July 25, 2001

Business and Finance - Europe

Iceland Says It Wants to Be First
To Develop Carbon-Free Economy

By JOHN FIALKA
Staff Reporter of THE WALL STREET JOURNAL

BONN -- As some 3,800 diplomats, technicians and lobbyists pressed various schemes here last week to complete the Kyoto Protocol to curb global warming, Iceland promoted the most radical plan of all to end what its politicians call their "Kyoto Dilemma." It wants to develop the world's first carbon-free economy.

Iceland's Minister of Environment, Siv Fridleifsdottir, says the environmental pact threatens to strangle her nation's economy. Iceland wants to diversify its industrial mix by adding another aluminum smelting plant, but it can't because the plant would push its carbon dioxide emissions up by 20%. The Protocol allows Iceland only an additional 10%.

The problem is in the numbers. The treaty requires most nations to reduce carbon-dioxide emissions below 1990 levels, and as one of the cleanest industrialized nations, Iceland is left with a tiny base from which to start. It produces only .05% of the world's man-made carbon dioxide, considered a cause of climate change. Sixty-seven percent of its energy comes from either geothermal heat from the earth or hydroelectric dams, both of which qualify as non-polluting "renewable" fuel sources.

"We have a significant problem with scale," explains Ms. Fridleifsdottir. "We would like to sign the Protocol as soon as possible," she says, throwing up her hands, "but ... there is always this but."

So during last week's talks, Iceland found itself sitting on the sidelines along with the U.S., which produces more greenhouse gases than any other nation. President Bush has said that the U.S. won't sign the treaty because it would damage the economy.

The U.S. plan for reducing emissions is still vague, with Bush cabinet members split over what to do or whether to do anything. Iceland's plan is tightly focused on using hydrogen and fuel cells. During the next two decades it wants to shift its buses, automobiles and fishing fleet over to fuel cells, which convert hydrogen-based fuels into electricity, emitting only a little heat and water in the process.

Iceland's plans to become a laboratory for what scientists call the hydrogen-based economy started after the energy crisis in the 1970s, when chemistry professor Bragi Arnason noticed that Iceland had a huge capacity for making hydrogen using its cheap electricity to separate the hydrogen and oxygen in water. It was already making hydrogen that way to manufacture fertilizer. Why, Dr. Arnason asked, couldn't it use hydrogen to fuel its whole economy?

"Most of the people who reacted thought I was stupid," he says. At the time, using hydrogen for fuel was two to three times more expensive than oil. During the 1980s, as world fuel prices dropped, his plan was shelved. But in the 1990s, fuel cells emerged as a much more efficient way to use hydrogen; meanwhile, oil prices were on their way back up. Dr. Arnason, now known in Iceland as "Dr. Hydrogen," found his government was quite interested in the plan.

So were a number of giant companies, including DaimlerChrysler AG, which is about to produce cars with fuel cells, and Royal Dutch/Shell Group, which is interested in the commercial possibilities of hydrogen-based fuels. They and other companies, along with the European Union, have formed a $6.4 million consortium that is planning to convert Reykjavik's bus fleet to be run by hydrogen-powered fuel cells.

Dr. Arnason is using some of the money to figure out the next step, which is how to deliver hydrogen to cars powered by fuel cells. Because developing a whole new infrastructure to deliver hydrogen fuel would be time-consuming and expensive, his idea is to use hydrogen and a carbon source to create methanol, which can also power fuel cells. The liquid fuel can be delivered from existing gas stations, he explains. Using it would cut emissions from Reykjavik's traffic by about 60%.

The carbon source Dr. Arnason is tinkering with is carbon dioxide being collected from the emissions of a local steel plant. If he can scale up an industrial process to make that into methanol, he says, "we can forget about the Kyoto Protocol."

The next step would be to introduce methanol-powered fuel cells to Iceland's fishing fleet, which currently uses diesel engines. Weaning the fishing fleet from oil would not only permanently end Iceland's Kyoto Dilemma, it would also free Iceland's economy from the price vagaries of OPEC.

"Dr. Hydrogen" has dreams that go way beyond that. Once its hydroelectric capacity is fully realized, he explains, Iceland will be able to produce enough hydrogen to begin exporting it. He and some other Icelanders talk about emerging some day as the "Kuwait of the North."

Write to John Fialka at john.fialka@wsj.com³