Iceland – the first hydrogen society/economy



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|Transition to a Hydrogen Economy |

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|A Strategy for Sustainable Development in Iceland |

A report for the WWF International and the Iceland Nature Conservation Association by Finnur Sveinsson Nomik, Gothenburg.

April 2000

Table of contents

Introduction 1

The hydrogen experiment in Iceland 3

The hydrogen project 3

The project plan 3

Energy carriers 4

Why Iceland? 4

The energy transition in Iceland 5

Energy use 5

Greenhouse gas emissions 6

Energy potential 7

Hydro- and geothermal energy 7

Wind power 7

Landfill gas 8

Energy carriers 9

Transport pattern 9

Environmental aspects 9

Public transport 10

Economic analysis 10

Energy prices 10

Influence on the Icelandic economy 12

Industrial competitive advantage 12

Markets for emission quotas 13

Conclusion 14

Introduction

At a conference in Iceland on sustainable future development in January 2001, the country’s environment minister, Siv Friðleifsdóttir, introduced a draft policy on sustainable development until the year 2020. Amongst other things, it stated the goal that by 2020, 20% of vehicles and vessels in Iceland will be powered by renewable energy, i.e with hydrogen as energy carriers[1]. Furthermore, the draft policy aims to make Iceland the first country in the world to become free of dependence on fossil fuels.

Compared to other nations, Iceland has been quite successful in transforming its economy into one based on renewable energy. No other country in the world uses as little fossil fuel as Iceland for space heating and electricity generation. On the other hand, the car density is one of the highest in the world and investments in the fishing fleet have mainly been in energy-intensive factory trawlers. Therefore, the use of fossil fuels in Iceland per capita is still above the European average. For Iceland, therefore, the way to reduce carbon dioxide emissions is to replace the fossil fuel used by the transport sector and the fishing fleet with fuels based on renewable energy sources such as hydrogen.

In an article in the Economist in August 1997, MP Hjálmar Árnason gave the year 2030 as a target date for the government’s evolving hydrogen plans. The article created a buzz in the international community and Iceland’s prime minister released a statement announcing that the government was officially moving the country toward a hydrogen economy[2]. Hjálmar Árnason, who is also chairman of the Icelandic government’s committee on alternative fuel, estimated that Iceland could eliminate most of the nation’s dependency on oil by 2030.

In February 1999, on the occasion of the establishment of the Hydrogen and Fuel Cell Company (now Icelandic New Energy Co. Ltd, INE), the minister for the environment, Guðmundur Bjarnason, announced that it was “the government´s policy to promote increased utilisation of renewable energy resources in hamony with the environment.” Hydrogen is an exampel of such a resource for powering both vehicles and fishing vessels.[3]

During the last 3-4 years a number of articles about the Icelandic hydrogen project have appeared in international news magazines, the most recent one in Time Magazine for April 09 2001, Cool and Clean[4]. All these articles convey the message that Iceland will become free of fossil fuels within about 30 years, but they do not go into the details of how this transition can take place or whether Iceland is really prepared for it.

The objective of this study is to investigate whether the goal set in the draft policy for sustainable development is realistic and, if so, whether Iceland can go for a higher target in the next 20 years. In addition, an attempt is made to describe the economic conditions for this energy transition in more detail. A full conversion to hydrogen will not depend on Iceland alone. However, Iceland appear to be well suited as a pioneering market, and we assume in this report that the strategic vision of hydrogen as a dominant energy carrier will come true in the long term

The hydrogen experiment in Iceland

The hydrogen project

The Icelandic hydrogen project began in February 1999 when an Icelandic consortium, Vistorka hf (EcoEnergy Ltd.) signed a Cooperation Agreement with DaimlerChrysler, Norsk Hydro and Royal Dutch/Shell setting up a joint venture to investigate the possibility of replacing fossil fuel in Iceland with hydrogen and creating a “hydrogen economy”. The aim of the joint venture company, originally called “the Icelandic Hydrogen and Fuel Cell Company”, now Icelandic New Energy Ltd, was to test various applications utilising hydrogen fuel cells or hydrogen energy carriers.[5]

The project plan

At a conference held in Reykjavik on 2 March 2001, Icelandic New Energy presented a six-phase plan for the introduction of a hydrogen economy in Iceland. Exactly how and when each phase will take place is still under discussion. The phases are:[6]

Phase 1: A demonstration and evaluation project of operating hydrogen infrastructure and fuel cell buses in Reykjavik. This phase is known as ECTOS, an acronym formed from the name of the project (Ecological City Transport System), which was introduced on 2 March 2001 at a conference in Reykjavik. The key elements of the project are to integrate an on-site infrastructure in the city of Reykjavik (2001), to operate three hydrogen fuel-cell buses in Reykjavik (2002-2004) and to carry out socio-economic studies parallel with the project (2001-2005).

