Showing posts with label Norway. Show all posts
Showing posts with label Norway. Show all posts

Towards an Active Role for the EU in the Arctic?




This excerpt is part of the journal article “The European Union’s Gateways to the Arctic”, which was published in European Foreign Affairs Review 19, no. 1 (2014), pages 101–120. The full article, which is available only via subscription, can be downloaded here.

By Kathrin Keil and Andreas Raspotnik The European Union (EU) is increasingly depicted as an actor with a growing interest towards the Arctic region. In order to shed light on the various possibilities for the EU’s involvement in Arctic affairs, the article aims to have a close look at potential EU ‘gateways’ to the Arctic, subdivided into geographical-institutional and policy links, and their logical interaction. The former aspect looks at the historical, institutional, and legal links between the EU and the three Arctic actors Norway, Iceland, and Greenland. The latter examines concrete steps of cooperation between the EU and these countries in selected, Arctic-relevant policy areas. These include the challenges of environmental protection in general and climate change and sustainable development in particular, and the possibilities of benefitting from newly available Arctic resources such as oil and gas, shipping routes and fishing grounds.

The article highlights different ways of explaining EU interest in the Arctic. One resorts to geo-strategic reasoning, pointing to the EU’s aim to increase or extend its influence and (normative) power to new, emerging regions like the Arctic, which may be of strategic importance in the future, and its grip on important commodities like energy and fish resources. Another, more geo-economicand institutional view, is that the EU reacts to processes of interdependence and globalization, which is especially prevalent in the area of climate change and resources, and aims to pursue its interest though involvement in relevant institutions. Finally, one could argue that the EU has a different understanding or conceptual narrative about the Arctic region. Instead of viewing the Arctic as not more than the sum of national, territorially fragmented nation-states, the EU sees a complex region with effects on the entire planet and demands common and cooperative responses due to shared responsibilities, which could be described as a geo-ecological viewpoint. The combination of the EU’s undoubtedly strong institutional capacities, the weight of its policy competences, its economic power and environmental effect on the region, and its political ties with Arctic states, point to a mix of geo-economic and geo-ecological footholds as the most promising approach to pursue its aim to become a relevant actor in the Arctic.

The article concludes that while the broad reasoning for EU involvement in the Arctic appears conclusive, the concrete approach the EU has taken so far to substantiate its Arctic role is rather elusive. Most importantly, it remains open why an overarching EU-Arctic Policy is necessary in order to substantiate the EU’s policy aims in the Arctic, especially against the background of the strong bilateral and regional ties that the Union already has with various Arctic states. It would seem more appropriate to speak of single EU-Arctic policies. But also here the question remains why a new and overarching EU-Arctic approach is at all necessary and why the existent bilateral and multilateral cooperation agreements with their foci on energy, sustainable development, climate change, environmental protection, transport or infrastructure should not rather be further developed to include an Arctic dimension where appropriate and where this has not happened yet.


Arctic Analysis: Taxes and Arctic Resource Development




By Kevin Casey Two recent developments have called attention to the role that taxation plays in oil and gas exploration and development in the Arctic. First came announcements by BP and ConocoPhillips of significant new investments in Alaska’s North Slope in response to the state’s recent reduction in oil taxes.[1] Second came the decision by Statoil to delay its planned investment in the Johan Castberg field in the Barents Sea after the Norwegian government announced an increase in the tax rate on oil and gas producers.[2] The prevailing interpretation of these events, plain to see in the headlines, is that tax increases stifle investment while tax decreases encourage development and exploration. While these maxims are partly true, a closer look at the similarities and differences between these two examples reveals that taxation is only one of many important factors that shape investment decisions such as these in the Arctic. While taxation will continue to play an important role in shaping Arctic energy development, this role should not be exaggerated.

First, let’s look at the Alaskan example. On May 21 Alaska Governor Sean Parnell signed into law Senate Bill 21.[3] The bill, the result of lengthy deliberations in the Alaska legislature, seeks to correct the perceived deficiencies of the last adjustment to Alaska’s oil tax regime, the Alaska Clear and Equitable Share (ACES) Act which was passed in 2007 during the governorship of Sarah Palin. ACES established a 25% baseline tax and a progressive surcharge on net profits pegged to the price of oil. Under ACES, as prices rose, the state took a higher cut in taxes, approaching and exceeding 75% at high prices.[4] ACES provided various credits, particularly aimed at increasing production in new fields. In spite of these credits, investment in the North Slope continued to lag and production declines continued. Industry complained that progressive surcharges severely limited upside profit potential on large projects, thus discouraging investment.[5] Without significant investment, production levels were in danger of falling below 500,000 barrels a day, a development which would cause significant problems for the Trans-Alaska Pipeline.[6]

