Independence lessons for Scotland - Iceland is a renewable energy powerhouse

As an independent country, Iceland has achieved what Scotland can only dream about - It is a world leader in renewable energy, with a completely carbon-free grid. In fact, it is the world’s largest energy producer per capita. 

Despite its relatively small size, Iceland is a prosperous independent country with a Nordic welfare state, high wages and strong economic growth, boosted by its innovative use of green power. 

So how did a country with a population of less than 400,000, and a landmass 20% larger than Scotland manage to achieve independence after being part of the Danish state for about six centuries? And how is it using that freedom to build a prosperous and fair society?  

Here are five lessons for independence that Scotland can learn from Iceland. 

1 Iceland’s growth is powered by cheap renewable energy 

Iceland is making the most of its potential. It does not have to wait for a larger neighbour to act. Instead, it is using every watt of its potential to drive innovation, growth and the green economy. It is on track to achieve net zero by 2040.  It is making strides in the use of geothermal energy. But hydropower stations is its bread and butter, providing 70% of Iceland’s electricity. 

That offers a contrast with Scotland. Scotland was once a world leader in hydropower - but the UK government has for 20 years refused to set the market conditions that are necessary to  allow modern pumped storage hydro stations to be built in Scotland by the private sector. 

Scotland also has vast resources in terms of wind, solar and tidal power. If Scotland were an independent country it could charge a much lower price for electricity. That would help Scots - and it would also attract businesses to use power close to where it can be made most cheaply. But the energy price is set for the whole UK by the London-based Electricity Systems Operator (ESO) based in London. They are informed by vested interests in the south of England and they don’t want to let Scotland charge a lower price. 

2 Iceland uses low energy prices to attract innovative businesses 

As an independent country, Iceland has been able to offer access to cheap, renewable power sources to attract business and investment. For example, American aluminium smelters have moved there in order to harness the cheap power. Whereas there are environmental arguments against aluminium smelters there are however plenty of high energy industries with greener credentials that Scotland can create. 

Iceland makes affordable geothermal power available for all kinds of innovative uses - including growing increasing amounts of tomatoes and bananas in sustainably heated greenhouses. It is now a fast-growing exporter of tomatoes. 

Iceland is also a top tourist destination - and it uses attractions powered by geothermal energy like the manmade Blue Lagoon to create experiences that tourists love and which bring economic benefit. 

In contrast, Scotland retains one aluminium smelter which has survived because of a legacy of hydropower created last century. It does not have the ability to attract other energy-intensive industry like green steel. 

The fact that Scotland is denied the power to offer localised pricing means it is dependent on the national distribution system, the privatised National Grid, as the only customer for its energy. The Grid has been starved of investment for decades and is so weak that it regularly pays wind power companies to turn off their turbines and tells power producers they have to wait 20 years for a connection. Scotland’s energy potential is being wasted. 

3 Iceland has a nationally-owned power company

Iceland has a national power company called Landsvirkjun, one of the largest producers of renewable energy in Europe. It creates and manages  75% of energy production in the country, supplying most households and businesses. It has 15 hydropower stations, plus geothermal plants and some experimental wind turbines. Landsvirkjun pays the equivalent of hundreds of millions of dollars in dividends to the Icelandic Treasury every year. 

In contrast, the UK long ago took Scotland down the road of privatising power assets and national infrastructure. The incoming Labour government is making big promises for GB energy - but it is not giving it anything like enough like the funding that would required to create something on the scale of what countries like Iceland or France have. 

4 Icelandic households pay the lowest prices in Europe for energy

Icelandic households spend a far smaller percentage of their budgets on utilities even than the other Scandinavian countries - much less than what people spend in Denmark for example. The average household in Reykjavík only allocates 3.75% of its consumption expenditure on utilities, compared to 12% in Copenhagen. 

Scots pay the highest energy bills in Europe. They tend to be much higher even than England because most of Scotland does not have access to the gas network. In the UK, gas is priced cheaper than electricity, mostly because of the one-nation pricing structure. That means that people who live in areas where a lot of cheap power is produced like the Highlands and Islands pay astronomical bills - because it is very expensive to heat your home with electricity in the UK.

