Economic consequences to the melting Arctic

Melting Arctic opens new shipping route

One of the consequences of the melting Arctic ice caps is the possible commercial viability of a new northern shipping route, connecting North-East Asia with North-Western Europe.

As we are all aware, the disappearing Arctic ice cap and receding glaciers are some of the most worrying effects of climate change, but what if there was a benefit?

Now, the opening of the waters north of Siberia could see new, shorter shipping lanes between North-West Europe and the Far East become commercially viable.

Climate change has always been associated with negative (and worrying) impacts to the environment, but one advantage has been noted in a discussion paper from the Netherlands Bureau for Economic Policy Analysis: the Northern Sea route will see the reduction of about one third of the average shipping distance and days of transportation with respect to the currently used Southern Sea Route. See Figure 1.

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Reduction in shipping distances and days must surely mean reduction in CO2 emissions? Or so you would think.

The paper entitled Melting Ice Caps and the Economic Impact of Opening the Northern Sea Route estimated that the North Sea Route would slightly increase CO2 emissions as the gains from the reduction in distances would be offset by a combination of higher trade volumes and a shift to emission-intensive production in North-east Asia.

“The northern route will become one of the busiest shipping lanes in the world, increasing the economic and political importance of the Arctic,” states the report.

This anticipated popularity of the new route implies tremendous geopolitical and economic pressure on the countries currently servicing the older Southern Sea Route, such as Egypt and Singapore, which rely heavily on shipping.

Roughly 8% of the world’s trade is transported through the Suez Canal, of this volume an estimated two-thirds will be re-routed over the shorter Artic route.

The paper also notes that a number of Mediterranean countries would experience a decline in trade (i.e. Italy and Greece).

An interesting case is Eastern Europe, where some countries close to the North increase their exports to North-Eastern Asia, such as Czech Republic, Estonia, Latvia, Lithuania, Poland and Slovakia, while others have no significant export increases (Bulgaria, Croatia, Hungary, Romania and Slovenia).

North-East Asia is already preparing itself for an increase in trade.

China in particular has already shown political interest in the Arctic by signing a free-trade agreement with Iceland in April 2013 and most recently – together with Japan and South Korea – it gained observer status on the Arctic Council.

Additionally, Russia has plans to further develop this shipping lane and is building 10 “relief ports” for ship repairs and supplies along the Siberian coast.