The purpose of Senate Bill 21 was to establish a more attractive climate for investment on the North Slope. The bill did away with the progressivity of ACES and set a flat rate on oil profits at 35%, placing the total government take (including federal income taxes) at around 60-62%.[7] The bill also sought to correct perceived imbalances in ACES subsidies and credits for new investment. ACES provided credits of up to 60% of the cost of production, but only on new fields outside of existing North Slope units.[8] This acted as a disincentive for production improvements for existing fields. The new tax bill extends these credits to new developments within legacy fields, encouraging new investment that will increase efficiency and production at these fields. Will the bill have the intended effect?  Both BP and ConocoPhillips announced new investments at legacy fields, rather than in new fields.[9]

On the surface, Norway suffers from some of the same problems as Alaska: falling production from legacy fields and expansion into new fields in remote locations like the Barents Sea that require significant investments to bring on-line. Both Norway and Alaska depend heavily on oil and gas revenues. Oil and gas taxes make up between 80 and 90 percent of Alaska’s general fund budget on a yearly basis.[10] While oil and gas revenues make up a smaller portion of Norway’s government revenues (26% in 2012), these revenues remain essential for funding the country’s generous welfare programs.[11] There are, however, significant structural differences between the two countries’ approaches to the oil industry. First, Norway does not charge royalties on oil and gas while exacting higher overall taxes through corporate and production taxes, which together yield a 78% government take.[12] Second, Norway derives additional profits from oil and gas through its 67% interest in Statoil and through participation in offshore oil and gas projects by state-run Petoro. All of Petoro’s revenues from shares in particular leases are either reinvested or transferred to state coffers.[13] Third, Norway’s declining crude oil production has been tempered somewhat by increased production of natural gas which has continued to buoy revenues.[14] Alaska is also rich in gas, but plans for a pipeline to bring North Slope gas to market have not come to fruition due to high costs, and the state’s production has languished.[15]

Norway’s recent modifications to its oil and gas taxes were much more modest than Alaska’s, and reflect both different objectives and differences between Norway’s tax structure and Alaska’s. Norway intends to enact a 1% increase in the tax on oil company profits while at the same time balancing that with a 1% decrease in its corporate tax rate.[16] Norway’s decision to raise taxes was not driven by the need to develop more revenue, or to stop exploration and development of new fields (though that may be a second-order impact), but rather to correct an economic imbalance brought about by continued growth of the oil sector in comparison to Norway’s other industries.[17]  The oil sector dwarfs Norway’s other industries in share of GDP (23%) and total exports (52%).[18] This can tend to crowd out other industries by distorting the labor market, monopolizing investment and driving inflation. By raising taxes on the oil industry while dropping them on other sectors, the government hopes to cool the oil sector and provide more breathing room for non-oil sector growth.  Norway’s tax decision, then, is driven by macroeconomic concerns, and not narrowly by concerns with oil production.

The industry’s response to the tax reforms in Alaska and Norway was swift and predictable. Oil majors that had lobbied heavily for tax reform in Alaska welcomed the new law. BP and ConocoPhillips announced new investments focused on increasing production at legacy fields on the North Slope,[19] through skeptics say the timing of these announcements was more political than anything. And the controversy over the new law is far from over: a petition to submit the new law to a state-wide referendum is on track to collect the required signatures by 13 July.[20] In Norway, Statoil announced that the 1% tax increase would cause it to rethink its development plan for the Johan Castberg project in the Barents Sea, though once again taxes are only part of the story. Statoil is still uncertain about resource estimates for the field and delays in development of shore-based infrastructure to support the project.[21] In both cases, it is difficult to separate out what is political posturing on the part of industry and what the actual impact of the new tax rates will be.

A final and somewhat intangible element of the ongoing debate on oil and gas taxes in Alaska and Norway is the importance of a stable and predictable investment climate. Industry obviously likes stability as it allows them to more accurately predict the costs and revenues of large projects that can stretch over many years. The fact that a government can choose to modify tax rates at any time adds an element of risk and uncertainty. The larger and more long-term the project, the more the risk. A prominent industry critique of Norway’s tax increase is that the government’s decision to tweak tax rates undercuts the country’s reputation for a stable investment environment.[22] While stability is certainly an important factor that investors must consider, it is also difficult to quantify and highly subjective. While Alaska’s oil tax reforms were much more radical than Norway’s, we heard little from the oil industry about how Alaska’s reforms undercut a stable and predictable investment environment.

What does all this mean, if anything, about the future of oil and gas development in the Arctic? First, these recent events show that the factors impacting development decisions in each Arctic state are diverse, highly contextual, and politically charged. Taxation and its relationship to overall fiscal policy is an important factor but hardly the only factor. However, because the development of Arctic resources will in the near term be characterized by high investment requirements and narrow profit margins, small changes in tax policy have the ability to make or break individual development projects. Second, political decisions on taxation will be made based mostly on factors that are in some senses exogenous to the issue of Arctic energy development. As such, it is important to understand the role that national and regional fiscal policies (and the politics that drive them) play in encouraging or inhibiting Arctic energy development. Third, the elephant in the room remains tight oil and gas. As unconventional resource extraction continues to expand around the globe, tight oil and gas plays are presenting more attractive investment opportunities for major oil companies and competing for a limited pool of global investment funds. Statoil has made significant investments in tight oil and gas development in Australia and the US, and is exploring similar opportunities in China and Argentina.[23] The additional downward pressure on resource prices will continue to affect calculations on Arctic energy development in places like Norway and Alaska. Though taxation remains an important factor in shaping these calculations, it remains one among many and we should be careful not to exaggerate its influence.  It is the complex interaction of all these factors and not one alone which will determine the course of Arctic energy development. 





