As interest in the Arctic grows, so do economic opportunities and the need for people to nurture them.
The opportunities in the Arctic are great. Still, global media and policymakers often write about the region as a final frontier; a frozen, untouched, isolated area with geopolitical tensions rising. More commonly described as a big, bleak, barren tundra, the Arctic is rarely seen as the center of some of the most exciting innovations within the energy, resource development, and blue economies.
Those of us living in the Arctic, however, know that trade and business have long connected the region to the outside world. Walrus ivory from Greenland was sold in England centuries ago, while whale oil from the Bering Sea lit the streets of American cities. Today, the Arctic is part of a global village, connecting major economies via air and sea routes, gas pipelines, and electricity grids.
The Arctic could be the world’s first regional testbed for the green transformation that most societies will need to accelerate
Accelerating global megatrends like urbanization, changing demographics, technological breakthroughs, and climate change are having a significant impact on the Arctic region as elsewhere. But the people of the Arctic have made the nature their home. That is why the explorer Vilhjalmur Stefansson titled his book The Friendly Arctic. If you know what you are doing, the region presents endless opportunities.
The harsh Arctic conditions are indeed challenging to operate in. Distances are vast and the population sparse. There is a strong demand for infrastructure development that is hindered by economies of scale on the one hand and climate change on the other. According to the Intergovernmental Panel on Climate Change, global warming is happening at three times the average rate in the Arctic region, creating a greater sense of urgency for adaptation.
The Arctic could be the world’s first regional testbed for the green transformation that most societies will need to accelerate. Historically, the Arctic has been dependent on hydrocarbons but, at the same time, has access to renewables. Ours is a relatively affluent and geopolitically stable part of the world. All Arctic States are parties to the Paris Agreement with a strong commitment to international cooperation in the region. If a green transformation cannot take place in the Arctic, then it is difficult to see how low- and middle-income countries elsewhere could succeed.
In the short-term future, demographic changes are going to be the main challenge for communities and businesses in the Arctic. The local population is shrinking and rapidly aging because young, educated people are leaving. For decades, the most important resources have been the hydrocarbons in the ground and the fish in the sea. Today, the most critical resources to invest in are our human resources. Without the right skills and competencies, we will not be able to fulfill our potential in this land of opportunities.
The Green Frontier in the Norwegian North
The Arctic region is rich in oil and gas, as well as renewables such as wind, hydro, geothermal, and even solar energy. The latter might not seem like the most obvious choice; however, some northern communities have a lot of sun hours, especially during the polar day period in summer. Old Crow, an isolated village in the Canadian Arctic with neither roads nor grid connections, is one such place. Recently, silence descended for the first time since the 1970s when the solar energy microgrid went online and substituted the incessant drone of diesel-powered generators. The system has a 25-year electricity purchase agreement with ATCO (a large Canadian engineering, logistics, and energy company), reducing the use of diesel generators by 2,000 hours, or 189,000 liters, of diesel fuel annually, equivalent to taking 140 cars off the roads.
In Northern Norway, there is a small town named Berlevåg. During the Second World War, it was burned to the ground as a part of the scorched earth tactics of the time. After the war, the community rebuilt the settlement, focusing on the potential of the fishing industry. In the 1970s, the town’s population peaked at around 1,700 people, but the development of more industrialized, large-scale fishing and the general trend of urbanization affected population numbers. Today, fewer than 900 people are living and working in Berlevåg. Some have predicted the end, but a few passionate locals envision the future of the town as a cutting-edge center for the green revolution. A few years ago, they asked themselves what they had plenty of and what no one could take away from them. The answer was wind: Berlevåg is located on the coast of the Barents Sea, one of the windiest places in Europe.
In 2014, the Raggovidda wind park was built with 15 turbines providing up to 200 GWh of green energy annually. This is eight times more energy than the town needs. Unfortunately, exporting the energy is not an option: no one ever anticipated a small town in the Arctic becoming a renewable energy exporter; the local electrical grid simply does not have the capacity. Berlevåg is aiming for the future.
