Friday, October 31, 2008

Is Iceland the world's stupidest small country?

Iceland. It has had everything going for it. It has a pristine environment; it is a rich, under-populated country where clean green geothermal energy is plentiful. And what have the leaders of this tiny subarctic island paradise been up to?

In 2007, the NY Times reported on how Icelanders were busy ruining their natural environment:
Now, with proposals on the table for three more power-plant-and-aluminum-smelter projects, environmentalists say the chance to protect Iceland’s spectacular, and spectacularly fragile, natural beauty is running out.

“If all of these projects get through, then it’s a total environmental apocalypse for the Icelandic highlands; they’ll have developed every single major glacial river and geothermal field for heavy industry,” said Olafur Pall Sigurdsson, one of the organizers of Saving Iceland, a coalition of groups opposing further development.

“It is a very rare nature that we are the guardians of, and we are squandering it,” he said.
National Geographic reported:
"In the fall of 2006, secluded, faraway Iceland found itself at a turning point. A remote high-land wilderness was being flooded -- this to create a reservoir measuring 22 square miles as a power source for a new aluminum smelter. . . the land was going to be irreversibly changed: highland vegetation submerged, waterfalls and part of a dramatic canyon dried up, pink-footed geese and reindeer herds displaced. Environmentalists around the world were condemning the flooding as an attack on one of Europe's last intact wilderness areas -- they called it 'the drowning' -- and the Icelanders themselves didn't know if they were headed for an economic boom, an economic bust, and/or the greatest environmental disaster in European history."
Environmental disaster? An economic bust? We now know the the answer to the question posed by National Geographic.

First, environmentally, the project was a disaster. Blogger Ecorazzi reports on a protest led by Björk in June 2008 against plans for new aluminum smelters in Iceland:
When a previous aluminum plant in Iceland went online in 2006, waterfalls disappeared, beautiful canyons dried up, and animals were displaced.
Second, Iceland now faces a total economic collapse. Referring to Iceland today, a blogger asks, "I wonder what it is like for a country to be truly, permanently bankrupt?" The blogger's question was prompted by a report in the Financial Times: "The government of Iceland has now been offered foreign loans that roughly equal the country's gross domestic product. The annual interest payments, say 3-4 per cent, approximately correspond to the country's annual economic growth."

So what happened?

Iceland's leaders said, hey let's borrow money and live the jet-set lifestyle. WSJ reports: "They bought expensive cars with loans in yen and Swiss francs with attractively low interest rates, racking up high debts exposed to the vagaries of currency exchange." Iceland's government said: let's get into the mining and smelting business. A major cause of Iceland's high CAD (current accounts deficit) -- that help precipitate the country's financial meltdown -- was deficit spending on the environmentally ruinous projects. Today, a leading Iceland bank reports that "the benefit that Iceland derives from aluminum smelters is small." It is further reported that
Ásgeir Jónsson, an economist at KB-bank says that this year it is more difficult to build the smelters and they constitute a massive investment. After the smelters start operations they do not make much use of local factors of production because the aluminium is imported. Ásgeir points out that at the aluminium smelter in Reydarfjordur there are between 400 - 500 jobs which is a small number compared to the 150,000 jobs in Iceland.
Like so many mega-projects, Iceland's smelters mainly benefit the investors who build and maintain them. Mind you, this is not any smelting, but the smelting of one of the more toxic metals on the planet. I have strong opinion about aluminum smelters because I lived for a short time in town located near a major aluminum smelter. Although I did no know the actual statistics, the suicide rate did seem suspiciously high. Moreover, myself and everyone in the town seemed to suffer strange flu-like symptoms. The NY Times article noted:
. . . the new smelters would require about eight times the amount of electricity currently used for all of Iceland’s domestic consumption, putting a huge strain on the country’s rivers and thermal fields, said Hjorleifur Guttormsson, who was Iceland’s energy and industry minister from 1980 to 1985. Mr. Guttormsson, a naturalist, said pollution was another concern: aluminum plants are heavy emitters of sulfur dioxide, hydrogen fluoride and other chemicals.
Any country as rich -- in every respect -- as Iceland that chooses to go into debt to in order to develop an industry so destructive of the environment as aluminum smelters must not be terribly clever. But the fact that Iceland has ruined it's financial situation in the process of building these polluting smelters surely makes the country deserving of the title: World's stupidest small country.

But all is not yet lost. There are Icelanders like writes:
"Let's use this economic crisis to become totally sustainable. Teach the world all we know about geothermal power plants. Support the Icelandic seed companies. Support the grass roots.

"It may take longer to build and deliver profits but it is solid, stable and something that will stand independently of the rollercoaster rides of Wall Street and volatile aluminium prices."

"And it will help Iceland to remain what it is best at: being a gorgeous, untouched force of nature."

As the economic crisis worsens and global environment deteriorates, it is not only Iceland that must heed Björk's Perhaps the inhabitants of tiny Iceland -- having faced the alternatives -- will bravely choose to lead the way.
*"One of the most unspoiled places in the developed world, Iceland is slightly larger than Indiana, with a population of about 300,000 people (Indiana’s is 6.3 million). Two-thirds live in the capital, Reykjavik; the rest are spread across 39,800 square miles of volcanic rock, treeless tundra and scrubby plains. Seventy percent of the land is uninhabitable."


  1. You have only told one side of the Iceland story. They are on the cutting edge of geothermal energy development which is a great gift to the world. And their aluminum smelting plans make all the sense in the world. It is a natural business for IS with lots of cheap power -- what else are they to export.
    Just like many countries some people get over extended through borrowed money.

    Chuck Kezar, Professor LSC USA

  2. Chuck,

    You ask, "...what else are they to export?"

    Last time I checked the population of Iceland was 317,000. A country that small doesn't have to export much of anything. Tourism alone could support the entire population but only if they decided not to trash their environment. Throw in a handful of software companies, a few green design firms, an intergovernmental agency -- of course they've got fishing already -- and they've got a robust little economy for themselves.


Because all comments on this blog are moderated, there will be some delay before your comment is approved.