Dec 20 2010

The Dark Side of Green Power: A Modern Icelandic Saga

In the land of trolls, hidden fairies and enchanted volcanoes, a modern, more sinister power is looming: aluminum smelting and electricity companies Ella Rubeli reports

Iceland is a country in constant change. A volcanic kingdom, since the dawn of time a war has waged between fire and ice. The remote island nation lies across a fissure between the continental plates of America and Europe, which are in constant rift, tearing tissues of earth apart and sporadically releasing surges of lava and gushing geysers. Since man learnt to harness this earthly power, the culture of Iceland has changed dramatically.

Suspended from the ceiling of the world, Iceland is a leading light in renewable energy production. A land of magnificent glacier-carved fjords and heat that blisters up through the earth’s core, it produces energy far beyond its domestic needs – all from hydroelectric power and geothermal plants. But this clean, cheap energy brings in polluting industry and international corporations.

A vast 80 per cent of energy produced in Iceland is used for aluminium production. Iceland has traditionally been very environmentally conscientious but now, due to economic desperation and political mismanagement, some Icelanders fear that its future is being determined by international aluminium and electricity companies. With two more smelters being built, environmentalists say that the chance to protect Iceland’s fragile ecosystems and spectacular wilderness is running out.

78 per cent of aluminium in Iceland is smelted by foreign owned companies. The power plants that provide energy to these factories are built exclusively for them.

While some Icelanders are desperate for investment to stoke the economy that went bust in 2008, many are far more skeptical as to whether aluminium is the source of light at the end of the financial tunnel.

Heroin for a dying town

Iceland is a prosperous country, but its prosperity is concentrated in its capital, Reykjavik. Small towns have suffered a much harder blow from the financial crisis and are in steep demise. It is these communities that are most willing to welcome companies, such as American smelting company Alcoa, onto their land to build huge aluminium plants that will employ large numbers of people and keep the towns alive for a few more years. Construction of these projects employs many people, but once that is done, power stations and aluminium plants need relatively few employees.

“Aluminium is like an instant fix, you’re a heroin addict and your economy has been suffering and you need something to fix it right away. Smelting companies outstretch a hand with candy and what do you do?” Says Icelandic political commentator Egill Helgason. In order to provide energy for the factories, the municipality must take out large loans to build power plants. By law, companies are able to approach these communities directly to make deals. Like many people from Reykjavik, Helgason advocates a diversified economy that focuses on sustainability and the growing arts and tourism industries.

Hydropower is created from fast flowing water, typically from a reservoir held behind a dam, which drives a turbine that powers a generatorGeothermal energy is made from hot water radiating from the core of the earth that turns to steam and drives a turbine that powers a generator

The latest controversy in Iceland was the devious acquisition of geothermal fields by Canadian company Magma Energy. The southern municipality of Reykjanesbær has been in monumental debt since the economic crash and has been forced to sell its schools, community centres and investments to private companies.

Head of the Left Greens parliamentary committee, Bergur Sigurdsson explains how the fields were first sold to a private Icelandic company called Geysir Green Energy that soon went broke. They were then sold cheaply to a Swedish puppet company of Magma Energy to evade an Icelandic law that prevents non-European companies from buying Icelandic companies.

The Icelandic community was outraged and an anti-sale campaign ensued, led by singer, Bjork. One month ago, the sale went through and the geothermal fields of Reykjanesbær are now owned by Magma Energy.

Magma CEO Ross Beaty now denies that he took advantage of Iceland’s economic depression, but in May of this year, he told Hera Research Monthly:

“We would have been farther along had (the global economic crisis) not happened, although we may not have had opportunities that we took advantage of. For example, going into Iceland was strictly something that could only have happened because Iceland had a calamitous financial meltdown in 2008.”

Cheap energy, minimum red tape


The aluminium industry began in the 1960s as an attempt by the Icelandic government to diversify its economy from fishing and sheep farming. Back then, the plants were of humble size and provided good revenue to a country that had an excess in electricity.

In 1998, in order to encourage energy and aluminium development, the Icelandic government opened up the law so that power over physical planning rested with local governments. It was called the ‘Cake Slice’ law and each municipality skirting the highlands was given control over their slice of the highlands. This made it a piece of cake for corporations to then come in and wage local deals to build power plants and factories. They also provided incentives, such as funding sports centres, healthcare and schools.

From that seed grew what has become a corporate aluminium empire, where international companies have leverage with local governments and continue to squander electricity from Iceland for the cheapest price in the world.

“You have something cheap- in Bangladesh it’s labor, in Iceland it’s electricity- companies aren’t going to think twice about exploiting you for it,” says head of Icelandic Nature Conservation Association, Arni Finnsson.

