Week of September 16, 2002
  Snapshot from the Field
 
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Alcoa signing
Officials from Alcoa, the Icelandic government and the national power company sign the memorandum of agreement in Reykjavik (above) to cooperate on the Karahnjukar Hydropower Project, which would include a low-emission aluminum smelter, a hydropower plant, eight dams, a harbor facility and various infrastructure improvements.
Alcoa, Iceland Ink Agreement for $3B Hydropower Project

by JACK LYNE, Site Selection Executive Editor of Interactive Publishing

REYKJAVIK, Iceland – Alcoa (www.alcoa.com) and Iceland (www.invest.is) are moving forward on a US$3-billion project that's generating a fierce and familiar clash: job-generating economic development vs. environmentalism.
        At the center of the contretemps is the giant Karahnjukar Hydropower Project. Alcoa, the Icelandic government and the national power company this summer signed a memorandum of agreement in Reykjavik to cooperate on the multi-pronged Karahnjukar venture, which would include a low-emission aluminum smelter, a hydropower plant, eight dams, a harbor facility and various infrastructure improvements.
        The project looms large on Iceland's economic landscape. Its estimated total cost of $3 billion equals almost one-third of the nation's entire gross domestic product. And the Karahnjukar venture would create as many as 1,000 permanent jobs in economically depressed eastern Iceland.

'Historical Economic Watershed' or 'One
Of the Greatest Environmental Disasters'?

But the size of the environmental concerns vis--vis the venture is also large. The Iceland Nature Conservation Assn. (ICNA at www.inca.is), for example, claims that the Karahnjukar Hydropower Project "will be the one of the greatest environmental disasters in recent decades, something that generations to come will damn us for."
the East Highlands
The project's chosen site in east Iceland includes the East Highlands (pictured), one of Europe's largest remaining wildernesses.

        In contrast, 70 percent of Iceland's parliament approved the venture, and 53 percent of Icelanders favored the project in the most recent Gallup national poll. (Thirty percent opposed the project, while 17 percent had no opinion.)
        "This will mark a historical watershed in Iceland's economic life," said Bjorn Bjarnason, a parliament member from Iceland's ruling Independence Party. "For the first time, a secure base is being established for major energy development and large-scale industry outside the area of the capital city (Reykjavik)," said Bjarnason, who formerly served as Iceland's minister of education, culture and science.
        Location, location, location is at the root of the rhubarb. The Karahnjukar Hydropower Project is set to unfold in Iceland's Eastern Highlands, which contains one of Europe's largest remaining wildernesses. The World Wide Fund for Nature (WWF at www.wwf.org), an environmental advocacy group opposing the project, ranks the Eastern Highlands as Europe's second-largest wilderness area (trailing only Svalbard, a Norse territory in the Arctic region).

Alcoa Pledges Support for National Park

The project's potential impact on that wilderness is what's sharply dividing the economic development and environmental camps.
        "We've calculated that the damage is relatively small," asserted Iceland Prime Minister David Oddsson, who backs the plan.
        Not unpredictably, WWF officials see damage aplenty in the project near the city of Reydarfjordur.
        "A new Gallup poll in Iceland shows that 65 percent of Icelanders want a national park in the Eastern Highlands, which includes the area the project will destroy," said Samantha Smith, director of WWF's International Arctic Program. "But the government seems determined to build this project before it will seriously consider the different options for a park. If the project stays on its fast track, some of the most valuable areas will be destroyed before a national park is in place."
        For its part, Alcoa in the agreement memorandum pledged to lend planning and financial support in establishing "a protected area" near the project. Alcoa will create a major part of the huge project: a low-emission aluminum smelter that will cost an estimated $1 billion and will have a production capacity of 290,339 tons (295,000 metric tons) per year.
        The decision on the national park, however, isn't Alcoa's. The project agreement specifies that "establishing the scope and boundaries of such an area is a matter for the government and the local authorities."