[1] Dlouhy, Jennifer. “BP to spend $1 billion in Alaska’s North Slope,” FuelFix, June 2, 2013, http://fuelfix.com/blog/2013/06/02/bp-to-spend-1-billion-in-alaskas-north-slope-2/.
[2] Reed, Alastair. “Statoil delays Barents Sea oilfield project after tax boost,” Bloomberg, June 5, 2013, http://www.bloomberg.com/news/2013-06-05/statoil-delays-castberg-oil-project-amid-unexpected-tax-rise-1-.html.
[4] Alexander Weber, Nicole Crighton, Maria Keating and Dale Berg. “Alaska’s Clear and Equitable Share (“ACES”) production tax and available credits,” What’s News in Tax, KPMG (2011), 2., http://www.us.kpmg.com/microsite/taxnewsflash/2011/Feb/AK_ACES.pdf
[5] Marks, Roger. “Alaska’s oil and gas production tax severely limits upside profit potential,” Oil and Gas Journal, September 1, 2013.  http://www.ogfj.com/articles/print/volume-7/issue-9/features-/alaska_s-oil_and_gas.html.
[6] Alyeska Pipeline Service Company. Final Report: Low Flow Impact Study, June 15, 2011, 1,  http://www.alyeska-pipe.com/assets/uploads/pagestructure/TAPS_Operations_LowFlow/editor_uploads/LoFIS_Summary_Report_P6%2027_FullReport.pdf.
[7] Bradner, Tim. “Senate passes oil tax reform,” Alaska Journal of Commerce, March, 2013.  http://www.alaskajournal.com/Alaska-Journal-of-Commerce/March-Issue-3-2013/Senate-passes-oil-tax-reform/.
[8] Keithley, Brad. “Alaska oil policy – Out of alignment,” Thoughts on Alaska Oil and Gas, November 4, 2012, http://bgkeithley.com/2012/11/04/the-third-in-the-alaska-business-monthly-series-alaska-oil-policy-out-of-alignment-from-the-november-2012-alaska-business-monthly/.
[9] “ConocoPhillips Plans to Increase Investment in Alaska Following Oil Tax Reform Legislation,” Alaska Business Monthly, http://www.akbizmag.com/Alaska-Business-Monthly/April-2013/ConocoPhillips-Plans-to-Increase-Investment-in-Alaska-Following-Oil-Tax-Reform-Legislation/.  DeMarban, Alex. “BP to add rigs, wells on Alaska's North Slope after oil-tax cut,” Alaska Dispatch, June 3, 2013, http://www.alaskadispatch.com/article/20130603/bp-add-rigs-wells-alaskas-north-slope-after-oil-tax-cut.
[10] Alaska’s Oil and Gas Fiscal Regime – A Closer Look from a Global Perspective, Alaska Department of Revenue, January, 2012, 9,  http://www.revenue.state.ak.us/acloserlook.pdf.  In 2012, oil revenues accounted for a record 92% of Alaska’s general fund budget.
[11]Norway Country Analysis Brief, US Energy Information Administration, December 17, 2012, http://www.eia.gov/countries/analysisbriefs/Norway/norway.pdf.
[12] Alaska’s Oil and Gas Fiscal Regime – A Closer Look from a Global Perspective, 29.
[13] Persily, Larry. “Norway’s different approach to oil and gas development,” Office of the Federal Coordinator for Alaska Natural Gas Transportation Projects, September 7, 2011,  http://www.arcticgas.gov/norway%E2%80%99s-different-approach-to-oil-and-gas-development.  This revenue and investment stream, known as the State Direct Financial Interest (SDFI), accounts for a significant portion of Norway’s revenues from oil and gas on a yearly basis.  Petoro generally takes a 20% stake in new leases.  Petoro’s revenues account for anywhere from 30 to 50% of the state’s total oil and gas revenues in any given year.
[14] Lars-Jakob Alveberg and Eldbjørg Vaage Melberg, eds., Facts 2013: The Norwegian Petroleum Sector, Ministry of Petroleum and Energy, March 2013, 23, http://npd.no/en/Publications/Facts/Facts-2013/.
[15] US Energy Information Administration, “Alaska Natural Gas Marketed Production,” http://www.eia.gov/dnav/ng/hist/n9050ak2a.htm.
[16] Treloar, Stevan. “Norway raises oil taxes in bid to ease cost pressures on economy,” Bloomberg News, May 5, 2013, http://www.businessweek.com/news/2013-05-05/norway-raises-oil-taxes-in-bid-to-ease-cost-pressures-on-economy. 
[17] Keithley, Brad. “Alaska Oil – Missing the Point,” Thoughts on Alaska Oil and Gas, May 6, 2013.  http://bgkeithley.com/2013/05/06/alaska-oil-missing-the-point/.
[18] Lars-Jakob Alveberg and Eldbjørg Vaage Melberg, eds., Facts 2013: The Norwegian Petroleum Sector, Ministry of Petroleum and Energy, March 2013, 23, http://npd.no/en/Publications/Facts/Facts-2013/.
[19] Bradner, Tim. “Slope investments may top $5B with BP plans,” Alaska Journal of Commerce, June 6, 2013, http://www.alaskajournal.com/Alaska-Journal-of-Commerce/June-Issue-2-2013/Slope-investments-may-top-5B-with-BP-plans/.
[20] Martin, Eli. “Deadline looming, Alaska oil tax repeal petition gains momentum,” Alaska Dispatch, June 11, 2013.  http://www.alaskadispatch.com/article/20130611/deadline-looming-alaska-oil-tax-repeal-petition-gains-momentum.
[21] “Statoil recommends Johan Castberg project delay,” Oil and Gas Journal, June 10, 2013, http://www.ogj.com/articles/print/volume-111/issue-6a/general-interest/statoil-recommends-johan-castberg-project-delay.html.
[22] Reed, Alastair. “Statoil Delays Barents Sea Oilfield Project After Tax Boost,” Bloomberg, June 5, 2013.  http://www.bloomberg.com/news/2013-06-05/statoil-delays-castberg-oil-project-amid-unexpected-tax-rise-1-.html.
[23] Paton, James. “Statoil seeking shale oil opportunities in Australia, China.” Bloomberg, September 21, 2012, http://www.bloomberg.com/news/2012-09-21/statoil-seeking-shale-oil-opportunities-in-australia-china.html.
[24] Chris Arsenault. Retrieved February 20th 2012 from snippits-and-slappits.blogspot.com/2011/05/wikileaks-battle-to-carve-up-arctic.html


