Sustainability Wonderland™: Renewable Energy Does Not Absolve All Sins

The Blue Lagoon, that Instagram-perfect geothermal spa where millions soak away their jet lag between the airport and Reykjavik, wasn’t originally designed as a luxury destination. It began life as industrial runoff from Svartsengi geothermal plant. Wastewater. An accident that clever marketing transformed into a €70-per-head natural wonder.

I discovered this soon after relocating to Iceland, drawn here partly by its reputation as a sustainability wonderland. Fresh off the plane at Keflavík, it’s like being greeted by Mother Nature’s LinkedIn profile: “100% renewable energy!” “Gender equality achieved!” “Technology that turns CO₂ into stone!”

As someone who’s spent years in international sustainability, I’ve learned to read between the lines of green marketing. But Iceland’s pitch was compelling enough to make me pack up my life and move here. I wanted to see this environmental utopia up close, and maybe learn something the rest of the world could use.

Then came the first crack in the façade: Iceland has among the highest per-capita carbon emissions in Europe. Not exactly a sustainability brag at 10.5 tonnes per person, significantly higher than the EU average.

The Blue Lagoon suddenly made perfect sense. This is what Iceland does brilliantly. It takes the messy byproducts of industrial reality and transforms them into something marketed as pure and natural. It’s not deception, exactly. It’s alchemy. Pragmatic, profitable alchemy.

“Iceland’s best-known achievement in sustainability is probably our almost unique position regarding renewable energy,” Minister of Environment Jóhann Páll Jóhannsson told me recently. “But we have high per-capita carbon emissions, and we are not using all our options fully.”

This is Iceland’s sustainability paradox. Iceland runs almost entirely on renewable electricity, yet somehow still pumps out emissions like a coal-drunk nation. The story of how that’s possible, and what it means for Iceland and the global sustainability movement, is why I’m writing this.

It reminds me of Iceland’s famous gender equality rankings. The country is celebrated as the world’s most gender equal country but it still grapples with the Nordic paradox of high rates of violence against women. Progressive laws, persistent problems. The sustainability story follows the same pattern.

Because Iceland isn’t really a wonderland. Rather than the flawless utopia the tourist ads promise, it’s something far more valuable: a hopeful case study for real-world sustainability. Iceland is a laboratory where ambitious ideas are tested, mistakes openly confronted, and where successes provide inspiring models. Like the Blue Lagoon itself, what starts as industrial runoff might just become the model everyone wants to copy.

Let’s start with electricity, since that’s where Iceland’s sustainability story always begins, and where the contradictions get interesting.

The energy paradox

Iceland’s electricity is remarkably clean, almost entirely from hydropower and geothermal, primarily hydropower. This isn’t some environmental virtue. It was winning the geographic lottery. Sit on top of volcanoes and glaciers on an isolated North Atlantic island, and renewable energy becomes less a choice than an obvious economic decision. During the 1970s oil crisis, while other nations doubled down on fossil fuels, Iceland pivoted hard toward what was bubbling beneath its feet.

Today, nearly 100% renewable electricity powers the nation. The international marketing campaigns aren’t lying about that. What they don’t mention is where the energy goes. Around 80% is consumed by heavy industry. Three aluminium smelters gulp down more power than all Icelandic homes and businesses combined.

“The Blue Lagoon wasn’t originally designed as a luxury destination. It began life as industrial runoff from Svartsengi geothermal plant. Wastewater.”

With its abundance of clean-energy-generation capacity, there are no cables to connect Iceland to Europe or North America to transfer all of that energy. Unlike Norway, which exports surplus hydropower, Iceland must consume every watt it produces. You can’t store Iceland’s geothermal and hydropower and sell it abroad. Use it or lose it.

This creates peculiar economic pressure. Generate more clean power than your population needs? Better find aluminium smelters. Build more capacity? Better attract heavy industry to utilise the new excess generation. It creates an industrial treadmill running on renewable power, each new turbine or thermal plant simply increasing the speed.

“We need to balance tourism and energy production with nature conservation, a delicate balance,” Minister Jóhann Páll explained, understating the challenge considerably.

The aluminium smelters present the starkest contradiction. Yes, they run on renewable power, arguably the “greenest” aluminium on Earth. But the raw materials arrive on cargo ships from mining operations that are anything but clean.

Data centres add fresh complexity. Iceland is now positioning itself as the best global location for sustainable digital infrastructure. But cryptocurrency miners arrived in significant numbers to turn geothermal energy into Bitcoin, while contributing little beyond inflated electricity demand.

