Iceland Has Power to Burn

The Blue Lagoon, Iceland's largest tourist destination, is a 100-degree melting pot. On a cold March day, as driving rain blows wisps of vapor from the nearby geothermal power plant, a group of Brazilian twentysomethings, a Japanese couple and teens from St. Paul's, the New Hampshire prep school, wade through the milky water and coat themselves in silica mud.

The lagoon was created entirely by accident. In the 1970s, the Svartsengi geothermal plant began to discharge water rich in salt, algae and silica, which turned into a kind of caulk. A pool formed in the featureless lava fields in western Iceland, and when locals jumped in, they found that it cleared up symptoms of skin ailments like psoriasis. Today, the Blue Lagoon sports a 15-room clinic and a spa that attracts 407,000 tourists annually. With revenue of $21 million and 200 workers, the Blue Lagoon is an Icelandic blue chip. "We are one of the 300 largest enterprises in Iceland," says Anna Sverrisdottir, managing director of the Blue Lagoon.

Iceland's economy, which until recently relied largely on fishing, has diversified in recent years, with rapid growth in tourism, manufacturing and financial services. And like the Blue Lagoon, much of the growth has been a happy byproduct of Iceland's decades-long strategy of tapping sources of renewable energy. Mindful of climate change and the need to limit emissions, many U.S. states have set goals of obtaining 10 or 15 percent of their energy from renewables at some point in the distant future, and the European Union has pledged to reach 20 percent by 2020. But Iceland is already at about 80 percent. All electricity on the island is generated through geothermal or hydroelectric sources—low-emissions sources that don't use fossil fuels. Most homes are heated by water pumped from geothermal hot spots. "We are blessed with a lot of clean and renewable energy," Prime Minster Geir H. Haarde told NEWSWEEK. "The only uses of fossil fuels in Iceland are people using cars and the fishing fleet." And increasingly, Iceland, whose most prominent exports have been haddock and Björk, is devising ways to export what has been a stranded resource.

Iceland is a small island with a tiny, ethnically homogenous population: only 300,000, with more than half living in the capital, Reykjavik. It lacks coal reserves, and is endowed with massive glaciers, which produce huge volumes of water that can be harnessed to generate electricity. It also happens to sit atop a rift in the earth's crust that keeps significant reservoirs of heat bubbling near the surface. To a large degree, it is the polar opposite of the United States. Yet we—and other developed nations—can learn some valuable lessons from Iceland about what happens when a society commits to the systematic development of renewable energy.

From the cobblestone streets of downtown Reykjavik, the storybook-cute capital, to the stark fjords of the east, positive collateral benefits—many of them unintended—are evident. None looms larger than the new $1.5 billion Alcoa Fjardaal plant, which represents the largest single private-sector investment in Iceland's epic history. East Iceland, separated from the more populous west coast by the vast Vatnajokull glacier, has been down on its luck in recent years. The fishing villages nestled against the rocky shore, separated by mountains—one of which is penetrated by a terrifying one-lane tunnel—have been losing jobs and their youth to Reykjavik. Reindeer seem to outnumber people.

But the American aluminum giant decided to build its first new smelter in 20 years near the town of Reydarfjordur, largely because of the promise of abundant clean power. Smelters require an immense amount of energy. Power-intensive companies like Alcoa are concerned both with their images and with the potential for initiatives that imposes costs on burning fossil fuels—from emission caps to carbon taxes. So when Landsvirkjun, the national utility, said it would build a 690-megawatt hydroelectric power plant 30 miles away, Alcoa took the plunge. Construction began in 2004, and today the massive plant—its 336 pots cover an expanse of nearly three quarters of a mile, the largest such line in the world—produces massive quantities of aluminum bars, coil and sheets. "It's almost the ideal place to invest, because of the combination of a highly skilled work force, an open and transparent democracy and the endless supplies of renewable energy," says Jake Siewert, vice president for environment, health and safety at Alcoa.