The windswept, rock-strewn valleys of southern Iceland seem an unlikely place for an experiment that could help solve the most critical threat facing the planet.

But at the Hellisheiði Geothermal Power Plant, two companies are collaborating on a venture to capture carbon dioxide (CO2) from the atmosphere and store it as rock beneath the surface of the Earth. Swiss carbon capture machinery company Climeworks opened a direct air capture facility at the site in 2021; and Carbfix, a subsidiary of an Icelandic municipal power utility, has pioneered a technique to reinject the captured carbon hundreds of metres below the ground, where it will remain permanently mineralised.

The operation at Hellisheiði serves as a commercial demonstration project. But Carbfix is set to ramp up its operations in the belief that carbon capture and storage is a vital part of the race to net zero.

“We have developed technology, it’s thoroughly proven, and it’s ready to scale up,” says Edda Aradóttir, the company’s CEO. “We want to take it global and we want to build up new value chains rapidly and reach scale quickly.”

The company is preparing a far larger facility at Straumsvík Harbour just outside Reykjavík, which will be able to store three million tonnes of CO2 annually. Most of this carbon will be shipped from abroad; carbon will also be captured from a local aluminium smelter and through a direct air capture facility to be constructed at the site.

The gift of geothermal 

Iceland is emerging as a leader in carbon capture technology, partly because the country boasts a plentiful supply of renewable energy that can power direct air capture operations. 

Iceland relies entirely on low-carbon sources for electricity. Around 70% comes from dam hydropower. But the unusual feature of Iceland’s power system is the availability of geothermal energy. The flows of magma beneath the surface of the island – which sits on a tectonic plate boundary – produce superheated pools of water and steam. Over the past century, engineers have learned to drill down and harness this power; today geothermal energy supplies 30% of Iceland’s electricity and 90% of its heating.

A wide range of industries are attracted to Iceland because of the availability of low-cost heat and power. Iceland has been smelting aluminium since the late 1960s and is now the world’s tenth-largest producer of the metal. More recently, data centre operators have realised that cheap power and a cool climate make Iceland an ideal location. Three major data centre companies, all owned by foreign investment funds, are present in the country.

One of the largest private sector power companies in Iceland, HS Orka, has established Resource Park, a place where companies can utilise power and heating on long-term contracts.

“The increasing energy price in Europe has actually forced a lot of industries to take a look at some other markets,” says Dagny  Jónsdóttir, manager of Resource Park at HS Orka. “Those who need power, and especially green power, on a stable long-term price will look at Iceland.”

Resource Park is focused on fostering a circular economy. “We know what we want to have in the park and we are actively seeking companies … to join us,” says Ms Jónsdóttir. Companies that require controlled environments for developing food supplements or biotech products are particularly likely to benefit from the power and heat available from HS Orka’s geothermal facilities, she adds.

The next frontier for Iceland may be the production of green hydrogen and related products. One Icelandic start-up, Atmonia, is developing small-scale nitrogen electrolysers using a technique designed as an alternative to the Haber-Bosch process. This would enable ammonia — which is used as a fertiliser and is emerging as an important e-fuel for heavy-duty transport — to be produced without carbon emissions.

“You can’t really make a Haber-Bosch factory in Iceland, because it needs to be so big,” says Hákon Örn Birgisson, Atmonia’s chief business officer. He predicts that the “distributed nature of our technology” will allow ammonia to be produced domestically in smaller markets, thereby boosting food security as well as reducing emissions.

While geothermal power is a key ingredient in Iceland’s success in developing green technologies, the presence of so many innovative firms in a country of just 370,000 people also reflects a highly entrepreneurial business culture.

“We are risk seekers,” says Mr Birgisson. “As a culture, we are ready to take risks much more eagerly than neighbouring nations.” 

This ‘Viking spirit’ is made possible in part by Iceland’s generous social safety net. If an entrepreneur fails in their business venture, they will be protected by an income-linked system of benefits for up to 30 months. Additionally, this net is not seen as a disincentive to work, as the country’s employment rate is the third-highest in the Organisation for Economic Co-operation and Development.

Going global

The small size of the Icelandic market inevitably leads its entrepreneurs to look abroad in search of growth. 

“Iceland has very unique expertise in two areas. One is fisheries and the other is renewable energy, and geothermal in particular,” says Sigurður Atli Jónsson, CEO of Arctic Green Energy. “The experts in this sector here are in high demand all over the world.” 

Arctic Green Energy formed a district heating company in China as a joint venture with state-owned oil company Sinopec in 2006. This venture has become the largest geothermal district heating company in the world, serving two million customers in northern China. 

The company has replaced coal-based heating systems in China, which Mr Jónsson says is saving five million tonnes of carbon emissions a year — far more than Iceland’s total emissions. 

Mr Jónsson points out that many parts of the world — including outside of seismically active regions like Iceland — could utilise lower temperature geothermal resources for heating purposes.

“Today, everyone realises that the energy transition will not be completed without making that transition in the heating and cooling sector as well,” he says. “We need to find clean solutions — geothermal is certainly one of them and can actually be a backbone of heating networks in many areas.”

Iceland’s achievement in exporting its geothermal expertise shows how this small island can be at the heart of the energy transition. The challenge now is for companies like Carbfix to replicate this success in the race to develop viable carbon storage solutions. Within the next decade, ships full of carbon captured from factories and furnaces around the world could be docking at Straumsvík, ready for their cargoes to be mineralised in basaltic rock formations. Keeping this carbon out of the atmosphere could prove to be Iceland’s most important contribution on the road to net zero. 

This article first appeared in the June/July 2023 print edition of fDi Intelligence