While he acknowledges opportunism on the corporations’ part, he believes that the federal government should take more responsibility.

“Irrespective of the owner, you need to have law on conservation, you need to have law on physical planning and you need to have law on environmental impact assessment. These legislations in Iceland are weak,” Finnsson says.

Iceland has three active aluminium plants that collectively produce 800,000 tons of aluminium per year. This makes Iceland the largest producer of aluminium per capita in the world, but because Iceland is so remote, the energy price has no competitive advantage and is cheaper than energy that is sold in Ghana.

The two largest smelters are owned by American companies Alcoa and Century Aluminum. Now, another two plants owned respectively by these companies are under construction, but due to Iceland’s bad economic reputation, they cannot get loans and have consequently both been stalled.

You can’t have your cake and eat it too

Smelters require a huge amount of electricity. In order to create that electricity, hydroelectric dams or geothermal plants must be exclusively built. The last dam built was the Kárahnjúkur Hydroelectric plant for Alcoa to run their smelter. Two glacial rivers were harnessed, and a sweeping fjord in the highlands was flooded to produce enough hydroelectricity.

The municipality of Kárahnjúkur had several prosperous years while the dam was being built -although Alcoa imported most of its workers for cheaper labor- and now the population is again in decline with unemployment on the rise. The municipality is still paying off its debt for building the dam.

Diversity not debt

John Perkins is an economist and author who has studied the practices of corporations across the globe. He says that companies Alcoa and Century Aluminum persuaded officials from municipalities to take out huge loans to build electricity sites to power the aluminium companies at a price that was extremely cheap. So cheap that they ended up in massive debt.

He believes that Iceland could make more money by harnessing its existing power to create different industries that would employ more people.

“From a national standpoint, the country would be way better off if it could find other ways to use its energy resources,” he says.

“They are essentially giving their resources away at a loss. It’s a self destructive mechanism that puts the country in huge debt which they cannot get out of without the assistance of the International Monetary Fund.

Andri Snaer Magnason is an Icelandic writer who published a book and made a documentary called ‘Dreamland’ that puts Iceland’s environmental and economic issues into global perspective. The book has sold 18, 000 copies.

“The plans for new smelters are actually madness, they are a gold rush, a craze, on a scale you’ve never seen in a developed country,” he says.


Geothermal is not strictly renewable

On top of the two planned smelters not having adequate loans to go ahead, the limits of nature are getting in the way. Arni Finnsson is very skeptical of geothermal energy. He says that research is limited and that there are no models showing gerthermal power stations lasting more than 30 years. In that sense, it is not renewable and some scientists think it may take hundreds to a thousand years for the heat to replenish.

“We cannot provide energy without destroying far too much and limiting the options for future generations. This nature is unique, you wont see it in any other part of the world,” he says.

“Sadly, I don’t think the government has power today to stop the new projects. In northern Iceland they’ve realised that Alcoa is pretty much in control.”

Environmental groups, such as Saving Iceland, are worried that more dams will be built, and Mr. Finnsson also argues that hydropower, like geothermal power, is not renewable. Dams have a finite lifespan as well, he said, because over time they fill with silt.

For now, Iceland no longer remains under a cloud of ash, but a cloud of uncertainty as it searches for environmental and economic solutions.

2 Responses to “The Dark Side of Green Power: A Modern Icelandic Saga”

  1. Dennis Burt says:

    Hi Ella.
    Great story, not many people outside Iceland would know this.
    Regards, Dennis and Wendy.

  2. Sophie says:

    Wow… I knew a lot about Iceland’s geology & physical beauty but I’m glad I investigated its energy options further! This is a catastrophe that needs to be featured on worldwide news! People like me who have travelled extensively are now looking for less obvious destinations with eco-tourism in mind. Iceland, with its expansive uninhabited & rugged “countryside”, is just starting to gain a reputation for “the last untouched garden of Earth”. Leave it to countries who have greatly polluted their land – & still do – as well as ruined the health of their population to go to Iceland & do it all over again, this time with full knowledge of what the results will be… What a short-sighted fiasco from the part of the Icelandic government as well! They DO have a responsibility to turn this “cake slice” law around & assist smaller communities to keep them from selling out & ruining their own long-term outlooks! I’m about to start a blog for our website (90,000 hits per week). I will definitely bring Iceland up (starting with its geology as most sci-fi fans have more than a passing interest in science), & educate readers about its energy & the threat to its future. Iceland’s solutions reside in selling its energy to Europe in safer ways & its tourism. In my opinion, New Zealand – which I was lucky enough to explore twice – & Iceland – which I hope to visit soon – are the most beautiful countries in the world. We can’t let this happen!!!