The municipality owns much of the empty land close to the industrial harbor not far from the recently expanded wind farm. The seaport and associated infrastructure, combined with increased maritime traffic, make Berlevåg ideal for hydrogen production, the expected future fuel of shipping. The factory will produce ammonia for the maritime industry, transforming Svalbard’s energy supply from black to green. At the same time, Berlevåg can utilize the extra heat generated by ammonia production locally to power onshore fish farms and vertical farming.
This small town of Berlevåg has nearly everything it needs to succeed: technology, infrastructure, resources, investments, and customers that are ready to pay. However, it needs to attract a labor force with the right skills and competencies. The townspeople’s ambition is for the younger generation to look to northern Norway for purposeful work as part of the green transition rather than looking for work in other industries in overcrowded cities.
However, new energy sources are not enough to address global megatrends. Food will be a big issue for a growing, global urban population.
Sustainability and the Blue Economy
In 2050, the earth’s population will reach 9.7 billion. In 1950, 30% of people lived in urban areas; that number is forecasted to increase to 66% by 2050. So, even more people will depend on food produced in other parts of the world. According to the Food and Agriculture Organization, fish supply 7% of all protein consumed globally. Luckily, Arctic fisheries have a minimal climate impact, and our sustainably managed fish stocks are in good health.
Oceans have been the backbone of Arctic communities for centuries; that is why we see constant technological developments in the region.
The future of the blue bioeconomy is based on three pillars. It is about catching the fish in a sustainable manner, increasing sustainable seafood consumption, and minimizing seafood waste. Here, another small Arctic village is a frontrunner in innovation. Ísafjörður, a small fishing town in Iceland with 2,700 inhabitants, has become a home base to the pharmaceutical company Kerecis, which produces skin regeneration grafts from cod skin. Kerecis grew its market value to USD 600 million, making cod skin more valuable than cod fillets. Northern Norway has similar examples of start-ups using prawn shells in heart medicine and enzymes from cod liver to develop more sensitive COVID-19 testing equipment.
Seaweed farming is another promising segment within the blue economy in places like the Faroe Islands. Seaweed has multiple applications in animal feed, food, and cosmetics, and it can be used in fertilizers, fuel biomass, and biodegradable packaging – the list goes on. In the last ten years, seaweed cultivation has been widely recognized by both the public sector and impact investors; the number and value of investments and grants have greatly increased.
Oceans have been the backbone of Arctic communities for centuries; that is why we see constant technological developments in the region. In 2021, PolArctic, a small Alaskan start-up, together with the World Wildlife Fund and Nunavut Fisheries Association, took satellite data, studied registrations from past fishing, and interviewed the elders in Nunavut about traditional fishing grounds. Using Machine Learning and Artificial Intelligence, PolArctic can now guide local fishermen to the best fishing habitats for the weather, level of sea ice, and season. Many places in the Arctic are dependent on fishing to sustain their economies. Nunavut is one such place, as is Greenland, where more than 90% of their exports are from fish. Increased revenues in the fishing industry and in the region, however, are not simply the number of fish in the sea.
Royal Greenland, the largest company in Greenland, states that human resources are the key to a long-term sustainable business. The population of Greenland is expected to drop from 56,000 to 48,000 people in the coming years and, with a relatively low level of education locally, it is difficult to develop new industries in the seafood sector, like in Iceland and Norway. Therefore, cross-border collaboration and partnerships with Arctic neighbors are key to the company’s future development. Overcoming the demographic challenges in the Arctic is business-critical, but can be solved by adopting new technologies, learning from peers, and exploring new markets – all of which attract talent.
Ancient Rocks and Modern Technologies
Technological breakthroughs are happening across the Arctic, particularly in the green sector. The extent and pace of technological change is likely to have wide-reaching implications across almost all industries. Our cities will be smarter, and our means of transportation will go electric, but electrification and digitalization require interconnected networks supported by large, energy-hungry data centers. The question is, which energy source will we use to meet our growing energy demands?