Moving Mosaic: The Arctic Governance Debate




By Kathrin Keil Espen Barth Eide seems to have reason to worry. Norway’s foreign minister recently spoke out in favour of admitting new observers to the Arctic Council in order to avoid “the danger of them forming their own club”.[1] However, with the announcement of a new forum called the ‘Arctic Circle’[2] in mid-April 2013[3], the rival club that Eide fearfully anticipated appears to have become a reality.

If the announcement of a rival club was a means to increase the pressure on the eight Arctic Council member states to admit new observers states, then it seems to have been a successful strategy. At the Council’s Ministerial Meeting in Kiruna on 15 May 2013, six new observer states were admitted, expanding the (so far entirely European) observer list by five key Asian states (China, India, Japan, the Republic of Korea and Singapore), and one European country - Italy. The total number of observer states was thus raised to 12 and the number of observer non-governmental organisations kept at 11.[4]

Despite the extension of the observer list, the Arctic Circle is in the world now, and so the question arises: Will this new forum take clout and political relevance away from the established political forum for the region, the Arctic Council? Unfortunately, the debate about the effect of the new institution on Arctic governance too often takes a zero-sum game approach, taking place within the narrow margins of a rivalry concept, which gives short shrift to the complex issue of Arctic governance.

The Arctic Governance Mosaic

The Arctic governance system is already characterised by a multitude of different governance arrangements. This constellation includes bilateral, regional and multilateral/international institutions and regimes. The Arctic Council is but one piece of this colourful mosaic.[5] While many writings on Arctic governance often mention only the Arctic Council and the United Nations Convention on the Law of the Sea (UNCLOS) as relevant Arctic institutions, there exist a multitude of organisations, conventions, and agreements on various levels. To take Arctic fishing as an example, the table below outlines the numerous institutions with rules and regulations for Arctic fishing activities, ranging from broad, multilateral institutions on the UN (especially on the Food and Agricultural Organization (FAO)) level to the numerous regional fisheries management organisations (RFMOs) and bilateral agreements.

Overview of Institutions with relevance
for Arctic fishing activities © Kathrin Keil 
This is not to say that the Arctic fishing regime is perfect, requiring neither improvement nor reform. Not all relevant fishing actors are party to all relevant institutions; not all species are covered in all maritime areas; and especially the multilateral institutions with relevance for the high seas areas of the Arctic Ocean struggle in several ways with severe implementation and compliance issues. The recent initiative to debate a RFMO for the high Arctic Ocean[6] is indicative of the current shortcomings of the significantly fragmented Arctic fishing regime. Nevertheless, beyond the High Arctic Ocean, a regional approach to fisheries management makes sense. This is so because of the differences in climatic conditions, fisheries environments and species and stock distributions around the Arctic, as well as the varying importance of fishing regions for different fishing actors. The notable number of existing RFMOs mirrors this.

