by Dan Vermeer, Associate Professor of the Practice and Executive Director, EDGE
For most of us, the Arctic is a distant region of ice, polar bears, and scientific expeditions, but rarely a focus of our attention. The extreme conditions and remoteness of the Arctic mean that few of us have any firsthand experience of the region.
In June 2023, I visited Tromsø, Norway, a city of 77,000 people located around 200 miles north of the Arctic Circle. Light snow fell as I left the airport and the midnight sun was hidden behind a thick gray overcast sky. Despite its size and location, Tromsø is surprisingly dynamic, with an important regional university, great food and culture scene, and lots of opportunities to get outdoors for hiking, biking, fishing, or exploring the fjords. It also is home to many regional institutions, including the Arctic Council, Arctic Economic Council, Norwegian Polar Institute, Arctic Frontiers, and others. I spent a couple of days meeting with local officials and academics, exploring what the future may hold for this rapidly changing region.
The purpose of my visit was to lay the groundwork for a new course I am planning for May 2024, focusing on climate and sustainability in the Nordic countries. The structure of the course will be organized around the concept of “3 cities, 3 wicked problems”. In Copenhagen, we will study the efforts of the European Union to facilitate a “green transition”. In Oslo, we will study the innovation ecosystem of ocean-related businesses, where scientists, companies, investors, and entrepreneurs are creating new approaches to protect and sustainably use the ocean. In Tromsø, we will explore the challenges and opportunities of a rapidly changing Arctic.
In my conversations with Tromsø leaders, I was struck by how central the Arctic is to many urgent global challenges, including understanding climate change impacts, geopolitics, oil & gas and mining, indigenous communities, and the future of global trade routes.
A rapidly changing landscape, due to climate change
Research shows that the Arctic has warmed nearly four times faster than the rest of the world over the past 40 years; on average, the Arctic is around 3℃ warmer than it was in 1980. This dynamic is driven in part by melting sea ice, which freezes ocean water in winter to form a thin ice layer (between 1 and 5 meters), which then partially melts in the summer. When frozen, the sea ice supports a bright layer of snow which reflects approximately 85% of incoming solar radiation. When sea ice melts, the opposite occurs—dark ocean water absorbs around 90% of solar radiation. As climate change causes sea ice to melt faster and earlier in the spring, absorption rates increase, creating a positive feedback loop where ocean warming amplifies sea ice melt, referred to as polar amplification. Between 1979 and 2021, Arctic summer sea ice extent decreased by more than 31,000 square miles, about the size of South Carolina, and is receding 13% per decade.
The Arctic is also central to the planet’s changing climate due to the long-term frozen layer of the Earth’s surface called permafrost, which sequesters large quantities of organic matter. As temperatures rise across the Arctic, more and more permafrost thaws each summer, increasing biological activity in the active layer and resulting in the release of carbon into the atmosphere. Arctic permafrost contains enough carbon that, if released, it could increase global mean temperatures by more than 3℃. This feedback loop is a potential climate tipping point where warming cycles trigger more carbon release, resulting in even more and faster warming.
Finally, another potentially disastrous climate feedback loop is ice sheet collapse. The Greenland ice sheet is the largest ice mass in the northern hemisphere, containing enough water volume to raise global sea levels by 25 feet if melted completely. When the amount of melting at the surface of an ice cap exceeds the rate of winter snow accumulation, it will lose mass and its surface will sink, quickening the pace of melting as it is exposed at lower and warmer elevations. This feedback loop could be triggered in Greenland at around 4.5℃ above pre-industrial levels—increasingly likely given the current pace of Arctic warming.
The accelerated pace of climate change in polar regions, and the potential for tipping points, has both regional and global implications. Across the Arctic, stresses on ecosystems, biodiversity, and infrastructure are growing fast and leading to greater costs and disruptions to society and economic activity. For example, the changing Arctic climate disrupts biodiversity, affecting iconic species such as polar bears, walruses, and Arctic seabirds. The alterations in food chains can lead to cascading effects on the entire Arctic ecosystem.
Globally, climate impacts in the Arctic are driving changes in sea levels, storm activity, currents, and other global patterns. It is no longer possible to consider these as remote regional concerns; countries and companies will need to invest more in understanding these trends, and anticipating the shocks that may emerge due to these changes.
A race for resources and territory
In recent years, the Arctic Circle has become a crucial site for geopolitical activity with enormous stakes. Due to its changing climate and its location, the Arctic is a key stage for global competition and could become an arena for great power conflict in the future. As the Arctic’s polar ice caps melt, nations are engaging in a modern gold rush over the region’s territory, resources, and strategic position. The most important of these resources are minerals, fish stocks, oil and gas reserves, and new shipping lanes. One consequence of the rapidly disappearing ice caps is that there is now more unclaimed ocean and land territory that could supply more resources and access to lucrative trade routes.