“We should prioritise clean energy transition,” the Minister insists, envisioning “data centres and high-value food production.” But this sidesteps an uncomfortable question: Should a nation with exceptional renewable resources dedicate them to energy-intensive industries simply because the power can’t go anywhere else?

Elva Rakel Jónsdóttir, managing director of Festa, a prominent business sustainability membership organisation, captures the resulting complacency: “Some feel they do not have the time or the means to focus on sustainability… postponing analysis of the ramifications.” When you’re already running on renewable power, why worry about efficiency?

This is Iceland’s energy reality. It is a nation that “solved” renewable electricity decades ago but remains trapped by that very success. Its clean energy abundance creating its own form of carbon lock-in.

But into this paradox has emerged a billion-dollar opportunity that could revolutionise global climate action.

Carbon markets explained

Let me demystify carbon markets. The compliance market, like the EU’s Emissions Trading System, forces big polluters to buy emission permits. If you exceed your limit, you have to pay up. The voluntary market is where companies buy offsets to claim “net zero” without legal requirements.

Through both the compliance and voluntary markets, there is a lot of opportunity. Carbon capture plays a promising role in the voluntary market. The EU mandates capturing and storing 50 million tonnes of CO₂ annually by 2030. By 2050, hundreds of millions of tonnes will be required according to most EU 2050 scenarios. That carbon needs somewhere permanent to go and Iceland sits on the perfect underground vault.

The game is changing fast. The Science Based Targets initiative (SBTi), the UN-aligned standard that approves whether a company’s plans are aligned with the Paris Agreement, is actively considering allowing companies to use carbon removals for net-zero goals. Suddenly, verifiable carbon removal is essential for corporate compliance.

Not everyone believes carbon markets are the answer. There are reasonable arguments against them. Critics like Lisa Sachs of Columbia’s Center for Sustainable Investment argues that they are “an inefficient and costly distraction,” noting that many credits are “neither additional nor permanent” (meaning they don’t always represent new, extra emissions reductions that wouldn’t have happened otherwise, and the stored carbon doesn’t always remain captured in the long run). With limited resources to combat climate change, she contends we should prioritise investment on reducing emissions over removing them. Questionable carbon credit projects only strengthen her critiques.

But Iceland is offering what the new rules require: permanent, turn-it-to-stone carbon storage.

Enter Carbfix, Iceland’s homegrown solution. “Carbfix is a global leader in permanent CO₂ storage, crucial for industries that cannot fully eliminate emissions,” CEO Edda Sif Aradóttir explains. The EU endorses it. Companies pay for it. This is operational.

Then there’s Climeworks with Direct Air Capture (DAC), Running Tide’s failed kelp experiment, and Röst’s Ocean Alkalinity Enhancement, all showing various stages of carbon removal innovation.

Companies desperately need credible removal. The gold rush is on. Iceland’s experiments show both promise and pitfalls in real time.

The difference might come down to something very Icelandic: turning industrial accidents into attractions. They did it with the Blue Lagoon. Can they do it with carbon?

Carbon experiments

The technology is elegantly simple: take CO₂, dissolve it in water, inject it into basalt, wait two years. The carbon transforms into rock. It’s alchemy.

Carbfix has been turning carbon to stone at Hellisheiði since 2014. What began as a 2007 experiment is now EU-endorsed, with companies like Microsoft paying real money for verified removal. The science is solid. Yet, the execution hit very Icelandic obstacles.

When Carbfix announced expansion into Hafnarfjörður, they discovered something absent from geological surveys: community fury. Residents weren’t anti-innovation necessarily, but they were anti-surprise. Learning your neighbourhood was selected for industrial CO₂ injection from the newspaper tends to upset people. And with this, the project site in Hafnarfjörður was abandoned.

“We need to scrutinise new technologies well and consult with locals,” Minister Jóhann Páll reflected. “Let us not strangle innovation with suspicion and inertia.”

This pattern of brilliant technology and botched community engagement keeps repeating itself.

Running Tide arrived with Silicon Valley swagger: grow kelp, sink it, sequester carbon forever. They issued the world’s first ocean-based carbon credits in 2023. They also underestimated that a fishing nation will have strong opinions on what happens with their waters. Community opposition spooked investors. Running Tide suspended Iceland operations in 2024.

Röst Marine Research now faces similar scepticism with Ocean Alkalinity Enhancement in Hvalfjörður. They have done everything right from a scientific and engineering standpoint, fully in line with market best practices, including meticulous studies and a successful 2024 tracer experiment. Yet memories of Running Tide are fresh.

“We can pilot cooperation between public and private sectors,” Elva Rakel Jónsdóttir insists. “We need to approach stakeholder engagement proactively rather than reactively.”

