The Iceland Guide

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The land and the people

The economy and infrastructure: Industry and energy

Iceland's industrial revolution came some 200–300 years after that of most other European nations, but already the Icelanders enjoy a very high standard of living. However, with virtually no natural fuels, one of the greatest economic problems has been how to get and pay for the energy needed for industry and transport, for fuelling fishing boats and heating buildings. Peat and coal were the two major fuels earlier this century; peat supplied 30% of the energy needs in 1918, but by 1948 had become uneconomic, while coal's share was a massive 80% in the 1930s, however it was effectively exhausted by the late 1960s. It was oil that filled the energy gap and by the time of the huge oil price rises in 1973–74 it satisfied 60% of the energy demand, a share that was rising dangerously. The price increases threatened the whole economy and so a major effort was needed to speed up the development of the country's two great natural assets: hydroelectric and geothermal energy.

While oil products are used for road, sea and air transport, hydroelectric sources now supply 19% of the country's total energy needs and geothermal sources 37%. In a country lying at so northerly a latitude, keeping buildings warm is obviously important and about 40% of the total energy is used for this. Today, 80% of Iceland's homes are heated by geothermal energy, with only 13% using electricity and 7% oil.

With only about 12% of the economically exploitable hydroelectric power presently being used (the corresponding figure for geothermal energy is 5%), the last few years have seen the establishment of large–scale energy–dependent industries. By far the largest is the aluminium smelter at Straumsvík (south of Reykjavík) with its electricity being supplied by the new Búrfell hydroelectric power station on the Thjórsá. The Swiss–owned smelter produced its first ingots in 1969, and is now making enough aluminium to account for 10% of the country`s total exports. A ferro–silicon plant was set up in Hvalfjörður in 1979, and the other energy–intensive plants that may be set up in future years will most probably also be in the metals industry.

Near Mývatn, geothermal energy in the form of steam is used in the diatomite plant. This factory sucks up the microscopic skeletons (diatoms) that make up a 5–10m layer on the lake bed and dries them with steam, the finished product being exported for use in filtering equipment in the chemical and brewing industries. Geothermal energy will probably be used in the future for seaweed drying and the production of chemicals from seawater.

Iceland has few valuable minerals to exploit. Sulphur, which is a by–product of volcanic activity, is found in a number of areas and, indeed, was mined from the thirteenth to nineteenth centuries. Iceland was once the world`s main producer of the mineral "Iceland spar", which is used in optical instruments. Today, shellsand is used in the production of cement and volcanic slag is an important insulating material that is used in the building industry.

Although Icelanders enjoy a high standard of living, the economy has been subject to many fluctuations in past years, due mainly to the increase in oil prices and the variation in the size and value of the fish catches. Inflation has been one of the greatest recent problems, causing frequent devaluations in the króna, and increasing the price of imported goods (although currently the rate of inflation has been lower). In 1981 the value of the króna had fallen by so much that there was a full currency reform, with the new króna worth 100 of the old ones. Despite these problems, between 1969 and 1979 the national income rose at an average annual rate of 5% and unemployment was much lower than in other European countries.

With membership of EFTA in 1970 and a trade agreement with the EEC in 1972, the tariff barriers, previously erected mainly for fiscal reasons, have been brought down, causing some problems in home industries. The development of industry has inevitably led to a concentration of population, with over half of the country's population of c.235,000 living in Reykjavík and the surrounding towns.

What`s in the website ?


The land and the people

The first explorers
The Age of the Settlement
The conversion to Christianity
The discovery of Greenland and America
The collapse of the Commonwealth
The Dark Ages
The nineteenth century
The twentieth century
Culture in the Icelandic environment
Old Icelandic literature
Eddic and skaldic poetry
The Sagas
Later literature
Modern literature
Painting, sculpture and music
The Icelanders
Traditional living conditions
The seasons
Changes in the modern world
Independent minds
Superstition, morality and the media
The land
On the edge of Europe
The shape of the land
The volcanoes
The glaciers
The natural world
The climate
The economy and infrastructure
Industry and energy