Phase 2: Gradual replacement of the Reykjavik city bus fleet, and possibly other bus fleets, with buses powered by fuel cells.

Phase 3: Introduction of “hydrogen based” fuel-cell private cars.

Phase 4: Fuel-cell vessel demonstration and evaluation project.[7].

Phase 5: Gradual replacement of fossil fuels in the fishing fleet by fuel-cell powered vessels.

Phase 6: Export of hydrogen from Iceland to Europe.

Icelandic New Energy is preparing for Phase 4, powering vessels with hydrogen, and investigating the possibility of exporting hydrogen to the European mainland.[8]

Icelandic New Energy estimates that the transformation of Iceland into a hydrogen economy could possibly be completed in 30 to 40 years[9].

Energy carriers

Most car manufacturers are working on developing vehicles driven by alternative fuels. Hydrogen is just one of many possibilities. Others include cars powered by electricity, ethanol, or methanol. There are also hybrid car concepts combining internal combustion engines with electricity storage and electric motors, or flexible fuels cars where conventional fuels and new energy carriers may be mixed.

These alternative fuels can be produced in different ways. Methanol, for example, can be produced by electrolysing water into hydrogen and oxygen and further processing the hydrogen with carbonic acid or by refining methane. Similarly, hydrogen can be derived from natural gas or by electrolysis of water, using energy originating from solar-, wind-, hydro-, geothermal or coal-powered plants.

The hydrogen project in Iceland is focused on hydrogen produced by electrolysis and stored as gaseous hydrogen or as methanol.

The first phase of the project, operating fuel-cell buses in Reykjavik and a hydrogen infrastructure, will use gaseous hydrogen produced in small electrolytic plant at a single site in Reykjavik. The input supply channels i.e. for the water and electricity, are already in place, but storage and tapping facilities must be built.

Parallel with Phase 1, Icelandic New Energy will carry out a joint study with the University of Iceland, Icelandic Alloys and Elkem ASA on the possible production of methanol from the hydrogen and carbon monoxide gases emitted from a 42-MW ferro-silicon furnace at the Icelandic Alloys ferro-silicon plant in Iceland[10].

In Phase 3, the introduction of hydrogen-based fuel-cell private cars, the energy carrier will be hydrogen or methanol, depending on what the car manufacturers decide. If methanol is chosen, existing infrastructure for distribution, storage and tapping of fuel can be used[11].

Why Iceland?

According to Jón Björn Skúlason, CEO of INE, there are a few key reasons why the foreign investors in question chose Iceland as a site for the hydrogen project[12]:

1. Iceland’s electricity is generated without the emission of greenhouse gases in the energy chain.

2. The standard of living and transportation system in Iceland are similar to those in most other European countries.

3. Iceland has already experienced an energy transition, and knows the pros and cons of such a transition.

4. The population is small, so the impact of the project will be large.

5. It has North European climate.

6. The Icelandic government has announced its support for projects aimed at the increased use of hydrogen in the near future.

Iceland is not the only country where such a project is under way, however: there are several similar projects focusing on renewable energy sources in progress all around the world. There are hydrogen buses running in some cities in Europe and in California the Air Resource Board is demanding that 10% of all new cars sold in California in 2003 will be zero emission vehicles (ZEVs). Iceland is therefore not a island in that sense that’s its only there that project demonstrating hydrogen infrastructure and hydrogen as energy carrier is under way. What is unique is that Iceland is the first country in the world that can be almost free of dependence on fossil fuels.

The energy transition in Iceland

Energy use

Total annual energy consumption in Iceland is 121.6 PJ (ca. 34 TWh). Approximately 7.185 TWh (1999) of this is in the form of electricity. About 84% of this electricity is generated in hydro-electric plants, and geothermal sources account for about 16%.[13] About 60% of the electricity generated (4 284 GWh) is used by the power intensive industries[14] and 40% (2 901 GWh) by other industries and the general market. The Icelandic Energy Forecast Committee estimates that the power intensive industries consumption will increase by 20% and the general market consumption by 50 % by year 2020[15].