Fuel poverty in the Highlands is already extremely high. Old people living on the state pension are not eligible for pension credit - and the UK government has just withdrawn their winter heating allowance. That shows no recognition of Scotland’s special circumstances. 

5 Iceland built on a basis of Home Rule to achieve full independence 

The difference in population size between Iceland and Denmark is roughly similar to that between Scotland and England. Iceland has about 7% of the population of Denmark, though its landmass is twice as big. 

Iceland has what is sometimes called the oldest Parliament in the world, the Althing. But it had little power after Iceland was absorbed, first by Norway in 1262, and then by Denmark. During the Reformation, the Danish Crown seized the land that had formerly belonged to the Church and it became the largest landowner in Iceland. The Danish Crown became an absolute monarchy in 1660 and in 1800, it dissolved the Althing. 

Iceland’s struggle for independence grew in the 19th century, led by Jón Sigurðsson, who among other things gathered Icelandic manuscripts for a collection held by Copenhagen University. In 1874, Iceland got its own constitution and the Althing was re-established as an elected body,  but the country was still ruled largely by a Danish Governor. 

Demands for more autonomy continued and in 1904, Iceland got a form of Home Rule, with an Icelandic Minister replacing the Governor and more power restored to the Althing. In 1908, voters rejected a power-sharing agreement offered by the Danish state. Politicians from both countries worked on the problem and in 1918 an agreement was signed that recognised Iceland as a separate country in consensual Union with Denmark. The treaty said that in 25 years time, if no new agreement was reached, either side could dissolve the Union unilaterally.

In 1944, Iceland, which had always seen the Union agreement as temporary, unilaterally dissolved the Union. During World War Two, Denmark was occupied by Nazi Germany while Iceland was initially occupied by the UK and then entered into a defence agreement with the US.

When the Act of Union’s 25-year break clause came up, Denmark was unable to negotiate a new agreement. Iceland had a referendum and 98% voted Yes to independence. The story is that the Prime Minister walked down to the harbour to let the commander of a Royal Navy vessel that was refueling know that the country was now independent, and a few minutes later the commander relayed the message that Iceland’s independence was now officially recognised by the Allies. 

Iceland’s dissolution of the Union was eventually ratified by Denmark in 1950. One of the thorniest issues was the return of the Icelandic manuscripts collected by Sigurðsson - the last was finally returned in 1997. Iceland is now governed by the 63-member unicameral Althing and the President, who is elected every four years. 

Iceland’s life as an independent country has not been all plain sailing by any means. After independence, Iceland, which had mechanised its fishing fleet, was involved in the Cod Wars with the UK from 1958 to 76, when the UK was forced to concede a 200-mile fishing limit. Iceland was highly exposed to the financial crash of 2008 when its three biggest banks collapsed. The Icelandic state had to be bailed out by the IMF after it took over the banks and guaranteed domestic deposits. However, its generous welfare system was able to cushion the blow for Icelandic citizens from the crash and the economy started to grow again in 2011.

Conclusion 

As an independent country, Iceland has been able to weather the challenges of the global economy. Iceland is a member of NATO, the Nordic Council, the European Free Trade Area, and a signatory to the  European Economic Cooperation Agreement. It has also been able to make the most of its assets and to develop in new and innovative ways.

Most of all, it has been able to realise its potential as a renewable energy powerhouse. This is a huge contrast to Scotland, which is in a very different position. Scotland has to wait and watch as its energy potential is squandered. Decisions about how to manage the opportunity are taken by organisations with vested interests in the south of England. They are not concerned with whether Scotland achieves its potential - that is not one of the metrics they care about. 

Iceland was an independent country in the past for a much shorter time than Scotland. But it managed to keep pressing for more autonomy and decision-making power for at least 150 years. Eventually, Icelandic and Danish politicians were able to agree on a staged move towards Icelandic independence and the two countries now work together, along with the other Nordic states, on many issues. 

Denmark finally responded to Iceland’s long struggle for independence by making an agreement that allowed Iceland to look forward to and prepare for independence.

Further reading:

History of Iceland podcast

The Icelandic welfare state in the 20th century

The Nordic Welfare State podcast

How Scotland could have the cheapest electricity in Europe

The UK’s weak National Grid is crippling Scotland’s businesses