Existing institutions, new arrangements such as the Arctic Circle, and institutional changes such as the acceptance of new observer states to the Arctic Council must all be carefully analysed to assess their actual substantive meaning for policies and their effect on peoples’ livelihoods, the state of the environment, and the state of fish stocks, among others. All other talk, especially about one institution ‘stealing’ clout from another, remains shallow if it fails to address the actual issues at stake.

The Arctic Circle: The New Kid on the Block?

Against this background, what does the creation of the Arctic Circle mean for Arctic governance generally and the Arctic Council specifically? Any talk of competition between the Arctic Circle and the Arctic Council must first of all consider the desired spoils of any such competition. These might include pre-eminence in particular issue areas, funding, or political attention. Such a competition might also inadvertently cause redundant work on the part of the two organizations and, accordingly, a waste of resources which could have been avoided had the institutions joined forces, shared burdens, and exploited their synergies where applicable.

First of all, the Council is meant to be a policy forum predominantly for the eight Arctic states with the consultation of the Permanent Participants and the possible contribution of observer states and organisations to the working groups. Even with the admission of new observers, the Council keeps the principle of exclusiveness when it comes to its membership. Further, the Council is currently developing more and more into an umbrella institution for the eight Arctic countries to negotiate legal arrangements among them.

Second, one has to remember that the main purpose and biggest merit of the Arctic Council is to enhance Arctic research, which it does with tremendously detailed and sophisticated reports. At the recent Ministerial Meeting new extensive research reports were added to the already very impressive list of research reports from the Council, such as the Arctic Biodiversity Assessment, “the first Arctic-wide comprehensive assessment of status and emerging trends in Arctic biodiversity”[7], the Arctic Ocean Acidification assessment, the Arctic Ocean Review report, the report on Ecosystem Based Management, and reports from the Adaptation Actions for a Changing Arctic initiative.

The Arctic Circle, in fact, will work to be and do something different from the Arctic Council, at least as far as one can tell from today’s available information about it five months before its official inauguration.

First, the Arctic Circle is designed as a non-profit organisation and not as a political forum primarily for states. It does not intend to provide a forum for state negotiations to produce legally binding arrangements. On the contrary, it has a very inclusive approach to actor involvement, aiming to be a “forum for discussions” and generally an umbrella organisation for “as many Arctic and international partners as possible,” including “a range of Arctic and global decision-makers from all sectors, including political and business leaders, indigenous representatives, nongovernmental and environmental representatives, policy and thought leaders, scientists, experts, activists, students and media”.[8]

Second, while the forum aims to organize “sessions” on “global research cooperation”, there are no explicit research tasks outlined that the institution would adopt and implement on its own.

These fundamental differences illustrate that it makes little sense to talk of a rivalry between the Arctic Council and the Arctic Circle, at least from today’s knowledge of what the Arctic Circle is intended to be. If the Arctic Council loses clout, it will first and foremost depend on the political attention its members devote to it – in terms of actual usage as a forum, research efforts, national representation on ministerial meetings, funding, administrative endowment –and not on the decision by, for example, China, Iceland, and Google to discuss their involvement in the Arctic in a conference or business-like fashion on a regular basis.

The Arctic Council: Stronger and More Inclusive

At the moment, it looks like the opposite development in fact: the Arctic Council appears to gain in importance and the institution shows more activity than ever before, quite independent of the fuss about the admittance of new observers.

Two binding agreements have been negotiated under the auspices of the Council: the 2011 Agreement on Cooperation on Aeronautical and Maritime Search and Rescue in the Arctic and the 2013 Agreement on Cooperation on Marine Oil Pollution Preparedness and Response in the Arctic. The Kiruna meeting also saw the establishment of a Task Force to develop an Arctic Council action plan or other arrangement on oil pollution prevention, which will report at the next Ministerial Meeting in 2015.[9]

A considerable number of further initiatives have been announced in Kiruna, showing a highly active Arctic Council. Several Task Forces have been created; one to facilitate the creation of a circumpolar business forum; one to develop “arrangements on actions” to reduce black carbon and methane emissions in the Arctic; and one to work towards an arrangement on improved scientific research cooperation among the eight Arctic States.
Recommendations are planned to integrate traditional and local knowledge in the work of the Arctic Council. The Senior Arctic Officials (SAOs) will work on recommendations to increase awareness regionally and globally on traditional ways of life of the Arctic indigenous peoples and will present a report on this work at the next Ministerial meeting in 2015. The SAOs will further develop a plan to ensure the implementation of the recommendations from the new Arctic Biodiversity Assessment, which was presented in Kiruna, and present a progress report at the next meeting.

The Council has also been strengthened institutionally and politically. At the Ministerial Meeting in Nuuk in 2011, a standing Arctic Council secretariat was established in Tromsø. The Council’s prominence was further raised as Secretary of State John Kerry attended the 2013 Ministerial meeting, marking only the second time that the U.S. administration sent its highest-ranking cabinet member to the biannual meeting.