Table 1: Energy in Iceland, by source and activity

|Type[16] |% |(TWh | |Activity[17] |% |(TWh |

|Oil |29 |9,9 | |Space heating |40 |13,6 |

|Geothermal |50 |17 | |Industry |27 |9,2 |

|Coal |3 |1 | |Residential |5 |1,7 |

|Hydro |18 |6,1 | |Fisheries |12 |4,1 |

| | | | |Transport |16 |5,4 |

The transport and fishing sectors account for c. 65% of the liquid fossil fuel consumed in Iceland. This figure does not include fuel purchased by vessels and aircraft abroad. Icelandic New Energy estimates that 10% (c. 5 TWh) of the energy potential in Iceland would be needed to replace the present oil import. [18]

Even though this report focuses mostly on the fisheries and the transport sectors, there is nothing to contradict the assertion that the remaining fossil fuel used in Iceland, with the exception of coal, can be replaced by hydrogen.

In Iceland there are about 150,000 private cars, 1,600 buses and 17,000 trucks, lorries, etc. [19] If the 20% goal presented in the draft on sustainable future is achieved, then 30,000 cars, 320 buses and 3,400 trucks, lorries, etc, will be powered by hydrogen by the year 2020.

Greenhouse gas emissions

Industrial society is contributing to climate change by increasing the concentrations of several greenhouse gases in the atmosphere. Globally, the most important contribution comes from carbon dioxide. The contribution of other gases to the greenhouse effect may be assessed as the equivalent amount of CO2 needed to cause the same effect on climate change. The contribution of different sectors may thus be compared using CO2 emission equivalents

Power-intensive industries in Iceland, which today consists of two aluminium smelters and one ferro-silicon plant, are the largest greenhouse gas emitters in Iceland (33%), with the transport sector and the fishing industry in second and third place, accounting together for 48% of the emissions.

Table 3: Emissions of greenhouse gases in Iceland.

Emissions per year Emissions by sources in 1999 Emissions in 1999

|Year |CO2 |GHG[20] | |Source | | |GHG |% |

| |[1000 ton] |[1000 ton GWP[21]]| | | | | | |

|1994 |2,292 |2,809 | |Industry |33 % | |CO2 |80 % |

|1995 |2,305 |2,860 | |Geothermal heat |4 % | |CH4 |8 % |

|1996 |2,395 |2,935 | |Household |1 % | |N2O |6 % |

|1997 |2,494 |3,068 | |Fisheries |23 % | |HFC |2 % |

|1998 |2,500 |3,114 | |Transportation |25 % | |FC |4 % |

|1999 |2,706 |3,410 | |Others |14 % | |SF6 |~ 0 % |

Source: Environmental and Food Agency of Iceland[22]

As mentioned above Iceland has a quite different CO2 emission pattern compared to other nations. Almost no fossil fuel is needed for space heating and electricity generation while two industries, the aluminium smelters and the fisheries, accounts for an exceptionally large part of the greenhouse gas emissions, compared to other nations. The emission from the fisheries and the transport sector are mainly from oil. The emissions from the smelters originate from carbon anodes and cathodes in the pots which cannot be replaced with hydrogen.

Energy potential

Hydro- and geothermal energy

It is currently estimated that the economically available hydro-electric energy potential in Iceland is about 35-40 TWh/year. Taking environmental factors into account, the hydro-electric potential is, at the most, 30 TWh per year. Harnessable geothermal energy is estimated at 200 TWh/year, mainly for space heating. Geothermal electricity is estimated to be about 20 TWh/year with present technology. Added together, the total electricity potential that could be harnessed from hydropower and geothermal sources is estimated at 50 TWh[23].

Others have estimated that the total harnessable energy (hydro and geothermal) is no more than 25 TWh when environmental factors are taken into account[24].

Because electricity generation in Iceland is almost entirely from hydro power plants, variations in demand are met by storing water from off-peak times to peak-times. However, all water can not be stored at all times, leading to an excess capacity or secondary electricity[25] in the hydropower system. The size of the secondary electricity depends on several factors, like precipitation, time of delivery, location of the electrolyse plant, capacity of the distribution network etc.

According to Árnason[26] et al electrolytic hydrogen plants could be in operation on off peak electricity. The hydrogen transition may therefore provide an even better utilisation of the hydropower system than today.

It is clear that it is enough energy available in Iceland to support the energy transition to a hydrogen economy. It can also be economically feasible because secondary energy and summer energy sold for only 50 percent of the price of the winter energy[27].

Wind power

The production cost of wind energy is determined by the investment cost, the annual price of which is directly related to the estimated rate of return. Direct investment costs have decreased significantly over the last decade. The learning curve shows that when doubling wind energy capacity, the price is reduced by 20%[28]. As a result, wind power may already today turn out to be the cheapest new source of electricity when low rates of interest are used in calculations.

