Iceland Has the World's Cleanest Electricity

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DANIEL ROSENTHAL / LAIF / REDUX

Piping hot HS Orka's 100-megawatt geothermal plant in Reykjanes

Not many bathing spas would choose to locate next to an electricity plant, let alone plunge visitors into the plant's murky waters. But in Iceland, the HS Orka utility company pumps 50 L of hot brine per second into the sprawling Blue Lagoon pool, which draws more visitors a year than the country's population.

But then, there's a lot that's different on this subarctic island where 318,000 people inhabit 103,000 sq. km. (At that density, Manhattan's population would be 224.) They eat puffin. The 68-year-old Prime Minister married her female partner in June. The capital, Reykjavík, elected a comedian as mayor in May. Angry protesters outside Parliament in October tossed not blood but yogurt. "We are a little bit strange," allows Katrin Juliusdottir, the Minister of Industry, Energy and Tourism. "But strange in an interesting way."

It's no surprise, then, that Iceland has devised a different and interesting economic-recovery plan to help it climb out of the financial tar pit created by the 2008 collapse of the country's banks and muddied again when Eyjafjallajokull blew its volcanic top in April. The economy shrank 6.8% in 2009 following the banking debacle, according to Statistics Iceland. Taxpayers face a suffocating national debt. Unemployment, historically not much above 1%, hit 9.3% in February before falling to 7.1% in September. Those yogurt-hurling demonstrators (who tossed a local version called skyr) were concerned about house repossessions.

Iceland is now pushing hard to attract foreign manufacturing and get agriculture, technology and media companies to locate in the North Atlantic country. That alone is not so unusual. Nor is offering tax breaks; Parliament passed a set of them in June, including a 10-year cap on the 20% corporate rate, which is among the lowest in the world.

But the linchpin of the scheme is something few other countries could offer: clean electricity. Really clean. Iceland generates 100% of its energy from renewable hydroelectric and geothermal sources, of which it has plenty. Melting glaciers feed hydro plants, and the same forces that fuel volcanoes drive geothermal power. Iceland wants a world that's keen to abandon fossil fuels to come and take advantage.

"We want to use our clean energy as a draw," says Juliusdottir. "We need people to start investing in Iceland again." The appeal of Iceland's electricity is not just in green but also greenbacks. Its electricity is among the cheapest in the industrial world. Probably more important, in an era of energy-price volatility, utilities in Iceland set rates for as long as 20 years. Add a modern grid system that doesn't creak, and you've got an attraction even in a world where nations from Germany to China are jockeying for the clean-energy pole position.

IBM seems to think so. It's rumored to be putting a data center in a former munitions storehouse on a windswept, disused NATO naval base 47 km southwest of Reykjavík, which would connect to Europe and North America via existing sub-Atlantic fiber-optic lines. Data centers could exceed airlines as CO2 culprits by 2020, according to McKinsey, a consultancy. A chilly, year-round Icelandic location would not only provide clean power but would also eliminate much of the considerable need for electricity to cool computer rooms.

"No comment," says an IBM spokesman when asked about the center, which would reportedly rent space from Verne Global, a Reston, Va., hosting company that is retrofitting the base. In May, Norwegian browser company Opera moved into a data center in Halfnarjordur, Iceland, for electricity reasons. And in another industry, New York City-based Globe Specialty Metals looks ready to locate a plant in Iceland to make silicon for solar panels.

Foreign industrial activity is not new on the island. But much of it has tended to be quite dirty. Aluminum companies started arriving in Iceland in the 1960s. Today Alcoa, Rio Tinto Alcan and Century all operate energy-intensive smelters there. Aluminum has reached a virtual tie with fishing as the country's leading industry, and some Icelanders think it should expand further.

"I'm not against aluminum smelting in Iceland," says Juliusdottir. "But it is not a smart thing to go from being dependent on fishing like we were before to being dependent on aluminum. We need to diversify."

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