Did Sacrificing Nature Pay Off? (ESA)


eyglo02_dlThe past two evenings, RÚV’s news magazine Kastljós has reported how two international aluminum companies in Iceland, Alcoa and Norðurál (Century Aluminum), avoid paying income tax in Iceland as they owe their associate companies abroad hundreds of billions of ISK.

The companies pay hundreds of millions of ISK in interest on these loans and the cost is subtracted from their revenue and hence the income tax, as explained on

This arrangement is common in foreign countries. However, while legislation to prevent such practices is widely in place abroad, it does not exist in Iceland.

And in fact, the agreements made with the companies when they launched their operations in Iceland gave them immunity from future tax legislation.

Minister of Industries and Innovation Steingrímur J. Sigfússon and Minister of Finance Katrín Júlíusdóttir both stated on Kastljós yesterday that they found it unnatural that these companies don’t pay income taxes in Iceland, criticizing the agreements that were made by their predecessors.

They also denied having made similar agreements themselves in connection with the planned smelter in Helguvík and silicon factory at Bakki, stating that the companies that will run them will not be able to avoid paying income taxes in the same manner.

Now this begs the question: to what extent has Iceland profited by having these companies run their smelters in the country?

I’m especially referring to the Alcoa smelter in Reyðarfjörður, the East Fjords.

To power the smelter, a dam was built at Kárahnjúkar in the highlands, a huge area submerged in water and the glacial river Jökulsá á Dal channeled into the lake Lagarfljót.

It has now come to light that the consequences for the biosphere in Lagarfljót were severe. So severe that fish are disappearing from the lake. Glacial sediment clouds the lake, which prevents the photosynthesis of algae.

The water surface rises and the temperature is higher, preventing the water from freezing in winter. Waves crash against the lake’s banks and islets, causing erosion and destroying the habitats of birds.

Was this sacrifice really worth it?

The construction of the dam was highly controversial at the time but critics and protestors were ignored.

In the employment-starved East Fjords, where seaside villages were suffering from population decline, people were largely positive towards the dam and smelter, though.

In Neskaupstaður a number of inhabitants work at the smelter and Alcoa sponsors the local volleyball team, enabling them to fly in star players from around the country—and abroad—and be the best team this season.

Neskaupstaður is a volleyball town, after all.

I haven’t discussed the developments at Lagarfjót with inhabitants so I don’t know whether their attitude might be changing but the last time I was in Neskaupstaður people generally seemed to favor the impact the smelter has had on life in town.

However, one person stated that had the smelter not been built, they would just have found employment somewhere else.

Tourism, for example?

Travel agents reason that the East Fjords lie too far away from the capital to profit from the tourism boom. But so do the West Fjords.

Free from large-scale industries, inhabitants there are marketing themselves as a haven for nature and culture lovers and it’s gradually delivering results, with TIME recently calling the region one of the world’s best-kept secrets.

A similar development is occurring in East Iceland. Like in the West Fjords, popular music and culture festivals take place there and people are coming up with innovative tourism initiatives.

As beautiful as the region is, the smelter will always cast its shadow and its image is bound to be affected by the environmental disaster at Lagarfljót.

I don’t doubt that the smelters are important to the Icelandic economy, although this latest news about the income tax is shocking, to say the least.

But how important will they prove years and decades from now? Important enough to have made these enormous sacrifices?

Was the destruction of nature really worth it?

Eygló Svala Arnarsdóttir – [email protected]

Views expressed here are the author's own and do not necessarily reflect the opinions of Iceland Review.