On average the real interest rate over the last 13 years paid by the National Power Company was 4.6%. Using a 5% real interest rate, an investment cost of $600 per installed kW and depreciation over 25 years, the investment cost per annum is $42 per kW. A good located wind power plant with an average yearly electricity generation of 2,500 kWh/kW gives a investment cost of USD 0.017 per kWh. Variable costs are estimated at USD0.005 per kWh, resulting in a total cost of USD 0.022 per kWh.[29]

There is a trend towards larger wind power plants, and during the last two years the standard size of such power plants has increased from 500 to 1,500 kW. Another prevailing trend in some countries is to place new installations further off shore. The higher engineering and installation costs are partly compensated by higher average wind speeds, and thus larger annual production per installed generator capacity. Iceland, located on the Atlantic ridge in the middle of the Atlantic Ocean and sparsely populated, can install coastal wind power stations with the capacity of the off-shore stations.

Further cost reductions will be possible as experience accumulates. But there are also technological breakthroughs that may help reduce costs in greater leaps. One such leap in cost reductions may well be the Windformer system which ABB has presented. ABB believes potential cost reduction for investment and maintenance can be as high as 30%. ABB also estimates that the average size of wind power plants will be 3,5 MW.

With an average yearly electricity generation of 2,500 kWh/kW each wind power plant using ABB technology can generate about 9 GWh[30] per year. This means that about 560 wind power plants are needed to produce the 5 TWh of energy needed to replace the fossil fuel from the transport and fisheries sector.

Landfill gas

Upgraded[31] landfill gas, like natural gas, or methane gas, is used world wide for generating electricity, central heating and to power vehicles. In Iceland it is only relevant to use methane to power vehicles because of the abundance of geothermal and hydropower energy for central heating and electricity production. Methane can either be used to power IC engines or can be refined to hydrogen and used in fuel cells.

There is one site in Iceland that upgrades landfill gas for powering vehicles. The annual production potential is currently about 1,500 tonnes of methane which is about enough to power 1,500 private cars but today only a handful of cars are powered by gaseous methane. Methane potential is expected to increase to 4,500 tonnes in 2012 and remain constant at that level for 20 years[32]. One tonne is needed to power a private car for a year. This means that it will be possible to power 4,500 private cars (3% of all private cars in Iceland) [33] using methane gas.

Methane is a potent greenhouse gas with a global warming potential (GWP) of about 21 times CO2. If the methane is not used then it must be burnt at the landfill site in order to reduce its GWP. Each kg of methane burned forms 7 kg of CO2[34]. By using methane for powering vehicles, Iceland can reduce its CO2 emissions in GWP by 2%[35].

Energy carriers

Hydrogen will be produced by electrolysis and sold locally at hydrogen stations similar to today’s petrol stations. The hydrogen will be manufactured overnight and ready to use the next day. This means that there will be no distribution costs of the hydrogen to the selling site. The situation will be completely different if methanol becomes an intermediate energy carrier. Methanol will only be produced at one or two sites and has to be distributed to the retail outlets.

There is no biomass in Iceland for methanol production, but methanol could be produced from hydrogen and carbon oxides emitted from aluminium smelters and the ferro-silicon factory in Iceland. Reusing the carbon from the power-intensive industry may have some positive environmental effects. However, this will not lead to a total reduction in CO2 emissions from Iceland, but only a delay, and the emission would be shifted from industry to vehicles.

Transport pattern

Transport in Reykjavik is centred heavily on private cars, and the use of public transport is small. The transport structure favours the private car and there are few facilities specially built for public transport. It is estimated that the number of privately owned cars will increase by 50% in the next 20 years, which could lead to considerable problems in the future.

Environmental aspects

The fuel cell will reduce or solve many of the environmental problems caused by the transport sector, such as emissions of non-methane volatile organic compounds, sulphur and nitrogen oxides, particles and greenhouse gases and the formation of tropospheric ozone. There are, however, serious social, environmental and health-related problems that hydrogen or fuel cells will not solve.

Hydrogen is just an energy carrier. Its impact of hydrogen fuel use on the environment or public health will depend on how it is produced and stored. It is different if it the energy is stored as gaseous or liquid hydrogen or as methanol. Only as gaseous or liquid hydrogen will it be emission-free, since some CO2 emissions will follow if methanol using fossil coal atoms is used as an energy carrier. Other serious, and rarely discussed, problems are the traffic impact on the urban environment, and problems such land exploitation, congestion, noise, accidents and chemical emissions other than exhausts from the engine.

