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Climate Change: North Atlantic Comparisons

ICELAND

Introduction

3.127 The sources of information on Iceland were its Second National Communication (Iceland’s Ministry for the Environment, 1997) and its associated review (UNFCCC, 1999e).

Figure 3.6 Outline map of Iceland (shaded)

Climate Impacts and Adaptation

3.128 The impacts of climate change on Iceland are potentially significant owing to Iceland's heavy reliance on natural resources. At present, they are difficult to quantify as existing climate models are not sophisticated enough to provide dependable predictions for Iceland and its surroundings. Iceland is located at the junction of cold and warm air and ocean currents; possible changes to current systems and the tracks taken by low pressure zones could have very significant effects. Over the next decades summers are likely to become warmer by an average of approximately 0.25 °C per decade, and the winters by an average of 0.35 °C (Iceland’s Ministry of the Environment, 1997). While warming is most likely during the next century, cooling as a result of changes in ocean currents remains a possibility.

3.129 In past centuries, climate variability has had dramatic effects on the lives of Icelanders. Yearly changes in temperature have led to substantial variation in agricultural yields, including hay for livestock. For example, a 1°C change in annual temperature can alter hay production by 20% in the most fertile regions. Early in Iceland’s history a deteriorating climate reduced the capacity of the vegetation to support livestock grazing, resulting in widespread erosion. Given the harsh environment, small temperature changes in the future could affect the balance between re-growth and erosion in many parts of the country.

3.130 Of greatest concern is the potential effect of climate change on ocean circulation, because of the importance of the fishing industries to Iceland. Even small changes could substantially affect fish stocks in the seas around Iceland, though predicting future change is difficult. It is clear, however, that primary productivity (by photosynthetic algae), distribution of fish stocks and the location of spawning grounds all depend on currents and ocean temperature.

3.131 Despite the large uncertainty in climate change predictions, the Government has begun to consider potential impacts and adaptation needs. For example, the National Energy Authority and the Icelandic Meteorological Office participated in a Nordic project assessing the effects of climate change on hydroelectricity production. Warmer temperatures could increase melt-water from the glaciers, increasing the flow in glacial rivers and hence benefit power production. Sea level rise is also a concern, as the population is primarily located in settlements along the coast. The Government has commissioned analysis of the danger of flooding and land erosion, along with an assessment of the available measures to minimise consequent damages to roads, harbours and property. Potential sea level rise will be taken into account when harbour infrastructure needs to be rebuilt.

Mitigation of Greenhouse Gas Emissions

3.132 The primary work on climate mitigation is described in the Second National Communication to the UNFCCC. A panel of experts is just completing a report on climate impacts and a committee is preparing a national implementation strategy to replace the present one, which will expire at the end of this year. Four task forces are considering fisheries, transport, carbon sequestration and economic impacts. There are, at present, no cross cutting policies aimed at carbon dioxide emissions.

Energy

3.133 Iceland is rich in the natural resources of hydro and geothermal power. All fossil fuels are imported. About one seventh of hydropower potential and 1% of geothermal potential is currently being exploited. The total energy supply is derived from 48% geothermal, 32% oil, 18% hydropower, 2% coal and a little gas. Energy generating capacity in 1998 was 1,213 MW, comprising 78.5% hydro, 11.5% geothermal, and 10% oil-fired, the latter which is primarily used as a backup in case of breakdowns. Further hydro and geothermal plant has come online during the last year.

3.134 Ninety per cent of the oil is used in the transport and fishing sectors. All coal is used in two manufacturing plants. One hundred per cent of electricity and about 98% of space heating comes from hydro and geothermal energy.

3.135 The conversion from oil-based space heating to geothermal sources was achieved over a period of 25 years. Following the establishment of an energy fund in 1950s to provide infrastructure to connect even remote areas to the grid, oil use for heating fell from over 40% in 1970s to less than 2% in 1998. The government provided subsidies, worth ISK6000 million (~£60m) in 1999, for the use of renewable-derived energy to replace oil for generating electricity. One financial instrument to increase the use of renewable energy consists of reducing VAT from the normal 24.5% to 14% for provision of geothermal energy and electricity for domestic heating. The VAT is partly refunded to households where electricity tariffs are higher than the tariffs in the capital, Reykjavik.

3.136 Future scope for fuel switching is now limited to the use of electricity sources onshore by vessels in harbour and some industrial processes such as fish meal production. The UNFCCC review team commented that there was a proposal to export 5,000GWh of electricity to Scotland via a submarine cable, though this is unlikely to be feasible before 2010 at the earliest (UNFCCC, 1999e).

Transport

3.137 The geographical dispersion and physical nature of Iceland results in a society highly reliant on road transport, supplemented by coastal shipping and internal air transport.

3.138 Existing funding for roads focuses on improving road surfaces and shortening routes. Public transport is primarily provided by urban bus services in the Reykjavik area and long distance coach routes to rural areas.

3.139 The Icelandic government uses financial instruments as its prime policy measure in transport. Public transport fares are not subject to VAT, while long-distance coaches and local bus services receive public funding at both state and municipal levels, which includes the refund of taxation charges. Total support in 1997 for public transport was ISK1000 million (£10m).

