Hydropower in Iceland

A Review of the Kárahnjúkar Project

Lea Rekow

This text reviews Iceland’s Kárahnjúkar hydropower project, built in the country’s eastern Highlands between 2002 and 2009 to provide electricity for the Alcoa aluminum smelter which was built at the same time. It analyzes to what degree Iceland’s hydropower can be considered environmentally friendly, and if the economic benefits it brings justify the environmental tradeoffs. Finally, it asks the reader to contemplate what the future holds for Iceland if hydropower continues to proliferate.

Godafoss, northern Iceland.


Known for its rugged terrain, Iceland’s landscape is characterized by active volcanoes, breathtaking glaciers, and majestic waterfalls flowing into crystal blue rivers. These natural treasures are promoted as valuable parts of an interconnected, dynamic, and energetic system that is intrinsically linked to Icelandic culture and history. Glaciers, and the rivers that flow from them, are among Iceland’s most impressive features. Glacial rivers have enabled Icelanders to harness hydropower to an enormous degree. Not only has hydropower become integral to Iceland’s reputation as a country that values nature and environmental sustainability, but it forms the foundation of the renewable energyscape for which the country has become renowned.

Following in Norway’s footsteps during the 1920s and 1930s, Icelanders became excited by the economic prospects that hydropower presented and began building hydroelectric stations for powering industrial operations like fertilizer factories. By the middle of the 20th century, the country had exceeded its domestic energy needs due to government investment in hydropower, yet hydroelectric plants continued to be built to encourage a heavy industries market. This trend has persisted, with the enormous and most controversial venture being the Kárahnjúkar Hydropower Project, built between 2002 and 2009.

Hydropower has been credited, in large part, with creating what we know as modern Iceland. Since the 1950s, 37 large-scale hydropower plants and 200 smaller ones have been built alongside a nation-wide power grid.1 Hydropower accounts for approximately 73 percent of all of Iceland’s energy production, while the rest comes mostly from geothermal. 80 percent of all energy produced in the country is used to power energy-intensive enterprises.2 3 By far the largest of these sectors is aluminum smelting.

Map showing power stations connected to Iceland’s national grid. All power stations larger than 1 MW are obligated to connect to the grid, but many owners of smaller hydropower stations also connect to the grid to sell their excess electricity.

Hydropower is key to Iceland’s national economic growth strategy. Plans to build more dams and hydropower plants in service of energy-intensive industries are viewed by both the government and investors as a desirable way for the country to prosper economically. The Kárahnjúkar Hydropower Plant is the pinnacle of Iceland’s hydropower efforts, supplying more electricity than Iceland’s next three hydropower plants combined.

Large dams and hydropower projects are well documented to have multiple negative environmental impacts. Yet, to flood a valley or redirect a river might seem a reasonable tradeoff to produce cleaner energy and generate economic prosperity. In the case of Kárahnjúkar, however, impounded areas, river flows, and water levels have been irreversibly altered, impacting land use and land cover to an enormous degree. This has adversely affected biodiversity, disrupted ecosystems, and destroyed unique geological features. Migration routes and calving grounds have been compromised and destroyed, habitats fragmented, water quality and aquatic life diminished, conservation areas reduced, GHG emissions produced, and civil discord generated. Despite the controversies and loss, the Kárahnjúkar power plant and its relationship to the Alcoa Aluminum Smelter for which it was built to power, are only now pressing Iceland to rethink its hydropower policies.

This review of the Kárahnjúkar project considers not only risks to ecological sustainability but brings into question the economic viability of such an endeavor. Further, it examines the political backdrop that continues to support this form of energy production in the service of heavy industry, and ponders what the broader environmental and ecological costs will be to Iceland if the country continues along this path. Finally, it asks the reader to evaluate for themselves to what degree the tradeoffs are worth it.


Kárahnjúkar Hydropower Project

Layout of the Kárahnjúkar project leading to the Alcoa Aluminum Smelter and port, just east of Reyðarfjörður.

Construction of the Kárahnjúkar Hydropower Plant (in Icelandic: Kárahnjúkavirkjun), also known as Fljótsdalur Power Station (in Icelandic: Fljótsdalsstöð) began its design and assessment phase in 2002, with construction completed in 2009. It was named after the nearby Kárahnjúkar mountains and involved damming two glacial rivers—Jökulsá á Dal and Jökulsá í Fljótsdal—with five dams to form three reservoirs. Both the dams and the power plant are owned and operated by Landsvirkjun, Iceland’s national energy company.

The power station is capable of generating 690 MW (930,000 hp) and was designed to provide electricity equal to 17,000 TJ per year to the Aluminum Company of America’s Alcoa aluminum smelter, located 75 km to the east in Iceland’s Reyðarfjörður municipality.

