The New Economy of the Warming Arctic

The Arctic is warming. That is not an assumption, a belief, a theory, or a political stance. That is an empirical fact based on empirical data. Just in 2018, based off the average between 1958 and 2002 the yearly average temperature in the Arctic should have been this, but in reality it was this. One year is not a trend but here was 2017, here was 2016, 2015, 2014, and 2013. In 2017, overall annual Arctic air temperatures were 2.9 degrees Fahrenheit or 1.6 degrees Celsius above average. That may not seem like much but that small difference is like if Paris’ climate changed to that of Istanbul. Humans have lived in the Arctic for tens of thousands of years, it’s far from impossible, but it is difficult. We’re no strangers to living in difficult places—humans survive on islands days away from civilization; in deserts nearly completely devoid of natural resources; and in places like the Arctic where cold and darkness create some of the most rugged conditions on earth. At least some of us seem to enjoy living in tough conditions. Where humans are lazy, in a sense, though, is economically. When there’s an option to get the same for less, we’ll almost always take it. The Arctic is an enormous area with plenty of natural and human resources but it’s also a harsh and isolated place meaning there’s always been the same options for less, at least until now. Traditionally, the Arctic has been far from a center of economic activity. For example, the Canadian territory of Nunavut has a gross domestic product of just $2 billion USD. That means that, despite being the largest province or territory composing 21% of Canada’s land area, Nunavut only makes up 0.13% of the national economy. The same is true elsewhere in the Arctic. Alaska makes up 16% of the US’ land but only 0.27% of its economy. The Finnish region of Lapland makes up 27% of the country’s land but only 2.5% of its economy. In perhaps the most staggering example, Greenland has a physical size larger than that of Mexico and yet its economy is smaller than that of the tiny island country of Aruba. However, its this very desolation, both physically and economically, that’s spurring new Arctic industries. Emptiness is an asset. This space is being filled by those seeking isolation. Tourism has established itself as the first of two major sectors growing in the Arctic. For example, Finland’s Lapland region has seen double digit tourism growth over recent years. This area has particularly benefited from the attention it receives from Europe’s package holiday industry. Particularly in the month leading up to Christmas, charter flights by companies like Thomas Cook and TUI will leave from nearly every UK airport to far north Lapland airports like Kittilä, Rovaniemi, and Ivalo. Tourists come to visit destinations like Santa Claus Village, an amusement park that bills itself as the home of Santa, as well as engaging in outdoors activities such as snowmobiling, dogsledding, and skiing. With the relative ease of visiting these destinations via direct flights from destinations around Europe and especially the UK, package tour companies even sell day-trips to the Arctic. One flies out from somewhere like London in the morning, visits Santa Claus Village, and flies back in the evening. Of course, this tourism industry, despite its rapid growth, has its shortcomings. About 44% of all yearly arrivals happen in December and January making it highly seasonal so the region has put efforts into attracting more spring, summer, and fall visitors. Lapland has nonetheless decided that tourism is likely its most promising driver of growth so it has placed this industry at the forefront of its economic development efforts. This promise of tourism has been identified by other Arctic areas, as well. Visits are increasing steadily in Alaska, the Yukon, the Northwest Territories, Nunavut, Svalbard, it’s tough to find an Arctic region where tourism isn't growing. While at a much smaller scale than places like Alaska or Lapland, Greenland has made moderately successful efforts to expand tourism as well. It has seen healthy growth rates from 181,000 nights stayed by tourists 20 years ago to 263,000 today. Like many places in the Arctic, though, it suffers from accessibility issues. It’s just hard to get to Greenland. There are really only two ways to travel there from the outside world—via the three hour turboprop flight from Reykjavik or the four hour jet flight from Copenhagen. Both options are expensive with the flight from Reykjavik or Copenhagen to Nuuk, Greenland’s capital, costing around, at best, $800. There are no day trips to Greenland. This is part of the reason why much of the growth in tourism both in Greenland and the rest of the Arctic uses another means of transport—cruise ships. In another post we’ve covered how the warming of the arctic is melting sea-ice and opening up new maritime routes. This is making it far easier for large cruise ships to sail through Arctic waters into small northern towns. Now, Arctic cruises have happened for decades to a certain extent but in the past they were always done by ships like this—small expedition style vessels with strengthened hulls to withstand ice. In 2016, though, the beast of Arctic cruises—the northwest passage route through the Canadian archipelago from the Pacific to the Atlantic—was completed by this ship—the Crystal Serenity. Thanks to the lower ice levels, it’s now possible to sail large, traditional ships through this route. The Crystal Serenity is a regular cruise ship built with a regular hull just like every other cruise ship. Unlike the smaller ships of before, this one carried 1,000 passengers through the high Arctic in comfort with onboard restaurants, a spa, theatre, casino, and more. When making voyages like this, ships typically make stops in some of the tiny Alaskan, Canadian, and Greenlandic towns along the route. One of the most popular stops is the town of Pond Inlet. Normally the only way in here is via the three hour flight from Iqaluit that costs well over $1,000 roundtrip but a few times a year tourists just wake up a couple hundred feet off its shore. Only 1,600 people live in Pond Inlet and yet in 2018 eighteen cruise ships stopped in the town carrying over 3,200 passengers. That’s up from ten ships in 2015, nine in 2016, and thirteen in 2017. For