Land use for the communication infrastructure and traffic congestion are growing and ever more apparent problems in Reykjavik as well as the neighbouring communities. Building new roads will often provide only short-term solutions, since there is a latent demand for infrastructure use and new roads are soon congested, too.

Adding to the communication infrastructure for private cars is also an expensive way to meet the peak demand, which exists for no more than a few hours a day.

With modern cars, most noise from traffic is caused by the tyres, not by the engines. So, even though fuel cells are quiet, noise will continue to be a major problem. Other problems are chemicals like cadmium, lead and toxic organic compounds, for example in tyres.

As a consequence of the above, hydrogen is not a panacea to all traffic-related environmental problems caused by private transport in Reykjavik. Efficient public transport is needed to avoid the traffic congestion during peak hours at bearable cost.

Public transport

Developing an attractive public transport system is of interest for several reasons. The basic infrastructure exists today and an entirely new one is not needed. Traffic congestion in small cities like Reykjavik is usually caused by relatively few vehicles because each additional car causes an increased accumulated travel time for all others cars. Improving public transport, or encouraging drivers to use it, likely to be significantly more cost-effective for eliminating congestion than building new roads or infrastructure. It is easier to control emissions from buses than private cars and it is usually more cost effective, too.

Economic analysis

Estimating the entire cost of the energy transition is impossible at this stage because the future costs of new technologies are not known. But some crucial indicators can show if it is economically possible or feasible.

Energy prices

The fuel cell is assumed to be two to three times as effective as the conventional IC engine.[36] On the other hand hydrogen or hydrogen-based fuel can have higher production cost than traditional fossil fuels. The production cost of hydrogen depends almost entirely on the price of electricity. Table 4 shows current prices from the National Power Company in Iceland.

Table 4: Current electricity prices from the National Power Company

|Type of energy |ISK |

|General market[37] |2.86 |

|Power intensive industry[38] |0.97 |

|Secondary electricity[39] |0.753 – 1.853 |

One 160-dm3 barrel of oil produces about 1,700 kWh in a combustion engine and its price can vary between USD 20 and USD 50. Assuming an average of USD 25 a barrel, this gives a price of USD 0.015 per kWh. Árnason et al[40] have estimated that with electricity priced at USD 0.02 per kWh, hydrogen can be produced at price three times higher than oil per kWh. On the other hand, since the fuel cell is 2-3 times more effective than the IC engine, fuel cells utilizing hydrogen generated from hydroelectricity are becoming competitive against gasoline and oil, (not counting the distribution costs).

These calculations are based on an electricity price that is twice as high as that paid by power-intensive industry or almost three times the price for secondary electricity. The energy transition requires more electricity than the power intensive industry uses today. It is therefore reasonable to assume that the electricity price for hydrogen production could be same as the power intensive industry is paying today. Arnason et al[41] have indicated that hydrogen could be partly produced with off peak or secondary electricity. It is therefore reasonable to assume that the electricity price for hydrogen production could be in the range of USD 0.0075 to USD 0.01 per kWh, as the power intensive industry is paying, instead of USD 0.02. If this were the case, hydrogen could very well compete with fossil fuels.

Technological Institute of Iceland [42] has estimated that if methanol is used as an intermediate energy carrier and the electricity price is USD 0.01, that the production cost of methanol will be USD 0.05 to USD 0.06 per kWh[43]. At present, methanol is not as competitive alternative as gaseous hydrogen.

From an environmental point of view, renewable energy sources must replace the fossil fuels. Hydro-electric energy has until recently been considered as “environmentally friendly”. Nevertheless, there is rising public opinion, both in Iceland and world-wide, questioning the desirability of hydro-power plants and dams because of their environmental impact.[44] In addition, an untouched natural environment is believed to have a growing economic value. Hence, it may even turn out to be more profitable to conserve sites which today are considered as fit for hydro-power development. In other words, it is quite possible that Iceland will have to revise its energy policy and opt for other sources of energy such as geothermal or wind power.

Wind energy is not yet competitive to oil or hydropower but might become so in the not too distant future. Alternative energy is getting cheaper and experience shows that cost declines by about 20% for each cumulative doubling of production[45]. Oil prices are also expected to rise in the future, not because current oil reserves will run out, but rather because the world will consume oil faster than it can be extracted from the ground, according to the International Energy Agency[46].

Alternative sources like wind power are therefore assumed to be competitive in the near future.

