How Iceland Went From Blood Feuds to Geothermal

The other day, we brought you a guest post by Nathan Myhrvold that chronicled his recent trip to Iceland. Here, as promised, is the next installment, equally fascinating, with equally stunning photographs.

What is Myhrvold exactly? As he admits himself, it’s hard to say — but in this TED talk he does a good job of describing a few of the many passions that make him tick.

How Iceland Went From Blood Feuds to Geothermal

A Guest Post

By Nathan Myhrvold

In a recent article, Malcolm Gladwell called me a Viking, but “the impish, roly-poly kind who stayed home by the fjords.” Icelanders seemed to agree — they would try to speak Icelandic to me. It is sort of the Latin of the North, because it is virtually unchanged from the Viking language of the 10th century.

The place names in Iceland are impossible. Pretty soon I was referring to places in a bizarre indirect way reminiscent of the “artist formerly known as Prince.” So Snafellsnes became “the peninsula that starts with an S” and so forth.

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While Iceland was clearly part of the Viking culture, it did not have a large enough population to support a professional warrior class for large-scale operations (the scary Vikings that raided much of Europe), nor did it have the merchants and traders that built and operated the Viking world. Instead they were primarily subsistence farmers. The Sagas are tales of blood feuds (a la Hatfield vs. McCoy) between a bunch of bad-ass sword-wielding shepherds.

The medieval world was cruel and violent, yet even so, the Vikings had a reputation as the worst of the lot. Yet today the former Viking countries — Norway, Sweden, Denmark, and Iceland are arguably the nicest and most civilized people on earth. How did this amazing transformation come about?

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Which brings us to the second major mystery of Iceland — how they managed to go from the poorest country in Europe to one of the richest. An interesting essay by economist Thorvaldur Gylfason is titled “When Iceland was Ghana,” because in 1901 they had comparable GDP.

The comparison is quite unfair of course — Iceland has way less in the way of every sort of resource, whether natural, climatic, geographical, or human. Naively speaking it should have done much worse than Ghana. Yet despite all of the disadvantages, Iceland somehow made it to the top.

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I was fortunate enough to have dinner with the president of Iceland, Olafur Grimsson, who is an amazingly articulate advocate for his country. I quizzed him on both the cultural question and the economic question.

The president offered some good insights but I remain confused about which of the issues are really central, and which are part of a historical “just so” story that describes symptoms rather than causes. I’m not faulting President Grimmson — it’s the whole field of developmental economics that ought to rise to the challenge. Besides idle curiosity, if one really understood the dynamics, it might inform Ghana and other places as to how they could develop further.

Modern Iceland is a funny place — clearly part of Europe in many ways, but clearly not in others. The cars are the first giveaway — along with the small European models that one would expect are lots of huge SUVs, many of them American.

Traditional cuisine and environmental attitudes aside, Iceland is a completely modern and technological society — I had GSM cell service and e-mail on my Treo virtually everywhere. Even the tiniest little hotels in very remote places had internet access — and all of it powered with clean energy, which is another amazing part of the Iceland story.

Virtually all of the energy in the country is generated by either hydroelectric turbines or geothermal power. A side effect of geothermal power is that the stark Icelandic landscape is punctuated by pipelines or rows of power lines stretching into the distance.

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Nearly any place you find natural hot springs, you find people promoting the health benefits of drinking or soaking in the water. It’s mostly bunk, of course. Whatever benefit you might get could also be had from a box of Epsom salt at home, but there is an allure to hot springs that overcomes that logic.

There are many such springs in Iceland, but the most amusing is a large facility called the Blue Lagoon. It is a geothermal power station, which generated a bunch of hot mineralized water from an artificial bore hole; it had such a high mineral content that the water is nearly opaque and milky, a bit like glacial runoff. The waste water was a problem until somebody had the bright idea of fixing the place up and charging visitors $30 a head to come and soak in what is essentially an industrial waste-water catchment basin for a power plant.

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You will find geothermal heat anywhere on earth if you drill deep enough, but the hole will have to be very deep (typically 10 kilometers, or 6 miles), and the rock will be dry so you must drill two holes. This adds to the cost. Indeed, the primary barrier in widespread geothermal use is drilling cheap, deep holes. Conversely, Iceland’s big advantage is simply this — they have hot rock a factor of 3 to 10 times shallower.

