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Iceland Has Power To BurnThe tiny island nation can teach the United States valuable lessons about energy policy.

By Daniel Gross
Posted Wednesday, April 9, 2008, at 2:57 PM ET

This piece also appears in the current issue of Newsweek.

Other Newsweek stories on the theme of environmental leadership include:

Which candidate is greenest?
Why cars don't get 50 mpg
Gallery: The century's environmental leaders
Gallery: The history of solar energy

(Continued from page 1)

In the interconnected global economy, Iceland is discovering new ways to export renewable energy—whether it is building geothermal-powered tourist attractions or using hydroelectric power as an inducement for industrial companies like Alcoa. And today, Iceland views its expertise as a means of becoming a bigger player on the world stage. "We can contribute to the economic development of foreign countries by teaching them to use this resource," says Gunnar Orn Gunnarson, managing director of Reykjavik Energy Invest, a unit of an Icelandic utility that is currently working on a project in Djibouti—which lies astride East Africa's Rift Valley—that could provide electricity and water for drinking and irrigation.

Enex, an Icelandic firm backed by Geysir Green Energy, is in a joint venture with Chinese energy company Sinopec to build and manage a geothermal district heating system in Xianyang. Iceland America Energy, a subsidiary of Enex, is developing a geothermal plant in the Truckhaven area in Southern California. Glitnir Bank, one of the largest Icelandic banks, employs a staff geologist to evaluate geothermal projects and has funded geothermal companies in Nevada and California.

Icelandic New Energy, a four-person firm, is spearheading the country's efforts to sever the nation's remaining links to fossil fuels. In 2003, it opened the world's first commercial filling station and started running a fleet of three hydrogen-powered buses. Today, the company is overseeing the deployment of two dozen hydrogen-powered cars, including rentals available from Hertz. "If we can convert geothermal electricity into fuel, we can be a 100 percent sustainable society," says Jon Bjorn Skulason, general manager of Icelandic New Energy, as he guides his hydrogen-powered Prius through traffic on Reykjavik's Highway 1. He pulls over to a Shell station and inserts a card reader to activate a hydrogen pump.

Even with gas at $8 a gallon in local currency, an expensive hydrogen-powered Prius isn't competitive with a gas-guzzling Jeep Cherokee. In Iceland, the public sector has funded the hydrogen experiments and continues to play a significant role in the development of alternative energy. The efforts to move beyond polluting fossil fuels carry their own environmental costs. To build the hydroelectric plant that serves Alcoa required flooding pristine areas, for example. By and large, however, there's a consensus in Iceland that having the government take such action is good economics and environmental policy. "From a global perspective, it is more responsible to produce aluminum in Iceland from clean energy sources rather than producing them elsewhere from fossil fuels," says Prime Minister Haarde.

Companies are coming around to a similar view. Sipping a cappuccino and looking out over Reykjavik's harbor, Ossur Skarphedinsson, minister of industry, energy, and tourism, lists the blue-chip companies that have inquired about tapping into Iceland's cheap green energy. An American firm and Icelandic investors are spending $300 million to build a data center that will be rented out to foreign tenants—another new industry, and another way to export a natural resource.

At the Blue Lagoon spa, where plans have been drafted for a 150-room hotel, Anna Sverrisdottir, talks up her company's latest efforts to turn green energy into green. For about a decade, the spa has been selling pricey skin-care products at its gift shop and at the airport. This month, she says, Blue Lagoon's masks and muds will begin to appear in stores in America. "Do you know Saks Fifth Avenue?"

This piece also appears in the current issue of Newsweek.

Other Newsweek stories on the theme of environmental leadership include:

Which candidate is greenest?
Why cars don't get 50 mpg
Gallery: The century's environmental leaders
Gallery: The history of solar energy

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Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at . He is the author of Pop! Why Bubbles Are Great for the Economy.
Photograph of Björk on Slate's home page by Paul Kane/Getty Images
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