The stakes are enormous. The EU is mandating a massive increase in carbon storage by 2030. Iceland has the geology, energy, and expertise to make the most of this opportunity. But first, it needs what you can’t engineer: community trust.

The reality check

If Carbfix is the straight-A student of carbon removal, Climeworks is the ambitious transfer student.

The Swiss company arrived with perfect timing and impressive backing. Their pitch: giant fans suck CO₂ from air, Carbfix turns it to stone. Direct Air Capture meets permanent storage with one piece of the climate puzzle clicking into place.
“This is Iceland’s sustainability paradox. Iceland runs almost entirely on renewable electricity, yet somehow still pumps out emissions like a coal-drunk nation.”

Orca, the world’s largest DAC plant, opened in 2021 near Hellisheiði with deserved fanfare. Annual capacity was 4,000 tonnes CO₂. Mammoth followed, targeting 36,000 tonnes. Microsoft and others bought future credits, betting on the technology’s evolution, providing paid upfront demand similar to the arrangements new energy projects use to demonstrate demand to financiers.

Reality proved humbling. Orca captured a fraction of promised capacity. There were mechanical issues and higher energy requirements than modelled. Capturing CO₂ from air containing 0.04% concentration is harder than anyone anticipated. But—and this is critical — that’s what early efforts are for. Work out the kinks with a smaller footprint, so you’re ready to go big and scale with proven and tested technology.

Climeworks has acknowledged the technical challenges, but the Icelandic press has been aggressive in their response. The news magazine Heimildin questioned whether DAC was ready for prime time. Fair question. But as Simon Stiell, head of UN Climate Change, notes: “high-integrity carbon markets are essential to accelerating climate action.” The UN confirms we’ll need carbon removals alongside emissions reductions. This isn’t either/or—it’s both/and.

The energy debate is real. Every megawatt for DAC is a megawatt not displacing fossil fuels. But Iceland’s constrained grid means that energy stays local anyway. Better to use it pioneering climate solutions than mining Bitcoin.

International political headwinds have also hit hard. Trump’s return brought U.S. funding cuts, forcing 20% staff reductions at Climeworks. But the technology marches on. The EU’s mandates and SBTi’s new standards guarantee a market. Companies need these solutions. The question isn’t if DAC will work, but when and how efficiently.

The Climeworks-Carbfix distinction matters. Carbfix’s storage works. It’s proven, operational, scalable. DAC remains experimental, expensive, evolving. But that’s exactly what Iceland offers: a place to experiment, fail safely, improve. Solar was laughably inefficient in the 1970s. Wind turbines were dismissed as toys. Today they power the world.

Climate change demands we throw everything at the problem. Some solutions will fail. Others will surprise us. DAC might be both, failing today while teaching lessons for tomorrow’s success.

Lára Jóhannsdóttir, a professor of Environment and Natural Resources at the University of Iceland, calls for “emissions reductions going down in absolute terms.” Absolutely. But the IPCC is clear: even with dramatic cuts, we’ll need to remove CO₂ already in the atmosphere. Better to start learning now, in Iceland’s renewable-powered laboratory, than scramble later.

Iceland’s sustainability story extends far beyond these carbon experiments.

Beyond carbon

While carbon capture dominates headlines, Iceland’s most successful sustainability story swims quietly beneath the surface. The fisheries management system, born from near-catastrophe in the 1970s, might be the country’s greatest environmental achievement, and its most controversial.

“We base our fisheries strictly on scientific advice to ensure long-term protection and sustainable use,” Minister Jóhann Páll states.

When cod stocks nearly collapsed, Iceland introduced individual transferable quotas (ITQs), privatising fishing rights. Fish populations recovered. Iceland became a global model. But those quotas became liquid gold. Small operators sold to larger ones and “quota kings” emerged. Now a few families control vast resources while fishing villages have watched their heritage traded away. It saved the fish but concentrated wealth.

The Icelandic Ocean Cluster offers a different model. This Reykjavík innovation hub sees opportunity in fish waste: leather handbags, omega-3 supplements, cosmetic collagen, biofuel. They’ve pushed the utilisation of each fish caught above 80%. It’s the Blue Lagoon principle applied to cod, turning waste into product.

JBT Marel extends this globally as one of the largest companies in Iceland. Starting with fish processing equipment, they now revolutionise meat production worldwide with sustainability as a core tenet. When Iceland’s biggest tech company focuses on sustainable opportunities, it plays to national strengths.
“When Carbfix announced expansion into Hafnarfjörður, they discovered something absent from geological surveys: community fury.”