3.140 Private transport is taxed on purchase according to engine size by between 30% and 65%. An annual vehicle tax depends on the weight of the vehicle and all fuel has VAT added at 24.5%. However, electric cars are exempt from this excise duty and any annual charge. No leaded fuel is sold while unleaded fuel is subject to a 97% excise duty. Diesel-fuelled vehicles are liable to a kilometre charge, which varies from ISK 6.67 to ISK 25.05/kilometre depending on the weight of the vehicle. Vehicles weighing more than 14 tonnes are subject to a charge of ISK 100,000 annually. Owners of vehicles with high mileage can pay a fixed annual charge according to vehicle weight.

3.141 A transport task force considered issues of reducing transport fuel usage, improving fuel economy through better roads — many are unmetalled — and measures to reduce congestion. They emphasised the need to improve public transport, particularly through the co-ordination of local and long-distance services.

Business

3.142 Iceland’s economy is small, open and highly dependent on fishing and fish processing, based on its exclusive fishing zone of 758,000 km². The path of economic growth can be closely linked to the fishing and fish-processing sector. Nevertheless, as with all mature economies the service sector provides the greatest share of GDP.

3.143 Icelandic industry has a small number of important manufacturing plants. Fishmeal production produces the highest greenhouse gas emissions while other emissions arise from single production plants of cement, fertiliser, ferrosilicon and mineral-wool, along with two aluminium plants.

3.144 With the extensive renewable energy resource available, Iceland aims to attract further energy intensive industry. Pollution control operates on voluntary agreements between the Government and industry relating to energy and emissions. Regulation adheres to EC directives, particularly relating to the Integrated Pollution Prevention Control Directive (IPPC). The IPPC Directive also requires use of best available technology (BAT) to combat pollution. The Icelandic aluminium industry now operates to this standard as a result of the OSPAR Convention for the Protection of the Marine Environment of the North-East Atlantic.

3.145 Iceland aims to implement EC directives on waste and has an objective to recycle 50% of waste this year. More than 80% of waste goes to landfill. However, gas reclamation is only practical at the larger waste sites. The expected trend is towards a smaller number of larger waste fill sites, though transport emissions may rise accordingly, as may methane emissions since existing shallow waste fill only produce very low levels of emissions.

Domestic

3.146 Iceland is a signatory to the European Economic Free Trade Agreement, which means that in practice Iceland is obliged to meet the standards of EC directives. Most climate policies that are related to electrical generation or household energy efficiency are not relevant to Iceland because nearly all electricity and heating is derived from renewable sources of energy. Energy efficiency is thus tackled from the perspective of cost reduction and thermal efficiency in response to a cold climate rather than from a desire to reduce greenhouse gas emissions.

Agriculture, forestry and fishing

3.147 The Icelandic economy is heavily dependent on fisheries and fish processing. In 1996 fish products accounted for 76% of exports by value while agriculture accounted for only 2% of GDP, and is based mainly on livestock.

3.148 Fishing on a large scale results in substantial greenhouse gas emissions through diesel consumption by ships and the use of hydrofluorocarbons in refrigeration. In 1996, fishing vessels accounted for 35% of national CO₂ emissions.

3.149 Fishing policy is dominated by attempts to strengthen the cod stock and reduce over-capacity in the fishing fleet. Individual boats are given transferable quotas for each of the important fish stocks. This protects the waters from over-fishing and hence allows the maintenance of sustainable fish stocks. The quota system should promote greater efficiency and less fuel consumption for a given catch by reducing competition between vessels, reducing time spent at sea and fuel use, and hence emissions. Furthermore, the fisheries industry does not receive government subsidies, so boat owners have an incentive to minimise costs, of which fuel is an important component. However, the fishing fleet is exempt from fuel taxation, because of concerns about its competitiveness in world markets.

3.150 Most of the fishing fleet with onboard refrigeration uses hydrofluorocarbon-based systems. A key issue is whether, in response to existing and expected legislation, new equipment will be installed with either hydrofluorocarbons or ammonia. Current decisions will affect greenhouse gas emissions for many years to come, since systems have an operating life of 10 to 30 years.

3.151 Agriculture is dominated by livestock production, and is highly subsidised. Recently the system of support payments has been changed to improve efficiency and reduce excess production. From 1990 to 1997 the number of cattle was broadly constant, whilst the number of sheep fell. There are no direct measures to limit methane emissions in the agricultural sector, partly because much of the livestock is free ranging, but emissions are influenced by the effect of agricultural policy on stock numbers. The Government has provided support for organic farming and farmers are given subsidies to store manure for use as fertiliser. This has resulted in some reduction in nitrogen fertiliser use and hence somewhat limits nitrous oxide emissions, although methane emissions from bulk storage may be increased.

3.152 Land reclamation and reforestation are a high priority in Iceland. The public budget for reforestation and revegetation of degraded land has increased in recent years and the Soil Conservation Service has treated about 3% of Iceland’s land area. The prime objectives are to halt the erosion of soil and ground cover and reclaim as much lost vegetation as possible. Measures are also aimed at increasing the sequestration of CO₂ in soil, vegetation and forests, with the goal of achieving an annual sequestration rate of 100 Gg in 2000, representing 3.5% of national CO₂ emissions.

3.153 Iceland has the lowest forest cover in Europe, due to historic land-use patterns, and no forest industry. Measures to rectify this situation include planting seedlings of native birch and some conifers on areas protected from sheep grazing. The current goals of afforestation are future wood production, land reclamation and amenity. As well as reforestation by the public and voluntary organisations, support is given to farmers, partly intended to establish commercial forest plantations. Farmers can obtain subsidies to plant forests, but few have taken up this option, preferring to maintain existing livestock production. Newly planted forests are protected by law and cannot be cut down without permission.

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