The member states have also been active in clarifying the different participation categories of the Council. Specifically, the role and admittance of observers has been institutionalised at the 2013 meeting with updated Rules of Procedure and an Observer Manual, which outlined the conditions, rights and duties of prospective and current observers.[10] Crucially, “[t]he primary role of observers is to observe the work of the Arctic Council. Furthermore, observers are encouraged to continue to make relevant contributions through their engagement primarily at the level of working groups”.[11]

For clarification, many commentators speak of the category of ‘permanent observers’, which has just been extended. This term has been used to differentiate from ‘ad hoc’ observer status, which for example China and the EU had in the past. However, one has to clarify that the official Arctic documents nowhere use the term ‘permanent’ and thus this category has no official and legal relevance. The term can also be quite misleading, as current and newly admitted observers can have their status revoked. As the Manual reads:

“Observer status continues for such time as consensus exists among Ministers. Any observer that engages in activities which are at odds with the Ottawa Declaration or with the Rules of Procedure will have its status as an observer suspended”.[12]

Finally, there is no automatic right to attend all Arctic Council meetings or access all related documents once observer status has been granted:

“Observers may attend meetings and other activities of the Arctic Council, unless Senior Arctic Officials have decided otherwise. The Heads of Delegation of the Arctic States may also at any time meet privately at their discretion […] Observers admitted to a meeting will have access to the documents available to Arctic States and Permanent Participant delegations, with the exception of documents designated as ”restricted to Arctic States and Permanent Participants””.[13]

The substantive influence of observers is also limited. They have to propose projects through an Arctic State or a Permanent Participant and “the total financial contributions from all observers to any given project may not exceed the financing from Arctic States, unless otherwise decided by the Senior Arctic Officials”.[14]

Observers also have to continuously prove their ability and willingness to actively and constructively contribute to the work of the Arctic Council; they must be accredited before each Ministerial Meeting:

“Observers are requested to submit to the Chairmanship not later than 120 days before a Ministerial meeting, up to date information about relevant activities and their contributions to the work of the Arctic Council should they wish to continue as an observer to the Council.”[15]

Institutional Rivalry? Think Again

In conclusion, against the background of the strengthening and opening of the Arctic Council to new observers and the different portfolios of the Arctic Council and Arctic Circle, it makes more sense to understand the Arctic Circle as an addition of another piece to the Arctic governance mosaic instead of a rival to the Arctic Council. This new piece will have to find its place and purpose among the many different institutions that already exist with relevance for the Arctic, and it should be evaluated according to the merit and added value it brings, especially for the people living in the region. This will, not least, also depend on how the new forum will be perceived by the eight Arctic states. As the above analysis outlines, there is little reason to expect rivalry with the Arctic Council given the substantial differences between the two institutions in terms of scope, membership outreach, and legal outcomes. Espen Barth Eide can thus put his mind at ease.




[1] Kim Ghattas, “Arctic Council: John Kerry Steps into Arctic Diplomacy,” BBC News (London, May 14, 2013), http://www.bbc.co.uk/news/world-us-canada-22528594.
[2] The new ‘Arctic Circle’ (homepage www.arcticcircle.org) is not to be confused with an existing New York artist and exhibition group called ‘The Arctic Circle’ (homepage www.thearcticcircle.org).
[3] Deborah Zabarenko, “China, India, Singapore Could Join New Arctic Circle Forum,” Reuters, April 16, 2013, http://in.reuters.com/article/2013/04/15/arctic-circle-idINDEE93E0I420130415.china

[4] 
See homepage of the Arctic Council, “Observers”, accessible at http://www.arctic-council.org/index.php/en/about-us/arctic-council/observers.
[5] The mosaic metaphor for Arctic governance was first introduced by Oran R. Young, “Governing the Arctic: From Cold War Theater to Mosaic of Cooperation,” Global Governance 11, no. 1 (2005): 9–15.
[6] Andrew E. Kramer, “Accord Would Regulate Fishing in Arctic Waters,” The New York Times (New York, April 16, 2013), http://www.nytimes.com/2013/04/17/world/agreement-would-regulate-fishing-in-arctic-waters.html?_r=0.
[7] Arctic Council, “Kiruna Declaration On the Occasion of the Eighth Ministerial Meeting of the Arctic Council, 15 May 2013” (Kiruna: Arctic Council Secretariat, 2013), 4, http://www.arctic-council.org/index.php/en/document-archive/category/425-main-documents-from-kiruna-ministerial-meeting?download=1757:kiruna-declaration-final-signed-version.
[8] For all quotes see the homepage of the Arctic Circle at www.thearcticcircle.org.
[9] Ibid, 2, 4.
[10] SAO, “Senior Arctic Officials Report to Ministers” (Kiruna: Arctic Council Secretariat, 2013), 78–96, http://www.arctic-council.org/index.php/en/document-archive/category/425-main-documents-from-kiruna-ministerial-meeting?download=1758:kiruna-senior-arctic-officials-report-to-ministers.
[11] Ibid, 93, own emphasis.
[12] Ibid, 92.
[13] Ibid, 94, own emphasis.
[14] Ibid, 95.
[15] Ibid, 88.


