The Economics of Living at the Top of the World

Norway’s Svalbard archipelago, which sits some 700 miles from the North Pole, is barren when it comes to people but abundant in coal. For decades, anyone who settled there was primarily in the area to mine, but in 2013, hit by low oil prices, coal became unprofitable and Norway decided to diversify away from fossil fuels. It committed to developing more renewable energy sources, transitioning slowly from oil to gas and selling off coal stocks from its $900 billion sovereign wealth fund, the largest in the world. Against this background, Norway closed its main coal mine in Svalbard early this year, sending shock waves through the economy of the largest town on Spitsbergen, the only permanently inhabited island in the archipelago. All this comes at a time when climate change and melting sea ice make Svalbard, perched at the Arctic crossroads between Russia and the West, an increasingly important foothold for managing Arctic Ocean resources.

Last January, just before Norway closed Svea, its main mine on Spitsbergen, I visited the island to see how the government’s new policies had changed it. Of the three settlements there, the largest is Longyearbyen, also the archipelago’s administrative center. The tiny research town of Ny-Ålesund lies farther north, and just 22 miles southwest lies Barentsburg, a former Soviet settlement, which is Svalbard’s most peculiar settlement. It is a throwback to the Cold War, a reminder of less peaceful days when the Soviet Union maintained one of the largest encampments in Svalbard and got into frequent spats with Norway over how the island was used.

In Barentsburg, I was the sole guest at the only hotel in town, a small settlement of less than 500 trying to transition away from coal mining into tourism. Svalbard was granted special economic status by the 1920 Treaty of Svalbard, which means that the 40 nations that have signed it, including Russia, can use the land for a variety of nonmilitary, economic pursuits: fishing, coal, tourism, and research, but within the bounds of Norwegian law.

Few countries have taken the bait. Still, despite the closure of the coal mines there, Russia is determined to keep a presence on the island. Moscow sees Svalbard as strategically important, particularly since Barentsburg overlooks vital sea lanes linking Russia, Western Europe, and North America. “Russia has recognized its importance of being here, of staying here,” Russian tourism manager Katerina Zwonckova told me. “We’re not going to leave. If mining doesn’t work, then another thing will: tourism. This is an open way to Murmansk, to Siberia. This is a gateway.”

Murmansk is a Russian city that sits above the Arctic Circle not far from the Norwegian border. Katerina is from Murmansk, but went to the University of Oslo for her studies.

Barentsburg, a hard-scrabble Russian town, is still run by the state-subsidized coal company called Trust Arktikugol, which first settled down there in 1931. During the Cold War, its population swelled to 3,000—and was spread between three settlements at Barentsburg, Grumant, and Pyramiden—but since then, the number of people has fallen back down to 500. In the past two years, Arktikugol has installed colorful metal siding on Barentsburg’s largest buildings and knocked down collapsing ones, but the Soviet-style infrastructure still prevails. Everything is in Russian and most items in the general store are imported from Russia. Aside from the souvenir shop and hotel, the town operates in rubles, but an electronic payment card is used in lieu of notes. Most jobs are either in mining, whether as a miner or administrator, or in the service industry to keep the town running. There are limited seasonal positions in tourism. But most residents are transient in the sense that they stay only a few years. When they do stay, they live in multi-story apartment blocks, and the only restaurants outside the hotel are a couple of company cafeterias, which are closed to tourists. The outdated school only handles primary grades, antiquated sports facilities are in need of repair, and Internet connection was not available until very recently.

“In 2013 it was decided at the governmental level [in Russia] that Trust Arktikugol will change its policy and will try to make tourism the priority instead of mining,” said Zwonckova. “The company’s plan is to make it the main source of profit. So we have three years to make some kind of brand, to make a special image for Barentsburg.”

According to Zwonckova, Trust Arktikugol will pay for and build a floating pier, which will soon be installed in Barentsburg’s harbor to accommodate more cruise ships coming mostly from Western Europe. Trust Arktikugol has also purchased new snowmobiles, mountain bikes, and sea kayaks for various tour excursions. Despite ambitious plans, for the last two years April has been the only month in which the 43-room hotel has been fully booked and most Spitsbergen tourism goes to Longyearbyen, which boasts moonlight dogsledding, Northern Lights, and tours of coal mines. Cruise ship traffic peaks in July and August, but the visits last only a few hours each.

If tourism does eclipse coal in Barentsburg, it will be a bitter pill to swallow for miners, such as Denis Scherba, deputy engineer for production and worker safety, who first came to Barentsburg in 2011. As a third generation miner from Ukraine’s eastern Donetsk region, he is typical of many town residents, who are mostly Ukrainian and vastly outnumber the Russian, white-collar citizens. Coal mining is a tradition in Donetsk, so Barentsburg is not so foreign for the Ukrainian miners, even given the heightened risks. For example, Barentsburg’s 480-meter-deep high-sulfur coal mine produces elevated levels of methane gas, and has been the site of several deadly explosions over the years. Yet Russian government subsidies and good employee benefits have kept it running.