Influence on the Icelandic economy

The transition from fossil fuel to renewable fuels, mainly hydrogen, will have positive influence on the Icelandic economy, both directly and indirectly.

In the year 2000, Iceland had a foreign trade deficit of USD 740 million (ISK 68 billion)[47]. In 2000 the fossil fuel import was about USD 185 million (ISK 16.5 billion) or a quarter of the deficit. On top of these savings, the energy transition will raise GDP, depending on electricity price, by up to USD 100 million or 1.5% of 2000 GDP level of 7.3 billion dollars.

Domestic energy production will reduce both the foreign trade deficit and have a positive influence on GDP. It will also have the considerable advantage that Iceland will rely primarily on domestic energy instead of being vulnerable to foreign price changes , because studies have shown that economies are more sensitive to price changes than to energy prices per se.[48]

Oil accounts for about 4.7% of the consumer price index in Iceland, which directly affects long-term interest rates. Also, higher oil prices contribute to higher interest rates and jeopardise economic stability. Furthermore, using domestic energy will contribute to stabilising the fishing industry, which generates 60% of Iceland’s export of goods; in 1999 the fishing fleet used about 300,000 m3 of oil[49].

Industrial competitive advantage

During the process of introducing hydrogen as energy carrier and fuel cell vehicles in Iceland will involve many people in Iceland. Even with significant participation of companies based in other countries, individuals living in Iceland as well as Icelandic companies will have the opportunity to accumulate experience and develop know-how on the technologies and systems involved.

If hydrogen energy systems will get the future growth often predicted today, Iceland will have the advantage of having individuals and companies able to offer solutions for which there is a growing international demand. Iceland may succeed to place itself in a position hydrogen technology market similar to the position taken by Denmark in the wind power market. To the Danish economy the global growth in wind power investment has been of great importance. In the year 2000 wind power industry was the passed the medical industry, making export of wind technology second only to agriculture in Danish export[50].

Markets for emission quotas

One of the most important mechanisms in order to achieve the goals of the Kyoto Protocol is to create markets for CO2 emission quotas. Iceland could market some 1,300,000[51] to 2,000,000 tonnes of carbon dioxide per annum if this amount were saved by the transition to a hydrogen economy. Multinational companies and some states have tried to estimate the market price per emitted tonne of CO2.

British Petroleum (BP) has an internal market for emitted tonnes of carbon dioxide with price at about USD11.3 per tonne.[52] Using BP’s price, the environmental saving resulting from the transition to hydrogen will be about USD 14.7 to 22.6 million. For comparison the carbon tax in Sweden is USD 180 for private consumers per ton of carbon, or USD 45 per ton of carbon dioxide, which is four times the saving based on BP’s figures.

Whether these savings can be realised on some emission markets in the future remains to be seen, but it is a clear indicator of the environmental cost these emissions are causing.

Conclusion

Iceland is not the first country to set a goal for replacing fossil fuels with other energy sources. After the oil crisis in 1973, Brazil experienced declining profits in its sugar producing regions. Domestic ethanol production was seen as a solution to these problems and government subsidies favouring ethanol for powering vehicles were adopted. It took some ten years from the initiation of the “ethanol programme” to raise the share of ethanol cars to 96% of all cars sold in Brazil in 1985.[53]

The strong commitment by the Brazilian government was crucial for the rapid expansion of the ethanol program[54]. All the premises for a rapid conversion from fossil fuels to renewable fuels exist in Iceland. There is no lack of energy. With a moderate increase in the number of fuel-cell cars in Iceland over the next ten years, and given that almost all new cars as of 2015 will be fuel-cell cars, then more than 50% of all cars in Iceland will be hydrogen powered by the year 2020. If 50% of all cars in Iceland use renewable energy, the government goal set out in the draft policy paper for sustainable development can be achieved without replacing fossil fuel in even a single fishing vessel. Therefore the government should revise its goal and set a more ambitious one of at least 30% to 40%.

To reach a goal of 30-40% replacement, the Icelandic government would have to set a clear programme for replacing fossil fuels with hydrogen in close co-operation with local authorities. In this report it has been pointed out that all the conditions for rapid transition do exist. The energy transition would reduce the foreign trade deficit by 25%[55] and increase GDP[56] by 1% to 1.5 %. This is in fact a win-win situation for both the Icelandic economy and the global environment.

