regional actors, "emphasising that Arctic governance should remain in the hands of the geographically Arctic states, although they are cautiously inclusive in their attitudes towards China and firmly supportive of the participation of the EU in Arctic affairs. Greenlandic officials perceive the economic involvement of China as an opportunity for greater self-sufficiency and as a stepping-stone towards Greenland's economic autonomy". [106]
The Arctic region is going through a massive change because of global warming, which further drives the debate on the ownership of this territory. The limits of the continental shelves are set at 200 nautical miles (approximately 370 km); therefore, a significant part of the Arctic Ocean remains independent of any state. According to the UNCLOS, states which ratified the treaty are given ten years in which to establish their claims to the outer limits of the continental shelves beyond the baseline of 200 nautical miles by means of submission to the UN Commission on Limits of the Continental Shelf. [107] This applies to the five states fronting the Arctic Ocean: Canada, Denmark, Norway, Russia and the United States. The territory beyond Arctic States' Exclusive Economic Zone is referred to as the high seas of the central Arctic Ocean, that is recognized as global commons, meaning areas and natural resources that are not subject to the national jurisdiction of a particular state but are shared by the international community as a whole. In 2018, Arctic states together with China, Iceland, Japan, South Korea and the EU signed an Agreement to prevent unregulated high seas fisheries in the Central Arctic Ocean. Under the Agreement, the Parties agreed not to engage in commercial fishing activities there for an initial period of 16 years after the Agreement enters into force. [108]
Institutional ecosystem and enabling environment
Apart from the international consensus and global governance, international organizations, national governments and markets have a major impact on introducing special regulatory frameworks, financial institutions, and instruments specifically tailored for Arctic development.
As governments, international bodies and other actors pursue different approaches to Arctic governance, a cohesive approach is needed to address the environmental, economic and social difficulties in transforming the region. The Arctic is undergoing substantial change which on the one hand damages its unique ecosystem and traditional livelihoods, but on the other hand could open up new economic opportunities. Arctic stakeholders need to develop a cohesive enabling environment which will help to address the issues and build the necessary mechanisms for sustainable development in the Arctic.
There are several challenges that could impede the development of an enabling environment in the region:
- Protection of the environment and its people. Climate change has disruptive effects on indigenous and Arctic peoples, destroying their livelihoods and traditional way of life. With increasing economic activity, questions of legal uncertainty arise.
- Lack of infrastructure (except for certain areas of Norway and Western Russia). The Arctic region remains sparsely populated and vastly underserved by transportation, ports, and other critical infrastructure.
- Unresolved territorial claims. The majority of territorial deputies have been settled in accordance with the international law, however melting ice has provoked new claims between eight Arctic states. [109]
- Outmigration and an ageing population (statistics is different for countries and regions).
At the international level, the Arctic Economic Council (AEC) [110] is the body responsible for the creation of a special regulatory framework for responsible business and the facilitation of cross-border cooperation. It is an independent organization that encourages Arctic business-to-business activities and sustainable economic development through sharing best practice, technological solutions, standards, and other information.
The analytical report Business Finance in the Arctic [111] outlines at least 10 international programmes, sponsored by the EU, helping SMEs in the Arctic: the €80 billion Horizon 2020, the EU's largest R&D programme, the EU's €2.3 billion COSME programme, etc. Moreover, at the national level, each Arctic state adopts its own regulations and mechanisms of support embedded in official strategies or created independently. For example, Strategic Investments in Northern Economic Development (SINED) is an economic development programme that strengthens key economic sectors in Northern Canada, or the Alaska Industrial Development and Export Authority (AIDEA) and TESI (Teollisuussijoitus), a state-owned venture capital company that aims to improve the venture capital market in Finland. [112]
However, access to public programmes, credit and loans is challenging in the Arctic due to the absence of financial institutions and comparatively high interest rates. The most crucial problem across the Arctic is to attract investment or gain access to private venture capital. According to experts, a lack of venture capital impedes growth in all Arctic regions.
Another problem is that the Arctic economy remains fragmented. While Scandinavian countries show quite successful examples of building an enabling environment which promotes sustainable growth based on innovative solutions and a northern identity respectful of the environment, the overall Arctic economy remains dependent on extractive industries and does not have coordinated and sophisticated ecosystem-based management systems. Business cooperation in the form of clusters in the Arctic is underdeveloped; the only leader in Norway. The usual model of Public Private Partnership does not fit the region's context. [113] The Nordic countries, though, have more diverse and dynamic economies.
Bioeconomic ventures are already an important part in the economy of the Nordic Arctic, making up 10% of the overall Nordic economy and moving towards 20% in some countries. [114] They are developing creative industries and indigenous cultural businesses, contributing to a globally important platform. As the research states, the Nordic countries successfully engage the business community in developing a solid enabling environment. For example, four countries spend a high percentage of GDP on R&D, and it is business which is responsible for this spending: around 54% in Norway, 65% in Iceland, 67% in Finland to 70% in Sweden. [115]
A well-elaborated and coordinated enabling environment is crucial for sustainable development of the Arctic region.
Stakeholders and diverse interests
Stakeholders and diverse interests
The broadening Arctic agenda and increasing pull of Arctic stakeholders are closely linked with the geopolitical shifts in the region (box 7). Arctic globalization and the uncertainties of international governance and regional development emphasise global concerns about the climate crisis and could provide a basis for international cooperation and geopolitical stability. At the same time, these points are closely connected with a potential race for resources.
Box 7: Stakeholders in the Arctic region
Source: SKOLKOVO Institute for Emerging Market Studies