Hydropower Plant Drawing Heaviest Fire

Environmentalists' heaviest criticism has centered on the government's hydropower facility. Landsvirkjun (www.lv.is/lv.nsf/pages/english.html), the national power company, is set to develop a 500-megawatt facility that will supply all of the power for Alcoa's smelter.
        Non-polluting hydropower is often praised by environmentalists as a far better energy option than fossil fuels or nuclear power. Not so for the Eastern Highlands hydro plant. ICNA Chairman Arni Finnsson asserted that the plant - and particularly the dams that serve it - "will destroy the wilderness."
        Plans for the hydro plant call for building eight dams across two rivers, the Jokulsa a Dal and the Jokulsa i Fljotsdal. Drained through 25 miles (40.2 kilometers) of tunnels, water from those rivers would power turbines to generate electricity for Alcoa's smelter. Environmentalists charge that the damming of the Jokulsa a Dal, which would create a 22-sq.-mile (57-sq.-kilometer) reservoir, will trigger 70 percent of the project's damage, destroying wildlife and vegetation.
        Alcoa is providing some of the funding related to the hydro plant. The world's No. 1 producer of aluminum has agreed to guarantee 75 percent of the cost of the roads and bridges that are built to the Landsvirkjun operation.

Some Locals' Views Contrast with Environmentalists'

As is often the case in such controversies, substantial numbers of local residents aren't in tune with environmentalists' arguments.
        In particular, many east Iceland leaders are vocal backers of the hydro project. The area's economy has been hit hard by a weakened fishing industry and declining tourism.
        "I think large industry projects in east Iceland are extremely important for the employment situation and are a precursor for making the area habitable," said Tryggvi Hardarsson, mayor of the east Icelandic city of Seydisfjordur. "I've lived next to an aluminum smelter for decades, and I've got no complaints whatsoever because of that."
        Similarly, Reydarfjorur Mayor Gudmundur Bjarnason claims that 90 percent of the residents in his city favor the hydro project.
        Other Icelanders see the project-related roads and bridges as avenues to revitalize the nation's eastern area.
Alumar alumina refinery and primary smelting facility in Brazil
Though pressured by environmentalists on its participation in the Iceland project, Alcoa has a strong ecological track record. An example is the alumina refinery and primary smelting facility established in Sao Luis, Brazil (pictured), by Alumar, Alcoa's Brazilian subsidiary. Alumar was one of 10 businesses selected last month for inclusion in a case study report on fostering sustainable development in developing countries, which is being jointly prepared by the World Business Council for Sustainable Development and the United Nations Industrial Development Organization.

        "It's obvious that the project will have a significant impact on Iceland's economy and on the people in east Iceland," said parliament member Sturla Boovarsson. "A project such as this will have a great and positive effect on people in the region and will inspire reconstruction of the region's transportation system."

Alcoa's Environmental Efforts

The east Iceland smelter, Alcoa claims, will be one of the world's cleanest aluminum production facilities.
        Much of the "dirtier" work in producing aluminum will be done outside Iceland, Alcoa officials say. And the company may switch the East Highlands smelter to new low-carbon dioxide technology, they added.
        A new harbor facility that will be built at Mjoeyri will also reduce the Karahnjukar Project's environmental impact. The harbor facility, which would be developed by national and local authorities, will enable Alcoa to move plant supplies in by ship rather than by truck.
        Alcoa, on the other hand, gets an environmental break by virtue of locating in Iceland, one of the world's most pollution-free nations. Ninety-eight percent of the nation's buildings operate with geothermal heat. That, in turn, has enabled Alcoa to negotiate an exception to 1997's Kyoto Accord on greenhouse gases. That exception will allow Alcoa's smelter to operate without having to pay penalties for any carbon dioxide emissions.
        In addition to Iceland, Alcoa looked at Brazil, India and Vietnam in locating the new smelter, company officials said.

March 2003 Deadline for Resolution

The Karahnjukar Hydropower Project has a ways to go before it's a done deal.
        The project schedule calls for Iceland and Alcoa to work out details by March of 2003, including specific construction sites, energy costs, taxes and employment estimates. If that agreement isn't reached by then, the memorandum of agreement expires unless all parties agree to extend it.
        Until then, environmentalists can be expected to keep the heat on-particularly on Alcoa, which has a well-regarded environmental track record.
        "Alcoa is ignoring its own principles of environmental integrity," said WWF's Smith. "There is still time for Alcoa to pull out of their agreement with the Icelandic government, and we are urging them to live up to their environmental principles and do so."
        Countering such arguments are the project's economic development benefits.
        "Alcoa's plan is important not just for people in east Iceland, but for all Icelanders," said Minister of Foreign Affairs Halldor Asgrimsson, a parliament member from east Iceland. "Without a plan of this magnitude, we would be facing stagnation."



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