The Icelandic government must subsidise the transition in some ways. Our recommendations are to do so using the market mechanisms such as carbon dioxide taxes or rewarding those using renewable energy. If the electricity price for hydrogen production by electrolysis would be the same as that offered to power intensive industry, then gaseous hydrogen would be competitive to gasoline in terms of price. In this way the government could encourage the transition during the initial phase of the transition. After the transition is completed the electricity price for hydrogen producer would be based on the quantity purchased, and the marginal cost of increasing production capacity.

On the other hand, methanol must be subsidised, if it is to become an intermediate energy carrier. The best way to do that is probably by imposing carbon taxes on all fossil carbon. Because methanol contains much less carbon than gasoline, or even no fossil carbon, it will then become more competitive, compared with gasoline, than it is today.

Another potential economic advantage is the future trade in emission quotas for greenhouse gases. If all carbon dioxide saved by the transition to a hydrogen economy could be sold on emission markets the possible gain would be somewhere between USD 14 and 22 million.

A basic requirement for all these gains is a rapid transition towards the hydrogen economy. It has been shown that it is quite possible to replace 50% of fossil fuels for private vehicles in the next 20 years, given full commitment by the government and the use of existing technology.

The energy transition will lead to a win-win situation for both the global and, to some extent, the local environment and the Icelandic economy. The transition will not, however, solve environmental problems such as land use, traffic congestion, toxic wastes or part of the traffic noise problem. It has been estimated that traffic in Reykjavik will increase by 50%. Furthermore, Reykjavik is expanding, so the transport level, measured in person-kilometres[57], will increase in the future and so will these problems. More roads will only lead to increased demand for the infrastructure as long as access to the roads is free, and experience has shown that nowhere in the world has any city succeeded in building away these problems.

The only way to reduce these problems is an enhanced transport pattern with a focus on a public transport service. Public transport would also support the energy transition because of city buses’ low energy efficiency[58]: hydrogen-powered city buses would have a greater competitive advantage over those powered by gasoline than would be the case in any other category of vehicle. Another important aspect is that it is much easier to control emissions from a few large emission sources like buses than from many small sources like private cars. Reykjavik and its neighbouring local authorities could therefore support the hydrogen transition by building up the public transport system in these areas.

Together the government and the local authorities in the Reykjavik area could achieve a more ambitious goal than the one set in the draft policy for sustainable development. It is reasonable to believe that about 40% of the fossil fuels can be replaced by hydrogen in the next twenty years and that an economy almost free of reliance on fossil fuels could be a reality 35 years from now. Indeed, this fits in well with the ambitions of Icelandic New Energy, which has said that the transition could be completed in 35 years.

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[1] Sjálfbær þróun á nýrri öld, Stefnumörkun 2001-2020”; Umhverfisráðuneyti Íslands; 2001

[2] Dunn S.; The Hydrogen Experiment; World Watch November/December 2000; World Watch Institute; 2000

[3] Árnason B, Sigfússon ThI;”Iceland – a future hydrogen economy”; International Journal of Hydrogen Energy 25; 2000.

[4] ; 09.04.2001

[5] ; press release “Iceland – A hydrogen based economy” ; 17.02.1999

[6] Árnason B, Sigfusson ThI, Skúlason JB; Creating a non-fossil energy economy in Iceland; Icelandic New Energy; March 2001

[7] Probably methanol-powered vessels, personal communication from Skúlason JB.

[8] Árnason B, Sigfusson ThI, Skúlason JB; Creating a non-fossil energy economy in Iceland; Icelandic New Energy; March 2001.

[9] Skúlason JB; personal communication

[10] Árnason B, Sigfússon ThI;”Iceland – a future hydrogen economy”; International Journal of Hydrogen Energy 25; 2000.

[11] Árnason B; Personal communication; 12.04.2001

[12] Skúlason J.B.; “Iceland as the first hydrogen society”; Landsvirkjun; 2000

[13] Landsvirkjun; Annual report 1999.

[14] Aluminum smelters and Ferro-silicon plant

[15] Raforkuspá 2000-2025; Orkuspánefnd; 2000

[16] Árnason B, Sigfússon THI, Skúlason J B; “Creating a non-fossil energy economy in Iceland”, Icelandic New Energy; 2001.

[17] Árnason B, Sigfússon ThI;”Iceland – a future hydrogen economy”; International Journal of Hydrogen Energy 25; 2000.

[18] Árnason B, Sigfússon THI, Skúlason J B; “Creating a non-fossil energy economy in Iceland”, Icelandic New Energy; 2001.

[19] skraningarstofan.is

[20] Greenhouse Gases

[21] Global Warming Potential. GWP is an index showing the greenhouse effect of several gases. CO2 is the base for the index, i.e. one is the greenhouse effect of one kg CO2 over 100 years. All other GHG are then expressed in CO2 equivalents.