Then there are data centres, Iceland’s next industrial opportunity and controversy.

“By transitioning the use of sustainable energy generation towards forward-thinking, green IT, Iceland will further solidify its position as a global leader in digital innovation and environmental stewardship,” argues Björn Brynjúlfsson of Borealis Data Centers. Running servers on hydro and geothermal power in a naturally cool climate is more efficient than any other alternative. Initially, Bitcoin miners arrived like digital aluminium smelters, drawn by cheap power, contributing little beyond electricity demand.

But markets evolve. That initial wave of crypto miners is giving way to Icelandic data centres powering the rise of global AI infrastructure.

The sophistication varies wildly. Borealis Data Centers and atNorth support legitimate scalable infrastructure to position Iceland as a sustainable node in the world’s digital transformation. Others exclusively mine cryptocurrency with minimal social value. All consume finite renewable resources.

It’s aluminium redux: green power attracts both innovation and opportunism. Yet within these contradictions lie genuine innovations. The Ocean Cluster shows traditional industries evolving. Icelandic data centres push necessary conversations about digital sustainability.

The business reality

Elva Rakel Jónsdóttir has the best metaphor for Icelandic businesses and sustainability: camping gear.

“Imagine businesses as campers preparing for a trek,” Festa’s managing director explains. “Some are equipped with GPS, weather-appropriate clothing, emergency supplies. Others figure Iceland’s nature is so benign they’ll be fine with whatever.”

After months here, I can confirm there are many underprepared campers.

The complacency is almost understandable. When your grid is 100% renewable and your water is pristine, why panic about sustainability? This abundance becomes Iceland’s corporate Achilles’ heel.

“It is to some extent very understandable that many companies become complacent about the issue of integrating sustainability into their core strategies when they have already received so many blessings.” Elva continues.

The prepared campers tell different stories. A number of Iceland’s pension funds have collectively committed 580 billion ISK toward climate-aligned investments by 2030. That’s serious gear. It’s risk management for a world expecting many stranded assets, or, that is to say, investments made worthless by the climate transition.

But in many boardrooms, sustainability remains the “nice to have” agenda item. The EU’s Corporate Sustainability Reporting Directive (CSRD) is beginning to change that, forcing environmental reporting with financial rigour, but it is still a work in progress.

“Transparency in reporting is of utmost importance,” Professor Lára Jóhannsdóttir emphasises. “We need to see greenhouse gas emissions reductions going down in absolute terms, not just in presentations.”

Some get it. Others remain stuck in “geothermal exceptionalism,” believing renewable energy absolves all sins. It mirrors our gender equality paradox, with structural advantages masking ongoing work.

The generational divide on these environmental issues is stark. Younger employees see through greenwashing. Older leadership often views sustainability as compliance, as boxes to tick, and not as businesses to transform.

And Iceland’s businesses aren’t just preparing for any trek. They’re heading into rapidly changing weather. EU regulations are tightening. Climate risks are materialising. The prepared navigate the terrain successfully. The casual hikers might not make it back.

“Iceland could be proof that small societies can lead big change,” Laura Lefort Scheefer, President of Ungir Umhverfissinnar, the Young Environmentalist Association of Iceland, told me. “But instead of leading, we’re coasting, letting our green image do the work while real progress stalls behind the façade.”

The kids aren’t buying it

The generational divide on sustainability in Iceland shows up starkly in Professor Lára Jóhannsdóttir’s research. Young Icelanders perceive a significant gap between political promises and climate action. “The gap is wide in the case of short and long-term commitments, adaptation, and finance,” her studies revealed.

This scepticism reflects a pattern I’ve observed since relocating here. Young Icelanders grew up hearing Iceland celebrated as a sustainability paradise while watching per-capita emissions remain among Europe’s highest, in the face of impending climate catastrophe. The disconnect shapes their worldview.

Where older generations point to renewable electricity as environmental leadership, younger Icelanders ask why it powers aluminium smelters. Where tourism boards celebrate “sustainable Iceland,” young people see communities overwhelmed by unsustainable tourism.

Minister Jóhann Páll acknowledges this generational pressure. Political accountability studies show measurable dissatisfaction with the pace of change.

The scepticism extends to corporate claims. Companies postponing sustainability analysis face increasing pushback from younger employees and consumers.

And the youth are organising. This spring, the University of Iceland’s Student Council launched Stúdentar taka til (“Students Take Action”), a student-driven sustainability campaign challenging 400 Icelandic companies to make measurable improvements in their environmental practices.

“We want Icelandic companies to become leaders in sustainability,” said Arent Orri Jónsson Claessen, President of the Student Council. “This is a call for greater transparency.”

