The Price of Wealth

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In the remote and barren highlands of eastern Iceland, the herds of reindeer and flocks of pink-footed geese suddenly have some company. Hundreds of workmen have moved into the unspoiled valleys northeast of the Vatnajökull icecap, where glacial rivers flow through magnificent canyons in a starkly beautiful volcanic landscape. The men are working on the Kárahnjúkar Hydroelectric Project: a vast network of dams, reservoirs, tunnels, power stations and high-tension lines to support a new aluminum-smelting plant for the U.S. multinational Alcoa on a fjord some 70 km to the east. At a total projected cost of $2.2 billion for the smelter and its hydropower system, it's the biggest construction project in Iceland's history — and it's taking shape in one of Europe's last remaining large wilderness areas. Little wonder that it has sparked a furious debate over whether economic growth can co-exist with environmental care in this place that few people ever visit.

"The highlands have a great value in themselves, especially because Europe is so densely populated," says Arni Finnsson, chairman of the Iceland Nature Conservation Association, a leading opponent of the Kárahnjúkar project. "This area is far too beautiful to destroy." Environmentalists like Finnsson, supported by the WWF Arctic Program, the International Rivers Network and others, argue that construction will ruin this beauty by redirecting rivers, wiping out waterfalls and wildlife habitats and encouraging soil erosion.

But Sigurdur Arnalds, spokesman for Landsvirkjun, the national power company, which is developing the Kárahnjúkar project, downplays the environmental impact, saying the scheme — which is supported by the national government, local authorities and a significant majority of the general public — will create about a thousand jobs in the sparsely populated east. The project finally got the go-ahead from Iceland's Supreme Court in January, after four years of legal wrangling over the environmental impact assessment submitted by Landsvirkjun.

Alcoa's Fjardaál smelting plant, for which ground was recently broken in Reydarfjördur, a port on the country's largest east-coast fjord, will be Landsvirkjun's principal electricity customer. Excess capacity generated by the Kárahnjúkar power plant will be passed on to the national grid. The whole enterprise, says Arnalds, is "not only to create jobs locally, but to create national wealth." Iceland has an abundance of hydroelectric power, so the government is encouraging energy-hungry industries to settle here.

But the country is also rich in natural wonders, and opponents of the massive development scheme think Kárahnjúkar will squander some of that wealth for insufficient economic benefit. "We have serious doubts about the old-fashioned industrialist thought" behind the project, says Steingrímur J. Sigfússon, a Left-Green Movement member of the Althingi, the Icelandic parliament, and one of a handful of legislators who opposed the Kárahnjúkar project. "We have to do something to reverse the trend of people moving away to seek work, but is this a good solution — one big factory with monotonous jobs?"

Arnalds thinks it is. Unemployment in Iceland — home to some 290,000 people, 60% of whom live in and around the capital, Reykjavík — is only around 3%. But in places like Reydarfjördur and Egilsstadir, the east's main town, many people have moved away in search of jobs as the traditional industries, fishing and farming, have declined. Will young people who have fled the east be drawn back to work in the smelting plant and other businesses that Alcoa's presence may generate when many of them can work, for example, in the tech and pharmaceutical sectors in Reykjavík? "The labor market [in Iceland] is very flexible," Arnalds says. "If the smelter does not attract people back from Reykjavík, it will attract people from the villages of eastern Iceland."