This article originally appeared in The Circle 04.16. Read all Circle issues here.
A report published in January, 2017 by the ECONOR Project provides an overall snapshot of the current Arctic economy. In this preliminary look at the findings, authors Iulie Aslaksen, Solveig Glomsrod and Lars Lindholt discuss the importance of the blue economy to the Arctic.
The goal of the ECONOR projects is to describe the circumpolar economy in terms of macroeconomic development, socio-economic conditions, extractive and renewable natural resources, and studies of the relationship between the market and subsistence activities of Indigenous peoples, as a basis for livelihood and culture.
The ECONOR report, The Economy of the North 2015, published in January 2017, shows that the most important Arctic economic sectors are extraction of natural resources and the public sector. Petroleum and fish are the most important natural resources of the Arctic. For oil and gas extraction, the analysis in the ECONOR report gives future trends to 2050 under a climate policy scenario. For other economic sectors, the ECONOR report does not give future trends, but the present overview and time series form a consistent point of departure for describing scenarios and assessing trends of the economy. Arctic economic trends are highly globalized, driven by global resource demand. To a lesser extent Arctic economic development is regionally driven, but the global resource demand as well as climate change impacts have significant consequences for the regional and local economies. Declining petroleum and mineral prices in recent years have had large impacts on the Arctic economy.
In an example of how climate change can substantially affect the economy of a country, the catch of deep sea prawns in Greenland after 2011 has declined. However, climate change has introduced the mackerel as a new resource in Greenland waters and was seen for the first time in Greenland waters in 2011. In 2014 mackerel made up more than 20 per cent of the total Greenland export income, compensating to some extent the decline in the important shrimp export.
In Alaska, the petroleum industry is the backbone of the economy. But incomes from oil and gas extraction have declined in the last 10 years. In Arctic Russia, petroleum extraction is the largest sector of the economy. The first Russian Arctic offshore oil field, Prirazlomnoye oil field at only 20 meters depth in the Pechora Sea, started production in 2013. Meanwhile, the Yamal LNG plant currently under construction is to start production in 2017 for export to Asia along the Northern sea route and to Europe.
The ECONOR report presents a study of future climate policy impacts on the future potential for petroleum supply from the Arctic regions, based on a global petroleum model. It is assumed a climate policy scenario sufficient to reach the ‘2 degrees C’ scenario, denoted the 450 parts per million (ppm) scenario. The climate policy is represented by a global CO₂-price, initially leading to reduced demand for fossil fuels. The CO₂-price has far stronger effect on coal as it is more carbon- intensive than both oil and gas. The main result of the calculations is that the Arctic may not lose petroleum revenues from a global climate agreement.
The reason is first that a CO₂ price may increase the demand for gas. This can lead to increased gas prices for the Arctic producers. At the same time we find that oil prices do not fall as much as one could expect. The reason is that OPEC may find it profitable to reduce its production to ensure roughly the same price of oil one would have without a climate treaty.
ECONOR contributes to policy-relevant knowledge through its comprehensive knowledge basis for the economy, encompassing the entire economy by presenting macro-economic and socio-economic data, analysis of petroleum, and knowledge on the local economies and subsistence activities of Indigenous peoples and other local people. The knowledge base is useful for describing policy trade-offs between economic and environmental goals, and identifies needs for enhanced regulatory frameworks for resource use. Resource conflicts emerge between petroleum and fisheries, and wild fish stocks and aquaculture. The Economy of the North 2015 brings attention to impacts on the rich blue economy and the challenges involved in securing sustainable use of the resources of the blue economy.
THE ECONOMY OF THE NORTH 2015
The ECONOR III report is produced for the Arctic Council Sustainable Development Working Group (SDWG) and is funded by the Norwegian Ministry of Foreign Affairs and Nordic Council of Ministers, and with financial support from participating institutions and the Arctic Monitoring and Assessment Program (AMAP).
IULIE ASLAKSEN is an economist and senior researcher in the research department of Statistics Norway. She is co-editor of the ECONOR reports.
SOLVEIG GLOMSRØD is an economist and senior researcher at the Center for International Climate and Environmental Research in Oslo. She is the editor of the ECONOR reports.
LARS LINDHOLT is an economist and senior researcher in the research department of Statistics Norway. He is a contributor to the ECONOR reports and a member of the ECONOR network.