a small town of 1,600, especially one like Pond Inlet with a 22% unemployment rate, the significance of thousands of the kind of tourists willing to pay tens of thousands for an Arctic cruise visiting is enormous. The local governments runs programs to help develop businesses to cater to cruise guests, stores stock up on products to sell to visitors, and dozens gain temporary employment to help coordinate the tourist’s shore visits. Then, on a rapid-fire basis in August and early September, the only time period when the northwest passage is navigable, ships show up just off the coast of Pond Inlet and dozens of other northern Canadian and Alaskan towns every few days. The economic benefit of these visits is indisputable—Pond Inlet earned $250,000 in docking fees in 2018 in addition to the benefit local businesses and employees received. It’s not all good news, though. Due to the enormous price of shipping goods to Arctic towns like Pond Inlet, most of the indigenous residents hunt whale, seal, caribou, and other indigenous animals to feed their families. There’s little hard research on its effect yet, but many are concerned about these large ships driving away animals and changing hunting grounds. This is in addition to the effect climate change itself is already having. There are also some concerned about poorer air quality from ship exhaust, pollution from ship discharge, for the safety of passengers in an emergency considering the limited search and rescue capability, and with the preservation of these local cultures. Just like the nature around them, the isolation of these towns has kept the traditions and customs of these communities alive in the modern era and one can imagine what it’s like to have 1,000 tourists suddenly show up in a town of 1,600 that’s used to having, at most, a few dozen outsiders there at a time. The Arctic wants economic development, but they don’t want these towns to turn into tourist destinations. Most want the cruise ships to come, but they also want to keep the surroundings unspoiled. One comes at the cost of the other so it’s all just a balancing act of interests. There are, though, more heavily weighted scales balancing the economy and the environment. According to estimates, this area, the Arctic, holds 13% of the world’s undiscovered oil. That represents 90 billion barrels which, at current prices, are worth more than $4 trillion. The thing is, it doesn’t really make sense to drill in the Arctic right now. That’s because, in the Arctic, to drill that barrel of oil which, in January, 2019, is selling for $46, it costs about $78. That’s compared to costs as low as $29 per barrel with onshore drilling in the Middle East. Whereas in the Middle East all you have to do is build an oil rig, in the Arctic, where there’s limited infrastructure, for offshore drilling, one has to build a rig, get icebreaker ships, establish a port, set up a transportation and supply network, and more. In some ways, therefore, Arctic ice melt is helping reduce these costs as it’s easier for ships to move around both to explore for oil and serve rigs. In other ways, though, this is adding difficulties as less ice leads to larger waves which require bigger, more expensive boats to navigate which sometimes require dredging in the shallow waters of some oil-rich locations. Right now, Arctic oil drilling is sort-of in a holding pattern until oil prices increase or drilling costs decrease enough for it to become economically viable. As a whole, though, in the long-term, Arctic warming decreases cost for the oil and gas industry as it makes the area look and act more like the cheaper and warmer south. The economic impact for other industries is more of a mixed bag, though. For example, fishing represents a large proportion of the current Arctic economy and, while some species of fish will grow in number due to warmer waters others will slowly disappear. In mining, the opening of sea routes will make transportation cheaper but the industry actually benefits from having the frozen, permafrost land which is disappearing since it gives a stable platform for equipment and therefore makes set-up less expensive. In fact, land transportation infrastructure in general, including airports, is expected to deteriorate rapidly as permafrost melts and land becomes less stable. The tourism industry, which does benefit from the easier access and increased activity in the Arctic, suffers too from Arctic warming. In November, 2018, Lapland lacked any snow due to unseasonably high temperatures which led to mass trip cancellations by tourists who booked their trips to see the traditionally snowy Arctic. Tourists come for the winter weather so a future without snow in the region is potentially a future without tourism in Lapland. In addition, the pristine natural environment is the asset of the Arctic tourism industry so an Arctic without that pristine natural environment is one without its tourism industry. Even ignoring the irreversible, disastrous consequences the warming of the Arctic is already having on polar bears and caribou and fish and walruses and reindeer and all the other native Arctic species, this circle is home to four million people. The Arctic plus a few more degrees is an Arctic that has fundamentally changed the way these four million people live and work and that’s an Arctic that may no longer be truly home to them. The people, animals, and environment of the Arctic, in a metaphorical sense, are situated between two, massive, slow-moving icebergs. One is the power of climate change and the other is the the power of the economy. Climate change could possibly be slowed or stopped or reversed but only with great effort by more than just the people of the Arctic. On the other side, the power of economic pushes and pulls is perhaps just as difficult to stop. If it makes economic sense for industries to be in the Arctic, they’re almost certainly going to be in the Arctic even if it means environmental ruin. These two massive, slow-moving icebergs are on their collision course with the Arctic already and, it might just be too late to stop them. The physical, economic, and social landscape of the Arctic is going to change. This might be a story without a happy ending. The only positive note to end on is that, while riding the sinking ship, there’s at least a chance to make money on the way down.