Globally, the cost of renewable energy has seen a steady downward trend over the years. Solar and wind energy are now cheaper than ever before, while coastal communities are experimenting with tidal energy in the Arctic. We are also experiencing rapid progress in the battery technology required for energy storage.
According to the EU, global battery demand is expected to increase 14-fold by 2030, driven by the electrification of transportation and the deployment of batteries in electricity grids. Electric vehicles are already setting sales records every year. Part of this battery production will take place in the Arctic, where you can find some of the raw materials needed, renewable energy to fuel production, and easy access to the market.
Northvolt, in northern Sweden, has raised more than 6.5 billion USD in funding from Volkswagen, the European Commission, and Spotify founder Daniel Ek for their lithium-ion plant. The company will produce batteries to power more than a million electric vehicles annually, and thereby acquire at least 25% of the European market share by 2030. Even though they employ more than 2,500 people from more than one hundred countries, Northvolt hopes to add 5,000 more engineers in the coming years. This would mean a 20% population growth in a place that has seen a downward population spiral for years. Likewise, the Swedish government expects that new projects in Norrbotten – its northernmost county – will create at least 20,000 jobs in the public sector, and 10,000 more in the service industry.
In the fight to move away from fossil fuels, mining, an often-overlooked industry, is of great importance for the green transition. The Arctic has the raw materials needed to manufacture products like wind turbines, electric vehicles, and satellites. Battery minerals such as nickel, cobalt, and lithium come from the Arctic, too. The European Commission supports investments in mining in the Arctic in their new updated policy for the region.
Mining in the Arctic has a track record of being responsible and supporting local communities. Luossavaara-Kiirunavaara Aktiebolag (LKAB), a government-owned mining company, has had an iron mine in Northern Sweden for more than 130 years, and they are currently in the process of developing CO2-free iron. Opportunity does not come for free: LKAB expects to invest more than 40 billion euros in this venture, making it the largest private investment in the history of Sweden.
LKAB recently moved parts of the city of Kiruna, where the mine is located. Houses were put on wheels and rolled to a new location to ensure the expansion of the mine. The mine is not there because of the city; the city is there because of the mine. For more than 5,000 people to keep living and working there, the company had to adapt. This benefited the company and the citizens of Kiruna.
Making the Arctic Cool Again
The world changed in March 2020 when the pandemic closed societies and borders. Some sectors were put on an indefinite hiatus while others grew tremendously. The tourism sector has been hit harder than most. In 2020, global international tourism plummeted by 74%.
While the Arctic has always had its appeal, the potential for post-pandemic tourism is great as tourists consider the perils of navigating a crowded Louvre in Paris, or in contrast, the possibilities of trekking in the Arctic wilderness under the Northern Lights. International companies also see potential in the beauty of the Arctic landscapes. For example, Iceland is a well-known shooting location for big-budget Hollywood productions; in the recent James Bond movie, some of the scenes were shot in the Faroe Islands and Norway.
In 2012, the book Exit Faroes described how young people were leaving the country with no plans of coming back. The strategic political focus on tourism has been one of the pieces in the puzzle to reverse the exodus. Tourism has been the catalyst for making “the Faroes cool again,” both internationally and domestically. This has helped facilitate new start-ups in the creative industries – Koks, a two-star Michelin restaurant on one of the 18 islands in the North Atlantic, became one of them. Now the Faroes are experiencing a positive population growth with more young people moving back home, despite the opposite trend seen across the Arctic.
However, by the middle of the 21st century, the Arctic population will increase by only 1 percent, compared to a global population that is expected to swell from 7.4 billion in 2015 to 10 billion in 2055. According to a recent Norwegian study, several municipalities in northernmost Norway will go from having 12,000 inhabitants in 2050 to having only 1,300 by 2100. The government has tried to create incentives to attract young people, but with limited success so far. In Russia, the government has also introduced a series of measures like tax breaks to make the Arctic more attractive to young people and companies. In Sweden, the employment minister has pledged to do “whatever it takes” to get people to move north.
