Apr 23 2007

Reuters: Aluminium smelters generate hot debate in Iceland

By Sarah Edmonds
Mon Apr 23, 2007

REYDARFJORDAR, Iceland (Reuters) – Iceland’s biggest and newest aluminium smelter, Alcoa Fjardaal, pumped out its first hot metal at the weekend, riling critics who fear it will damage the environment.

The balance between environmental and economic tradeoffs for Iceland’s three existing and three planned smelters have become a major issue in the lead-up to May 12 elections.

On one side are those who fear unchecked industrial growth will harm the land and economy.

On the other are those who say Iceland must bring in such projects to make use of its abundant but unexportable power-generating resources, such as its geothermal and hydroelectric potential.

The issue has given rise to a new green party, the Iceland Movement, whose platform has a single plank: big industry development must stop for five years until the effects of projects like Alcoa’s Fjardaal are clear.

Author Andri Snaer Magnason said the construction of smelters like Alcoa’s, and the geothermal and hydroelectric plants that power them, has created a “heroin economy.”

“For this company, (we are) diverting the whole ecosystem of the east,” he said. “The Icelandic government is taking a billion-dollar loan to raise the dam to supply power to Alcoa that is sold at a very low price.”

Prime Minister Geir Haarde dismisses the idea that Iceland is addicted to aluminium.

“Quite clearly there is a boom in connection with the construction of a big facility like this. But that is not why these things are important,” he said.

“The claim that we are selling electricity … at absurdly low prices is not the case.”

There are signs the public is heeding the smelter opponents.

Residents of Hafnarfjordur, south of Reykjavik, this month rejected Alcan Inc.’s plan to expand its plant to 460,000 tons a year, although by a margin of just 88 votes.


Magnason’s “Dreamland: A Self-Help Book for a Frightened Nation,” which takes on the smelter industry, sold 20,000 copies in Icelandic, staggering in a nation of fewer than 300,000.

Still, Fjardaal has support in Iceland’s east, and some in the village of Reydarfjordar say it has created a boom.

At the still-unfinished plant that sits alongside a fjord like a giant’s toy, workers from Alcoa and contractor Bechtel are bringing Fjardaal to life.

Most of Bechtel’s construction crew are foreign but Alcoa says Fjardaal will be run by Icelanders. At full capacity it will produce 346,000 tons of aluminium a year and employ 400 people.

Iceland Movement leader Omar Ragnarsson says this is a small gain given how much government-owned power provider Landsvirkjun has plunged into the Karahnjukar plant Alcoa will use.

“It is like a gold rush. It’s a power rush,” said scientist Ragnhildur Sigurdardottir, who may run for the Iceland Movement.

She said central bank efforts to tame the smelter-stoked economy, including record interest rates of 14.25 percent, have hit the average Icelander hard.

Haarde said the economy is beginning to cool. “That’s why it would be a good idea to get a new project started before we go too far down into this cooling period,” he said.

Nor did the prime minister see a need for a hiatus.

“I think the referendum at Hafnarfjordur will inevitably push things back in time and the other projects that have been discussed are anyway a few years on,” he told Reuters.

Whether Iceland is selling power to industry at deep discounts is hard to judge since Landsvirkjun does not disclose prices, saying secrecy is essential for negotiations.

Spokesman Thorsteinn Hilmarsson said producers like Alcoa, whose contracts are pegged to aluminium prices, are paying “above the average price” for power to smelters.

Asked if prices were lower in Iceland than elsewhere, Alcoa spokesman Kevin Lowery said only: “They are very competitive.”

Smelter backers say Iceland would be foolish not to use its abundant energy resources and urge a global view on pollution.

“These smelters are not polluting in a global sense, if you were producing here what you would be producing by gas or coal somewhere else,” Haarde said.

They are “minimally” polluting for Iceland, he said.

Haarde is unworried about Ragnarsson’s anti-smelter party, noting polls give it less than the 5 percent needed for seats in parliament.

But the smelter-opposing Left Green Party is polling well. And the Social Democrats have shifted their platform greenwards.

Magnason said this means if the Iceland Movement wins 5 percent, the country could well end up with a green government and a rethink of its smelter growth.