Kárahnjúkar dam, IMAGE: Christoph Hess, 2008 (CC-BY-SA 3.0)

Three concrete-face, rock-filled embankment dams are built on Jökulsá á Dal, and two on Jökulsá í Fljótsdal. The Kárahnjúkar Dam is at the heart of the five dams. At a length of 730 m it stands 193 m tall and contains 8.5 million m3 of fill materials. It is the largest dam of its kind in Europe.

The 25 km long, 2.1 km3 capacity Hálslón Reservoir, created by the three dams on the Jökulsá á Dal, transports water through a 39.7 km long, 7+ m diameter tunnel. On Jökulsá Fjótsdal, the Kelduá Dam forms the 60 million m3 Kelduárlón Reservoir which stands 26 m high and 1,650 m long. The Ufsarlon Dam downstream measures 37 m high and 620 m long. It creates a much smaller reservoir which diverts water down a 13.3 km long, 6 m diameter tunnel.

Aerial view of the Kárahnjúkar project, with dams and Hálslón Reservoir, Vatnajökull Glacier and Kyerfjöll Volcanic System (top right) in background. Kárahnjúkar’s Hydroelectric Power Station, with an installed capacity 690 MW, is the heart of Iceland’s largest industrial development. The US$1.18 billion hydroelectric power plant took 5 years to build and required the construction of 73 km of tunnels and five dams for three reservoirs. The Desjará dam is 60 m in height and of 1100m length. The Sauðárdals dam is 25 m in height and 1100 m in length. The Kárahnjúkar dam is 193 m in height and 730m in length and is one of the largest dams of its kind in the world. IMAGE: Fjóla Guðrún Sigtryggsdóttir, 2008.4

A single combined headrace tunnel connects the Hálslón Reservoir with the Ufsarlón Reservoir before splitting into two separate penstock tunnels, each 0.8 km long and 4 m in diameter. The water then descends down 420 meters of vertical penstocks into the underground power station’s six 115MW vertical-axis Francis turbine generators. With the subsequent discharge at 144 m3 per second into Jökulsá í Fljótsdal via tailrace tunnels and canals, the station achieves a relatively high 76% capacity factor. The power produced is then transmitted across 75 km to Alcoa’s Fjarðaál Aluminum Smelter at Reyðarfjörður.

The Alcoa Fjarðaál Aluminum Smelter

Alcoa’s Fjarðaál Aluminum Smelter and port in Reyðarfjörður. Aluminum metal is smelted from alumina (aluminum oxide) imported to the facility. Aluminum metal and products are then exported internationally from here.

Smelting aluminum is the process of separating aluminum from its oxide, alumina, which is derived from bauxite ore. Smelters require a tremendous amount of electricity as they use a major industrial electrolytic process to produce aluminum, and so are ideally located near large power stations that can provide inexpensive energy, and next to ports that provide easy access for ore or alumina imports and for exports of aluminum metal and products.

Alcoa is a Pittsburgh-based industrial corporation and aluminum giant. Its facility at Reyðarfjörður is comprised of a smelter, cast house, rod production and deep-water export harbor, several purpose-built roads, and an excess of underutilized purpose-built housing.5 The facility was built at the same time as the Kárahnjúkar power plant and became operational in 2008. In total, the facility employs 450 people and produces 940 tons of aluminum a day, with an annual capacity that reaches 346,000MT. Iceland is now the world’s 10th largest aluminum producer. The country’s three aluminum smelters combined produce over 840,000 tons of aluminum for export annually.

The aluminum industry uses more power than any other industry in Iceland, and most of it is provided by hydropower. These paired renewable energy / heavy industries installations have been backed by a variety of policies that have enabled their implementation. Over the last two decades, they have been proceeding at full speed, with economic growth of the heavy industries sector seemingly keeping pace with visions of a low-carbon future. As such, hydropower continues to play a major role in the nation’s energy portfolio.


Even though it is widely acknowledged that dams result in significant environmental tradeoffs, hydropower is often considered one of the best available, if not perfect, responses to human-induced climate change, at least according to the canons of commerce and industry. Dissonant perspectives about technological development, nature, and human-nature interactions become evident in conflicts over energy projects, even those that are considered somewhat ‘green’. Yet Iceland’s Kárahnjúkar project, like other mega-dam disputes, is particularly contested, not only for the toll it takes on surrounding landscapes and non-human nature, but for the connection to the heavy industries sector it serves.

Complex interactions between nature and what is perceived as eco-positive land use play a part in how land use is both interpreted and unfolds. The use of technology to harness renewable energy is seen as a progressive way to exploit nature for human benefit. Different worldviews associated with the environment and nonhuman nature, including ways that interactions occur within them, reflect alternative visions for how idealized and suboptimal futures are imagined. Recognizing how sociotechnical and nature imaginaries compete, entwine, and stand in opposition to one another, can help provide a better understanding of the polemic perceptions surrounding hydroelectric uptake and utilization in Iceland and elsewhere.