The United States has some geothermal. It ought to be more widely deployed — at least in the areas where the heat is shallow so it is cheap to tap. I need to understand the economics of why this has not occurred

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One reason is politics and special interests. Hydroelectric power is officially classified as not being “renewable,” for example. Wind power in the U.S. is basically a tax scheme that as a side effect produces some electricity — tax subsidies are central to its deployment. Solar also benefits from tax regulations, but less systematically than wind. Until recently, geothermal was not eligible for the same tax advantages as wind. That has been changed, and we’ll see what happens next.

Of course I didn’t come to Iceland for weird food or clean energy or Viking history; I came to see and photograph the landscape and the wildlife.

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The early summer weather in Iceland is cool — 52 F/10 C and quite variable. We could have bright sun or rain or fog or anything else on short order. A lot of my photos turned out to be moody as a result. It’s common to see crepuscular rays (also called “god beams”) from sun holes in clouds, or have a moody, misty sky over a harsh and barren landscape.

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hans

"..the Vikings had a reputation as the worst of the lot. Yet today the former Viking countries — Norway, Sweden, Denmark, and Iceland are arguably the nicest and most civilized people on earth. How did this amazing transformation come about?.."

Those times where violent all over, and the rist sufferers of Viking raids wrote most of the reporting: churches and the clergy. So, a biased story and ensuing reputation. All in all, the northmen who ventured out occupied and colonized and went up in the societies they encountered. After the collapse of the Roman Empire they were teh ones who brought new, decentralized, order in the form of small kindoms, the seeds of knighthood and feudal systems. A crucial step in the evolution of the western civil world. I'd like to think of of the northern countries as the frontrunners in the quest to ever more civilized communities; in the Viking age that was true allready.

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RCN

A note to Stephan: HIV/AIDS isn't a topical disease! Well maybe it is since it's non-existent in Iceland!

Stephen

I agree with #3 (and others with similar points). I think that people to easily discard the barriers to development in Africa, most importantly disease. The many tropical diseases that most African countries have to cope with extract a huge toll on their economies. Iceland, in my opinion, is very resource rich country, with the disadvantage (cold weather) fairly easily overcome. A small population helps too.

Bjarki

Electricity to heavy industries is not directly subsidised. The national power company does have access to cheaper financing as it is backed by the state but there is no "dollop of government money" being handed out.

Blaming all of Iceland's ills on heavy industries is not right. The current troubles are far more attributable to a banking and finance sector that went nuts and out of control government spending. That the state-backed loans taken by the national power company for the Kárahnjúkar project is somehow a big factor in the crisis is a novel theory to me, those amounts are miniscule put in context with the banking sector and the real-estate bubble in the Reykjavík area.

What this country needs is to actually produce more things of value instead of just shuffling paper around, and aluminum smelting is one way to do that (although it should never be the only way).

Maybe Baldur does not want to work in an aluminum smelter, and that's fine. But these plants offer a lot of well paid jobs for both skilled and unskilled workers and plenty of Icelanders do want to work there. It is utter nonsense that most of the jobs in that industry are being done by foreign labour, simply not true.

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AK

It's amazing what having no cheap fossil fuels will do for you...

Baldur Bjarnason

No 19, the government subsidises the electricity prices to big industry. They get their volume discount, a fixed price for decades and on top of that a huge dollop of government money.

The Kárahnjúka plant was made despite the warnings of geologists (it's on a fracture in a geologically active area), biologists (the dust clouds from the periodical drainings of the lake were considered likely to cause desertification of the surrounding wilderness) and economists.

The economists objections are worth noting. The Kárahnjúka plant in itself once it's fully operational could cover the entire country's domestic needs. It required massive foreign loans on the part of Icelandic companies which became a big driving force in the inflation that's crippling us now. It's owned by a foreign company so all of the profits go abroad. The power company doesn't expect to profit from the arrangement for 40 years.

The benefit, supposedly, is going to be jobs and more jobs (via a magnification effect through the local communities). The problem is, even in these dark days, we only have about 1-1.5% unemployment and most of us in the country work in finance, education, health service, software, tourism, fishing or the service industries around those. The aluminium smelter will offer only about 800 jobs. Most of them done by imported labour because Icelanders don't want to work in heavy industry.

Icelanders don't need more jobs, we need more interesting jobs. That has been sabotaged by the government's policies of emphasising heavy industry and economic and immigration policies (it seems it's only easy to get unskilled labour from abroad, not skilled, they might stay) that make it very difficult to run something like a software export company in Iceland. Most resort to moving a large part of their operations abroad and keep their headquarters in Iceland for tax purposes.

Iceland's economy is a mess and it is largely the fault of heavy industry, hydroelectric plants and a complete disregard of the voters wishes (one of the ruling parties was elected in the last election mainly on a platform of no more heavy industry, the other ruling party claimed that the emphasis on heavy industry wasn't their policy at all but that of those they formed the previous government with).