The Arctic Council: Underpinning Stability in the Arctic




By Matthew Willis At first glance, it may seem odd that a once-obscure organisation devoted to environmental preservation and sustainable development should now be among the Arctic’s most prominent actors. To experienced observers, however, the Arctic Council’s growing stature is no more surprising than the fact that the regional ‘meltdown’ many political scientists forecast has never occurred. Today, the council is effectively presiding over an emerging ‘stability architecture’ based not on military strength, but on the multilateral pursuit of common interests. This does not imply the exclusion of the military, simply its deployment in novel and unconventional ways. This article looks back briefly on the crisis that never was, before scanning the current Arctic security horizon and evaluating the developing role of the Arctic Council. 

Except in the minds of a few headline writers perhaps, none of the semi-apocalyptic conflict scenarios envisaged for the Arctic has developed. Instead, the eight Arctic states – Canada, Russia, Norway, Sweden, Finland, Denmark, Iceland and the US – have established ever-closer relations. Certainly, Norway and Denmark have modernised their surface fleets and Russia has bolstered its shrunken postCold War capabilities, but the region has not been militarised. Boundary tiffs have never flared into open conflict: they have either been settled, in the case of the Russo-Norwegian Barents Sea dispute, or allowed to fall dormant once again, as in the case of Hans Island. The rush for energy resources never occurred either: companies have secured licences and, in some cases, drilled exploratory wells, but their behaviour has been cautious. 

The one thing the alarmists were correct about was the magnitude of the changes the Arctic environment would experience. In fact, they underestimated it. The average annual temperature in the Arctic is rising faster than predicted and the rate of ice-melt is accelerating similarly, with global sea levels projected to rise by a metre by 2100. Unusual weather patterns across Europe are lending weight to warnings that these and other developments could contribute, by altering the path of the jet stream, to more frequent extreme weather across the hemisphere. 

The wrong conclusion to draw would be that if the current effects of climate change have not yet triggered a resource ‘scramble’ or drawn countries into confrontation, the Arctic can be written off as a key strategic theatre. On the contrary, foreign and defence ministries across the region – and beyond – are more focused on it than ever.

The trends they are watching – drifting fish stocks, increasing shipping and expanding hydrocarbon exploration – are not conventional military concerns. Indeed, they are overwhelmingly civilian, but their unifying theme is growing human activity, and thus unpredictability. The armed forces, beyond their responsibility for handling all contingencies, are also the only agencies with both the requisite monitoring instruments and the physical capabilities to operate in such a vast and inhospitable region. Canada, for instance, must treat potential search and rescue (SAR) missions as expeditionary: its armed forces are experimenting with a ‘hub’ concept that involves prepositioning equipment in depots across the north to lengthen their reach and shorten their reaction time.

Exercise Cold Response
courtesy of soldatnytt on flickr.com
It is no surprise, therefore, that the ‘Arctic militaries’ are increasingly working together. Annual joint exercises help them to develop the necessary skills and co-ordination: Exercise Cold Response 2012 – held in Norway last March and simulating action under NATO leadership – involved over 16,000 personnel from a dozen countries.

New partnership structures are gradually emerging, too. One is the Arctic Security Forces Roundtable (ASFR), a semi-annual gathering of senior military officers from the Arctic Eight and selected allies, which looks at how to improve co-operation, particularly in terms of SAR and domain awareness. Highly informal at present, the ASFR could gradually develop into a more structured forum for international co-ordination.

Nonetheless, reasoning that the regional security architecture needs revamping to accommodate the Arctic’s transformation is probably going too far. For one, attempts to ‘secure’ the region could well achieve the opposite. For example, as Canadian Prime Minister Stephen Harper told Anders Fogh Rasmussen, NATO’s secretary-general, in 2010, a NATO presence would only antagonise Russia.

Moreover, hard power frameworks are not the only way to maintain peace. In the Arctic, the coastal states’ reverence for the existing international legal regime is a crucial part of the region’s stability. Another part is these states’ common belief in the economic benefits that stability brings. With international law as the basic foundation, and economic profit (balanced with environmental custodianship) as the organising principle, therefore, the most effective ‘security’ architecture may develop out of the aggregation of government policies geared towards facilitating and regulating healthy commercial activity. The result would be less a security than a stability architecture. 

It therefore seems fitting that the Arctic Council, whose key characteristic is its sustained refusal to consider matters touching on ‘hard’ security, should now be considered the central actor on the region’s political stage. Formed in 1996 to promote co-operation and interaction among its members, predominantly in relation to environmental protection and sustainable development, the council has a number of unique features. One is the status it accords indigenous groups: in their position as ‘Permanent Participants’, these groups are able to work on unusually even terms with governments and shape the council’s research agenda.