There is typically a great deal of contention associated with the implementation of mega-projects such as Kárahnjúkar. What is particularly affronting about this project, is that Kárahnjúkar lays bare a pattern of multipillar (social, political, economic, environmental) contestations that are still occurring within the context of Iceland—a country that is considered by many to embody relatively united sociotechnical and nature imaginaries.

The best available multipillar information should guide both renewable energy and environmental policies and practices, however macroeconomics and subnational socioeconomics are typically the primary metrics used to assess the value associated with large-scale hydropower projects such as Kárahnjúkar. In contrast, the natural sciences, as the primary sources of scientific information used to guide environmental impact assessments, are often downplayed, at least to some degree. Social and political influences further play critical roles in strengthening and weakening what evidence is seen and how it is weighed according to the socio-political bellwether. In the case of Kárahnjúkar, the ways in which these influences have played out are dramatic.6 7

An extremely low economic return on the Kárahnjúkar / Alcoa project was calculated as early as 2001, before it even reached the planning stage.8 In contradiction, the National Power Company’s Environmental Impact Assessment report claimed the project would be economically viable and supported its necessary tradeoffs. This report was reviewed and subsequently rebuked by Iceland’s Planning Agency (IPA)9, who countered that the glaring absence of environmental data gathered for the EIA report was insufficient enough to even compile it. Instead, the IPA issued its own conclusion (with legal standing) stating that the project’s economic benefits would be insufficient “to compensate for the substantial, irreversible negative impact that the project would foreseeably have on the natural environment and the utilization of land.”10 The IPA’s ruling however, was overturned in a landmark decision that arguably continues to undermine the weight of the agency to this day.

In 2002, an international coalition consisting of 120 environmental organizations called on financial institutions not to provide funding for the dam and smelter, citing environmental, legal, conservation, climate change, and economic impact problems.11 12 Environmental data compiled by numerous NGOs detailed several negative environmental and biodiversity impacts, including the devastation of Greylag and Pink-Footed Geese nesting areas, the decimation of reindeer calving grounds, and material breaches of the Bern and Ramsar Conventions.13 14

In 2003, a precedent-setting unilateral decision was made by Iceland’s Minister of the Environment, Siv Friðleifsdóttir, to rollback protections for the Kringilsárrani Nature Reserve, a legally safeguarded conservation area that would be flooded for the project. The same year, Susan Demuth wrote a scathing report condemning the decision and further criticizing the underpaid foreign labor used to build the Alcoa smelter (several workers died in its construction).15

By 2005, the reindeer calving grounds, bird nesting areas, geological formations, and historical sites of importance had been lost due to the reduction in size and flooding of the conservation area. Furthermore, silt residues left by changing water levels around the Hálslón Reservoir had dried to a fine dust to be deposited by winds onto local farmland, and the newly diverted glacial river was producing devastating dust storms.16

Andri Snær Magnason’s book Dreamland (in Icelandic: Draumalandið)17 and the subsequent 2009 documentary of the same name, revealed the biological devastation suffered by the Lagarfljót River as a result of the project.

Watch Dreamland, a 2009 documentary film directed by Þorfinnur Guðnason and Andri Snær Magnason.

In 2010, Hjalti Jóhannesson’s report, compiled for Landsvirkjun, provided a relatively positive socio-economic assessment of the project.18 In contrast, local environmental defenders told a story of intimidation and coercion.19 Throughout the course of the prior decade, a string of artistic expressions echoed the public dissent which had built over time. They included songs such as Björk’s Náttúra, Valgeir Sigurðsson’s Grýlukvæði and Sigur Rós’s Vaka.20 Esteemed biologist and photographer, the late Guðmundur Páll Ólafsson, also produced a provocative video to demonstrate the great environmental sacrifices that hydropower demands.

Watch the late Guðmundur Páll Ólafsson as he discusses photographs of Iceland’s natural beauty under threat from hydropower. The video shows Ólafsson tearing out the pages of a photographic book that show images of the Icelandic Highlands, until less than a dozen remain, as they are lost to hydropower and heavy industry.

Though opinion polls initially showed public support for Kárahnjúkar, protests were attended by between 8,000-13,000 people during the years the project was under construction, demonstrating that for a small country of 300,000, Icelanders were not of one mind on Kárahnjúkar.21 If anything, Kárahnjúkar laid the ground for a domestic protest movement that may have been unsuccessful in stopping the project moving forward, but nevertheless played an important role in building non-violent public support for environmental justice that continues to this day in many forms, including the work of direct action groups such as Saving Iceland.

