Iceland Has Power to Burn

The plant employs about 650 people directly—400 Alcoa employees and 250 contractors in areas such as maintenance, catering and security. Alcoa's presence has also stimulated the creation of an additional 300 jobs in shipping, logistics and engineering, says Tomas Sigurdsson, a Cornell-trained engineer who is managing director of Alcoa Fjaardaal. By creating enough jobs for 15 percent of the region's work force, the plant has lured Icelanders back to the east and stimulated the first housing construction in more than a decade. "The Alcoa project has revitalized the economy on the east coast of Iceland," says Prime Minister Haarde. The plant is also showpiece for Alcoa's sustainability efforts. As we sit in the glass-walled cafeteria, dining on curried Icelandic lamb and looking out over crystalline water, an official explains how new technology captures emissions from the plant's smokestacks.

Icelanders regard plentiful, cheap, guilt-free energy as part of their birthright. In the 1930s, Reykjavik's municipal utilities began tapping into the earth's crust, liberating energy bubbling under the surface to heat homes and water for domestic use. In the 1960s and 1970s, the country began to tap geothermal sources to drive turbines and create electricity. As Iceland has grown more connected with the global economy, its financial markets and institutions have been subject to volatility. But consumers have been insulated from the shocks of higher energy prices. Many things are expensive in Iceland, especially food. (A slice of surprisingly decent pizza in downtown Reykjavik will set you back $7.) But energy is cheap. Over the past 10 years, the price of electricity, compared with a broad measure of inflation, has fallen 75 percent in Iceland.

Icelanders are energy hogs. SUVs are as common on the roads in Reykjavik as they are in Rochester, N.Y. They use electricity to power de-icing systems in driveways and city streets, and to heat 130 outdoor swimming pools, which are to Iceland what Starbucks outlets are to Seattle. "If you want to hear the current gossip in England, you go to a pub; here you go to a swimming pool at 6:30 in the morning," says Asgeir Margeirsson, CEO of Geysir Green Energy, a private-equity firm that specializes in geothermal energy. In 2004, per capita electricity use in Iceland was nearly twice the amount in the United States. But their profligacy doesn't tax the economy or the environment unduly. From the low-slung headquarters of Reykjavik Energy, the capital city's utility, puffs rise from the horizon. The water vapor is the only form of emissions produced by the Hellisheidi Geothermal Power Plant, which sits in the snow-covered hills 13 miles outside of town. Iceland is one of the world's wealthiest nations, measured by income per capita, and the United Nations Human Development Index rates it the most livable nation on the planet.

In the interconnected global economy, Iceland is discovering new ways to export renewable energy—whether it is building geothermal-powered tourist attractions or using hydroelectric power as an inducement for industrial companies like Alcoa. And today, Iceland views its expertise as a means of becoming a bigger player on the world stage. "We can contribute to the economic development of foreign countries by teaching them to use this resource," says Gunnar Orn Gunnarson, managing director of Reykjavik Energy Invest, a unit of an Icelandic utility that is currently working on a project in Djibouti—which lies astride East Africa's Rift Valley—that could provide electricity and water for drinking and irrigation.

Enex, an Icelandic firm backed by Geysir Green Energy, is in a joint venture with Chinese energy company Sinopec to build and manage a geothermal district heating system in Xianyang. Iceland America Energy, a subsidiary of Enex, is developing a geothermal plant in the Truckhaven area in southern California. Glitnir Bank, one of the largest Icelandic banks, employs a staff geologist to evaluate geothermal projects, and has funded geothermal companies in Nevada and California.

Icelandic New Energy, a four-person firm, is spearheading the country's efforts to sever the nation's remaining links to fossil fuels. In 2003, it opened the world's first commercial filling station and started running a fleet of three hydrogen-powered buses. Today, the company is overseeing the deployment of two dozen hydrogen-powered cars, including rentals available from Hertz. "If we can convert geothermal electricity into fuel, we can be a 100 percent sustainable society," says Jon Bjorn Skulason, general manager of Icelandic New Energy, as he guides his hydrogen-powered Prius through traffic on Reykjavik's Highway 1. He pulls over to a Shell station and inserts a card reader to activate a hydrogen pump.