[22] hollver.is/mengun/GHL/losun.htm; 19.02.2001

[23]Sjálfbær þróun á nýrri öld, Stefnumörkun 2001-2020”; Umhverfisráðuneyti Íslands; 2001

[24] Halldórsdóttir K, Jóhannsson Á S; Tillaga til þingsálykturnar um sjálfbæra orkustefnu; Þskj. 302 – 274 mál; 126 löggjafarþing 2000-2001.

[25] Tne National Power Company in Iceland divides energy in primary and secondary energy. Primary energy is electricity that can guaranteed be delivered with 99% security over a long period of time, independent of variation in water supply or other external factors. Secondary electricity can only be delivered when external factors, like water supply, are favorable and it can therefore not be guaranteed at all time.

[26] Árnason B, Sigfússon ThI;”Iceland – a future hydrogen economy”; International Journal of Hydrogen Energy 25; 2000.

[27] ; 2001.05.01

[28] World Energy Assessment, United Nations Development Programme; 2000

[29] Tomas Kåberger Ecotraffic AB; personal communication.

[30] 30%* 8,760 hours a year *3.5 MW

[31] Landfill gas contains about 60% methane at the site. For powering vehicles it has to be upgraded to a concentration of 97% methane.

[32] Ögmundur Einarsson; handouts from a conference held by ICETECH on 8. September 1999 at Grand hotel in Reykjavik

[33] Because the fuel cell is twice as effective as an IC engine,, about 9000 fuel cells can be powered by the same amount methane.

[34]The molecular weight of methane is about 16 g while carbon dioxide is approximately 48 g per mole. Replacing the hydrogen in one kg of methane with oxygen will therefore produce 7 kg of carbon dioxide.

[35] CH4 production is estimated at 4,500 tonnes, with a GWP of 21. For each tonne of CH4, 7 tonnes of CO2 are formed, with a GWP of 1; this means a reduction of 14 in GWP per tonne of CH4, or 63,000 tonnes in GWP, which is 1.8% of the total GWP emissions in Iceland.. It will also replace some fossil fuel, so the total reduction will be at least 2% in GWP.

[36] It can vary considerably between engines powered by diesel oil or gasoline.

[37] Average price for the general market 1990-1999; source ðsemi/upp.htm

[38] Average price for power-intensive industry 1990-1999; source ðsemi/upp.htm

[39] lv.is; 01.03.2001

[40] Árnason B, Sigfússon THI, Skúlason J B; “Creating a non-fossil energy economy in Iceland”, Icelandic New Energy; 2001.

[41] Árnason B, Sigfússon ThI;”Iceland – a future hydrogen economy”; International Journal of Hydrogen Energy 25; 2000.

[42] Iðntæknistofnun

[43] Guðmundur Gunnarsson; Framleiðsla metanóls úr kolsýru frá Svartsengi; Iðntæknistofnun 1999.

[44] See Dams and Development, A New Framework for Decision-Making, The Report by the World Commission on Dams, EARTHSCAN, November 2000, London

[45] World Energy Assessment, United Nations Development Programme; 2000

[46] World Energy Assessment, United Nations Development Programme; 2000

[47] hagstofa.is

[48] World Energy Assessment, United Nations Development Programme; 2000

[49] Rúnarsson G, Orkunotkun og Fiskveiðar, Fiskifélag Íslands 2000.

[50] Tomas Kåberger Ecotraffic AB; personal communication

[51] Emissions in 1999 amounted to 2,706,000 tonnes and the transport sector and fisheries accounted for 48% of this. If liquid fossil fuels are replaced entirely the reduction will be 2,000,000 ton.

[52] Tomas Kåberger, Ecotraffic AB, personal intervjuw.

[53] Azar C, Lindgren K, Andersson BA, Hydrogen or methanol in the transport sector; Department of Physical Resource Theory; Chalmers University of Technology; Sweden; 2000.

[54] At present, there are no ethanol production subsidies and the sales of ethanol vehicles are almost down to zero. Still the production of ethanol is greater than ever, due the fact that gasoline has to be blended with 22-24% ethanol.

[55] In year 2000 the oil import was about USD 134 million and the trade deficit about USD 540 millon, currency rate USD/ISK = 100.

[56] Estimated GDP in year 2000 was USD 6.6 billion.

[57] One person-kilometre is one person traveling one kilometre.

[58] City buses transform only 15-20% of the fuel energy into work.

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