Saving Iceland was formed in 2004 by locals who opposed the dam and smelter. Some of the more informative articles they continue to publish and republish on the subject of Kárahnjúkar include Damned Nation by Mark Lynas22; and Iceland’s Wilderness Under Attack23, in which the authors outline predicted impacts on wildlife and the pristine landscapes of the region. They also published a list of environmental impact facts and figures,24 and exposed how funding for Kárahnjúkar was attained in violation of the environmental and social guidelines set out in the Equator Principles.25 26

Saving Iceland also republished a series of aerial photographs that forewarn of possible cracks in the dam27, similar to those that have appeared in Brazil’s Campos Novos mega-dam of the same design. This is particularly disturbing because Kárahnjúkar has the added instability of being built near active volcanic fissures, an issue that was suppressed by the government when the Icelandic parliament voted to move forward on the project. The group also criticized the flooding of a historical site which could have greatly enriched the national understanding of the Icelandic Sagas.28

Magnason’s Dreamland further brought to light the level of popular dissent felt throughout the country and the international criticism the project drew. He also laid out how the Icelandic government entices international aluminum companies to Iceland with the lure of cheap energy. Alcoa presents the moral dilemma of being directly linked to the war industry and weapons production.29

Landsvirkjun’s own 2018 assessment of the project identifies several “significant gaps in proven best practices”, including failures in:

  • Governance;
  • Hydrological Resource;
  • Infrastructure Safety;
  • Project Benefits;
  • Project-Affected Communities and Livelihoods; and
  • Erosion and Sedimentation.30

Conflicting socio-economic and EIA reports driven by opposing agendas continue to circulate. Some cite negligible environmental impacts, while others document severe consequences and irretrievable loss. Perhaps more than anything else, the wealth of published literature about Kárahnjúkar / Alcoa—EIAs, mainstream media exposés, scholarly articles, economic reports, and personal testaments to name but a few—reveals an array of diametric tensions that to this day fracture national outlooks about hydropower in Iceland. What is clear is that there are serious environmental impacts that have resulted from this endeavor, and the social and economic benefits that Kárahnjúkar / Alcoa were expected to produce have not been as positive as the sociotechnical imaginary that was parceled and sold.


The Kárahnjúkar project is located within what was, prior to construction, the second largest unspoiled wilderness in Europe. The direct area estimated to be adversely affected by the power plant is 3,000 km2—or 3% of Iceland’s total land mass.31 This estimate does not include other impacted areas, such as landowners that are now having to cope with mitigating dust deposition on agricultural lands.

The plant’s five dams, constructed along the two glacial rivers, Jökulsá á Dal and Jökulsá í Fljótsdal, channel into three reservoirs that together have flooded more than 440,000 acres of undeveloped Highlands. Jökulsá á Dal and Jökulsá í Fljótsdal are connected to Europe’s largest non-arctic glacier, Vatnajökull. They produce a tremendous amount of glacial turbidity that is diverted into the Lagarfljót River. Prior to this diversion, Lagarfljót carried little glacial turbidity. Lagarfljót’s surface area is 53 km2. Due to its scale, in parts it is referred to as a lake. It is 25 km long, 2.5 km across at its widest point, and 112 m deep in some places. The 27 MW Lagarfossvirkjun Hydropower Station is located at the lower end of the river.

Kárahnjúkar’s location in relation to theVatnajökull Glacier.

All glacial rivers carry sediment, however, Jökulsá á Dal and Jökulsá á Fljótsdal carry a great deal of glacial mud and sand. Jökulsá á Dal carries thirteen times more sediment than any other Icelandic river—10 million metric tons each year. This increases many times over during glacial surges. Most of this sediment settles in the reservoirs,32 with the dams blocking silt emissions naturally carried from the two glacial rivers. This has caused the regression of the combined delta of the rivers, resulting in the destruction of a unique natural habitat. In summer, the two rivers are muddy brown due to the glacial turbidity.

When Kárahnjúkar’s reservoir fills, overflow channels to the Jökulsá á Dal. This carries a high amount glacial sediment that flows into Lagarfljót. Lagarfljót’s color has been significantly altered by the increased glacial turbidity resulting from sediment channeled through the lake. This in turn reduces photosynthesis, required for organic production, which in turn reduces fish nutrition. Lagarfljót’s visibility has dropped to less than 20 cm on the riverbanks, compared to 60 cm before the project was built. The murky water that inhibits algal photosynthesis and fish life has most notably impacted the trout population, which has decreased by 80 percent. Not only are there fewer fish in the river, but their sizes have also decreased significantly. It has also negatively impacted plant biota,33 and due to the decay of vegetation in the reservoirs, carbon dioxide and methane build up and are released into the atmosphere in the form of greenhouse gases.34 35

Because of river diversion, Lagarfljót has also experienced transformational erosion along a 50 km stretch of riverbank that affects agricultural land.36 This directly contradicts what landowners were told by a Landsvirkjun project engineer in 2013, when they were assured that water levels would increase only slightly, that no erosion or other impacts would affect Lagarfljot’s riverbanks, and that suspended sediment would only minimally damage biota.37