Only a combination of opportunities, created by business development together with investments in key infrastructure, will attract people. Quite simply, we must raise the level of ambition for the region and recruit internationally, just as the seafood and mining industries have been doing for years. Preventing out-migration is not enough. The current population mix across the region sees an increasing number of older people and fewer young people. Therefore, new people from abroad must find the Arctic attractive enough that they want to move there to live and work.
One challenge here is the restrictions on global travel during the COVID-19 crisis. Some parts of the Arctic have lifted the restrictions in critical sectors like construction or energy. In Iceland, tourism is a major earner, accounting for 39% of export revenues. The sector directly contributed 8.6% of GDP in 2017, with more than 30,000 people working in the sector. This alone is also an incentive to open the country; however, the consequences of opening too early can also be fatal in the smaller Arctic settlements. This creates a persistent tension between healthy lives and healthy economies, which are often interdependent.
The Arctic has great potential to be an international, diverse region that attracts people from around the world to both enjoy its unique natural offerings and nurture sustainable economic development to the benefit of all of humankind. However, if the Arctic promise is to be realized, we must invest in its infrastructure.
Intertwined Investments in Human Capital and Infrastructure
In 2015, Guggenheim Partners estimated that the infrastructure deficit in the Arctic is more than 1 trillion USD until 2030. Cash injections are needed to close the digital divide in the Arctic, develop the maritime infrastructure, and ensure people live in adequate housing with access to necessities such as energy and water. Investments in the electricity grid, roads, hospitals, etc., are also needed.
If you want to build a production facility in, for example, Berlin, you buy a plot of land, build your factory, and connect it to the city infrastructure. However, in large parts of the Arctic, you would also have to build the road going to your plant, pay for the water to be connected, and maybe even expand the energy production. In some cases, you would also have to build houses, schools, and hospitals to attract the workforce. Many companies are already making these investments, but more is needed.
In recent years, the thawing of the Arctic ice sheet has shown the urgency of climate change and inspired people to take action for environmental protection. This means that many banks have stopped all loans in the region. It is now more difficult than ever for small start-ups and larger companies to borrow the money needed to make the necessary investments.
Some NGOs and companies have promoted a pledge to stop Arctic transshipments, and in the policy sphere, the European Union has called for an end to oil and gas exploration in the Arctic. However, hampering economic development in the Arctic will not help the region. On the contrary, investments in Arctic technological solutions can mitigate the consequences of rising temperatures and inspire people to take further action in other parts of the world. The international financial community should look more closely at all the nuances in the Arctic, taking the interests of the local population into account. There are good cases out there. The IEA estimates that by 2050, the annual market for wind, solar, and hydrogen producers, as well as battery manufacturers, will reach the size of the current global oil market.
Making the Global Testbed a Reality
If investors decide to see the opportunities in a new Arctic brand, it could help transform the region, just as young people are rethinking work and life – a potential positive effect of the pandemic. Months of battling a global health crisis have changed ways of doing business. A recent Canadian study showed that 59% of young employees plan to significantly change their work and career post-pandemic. The new normal is hybrid work, where you can sit in your cabin in the Arctic while working with your colleagues in San Francisco. However, that would also take large public investments in satellites and connectivity infrastructure, ensuring that the digital divide is closed.
This offers new opportunities for the Arctic. After years of young people leaving the region, they just might come back now.
However, none of this will be possible without a qualified workforce. The public and private sectors should collaborate to develop opportunities for local people. In order to attract international labor, they should support measures to increase quality of life, including education and healthcare programs, physical and digital infrastructure, and so on. The starting point for this green transition is the population of the Arctic – and we have room for more.
Mads Qvist Frederiksen is the director of the Arctic Economic Council (AEC), pan-Arctic business membership organization. AEC has members from more than 10 different countries, spanning all key sectors in the Arctic region. The organization was established by the Arctic Council. Prior to taking on the role as director, Mads Qvist Frederiksen worked in Norway, England, Algeria, Iran and Afghanistan. Today he is based out of Tromsø in northern Norway.
Cover photo: Longyearbyen, Svalbard courtesy Stefán Erlingsson.