Another is the council’s lack of decision-making power: it is a forum, or clearing-house, for Arctic research, not an executive organisation. Its output – like the 2009 Arctic Marine Shipping Assessment – is meant to provide not just its member states, but all relevant stakeholders in the international community, with reliable data and analysis. Nevertheless, because the resulting reports tend to be exhaustive and draw on expertise from around the world, the recommendations produced carry considerable weight. 

This quiet authority, coupled with the 2011 signing of a binding SAR agreement and the current elaboration of an oil-spill prevention protocol, has prompted suggestions that the organisation is changing. But this is only partly right: the SAR agreement, although negotiated ‘under the auspices’ of the Arctic Council, was not in fact a product of the council itself but of its eight permanent members. The same will apply to the oil-spill prevention document. 

What is true is that the ‘dual identity’ of the Arctic Eight as both council members and ‘free-standing’ states gives the council an executive aura, particularly when they – or even just the five states with Arctic coastlines – sign agreements regulating their own behaviour. A good illustration is the Ilulissat Declaration of 2008, in which the ‘Arctic Five’ pledged to resolve any jurisdictional disagreements between them peacefully, and pointedly affirmed that the United Nations Convention on the Law of the Sea (UNCLOS) obviated the need for new regional governance structures. (Admittedly, this announcement also created the impression that the three non-coastal states had been excluded.)

Such statements have both shielded the council from overt politicisation and implied that the political heart of the region beats within it. There could thus be said to be a symbiotic dynamic at work here. On the one hand, the ‘executive’ power of the member states is projected onto the Arctic Council. On the other, the legitimating power of the council, largely derived from the centrality of the Permanent Participants and the presence of observers, imbues the Arctic Eight with additional authority. 

This legitimacy-cum-authority helps explain why fourteen different countries and organisations wish to be admitted as observers this May. Whatever the eventual decision on these applications, the demand is in itself remarkable: at least on paper, the Arctic Council requires more from observers than it offers in return. It is hard to imagine a set-up more contrary to the zero-sum logic of traditional security politics. 

This deluge of applications is a golden opportunity. Openness would be a shrewd move, at a stroke enhancing the council’s legitimacy and the quality of its deliberations, and reducing the risk of being bypassed by countries acting unilaterally. Some of the council’s recent applicants could also represent a financial boon: China, South Korea, India and Japan have the fastest-growing stable of Arctic scientists, while the EU last year proposed devoting €80 billion to Arctic research. 

Meanwhile, the risks of admitting new members, even heavy-hitters like China, are low. First, observers’ powers are limited: they may engage with the forum’s working groups, propose projects and state their views (all with permission), but they have no vote. Secondly, observer status does not alter international law: under UNCLOS, extra-regional actors have no jurisdiction in Arctic waters, and no applicant disputes this. Thirdly, the council is still fundamentally devoted to promoting research and knowledgesharing, and new observers could contribute greatly in this regard. 

Some Permanent Participants also fear being marginalised if new observers are admitted, but the same countries could still engage bilaterally with Arctic states from outside of the council, and there is no difference in power between permanent and ad hoc observer status. The main danger of admitting too many new observers is therefore likely to be confined to a diminished capacity for reaching swift consensus. 

By all accounts, the Arctic states have not yet agreed on how to proceed with these applications. It is inconceivable that they will reject all of the applicants, but unclear how many they will approve – those garnering the most speculation being China and the EU. The Nordic countries have stated their preference for more openness than less, and look set to accept both. The US, having previously rebuked Canada for not being more inclusive, will likely go the same way. 

That leaves the two Arctic giants. Despite its once-bellicose rhetoric, Canada has lately appeared sanguine. Indeed, it has just signed a free trade agreement with China and is negotiating an equivalent with the EU, so a snub would be counter-intuitive. Russia, meanwhile, is deeply distrustful of China, but China is already an ad hoc observer and security remains Russia’s main concern. Given the council’s purpose and the prescribed limits on observer status, the odds are that the balance will tip in China’s favour, just. 

It can therefore be said that while security remains an important element of the Arctic strategic picture, standard definitions are unhelpful; indeed, the region’s ‘securitisation’ would be counter-productive. Stability – the end goal of security – is already present, underpinned by the heft of the Arctic Council – a forum tight enough to take influential positions but loose enough to protect the agency of its core membership. 

As development intensifies and the interests of the many legitimate stakeholders – both state and nonstate – come into sharper focus, this collegial atmosphere may be challenged. Nonetheless, the Arctic is a vast space, with room enough for everyone. Do not expect great sparks to fly.

This article was originally published in RUSI Newsbrief (Vol. 33, No. 2, March 2013), http://www.rusi.org/publications/newsbrief/ref:A513A129282486/#.UUmZwTfFk6I

Matthew Willis is a research analyst in RUSI’s International Security Studies Department.