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Baldur Bjarnason

Just a short additional note. Those two bird species pictured - Puffin and the Arctic Tern - their populations have collapsed over the last few years because the population of the fish species they eat has collapsed.

(Collapsed, in this case is a literal translation of the Icelandic word the ornithologists have been using: "hruninn".)

Baldur Bjarnason

A few notes here. I'm an Icelander and it so happens that I've studied some of that whys and wherefores of Iceland's rise.

The first thing you need to do is to learn to spot the mythology. These are the "facts" that most Icelanders believe in but are mostly PR and nationalistic hype.

Aluminium smelting contributes less than 3% to our GDP and most of that even goes out of the country as profits to their overseas owners. Most of the staff are foreigners and the power prices are *subsidised* and fixed for an extended period of time (varies from smelter to smelter but on the order of 40 years in each case).

The power plants on the other hand are a large cause of our current crisis as the government owned agency took out a 1.5 billion dollar loan (government guaranteed) to finance just one of its plants. That in addition to the newly privatised banks taking on similar loans to "fund growth" lead to a massive bubble in the financial sector and the housing sector. The central bank tried to stave off consumer price inflation by ratcheting up the interest rates and strengthening the kroner, which has completely sunk most export companies that haven't moved most of their operations abroad.

When the bubble collapse (triggered by the collapse of the separate bubbles abroad) the kroner went with it.

The sad fact is that cheap energy has little to do with our current financial "success". Now that the kroner has adjusted, energy prices to the consumer are fast approaching those elsewhere in the world (ours isn't subsidised like that to the smelters).

Geothermal energy isn't renewable or clean. Hydrogen-sulphide levels in Reykjavik spike way over the European health limits on a regular basis with just a fraction of the planned geothermal plants in operation. The lifetime of a geothermal well like we're planning is 40 years, after that it will stop working. This is according to the people who are building the plants.

All of our hydroelectricity comes from glacial rivers or mixed water rivers. These carry mud. Tonnes and tonnes of mud. Most of our large hydroelectricity plants will become inoperative within my lifetime for that reason. Again, this is according to the people who are building the plants.

This is not to say that you can't argue that these plants are sound investments, but renewable they ain't and neither are they environmentally friendly (unless hydrogen-sulphide and sulphur-dioxide suddenly turned into "nice gasses" when I wasn't looking).

People need to be much more critical when they listen to the hype from my countrymen.

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Bjarki

The funny thing about energy in Iceland is that the per capita consumption of fossil fuels is among the highest in the world, on par with the USA. This is because of heavy reliance on the automobile and air travel in transportation and a large fleet of fishing vessels. Fossil fuels do however make up a much smaller percentage of total energy consumption than in most nations (around 30%) but this is because the total energy consumed per capita is far higher than elsewhere and most of it is used in energy-intensive heavy industries.

Michael F. Martin

Regarding the Ghana/Iceland mystery: Perhaps the obvious scarcity of resources in Iceland was constitutive of cultural norms favoring cooperation?

Bjarki

Baldur, someone asked if electricity for heavy industry was subsidized in Iceland and you made it sound like the government was actively pouring heaps of cash into direct subsidies. This is plain wrong. Landsvirkjun, the national power company, has the state's backing when it comes to financing but unless they default on these loans, government money does not come into play. There is nothing uniquely Icelandic about this arrangement.

Heavy investment in the Kárahnjúkar project and Alcoa's associated aluminum smelter may very well have been one factor in the current economic troubles. But with half-decent economic management measures, it never had to be. The total investment in dam and smelter may have been around 200 billion ISK spread over a period of 5-6 years. In the end most of that money went to paying foreign contractors who employed mostly foreign labor and used mostly foreign equipment, thus creating little inflationary pressure. In the same period a massive real-estate bubble in the Reykjavík area called for similar amounts of cash invested in housing there having far more adverse effects on inflation. At the same time the stock market bloated to unreal proportions. In July 2007 the combined market worth of companies listed at the Icelandic stock exchange reached around 3800 billion ISK, now it is 1600 billions. That wealth was never based in reality and that was bound to come to light sooner or later. The flaws in the financial systems predate the construction at Kárahnjúkar and it's silly to say that loans (miniscule in the grand scheme of things) taken by the power company were the cause or the start of anything.

As for the profitability of the hydroelectric project itself, all speculation about that will remain just that, speculation. In my view it should not be like that. Landsvirkjun is a publicly owned company and its debts are government-backed and that should be reason enough to keep no secrets about the premises of the business deals it makes. These things need to be out in the open so independent experts can come to their own conclusions about the profitability.