Landsvirkjun’s subsequent 2017 operational impact report counters its own engineer, citing numerous significant failures, including the extent of dust and erosion that does occur, a lack of stakeholder engagement regarding bank erosion mitigation, an inequitable regulatory framework, non-conformances with dam safety standards, lingering frustration among affected communities, and erosion in the Kringilsáranni area and around Lagarfljót, which causes ongoing environmental and social problems.38

Lagarfljót is only a part of the impacted area. 120 km of the mostly dry Jökulsá á Dal riverbed now only has water in the autumn, leaving the mud to be blown by the wind in spring, as two thirds of the lake bottom dries. The reservoir’s fluctuating water levels result in dry dusty silt banks causing dust storms that affect more than 3,000 km2 of vegetation. The prevailing warm mountain winds blow from the southwest, to deposit substantial amounts of dust on vegetation in the highlands, and cover populated regions in the valleys. The dust blows in such quantities that the sky is often obscured during the summer.39 Wind carrying dust and light sediment continue to accrue on highland vegetation and farmland in local valleys as time progresses.40 It has been predicted that this once biologically diverse region of the Icelandic highlands will become a desert in 40 to 80 years as the reservoir continues to silt up.

Dust storm over Lagarfljót and bordering agricultural lands. SOURCE: Saving Iceland.

Several other regions of northeast Iceland were annihilated to bring the Kárahnjúkar project to fruition, including the most densely vegetated area north of the Vatnajökull Glacier, which is one of the few places in Iceland where soil and vegetation had remained mostly intact. From the edge of Vatnajökull to the estuary of the Hérasflói glacial river, countless unique geological formations and 60 major waterfalls were submerged in order to realize the project. One of the most striking examples of how political influence impacted the development of Kárahnjúkar was the reduction in the size of the Kringilsárrani Nature Reserve by a quarter. The reserve, which had been fully protected since 1975, served as calving grounds for 33 percent of Iceland’s reindeer population and provided nesting habitat for numerous birdlife. It was nevertheless flooded to accommodate for the dams and the 57 km2 Hálslón Reservoir in a highly controversial decision that drew enormous criticism.41

Geologists who warned against the risk of building dams in this area due to tectonic plate movement42 were disregarded early in the project’s planning stage by Valgerður Sverrisdóttir, Iceland’s then Minister of Industry, who tried to publicly discredit their findings as being “politically motivated”. Aside from the threat from plate movement, the dams themselves could be in danger of triggering volcanic activity due to the geologic disturbance they create. Further, as cracks in Brazil’s comparable Campos Novos mega-dam project show, the design itself may be flawed, putting the structure at even greater risk.43 Adding to the geological instability of the region is land rise associated with the rapid deglaciation at Vatnajokull, a consequence of climate change that is affecting all glaciers throughout Iceland.

This wealth of scientific information was widely known prior to the planning phase of the Kárahnjúkar development. This is evidenced in Iceland’s National Planning Agency 2001 ruling that opposed the plant in its entirety for “its considerable impact on the environment and the unsatisfactory information presented (in the EIA)”44 and for the “great hydrological changes” it would produce, including on “groundwater level in low-lying areas adjacent to Jökulsá í Fljótsdal and Lagarfljót, which in turn would have an impact on vegetation, birdlife and agriculture.”45 It is no surprise then, given the strength of language issued in the ruling, that a great deal of backlash occurred when the Minister of the Environment overturned it to pave the way for plant to proceed.46 47

While subnational environmental impacts have been devastating, other environmental impacts are more global. Contrary to popular belief, hydroelectric dams can produce significant amounts of GHGs.48 49 The Kárahnjúkar dams’ contribution to global warming via the reservoir’s production of CO2 and methane have not been fully assessed, however, despite Iceland’s commitment to becoming carbon neutral by 2040, GHG emissions increased by 2.2% between 2016 and 2017.

Carbon dioxide and methane, Iceland’s two most common emissions, account for 85% of the country’s total emissions.50 Almost half of Iceland’s carbon dioxide emissions are attributed to heavy industry, in particular aluminum smelting.51 Methane, 84 times more potent than CO2 on a 20-year timescale, is produced through accumulation of decay in reservoirs. One recent study estimated that reservoirs already contribute approximately 1.3% of the world’s annual anthropogenic GHG emissions. Therefore, Landsvirkjun’s vague plan to become carbon neutral by 202552 must be called into question because it only addresses carbon, not methane that large projects like Kárahnjúkar produce. Further, as scientist Gudmundur Páll Ólafsson states, glacial rivers play a crucial role in reducing pollution by binding gases that cause global warming. The dams hinder the rivers’ natural function of carrying sediments out to sea.53