In particular, the United States, Russia, and China are increasingly competing in the region to project military supremacy and control since the Arctic sits at a critical position between North America and Eurasia. In 2007, Russia placed a Russian flag at the base of the North Pole, about 4,200 meters below sea level, attempting to claim the vast resources that may be found in the region. More recently, media has reported evidence of Russian submarines navigating under the ice at the North Pole, and Americans sending surveillance planes to assess rapidly evolving security threats.
Russia is also building a string of new bases in northern coastal settlements, and military exercises by NATO and Russia are becoming increasingly routine in Arctic areas as both sides expand their icebreaker fleets, a key to exerting military influence in Arctic waters.
More recently, China has made significant moves in the region, despite their territory not being in the Arctic. For both economic and political reasons, China is positioning itself as an important Arctic player, bringing investment, military presence, and political influence. This is driven largely by China’s massive demand for energy and raw materials that far surpasses the country’s domestic supply. In this sense, the dynamics of the Arctic are animated by political and economic forces that extend globally, and are not limited to the actors that are closest geographically to the region.
Implications for oil & gas and mining
The Arctic has an estimated 90 billion barrels of oil and 1,700 trillion cubic feet of natural gas, equaling about 22 percent of the world’s reserves, and matching all of Russia’s oil reserves and three times as much as those of the United States. The competition in the Arctic is driven especially by nations’ desire for natural gas, which provides almost a quarter of all global energy usage. Most natural gas supplies around the world have already been explored and exploited, but the Arctic presents a vast untapped reserve over which nations are vying for control.
The Arctic also holds large quantities of minerals, including phosphate, bauxite, iron ore, copper, nickel, and diamond. Each of these minerals are critical inputs to much of our infrastructure, many of our products, and to the fast-growing market for clean energy—solar panels, wind farms, batteries, etc. There are mines in the Arctic that contain more than 700 different minerals, and as a former US official noted, the Arctic contains “13 percent of the world’s undiscovered oil, 30 percent of its undiscovered gas and an abundance of uranium, rare earth minerals, gold and diamonds, <and> fisheries galore”. Competition in these markets will be powerfully shaped by reliable access to ever-growing supplies of these resources, placing the Arctic’s mineral wealth at the center of the global economy.
Preserving indigenous culture
The Arctic is home to around four million indigenous people from over 40 ethnic groups, a population constituting about 10% of the region’s total inhabitants. The indigenous populations are especially affected by environmental changes in the region, especially since many of them rely on the Arctic ecosystem for employment, food supply, and cultural value. Rapid changes in the Arctic can have significant impacts on their rights to use land and sea, contaminants, land use, biodiversity, and climate change. For example, while accelerated ice melting may improve access to resources and economic development in the short-term, these changes may endanger the traditions and lifestyles of indigenous peoples who may have different priorities and practices than non-native populations.
In 2021, indigenous rights emerged as a critical national issue when Norway’s Supreme Court ruled in favor of the indigenous Sami population in a case against a large wind farm in central-west Norway. The Court agreed with members of the Sami who argued that the wind farm infringed on their traditional reindeer grazing lands. The case remains unresolved, though protests have disrupted the farm’s operations. In any case, the rights of diverse stakeholders will inevitably play a greater role in business decisions in the future.
The future of global trade routes
Arctic ice is thinning at an alarming rate, and studies predict that the Northwest Passage could be open for large parts of the summer in as little as 15 years. The reality of routine trans-Arctic trade could come sooner than expected, as forecasts suggest the Arctic Ocean will be ice-free during the summer as early as 2040. Two new shipping routes, the Northern Sea Route, which runs along Russia’s north coast, and the Northwest Passage, which threads through Canada’s northern islands, are already under development. These shortcuts could reduce the distance between Europe and Asia by up to 40 percent. With 90 percent of world trade being moved by sea, even a limited uptick in their use could have a significant effect on global economics.
Lessons for business leaders
The Arctic is no longer isolated and overlooked; it is now at the center of several urgent global tensions and challenges. These include climate change, sea level rise, the Russia-Ukraine conflict, new shipping lanes, indigenous rights, renewable energy, and mining, oil, and gas exploration. Addressing these strategic issues requires the active involvement of governments, international organizations, indigenous communities, business, and other stakeholders to promote sustainable development and safeguard the Arctic’s unique environment and resources.
Why should business leaders—current and future—pay attention to the Arctic? In the wake of a global pandemic and the ongoing chaos of a land war between Russia and Ukraine, it should be obvious that global trends and events can have dramatic effects on every part of society, including business. Understanding the Arctic can help leaders anticipate emerging risks, including non-linear changes in the climate, changing relations between global powers, evolving trade routes, and new constraints on raw materials. There are also attractive economic opportunities for new businesses to participate in the development of the region.
However, I also believe that business leaders must be active partners in shaping a positive future for the Arctic. Working with other stakeholders, they can help to balance the potential benefits of economic development with the real threats to the region’s ecosystems and inhabitants. My hope is that students in my Nordic GATE class will gain a new appreciation for the Arctic and its global importance and identify tangible ways to steward the Arctic global commons.