Energy policy in a small country with natural energy endowment



Iceland is in a unique position when it comes to energy

Iceland is in many respects in a unique position as an energy producer and consumer. The country is a large producer of primary energy, both electricity and heating water. About 80% of the electricity comes from hydroelectric dams and the remainder from geothermal plants. Importantly, all of the domestic primary energy is from renewable and environmentally friendly sources.


Iceland is a heavy user of clean energy

Relative to its size and reflecting its advanced economic development, Iceland is a heavy energy user. About 70% of the primary energy use is produced in Iceland and only 30% is imported, mostly oil and petrol. A considerable proportion of the energy use occurs in energy intensive industry, primarily aluminium smelting. There is also extensive use of oil in the fisheries and transport. The per capita emission of CO2 is similar to that of most European countries.


Use of geothermal energy is growing

About 90% of Iceland’s households reside in geothermally heated buildings and they utilise around 60% of all geothermal energy. At present about 18% of the geothermal energy is used for the production of electricity. Overall energy use has been increasing rapidly in past decades, and more recently from geothermal sources. In recent years, this potential is increasingly being tapped for industrial uses.


Energy production capacity is being expanded considerably

Over the next few years the productive capacity of hydro-electric as well as geothermal plants will increase considerably. The power will mostly be used by new aluminium smelters being built in Iceland. The proportion of sustainable energy sources out of total energy use will increase correspondingly.


Use of fossil fuels is limited and efficient

Iceland is dependent on imported oil for use in transportation as well as the fisheries and, in spite of efforts to develop and promote alternative energy sources, the dependence on fossil fuels for these sectors will continue.  Fossil fuel dependency in the economy as a whole has declined, however.


Oil price increases have had little impact in Iceland

Due to the limited use in Iceland, oil price increases have had a little effect on economic growth and inflation. While GDP growth rates in Iceland in recent years have been very high and inflation has temporarily risen well above the inflation target, this development had little to do with higher oil prices.


Structural reforms in the energy sector

As in other sectors of the Icelandic economy, efforts have been made to liberalise markets and privatise government owned enterprises. While the energy sector is still mostly in public hands, including the production of electricity as well as the distribution of electricity and geothermal water, it has undergone significant reforms.


The electricity sector is becoming more efficient

A recent legislation has changed the economic environment of the electricity market making it more efficient, providing as much as possible for the foundations for a competitive environment. These changes adhere to European regulatory mechanisms.


Energy Security

As noted in the paper prepared by the European Commission before our meeting the Norwegian authorities believe that the Barents Sea could represent a new petroleum province in Europe. It is obvious that the exploitation of oil and gas in the Barents Sea will increase both on the Norwegian and Russian side. Murmansk is bound to become a major oil export harbour and huge tankers with oil and gas will cross the North Atlantic to North America by Icelandic waters. To ensure security on these important sea routes Iceland is modernising its Coast Guard and looking forward to close cooperation with her Nordic neighbours Norway and Denmark as well as the United Kingdom, United States and Canada.


European trading scheme for CO2 emissions

I support the ideas put forward by Gordon Brown in his speech here today to set up a European trading scheme. We are already engaged in a dialogue with the European Commission to create such a scheme on the basis of the EEA agreement.


Energy Policy

To sum up, our objective is to protect the environment and to improve the functioning of energy markets.


Thank you.