The environmental impacts from the Alcoa Aluminum Smelter are also sizeable. Since bauxite is not mined in Iceland, the smelting companies import the raw material from countries such as the United States, Ireland, and Australia. There is a massive carbon footprint attached to the global transportation of these materials. Moreover, the GHGs released in the form of perfluorocarbons during the aluminum smelting process are estimated to contribute to global warming at a rate 9,200 times greater than that of carbon dioxide. The Alcoa plant generates 1.8 MT of carbon dioxide for every metric ton of aluminum it produces. Further, emissions produced by smelting are a major contributor to air and water pollution as sulfuric acid mist produced by smelting plants may contribute to acid rain formation. The acid can spread several miles due to atmospheric movement and gravity. Acid rain causes a rise in acidity in surface water and soil, which is damaging to a variety of vegetation, wildlife, and fish populations. It also accelerates land erosion.

Alcoa and Landsvirkjun have persistently claimed the power plant and smelter carry enough economic benefits to outweigh the environmental impacts and risks, arguing that the project aids in combating climate change through efficient smelting powered by renewable energy. These claims, however, should be weighed in the broader context of environmental degradation produced by the hydropower plant and Alcoa’s aluminum smelter, and the combined externalities, including GHG emissions resulting from both.54


Hydropower is one of the fastest-growing renewable sources in the world, with a global annual growth rate of 2.4 percent in 2019 (Bairstow, 2019; Hydropower Status Report, 2020). Hydroelectric power provides around 17 percent of global electricity. Many countries aside from Iceland, including China, Brazil, and Russia, rely on it to a significant degree. In contrast to many other countries, however, Iceland does not generate any sizeable amount of hydropower for domestic consumption, but rather to support an international heavy industries sector.

In the 1960s, interest in the idea of using hydroelectric power in Iceland for the aluminum industry increased. In response Landsvirkjun built Búrfell, Iceland’s first large-scale hydroelectric station in 1972—specifically to power an aluminum smelter.55 The trend of Landsvirkjun constructing hydro-plants to power smelters has since continued.

Landsvirkjun is Iceland’s largest electricity provider. The company supplies approximately one quarter of Iceland’s energy and has built fourteen large hydropower plants since it was founded in 1965, yet it has a relatively low profit margin. Landsvirkjun was heavily leveraged after its large and rapid infrastructure investments. The cost of the Kárahnjúkar hydropower plant itself was enormous, coming in at US$3 billion, a tremendous cost overrun from the original estimate of $1,086 million. The project, financed by European and Nordic investment banks and private banking institutions, is a hefty debt for Iceland’s taxpayers to bear.56 Landsvirkjun’s ability after many years to reduce this debt, alongside the leap in aluminum prices, has made it possible for the company to finally make dividend payments to the Treasury in the amount of ISK 10 billion (approximately US$70.7 million) in 2020, and ISK 6.5 billion (US$46 million) in 2021.57 Still, this remains an extremely low return. It would be reasonable to expect around 11 percent in dividends from the company’s equity, but it has averaged two percent since its founding. Based on US$1.6 billion in equity, Landvirkjun’s total earnings should be closer to US$180 million.

The main reason for Landsvirkjun’s low profit margin is that the energy it provides to large consumers, such as Alcoa, is sold at an unusually low price point. Landsvirkjun’s pricing is vulnerable to global aluminum pricing fluctuations, on which its contracts are set, so the increase in aluminum prices resulting from Trump’s trade war and aluminum tariffs has bolstered its returns substantially over recent years. Furthermore, Landsvirkjun may be able to charge a higher energy price with Alcoa in 2028 when it renegotiates its contracts.58 59 In 2023 Moody’s upgraded Landsvirkjun to a “Baa1” credit rating, up from S&P’s 2022 BBB+credit rating.

Still, since its inception, independent reports have predicted a low profit outcome that contradicts Landsvirkjun’s economic projections and analysis.60 According to economic standards, the Kárahnjúkar plant should yield a return of 9 percent on book value yet yields only 6 percent. Moreover, as only thirteen people in total are employed at the Kárahnjúkar power plant, there is little opportunity for it to support local employment.61 An independent report, prepared by risk analyst Thorsteinn Siglaugsson, went as far as to conclude that “Kárahnjúkar will never make a profit, and the Icelandic taxpayer may well end up subsidizing Alcoa.”62 This indeed seems to be the case as Alcoa uses a transfer pricing model to avoid Icelandic taxes. Due to the massive debt owed to its parent company based abroad, the smelter has not generated any federal tax benefits, though there has been some local property tax and local income tax benefits derived.