Participating companies gain access to Laufið, a digital platform tracking progress across 120 sustainability actions, while benchmarking them against their peers in real time. Those who succeed earn a coveted spot on the students’ “Fyrirtæki framtiðarinnar” list — the “Companies of the Future”—to be published in October 2025.

It’s a student-led performance review. The new generation is grading on outcomes, not optics.

The pension funds’ 580 billion ISK climate commitment presents an opportunity to invest in those performance improvements. Pension capital plays a unique role in shaping the Icelandic marketplace.

What’s interesting is how this generational scepticism might strengthen Iceland’s sustainability efforts. By refusing “geothermal exceptionalism,” they force honest accounting.

“Actions speak louder than words, and it is important to walk the talk,” Professor Lára Jóhannsdóttir notes.

The message for businesses and policymakers is clear: sustainability theatre won’t suffice. Young Icelanders want genuine progress, measurable outcomes, honest acknowledgement of challenges. What may be construed as being against development, should really be understood as being against hypocrisy.

Companies embracing real transparency find younger workers eager to contribute solutions. Those persisting with greenwashing face increasing irrelevance.

The divide is particularly acute here because of the gap between international image and domestic reality. Young Icelanders live the contradictions daily. A renewable grid alongside high emissions. Stellar equality rankings beside persistent problems. Sustainability leadership requires more than geographic luck.

Their scepticism represents tough love for a country they want to see fulfil its potential. By demanding better, they might push Iceland from marketing sustainability toward achieving it.

This brings us to what Iceland genuinely offers the world—not perfection, but something potentially more valuable.

A real place, not a wonderland

Standing at Perlan’s observation deck, you see all of Reykjavík spread below. Its colourful rooftops, the harbour mixing whale-watching boats and fishing vessels, geothermal plumes rising, mountains beyond. It’s beautiful. It’s complicated. Which is exactly the point.

After months living here, working in sustainability, talking to everyone from ministers to fishermen, I’ve reached a conclusion that might disappoint tourists seeking environmental paradise: Iceland isn’t a wonderland. It’s something better. It’s a real place grappling with real challenges, making real progress and real mistakes.

The Blue Lagoon remains my favourite metaphor. Industrial runoff became a world-renowned attraction not through deception but pragmatic transformation. That’s Iceland’s actual gift, in showing how to work with what you have, admit what you lack, and then iterate toward something better.

“We should not rest on our laurels but aim to be a frontrunner and a good example in all aspects of sustainability,” Minister Jóhann Páll told me. Note “aim” — aspiration, not achievement. The difference matters.

Iceland’s real lessons aren’t in renewable energy abundance. That’s geographic lottery. The true insight lies in how a society responds when its natural advantages meet the hard edges of reality.

When world-leading carbon storage stumbles on community engagement, it teaches that innovation needs social license, not just scientific validity. When ocean-based removal fails despite promising technology, it shows stakeholder trust can’t be retrofitted. When renewable electricity enables questionable industries, it demonstrates clean energy alone doesn’t equal sustainability. When fisheries management saves stocks but concentrates wealth, it demonstrates that environmental success can create social challenges. When young people reject their parents’ narratives, it reveals transparent progress beats marketed perfection.

This pragmatism might be what the world needs. Not another paradise making others feel inadequate, but a transparent laboratory showing the messy process of progress. Iceland’s size enables rapid experimentation. Its failures instruct. Its successes replicate.

The iterative model — try, fail, learn, improve — offers more hope than perfect solutions. Progress is possible without perfection. Communities can transform industrial waste into attractions. Failed experiments teach as much as successful ones. Even paradise has problems worth solving.

Iceland shows sustainability isn’t a destination but a practice. Like democracy, like equality, it requires constant attention, adjustment, honest acknowledgement of shortcomings.

So yes, visit the Blue Lagoon. Marvel at milky waters. Take your Instagram photos. But remember you’re bathing in transformed industrial runoff, and that’s actually the most inspiring part. Iceland took wastewater and made it wonderful. Imagine what else is possible.

Iceland is not a sustainability wonderland. It’s better. It’s a real place doing real work, offering real lessons.

Adam Roy Gordon is a Reykjavík-based sustainability strategist with international experience at the United Nations, leading global corporate sustainability initiatives, and academia, including as a lecturer at Columbia University’s Climate School.

Editor’s note: In this issue, we featured an opinion piece with a differing perspective from the feature regarding what Iceland’s future vis-a-vis sustainability should or could look like. Given the importance we believe this issue holds for this country we are happy to publish these differing views, hoping they will enrich the ongoing discourse.