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Prospecting on Greenland: Speculations on Economics and Sovereignty

13 September 2012 1 comment

The island of Greenland has a long and storied past. It has been inhabited continuously, though sparsely, for over 800 years, and intermittently since 2500BC. Long falling under the Kingdom of Denmark, in 1979, Greenland was granted Home Rule allowing it to exercise semi-autonomy on some political, economic, and social issues. In 2008, Greenland passed a referendum reaffirming home rule and acceding to Self-Rule, moving one step closer to sovereignty.

Greenland is a fascinating island in that it has a huge but mostly uninhabitable landmass. It’s 25% bigger than Alaska, but with 1/6th the population. It’s not only a very small country by population (~55,000 inhabitants) it’s also a very young country, only having semi-autonomy for 33 years. This politically young, environmentally dynamic country will face unique and complex problems brought on by climate change. Not only will they face enormous challenges in managing their own systems and resources, they are also likely to face an influx of outside pressures as to how they should proceed.

From what’s known about Greenland’s coastal geology, it is likely that the island contains significant amounts of precious metals and minerals (in addition to the substantial known hydrocarbon reservoirs). Climate change, through receding glaciers, is likely to expose large tracts of land bearing these coveted reserves. This is already piquing global interests from Europe to Australia, within both governments and mining companies alike.

The economic potential for Greenland is huge. Currently, Greenland is economically dependent on its fishery. Opening of its frontier to mineral exploration will present an economic boom. Revenue from increased mining will bolster Greenland’s government, giving them a much firmer hand in political discussions with Denmark. One foreseeable path is that this will lead to further self-governance and ultimately independence from Denmark.  There will reach a point when Denmark has little left to offer that the Greenland can’t secure for itself either through trade or collaboration with other Arctic nations. This path requires strong leadership and firm negotiations with mineral companies to make sure that Greenland receives an appropriate amount of mining revenue and that regulations are followed. It may also be preferable that the mining be conducted by domestic companies thereby forcing the development of manufacturing and support industries which may help diversify the economic base. This will require great foresight and adept policy making; the kind forged through years of hard fought progress. This path may provide an equitable and environmentally balanced approach to the future of Greenland as it continues to grow into a major player on the world stage.

A second, more problematic path feeds on the weakness of burgeoning political institutions. Though they have strong political models to follow, it is always tempting for new governments to slip into the curse-of-natural-resources. With great economic wealth on the horizon, it may be easy for Greenland’s leaders to open up bidding to the highest company, outsource the manufacturing, development, and planning jobs; get paid for their resources; and have nothing else to show for it. Nascent governments may have undeveloped or underdeveloped regulations and/or enforcement mechanisms that allow for excessive contamination and recklessness that may result in environmental impacts, and squandered opportunities.

The third, and most likely approach is that Greenland will take advantage of both its mineral assets and its political relationship with Denmark to develop a hybrid, balanced approach building off established regulation models. Greenland does have a Bureau of Minerals and Petroleum and has already established a progressive exploration block licensing program. Legislation has been passed in 1965, and updated in 1978, as well as 1991 (a nice, though dated summary of Greenland Mining Policy see here). Current legislation focuses more on rent recovery and taxation with less emphasis on environmental protection and enforcement measures.

There are many complex questions associated with mining development.  Mines require technical, intellectual, and physical workers; more than a small population can support. Managing boom-towns is always a difficult proposition.  Mines also require support and service industries, possibly furthering the rapid, short-term, short-lived growth. Finally, there is always an environmental legacy of mining.  Whether it be accidents, pollution, contamination, or just landscape reshaping, Greenland will be forever shaped by the next chapter in its history.

Managing natural resource wealth is immensely difficult. There are few examples of safe, effective, and equitable resource nations, and with the size of Greenland’s economy, it will undoubtedly become dominated by the resource industries. Greenland is being presented a great opportunity to become economically advanced and diversified. Attaining that economic development in balance with its unique cultural and physical environment is monumental challenge. The rest of the Arctic is looking to Greenland, for how Greenland proceeds will set a precedent for the rest of Arctic development.

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Categories: Economics, Politics Tags: ,