There is little tracking of economic value to the communities in which the plant and smelter are located,63 and there is little evidence of any benefit to the labor market over time. Reyðarfjörður’s labor force had been mostly engaged in the fishing industry, which was in decline. The smelter essentially eradicated fishing altogether, and transferred employment opportunities to the smelter, which employs 450 personnel. Therefore, the anticipated boost the local economy has not materialized or led to improved economic prosperity in the region, as labor was simply transferred from one industry to another.

80% of all the electricity produced in Iceland—the vast majority being hydropower projects built for heavy industry—serve international corporations that only produce 1% of the national revenue and create only 1% of the jobs. These corporations pay below-market price for energy and export the majority of their profits.64 In 2020, aluminum oxide was the country’s largest material import (US$455M), and raw aluminum its largest material export (US$1.74B). However, approximately US$3.5 billion of Iceland’s Gross Domestic Product in 2021 was attributable to travel and tourism,65 making it Iceland’s most lucrative industry, with the sector accounting for the lion’s share of the country’s total export revenue.66 67 68 Tourism operators are largely opposed to renewable energy projects in general, as they blight the landscape and ecological integrity on which their livelihoods rely.69

Recently a new risk has emerged. In late 2021, diminished hydro-capacity caused power supply to be periodically diverted away from energy-intensive industries, including aluminum smelting and crypto mining.70 Iceland’s emerging need to cope with an energy supply crisis resulting from diminished water levels and flow71 compounds the already existing problem posed by transmission capacity gaps associated with water usage at Kárahnjúkar, a system which is not optimized.72

Iceland’s three main exports, by percentage, with international tourism indicated in red. Tourism presents its own conundrums: there are frequently not enough local operators to support rural enterprises or seasonal influxes of foreign tourists; long-haul international tourism contributes to climate change; and energy and tourism sectors are often at odds with each other. Furthermore, over-reliance on the sector creates economic vulnerability. Iceland’s total economic performance has become increasingly reliant on international exports, be it goods (primarily aluminum) or services (primarily tourism), over a relatively short period of time, yet the country remains in trade deficit. In 2021 Iceland incurred a -$1.9 billion trade deficit, an increase of more than 67% between 2020 and 2021.


Environmental ethics a prescriptive endeavor that lies at the intersection of two questions:

  1. To what parts of the natural world should intrinsic value be attributed (that is, beyond use or instrumental value)?
  2. What is morally important, and why?74 75 76

The ethical dilemmas that Kárahnjúkar / Alcoa present interlace with corruption among public servants to undermine legislation, call responsible governance into doubt, and disregard environmental protection policies expressed in legal frameworks. Political malfeasance arises across a number of domains, to such an extent that the project’s ecological, social and economic failures have been called a “huge textbook example of corruption and abuse of power”.77 Issues of concern range from a lack of responsible environmental planning, assessment, oversight and governance, to high infrastructure costs carried by the taxpayer, weak economic returns, negligible tax benefits, miscalculations of employment and social benefits, and poor social and stakeholder engagement. Susan DeMuth summed up the project as a series of complications that were deliberatively circumvented “by a government seemingly determined to push it through, whatever the cost to nature or the economy.”78 This appeared evident in several key instances.

The decision by Siv Fridleifsdottir, Iceland’s former Environment Minister, to overturn the IPA’s ruling to reject the project, led to a series of lawsuits that raised concerns about the nature of democratic institutions in Iceland. The move undermined the credibility of Iceland’s planning authority and demonstrated a lack of political transparency that has potentially corroded the agency’s legal credence.

In 2003, Friðrik Sophusson (then director of Landsvirkjun) and Valgerður Sverrisdóttir (then Minister of Industry) were filmed at the government’s signature ceremony with Alcoa joking to Iceland’s US Ambassador that they were “bending all the rules just for this project”.79 The manner in which public officials expressed, on camera, casual disregard for Iceland’s legal frameworks, suggests a lack of ethical integrity in those who were supposedly acting for the benefit of the country.

The same year, Alcoa and Landsvirkjun representatives, together with Iceland’s Ambassador to the UK, complained to The Guardian that DeMuth’s 2003 article, Power Driven should be pulled from publication, and offered instead to provide information to express an alternate viewpoint. The Guardian did not respond to the call, but the request itself aimed to undercut investigative journalism’s obligation to serve as a watchdog over public affairs and government.

When geophysicist, Grímur Björnsson, employed by Reykjavík Energy during the project’s planning phase, determined that the Kárahnjúkar dams were unsafe, he was prevented from publicly releasing his findings. Sverrisdóttir (Minister of Industry) failed to present Björnsson’s report to Iceland’s parliamentarians before the vote to allow dam construction, even though she was legally required to do so. This clear legal breach demonstrated there was no separation between support for business interests and the accountability of a government official who failed to act responsibly for the public good. Subsequent studies of the dams have since reinforced Björnsson’s findings.80 81

One of the most questionable policy actions of all was the 2003 precedent-setting move that reduced the size of the Kringilsárrani Nature Reserve and flooded the area to make way for the reservoir. The decision by Siv Fiðleifsdóttir was carried out despite the politician being aware of the tremendous environmental losses that would result. Regardless of heavy criticism, Fiðleifsdóttir doubled down on her resolve, declaring that legal protections for conservation areas in Iceland should not necessarily be considered permanent.82 In this instance, unilateral policy decision-making was used to bypass existing conservation protections in support of a commercial enterprise that had been legally determined to be at odds with the public good.