I realize that I am coming off here like a spokesman for the aluminum industry but that is not the case, I simply dislike half-truths and fuzzy logic in this debate about economics. There is no denying that these projects carry a heavy environmental cost and that is reason enough for me to doubt the feasibility of building two more smelters in the country. I do not ever want to see another hydro power project on the scale of Kárahnjúkar again nor do I like the idea of more geothermal plants in the southwest of the country. We should not completely stop harnessing the energy potentials of the land but it should in the future be put to other uses than aluminum smelting.

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Bjarki

My last post was in response to nr. 28. I too do think that we agree on more points than not.

"If we are to have any sort of ambition as a nation we need to aim much higher than just becoming a cheap place to process energy intensive basic commodities."

I completely agree.

Oliver Townshend

They are developing Geothermal pilot plants in Australia. The problem is that the hot rocks are nowhere near the electricty distribution lines, so the final cost could be quite high.

Baldur Bjarnason

I'd like to take the time here to point out some of the points of agreement between myself and Bjarki.

Namely, that Iceland's current situation where our economy is markedly worse off than the European average (dramatically higher interest rates and price inflation, amongst other things) is something that our ruling parties could have avoided and in many ways is due to their folly.

Also the point that we need to work on industries that produce things of value instead of just shuffling paper around is something I heartily agree with, especially in light of the ongoing disaster that is our financial sector.

We disagree on heavy industry, not as zealots or idealists, but because we simply assess the gains versus losses the industry offers Iceland as a nation and as an economy in different ways. I think other export industries such as software, media and design could offer the economy much more for much less investment and much less environmental damage.

I'd guess that Bjarki would say that it isn't an either/or situation, we could do both, and the truth probably lies somewhere in the middle.

My feeling hinges on a simple fact. Heavy industry isn't aspirational. If we are to have any sort of ambition as a nation we need to aim much higher than just becoming a cheap place to process energy intensive basic commodities.

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Bjarki

Sorry, where I wrote "fossil fuel consumption" it should have been petroleum consumption which is among the highest per capita in the world. Iceland does not use coal or gas which make up a large portion of the fossil fuels used in the world.

Vegard R

From 7:

"When I asked him why this happened he said, “The American Army did liberate Iceland, but not before the Germans re-engineered their entire geothermal power grid”

A comment to post 7:

Iceland was governed by Denmark, which was occupied by Nazi-Germany. But Nazi-Germany never occupied Iceland during WWII, thus it was never liberated but occupied by Great-Britain and USA. And occupational forces are usually never welcomed with open arms, even when they have the best intentions.

The presence of American forces on Iceland, has always been controversial, and it was much celebrated by many, when they last year moved most of their presence from the island.

Fade Dude

What is scary it that Iceland got suddenly rich and no one can really say why. It ain't the cod. I think they collectively maxed their national credit cards. Their currency is now diving like a European football player and the Cayenne's are piling up on the pier. Stay tuned. I think its gonna get way cheaper to visit real soon!

Harri

Let me foist on you my completely unsubstantiated pet theory for why Iceland managed to fast-forward from poverty to riches in a few decades. Perhaps nations more readily propel themselves onwards if they have some "past greatness" as a reference, perceived or real. For example, maybe China's memory of its magnificent Dynasties helps it rise from the ashes of Communism.

In Iceland's case it would the Sagas, the great literary works telling of our ancestors' exploits at the end of the first millennium. I'm sure they also contributed to the Icelandic reverence for the written word, and hence the unusually high literacy rates which helped a poor peasant nation leapfrog into the 20th century.

A less glorious factor may be the occupation of Iceland by the British and the Americans during WWII. It's an unfortunate fact that Iceland made out like a bandit during the war. And then came the "herring years", but I digress.

To AstroGirl: it certainly seems odd that an "intelligent, civilised, cultured nation" would engage in "something so barbaric". Could either one of these labels be wrong?

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Toxic

How did the whales pay for all the lobbyists they have? It's incredible.

Giant balls of swimming fat most people haven't even seen get ranked just below babies and kittens on the reverence scale. The hunted species aren't even endangered anymore.

absfabs

Maybe it's cause for many years Iceland had the most women in elected office. Could that be why? or maybe its geothermal, a glorious past, copper smelters, no disease? Who cares... I know one thing for certain about Iceland. The women are the most beutiful on earth. Gorgeous & Breathtaking. And in the end that's all that matters... no? Hot wife = babies = mission complete.