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Balancing Profitability and Environmental Protection

Balancing Profitability and Environmental Protection

August 24, 2017

By Ritikaa Iyer

Modernization has often come slower to the Arctic than to the rest of the world. The region’s geography, harsh climate, and higher energy and transportation costs have made the development of infrastructure, health care, and education challenges. For example, the 2017 Arctic Economic Council report on an “Interconnected Arctic” stated that while over 99 percent of Canadian households had internet access, only 27 percent of households in rural Nunavut had broadband. With a rising population above the Arctic Circle, it is important now more than ever to bridge the development gap in the region. Oil and gas and connectivity can bring in business and raise standards of living, but the organizations and governments launching such initiatives must measure the viability of their projects against potential environmental drawbacks.

In 2014, the Arctic Council established the Arctic Economic Council, an independent organization, to facilitate responsible business growth. Rising temperatures and melting ice caps have shifted focus toward new possibilities for economic development. The AEC’s goal is to take advantage of the warming climate and to improve the quality of life for the people of the Arctic, while adhering to the Council’s environmental protection agenda.

“[The priorities] are bound together by climate change,” said Ambassador Aleksi Harkonen, chair of the Senior Arctic Officials, in a recent interview. “Climate change is something that will affect everything that is done in the Arctic region, and it should be visible in all the activities of the Council and its working groups.”

Finland, the new chair of the Arctic Council, has four priorities: environmental protection, connectivity, meteorological cooperation, and education. The AEC has established working groups to address these priorities: responsible resource development, maritime transportation, telecommunications, and Arctic stewardship. One of the major initiatives outlined is to advocate for “solutions and innovative ideas for long-term sustainable energy solutions.”

Oil and Gas

The Arctic is estimated to hold 13 percent of the world’s oil and 33 percent of the world’s gas. While the future of oil as a source of energy is uncertain due to the Paris climate agreement, dropping oil prices, and increasing demand for renewable energy, exploratory drilling has persisted. Earlier this year in the Nanushuk region of Alaska, Repsol and Armstrong Energy found 1.2 billion barrels of recoverable light oil—the largest U.S. onshore discovery in three decades. This June, Norway’s ministry of petroleum and energy issued 102 drilling licenses in the Arctic—nine of which are located in the Norwegian Sea and 93 in the Barents Sea. Statoil, a Norwegian offshore drilling company, was awarded 29 of these production licenses on the Norwegian continental shelf and was recently accepted as AEC’s first Northern Partner. This designation can be granted to large businesses based in an Arctic state, allowing them to participate in the AEC’s discussions on circumpolar development.

While most firms intend to reduce capital investment in offshore drilling, Statoil is one of the few increasing its offshore exploration projects. The company’s plan to drill five wells in the Norwegian sector of the Barents Sea has drawn criticism from the environmental group Greenpeace. It is the first time in 20 years that the Norwegian government has opened a new oil frontier in the Arctic.

Statoil’s plan seems to contradict the AEC’s goal to promote development while also ensuring the safety and future of the inhabitants of the region. Concerns about the environmental impact of offshore drilling are clear—the oil spreads across the ocean, from plankton and algae to aquatic animals and humans. Oil pollution results not only from oil spills but also the routine process of extraction. Birds can ingest contaminated organisms, or absorb oil sheen into their feathers, affecting their buoyancy and insulation. These toxic chemicals can also reach human inhabitants who consume infected marine wildlife.

The only way to prevent an oil spill would be to avoid drilling altogether. Though some companies contend that another potential oil spill is less likely, as Valerie Cleland argues, the U.S. still lacks the infrastructure and research needed to effectively deal with such an event. The unsuccessful responses to the Exxon Valdez spill in 1989 and the Deepwater Horizon spill in 2010 demonstrate that new technology has not significantly improved our capacity to clear away a massive oil slick, and the cost of cleanup could wipe out the economic gains.

The AEC looks to strike a balance between profitability and environmental protection, yet its agreement with Statoil seems to undermine its goal regarding sustainability and climate protection. The reason for propagating oil and gas exploitation is not yet clear—Statoil was only accepted last month, on June 27. As of now, Statoil is keen on continuing its exploratory drilling, and the AEC has not commented on the company’s plan. Exploration is profitable and might provide funding for the AEC to invest in other projects. But a successful business venture could come at the cost of the environment.


While the oil industry remains a source of contention, promoting internet connectivity in the Arctic is seen as a step toward development. The AEC and the Finnish chairmanship want to push forward an “Interconnected Arctic” as a way to bridge the development gap in regions like Nunavut. As broadband usage increases across the world, communities without access will become even more isolated. Yet the high costs associated with broadband usage—the infrastructure, the physical capital, and the transportation costs—hinder progress. Unlike oil, connectivity will have long-term, positive benefits, but the short-term costs will outweigh the short-term benefits.

According to the 2015 Human Development Report on the Arctic, while there has been success laying cables between Greenland and Canada, the region still needs “more connectivity through information and communication systems, and expanded global trade networks.” But it is difficult to establish this physical infrastructure due to the short window when cable installation is possible—the Arctic is only ice-free three months of the year, and even then, ice can block ships from entering Northwest Passage.

In addition to that challenge, the 2017 AEC report points to underdeveloped investment models, inadequate satellite coverage, and a lack of a comprehensive strategy for connecting all Arctic communities to the rest of the world. The Fairbanks Declaration at the 2017 Arctic Council ministerial meeting emphasized the importance of improving telecommunications and decided to establish a task force to work with the AEC and the telecommunications industry to encourage infrastructure development. The task force’s mandate involves emphasizing sustainable solutions, and it is set to report its progress in 2019.

The AEC faces a clear tradeoff in both oil exploration opportunities and connectivity development. With oil, there is concern about the safety of the projects, and with connectivity, there is a concern about the speed of progress. Working groups in infrastructure, sustainability, and connectivity are positive steps, but over the next few years, we must carefully watch the progress of the AEC’s ventures to ensure that they do not compromise the safety of the Arctic and its people.



Ritikaa Iyer is an editorial assistant at World Policy Journal.

This article first appeared on the World Policy Institute website.