Energy Credit Market Means Only 13% of Icelandic Energy is Renewable in Origin

Carbfix Hellisheiðarvirkjun

In figures recently released by the National Energy Authority on 2021 energy usage in Iceland, it has come to light that Icelandic energy may not be as “green” as previously thought, due to the energy credit market.

According to the latest numbers, in 2021, 63% of energy used in Iceland was produced by fossil fuel, 24% by nuclear power, and only 13% by renewable energy sources.

This may come as a surprise to many, as Iceland is often lauded as a leader in the energy transition, with a power grid entirely dependent on hydroelectric and geothermal power. And to be sure, the actual electricity flowing into Icelandic homes and businesses is still green, as Minister of Environment, Energy, and Climate Guðlaugur Þór Þórðarsson stressed in recent comments: “It doesn’t change the fact that all our energy is green. This is simply an arrangement that is supposed to encourage investment in producing more green energy. That’s the thinking behind this.”

The energy credit market, however, allows foreign companies to “buy” Icelandic green energy. In this way, consumers in Europe might choose to buy green certificates of origin for their energy, even though the energy actually powering their house is sourced from a coal plant.

Of the energy actually produced in Iceland in 2021, some 70% was hydroelectric, 30% geothermal, with a negligible but growing percentage of wind power, at .03%. Fossil fuels accounted for .01% of all energy produced in Iceland in 2021.

In contrast to Iceland, a majority of energy produced in Europe is still nuclear or fossil fuel. In order for energy providers to be able to certify that they provide 100% renewable energy, it is required that they purchase at least as many renewable energy credits as they produce.

This market dynamic has led to a curious situation: although the electricity flowing into Icelandic homes and businesses is 100% renewable in origin, Icelandic consumers are now being made to pay extra for green energy certification. Some 90% of energy produced in Iceland is now sold on renewable energy credit markets, leaving Icelanders with the “sins” of fossil fuel and nuclear energy.

Berglind Rán Ólafsdóttir, director of ON (Orka Náttúrunnar) stated to Vísir: “As it stands now, we can expect increases from five to fifteen per cent coming months and years. The development will depend on how the energy credit market in Europe further develops.”