Proposal - What Will Success Look Like in the Arctic?

Global cooperation is crucial to ensure that the earth’s northernmost region is developed sustainably.

This article is adapted from “Demystifying the Arctic by Stating the Truths,” a report by the World Economic Forum’s Global Agenda Council on the Arctic. A longer version will appear in the Autumn 2013 issue of strategy+business.

As the ice recedes in the Arctic, talk of industry entering the region to take advantage of its economic opportunities is on the rise. The territories contain significant natural resources, including conventional hydrocarbons, metals, fish, and high-value minerals. At the same time, as the region’s waters become more navigable, the emergence of viable new trans-Arctic shipping routes could bring substantial logistics savings over current routes, and result in reduced global fuel consumption and emissions. But increased passage of the Arctic Ocean and its key waterways is fraught with complexity.

Indeed, the increased commercialization of a pristine region raises everyone’s worst fears. For example, the impact on the local environment of an oil spill or of the northward shift of the world’s fishing fleets remains unknown. And current levels of investment won’t begin to resolve these and other uncertainties. To help governments and businesses address them, the World Economic Forum’s Global Agenda Council on the Arctic has identified the five key challenges:

1. Protection of the environment and its people. The effects of climate change in the Arctic have globally relevant repercussions.  Witness rising sea levels resulting from ice loss on the Greenland ice sheet and altered weather patterns caused by the perturbation of jet streams. These consequences also put local populations at great risk: The region is home to some 4 million people. Because changes in the Arctic are driven primarily by external factors such as world commodity prices and greenhouse gas emissions, future environmental, economic, and social developments in the region depend critically on policy and business decisions. At present, strong disparities exist among national policies on economic development, aboriginal rights, climate change, and environmental protection. Such inequalities heighten the risk to all stakeholders. For example, strong protections to prevent oil spills could be implemented in some but not all Arctic regions, leading to impact outside the protected areas.

2. Insufficient investment for infrastructure. Except for certain areas of Norway and Western Russia, the Arctic region remains vastly underserved by transportation, ports, and other critical infrastructure. This deficiency will continue to limit access and hinder development. Increasing the attractiveness of the Arctic for investment in infrastructure is tied to the need for stable, transparent political, governance, and judicial systems and a consistent, clearly defined regulatory regime. The main issue here is that without clear rules for how to operate, multinationals will hesitate to engage with the region—and if they don’t, there is no need for infrastructure. For example, in the oil, gas, and mining industries, clarity exists around obtaining a license to operate for onshore operations, but not for operations performed offshore, which increases risks to both project success and the environment.

3. Navigation of dangerous waters. As the extent of summer sea ice in the Arctic Ocean continues to lessen, commercial traffic will likely increase. Besides ordinary open-water ships, there will be more moderately strengthened ice breakers. These are treacherous waters, and ice conditions can change rapidly, capturing unsuitable vessels in the ice and resulting in loss of life and serious environmental damage. The prospect of common open-water ships, which make up the vast majority of the global fleet, entering the Arctic Ocean, Northern Sea Route, and Northwest Passage heightens the urgency for a comprehensive International Maritime Organization (IMO) regulatory framework. Such a framework would ensure adequate vessel safety standards, navigation control systems, environmental protections, and search-and-rescue capability.

4. Unresolved governance disagreements. The vast majority of Arctic territories and coastal waters are uncontested and under the jurisdiction of Russia, Finland, Norway, Sweden, Iceland, Denmark (Greenland), Canada, and the United States. Further offshore, much of the central Arctic Ocean has been or will likely be apportioned among under the provisions of Article 76 of the United Nations Convention on the Law of the Sea (UNCLOS). However, some lingering disputes create an atmosphere of uncertainty. For example, the United States has not yet ratified UNCLOS, and it also has overlapping claims with Canada to a small triangle of coastal waters in the Beaufort Sea. Canada considers the Northwest Passage to be a domestic waterway, whereas the U.S. and other countries consider it to be an international strait. Other barriers include a dispute over Hans Island (claimed by both Canada and Greenland) and a “doughnut hole” of high seas between the coastal waters of Russia and Alaska that is excessively fished by international trawlers.

5. A lack of research. The Arctic region’s oceans and landscapes are critically important for global migrations of whales, birds, and fish, yet there is little understanding of how economic development and climate change will affect these populations. Similarly, the effects of thawing permafrost on global methane gas emissions, and of shrinking Arctic snow, sea ice, and glaciers on global sea levels, weather patterns, and fisheries, remain unclear. Informed decision making in the region demands investment in science by both public and private actors, for example, long-term seafloor monitoring and mapping programs, improved computer modeling, and development of new technologies ranging from autonomous sampling platforms to satellite observing systems.

Developing the Arctic will require novel, cooperative solutions. It’s not the northernmost equivalent of the next frontier, waiting to be conquered by big business or governments desperate for resources. Success means finding a balance, which global political and business leaders can accomplish by working together to address these challenges.