Over the years, many accounts of intimidation and threats to locals who opposed the project in towns close to the dams and the smelter surfaced. Some were threatened with loss of employment, at least one farmer lost his multi-generational family farm as a consequence of speaking out,83 and local stakeholders were sabotaged or deliberately misled in order to shore up support for a commercial enterprise.

These incidences crystalize an array of environmental ethics issues that relate to political shortcomings. Power and authority are major sources of corruption. Public institutions ought to be held accountable to uphold research findings conducted by legitimate scientists and independent planning agencies. Public officials should maintain a clear separation between commercial interests and the common good, and environmental protections should not be conceded or exploited for political gain. Socioecological protections should instead be balanced with multipillar societal benefits.


Most renewable technologies have a profound impact on the landscape. Depending on the energy density of the source, the extent of impact varies. ‘New landscapes of carbon-neutrality’ are not automatically embraced by all societal sectors. Iceland’s use of hydropower at Kárahnjúkar involved reconfiguring economic, political, and social patterns. It also entailed accepting a large-scale sacrifice of landscape and nature, which by necessity played an essential role.84

Iceland has more than 35 major hydroelectric plants and hundreds of small ones that result in multiple environmental harms. Icelandic energy companies continue to plan large-scale power plants—most of them located in highly sensitive ecological, geothermal areas.85 Damages resulting from Kárahnjúkar have been widely recorded, but there is less published literature about the environmental impacts of smaller dams, and as a result, less is known about the extent of the threats they pose or the impacts they have.

The mainstream narrative about Iceland is that its renewable energyscape provides considerable economic benefits, with hydropower presented as cleaner and more affordable than the evidence shows. There is a systematized greenwashing of hydropower in corporate, government, and UN narratives.86 With an additional eight hydro-plants scheduled to be built in Iceland, and hundreds of plants already in operation, more emerging perils are unfolding. As cascades of climate change impacts and compounding extremes increase, it is becoming apparent that Icelandic rivers do not produce an endless supply of water, nor do they come without sizeable adverse environmental effects.

Above all, Kárahnjúkar’s legacy is embodied in the destruction of river life, the flooding of unique landscapes of historical and ecological importance, the evisceration of irreplaceable ecosystems, nesting areas and calving grounds, increased glacial turbidity, erosion and sedimentation, a decrease in an ability to support fish life, and a degree of methane gas emissions that have been grossly understated.87 From an economic perspective, these sacrifices endanger the natural beauty Iceland relies on for tourism, an industry that accounts for twice the export market for aluminum and aluminum products.

Power production and nature-based tourism are generally considered conflicting forms of land use.88 Although the argument can be made that Iceland is over-dependent on tourism, this does not provide a legitimate case for increasing hydropower plants to advance more heavy industry. Hydropower, in the case of Kárahnjúkar, has also impacted farmers and other local stakeholders in detrimental ways, including posing livelihood and environmental health risks, without adding significant economic value.

Conservation areas, which are explicitly protected by Icelandic law, continue to be under threat of sacrifice for hydropower planning, with government representatives reversing protections that have long been in place. Furthermore, many power plants are situated near active volcanoes, some in areas previously buried by eruptions, making them highly vulnerable to seismic activity and breaches that would damage the environment further. Yet the likely threat from natural disasters continues to be largely ignored to provide multinational corporations with economic gains.

Much of the information discussed above suggests that there have been few lessons learned from the Kárahnjúkar / Alcoa project. In Iceland, many believe that heavy industry should no longer be welcomed, and that current policies and hydropower plants that sell off cheap energy, contaminate air, and destroy wilderness areas for little economic gain are not worth the environmental forfeiture.

Many questions remain unanswered. Will the growth of hydropower continue unbridled? Is Iceland’s energy-intensive aluminum smelting industry, which uses approximately 80 percent of all electricity generated throughout the country, worth the environmental tradeoffs? What impacts will hydroelectric have on Iceland’s river systems over the coming years? How will the heavy industries and hydroelectric sectors cope if water levels continue to decline? Will the government continue to sacrifice ecologically sensitive wilderness regions in support of hydropower? Will vast areas of land continue to be lost, and large amounts of water redirected? Ultimately, what future will Iceland craft for itself over the coming years as the climate changes, and can it find a balance that focuses as much on social and environmental protections as it does on generating corporate profits?


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