I visited Scherba at Trust Arktikugol’s offices, a large brick building at one end of town that sits atop the mine entrance. After a short introduction, he led me and Zwonckova down a countless number of concrete stairs past shiny tiled hallways and deep into the mine. We entered the locker rooms where the miners suit up and take a required alcohol breath test before clocking in. I noticed, however, that one of the miners deftly stashed a whisky flask inside his worn overcoat before leaving the staging area. For him, many hours of cold work lay ahead.

Continuing deeper underground, Scherba led us down an extensive covered boardwalk and down yet more stairs to a vast cavern lit with occasional amber floodlights that illuminated narrow-gauge tracks crisscrossing the dirt floor. Dodging puddles and ice patches, we followed the rails through a surreal underworld to a checkpoint for the trams of coal. A lone woman named Natalia, bundled in winter work clothes and wearing a woolen cap under her hard hat, monitored the trams. She communicated with other workers inside the mine using a cast-metal dial phone, a relic from Soviet times.

“This is ugol,” explained Natalia while grabbing a small chunk of coal from the railcar and holding it to the light with a hint of pride. The name “Arktikugol” suddenly made sense to me.

I was only the third foreign visitor in the entire history of the mine. But this summer, Zwonckova plans to offer regular mine tours as another way to generate income for the town. Although she was secretive about how much Arktikugol makes from tourism, she explained to me, “This is our source of profit,” said Zwonckova. “This is a kind of reply to Basecamp, Mine 3.”

She was referring to a retired mine in Longyearbyen, which I had toured a few days earlier, but she was unaware that I had also ventured into the bowels of Norway’s last working coal mine there, Mine 7, which was established in 1972. There are about 25 workers there, which will soon be doubled along with coal production to help maintain Longyearbyen’s dual-purpose power and heating plant. The experience of visiting the mine had left me with a keen understanding of the dangers of coal mining. The work involves crouching in a cramped tunnel operating a 60-ton machine that hammers away at the coal seam, shaking the ground with a deafening thunder.

“Yeah, you have to see it before you believe it,” the mine safety inspector Svein Jonny Albrigtsen had told me, referring to the general sensation of being deep in the ground, while crouched beside one of Mine 7’s coal cutters.

I marveled that there were still people who took up this sort of work, spending their waking hours in the dark amid explosive dust and bone-rattling noise. There are some perks, however, that attract these adventurous miners to Svalbard in particular. Arild Olsen, a former miner and the newly-elected mayor of Longyearbyen, explained to me that miners pay half as much income tax on Svalbard as on the Norwegian mainland. Olsen pointed out that of the 250 miners let go the week I visited, many were in the habit of working two weeks in the mines and then flying back to the mainland for two weeks off. Olsen estimated that 60 percent of them had been avoiding taxes by maintaining addresses in Longyearbyen without actually living there.

“That’s why I’m not saying all this [the mine closures] is catastrophic,” Olsen told me in his city hall office. “There were about 340 jobs before and now there will be 50 at Mine 7 and 50 at Svea [a large mine that shut down in September 2015] to keep it ready for operation [if coal returns to profitability]. So there will be 50 people staying here in Longyearbyen, and that’s good.”

Another plus for Longyearbyen is that unlike Barentsburg it diversified years ago, in the 1980s, when the Norwegian government cut off subsidies and stripped Store Norske, the coal company that had run the town since 1916, of its governance duties. Since then, the town of 2,000 has cultivated a strong tourism trade and turned the Svalbard University Centre into a premier Arctic research institute, with a sprawling campus building that hosts dozens of researchers and hundreds of students. The student population helps support a thriving restaurant scene, countless cultural events, and state-of-the-art sports facilities year round. Longyearbyen also hosts a Northern Lights observatory and the 31-antennae mountaintop Svalbard Satellite Station, the only facility able to download information for all 14 polar-orbiting satellites.

Another industry that Olsen says Longyearbyen may look into to boost its economy is fishing “Especially crabs or cod,” Olsen added. “I don’t think it will become big, but I reckon it will fill a missing hole.” Indeed, if either of the last two remaining towns on Spitsbergen has a head start on surviving the decline of coal, it is clearly Longyearbyen. But Barentsburg can learn from Longyearbyen by augmenting tourism, implementing aquaculture, and investing in more scientific research.

Although the two settlements are not far from one another, there are few ties between them. “We go over there for Christmas and Easter.” Olsen said. “So we have a good relationship and we don’t, well I don’t, get into geopolitics.” There are still some fishing disputes, but things are better at least than they were in the 1990s. “The 1990s,” Zwonckova told me, “weren’t the best time for the Soviet Union. It was a very weakened partner, and that weakness was taken into consideration by the Norwegian side. They felt their strength.”

The Svalbard Treaty has survived nearly a century of wars and geopolitical tensions, but the demise of coal and a resurgent Russia may present a new challenge. But according to Leif Trana, Counselor for Economic Affairs and the Arctic team leader at the Norwegian Embassy in Washington, his government is confident the Russians will play by the rules in the Arctic.

“Yes, there is a clear increase in the Russian military presence in the Arctic,” Trana told me at the Norwegian embassy, “but it is still quite a bit less than it was during the height of the Cold War, which we also managed. In the Arctic—the people-to-people contacts, the fisheries, the research cooperation—we try to keep that as separate as possible from larger geopolitical tensions. We need to show that there are places like the High North where that actually works for the Russians, and it works for us.”