In a Nutshell
- Icelandic climate policy related to CDR mainly focuses on the Land-use, land-use change and forestry sector.
- Iceland’s Climate Act was amended in 2021 to add a climate neutrality target by 2040.
- There are no deployment incentives dedicated to CDR specifically, even though support is provided to increase state contributions to nature-based climate solutions and climate-friendly agriculture. Iceland is home to the world’s largest operational direct air capture plant.
- A proposal for the implementation of a certification framework for soil and other land use is under progress, as well as a proposal for a strategy on carbon markets/carbon credits. The latter is due at the end of February 2024.
Role for carbon removal in national climate policy
Iceland is committed to reaching climate neutrality by 2040 and fossil fuel-free by 2050, aiming to get closer to being net negative thereafter. Iceland’s Long-Term Low Emission Development Strategy (LTS) puts emphasis on a rapid clean energy transition in the transport sector, coupled with increased efforts in the land-use, land-use change and forestry (LULUCF) sector. Afforestation, revegetation and wetland reclamation are key areas of focus. While the first two will result in net removals, the latter will be an emissions reduction measure, as wetlands are currently a net emitter of greenhouse gases (GHG). These measures are further defined in two LULUCF-related strategies. The LTS provides emissions estimates only until 2030, projecting emission reductions in the Effort Sharing Regulation (ESR) sectors of 40 to 46%.
The main policy document related to climate action in Iceland is the 2020 Climate Action Plan, which sets out policy measures to bring Iceland towards the 2030 goal set out in the LTS. The measures are divided by sectors and grouped in EU buckets, namely ESR, EU-ETS and LULUCF. Beyond the LULUCF sector measures outlined above, other CDR-relevant measures include carbon capture from heavy industry and geothermal energy plants, climate-friendly agriculture and improved mapping of grazing land and land use. Iceland has not developed a CCS or a CDR strategy yet.
Relevant legal frameworks
While Iceland is not part of the European Union, it is part of the European Economic Area and has taken part in the EU-ETS since 2008. It extended its participation to the Effort Sharing Regulation and the LULUCF Directive in 2019.
In 2021, Iceland’s Climate Act was amended to add a climate neutrality target by 2040. However, the act also stipulates that if the government’s climate goals should be updated, amendments to this target shall be proposed accordingly. Depending on how this is interpreted, a less ambitious government could water down Iceland’s climate neutrality goals.
The EU CCS Directive has also been transposed into Icelandic law. Relevant provisions can be found in the Sanitation and Pollution Prevention Act, allowing industrial-scale CO2 storage and clarifying liability concerns. Research projects storing less than 100 kilotonnes of CO2 do not need to comply with this Act. In 2019, the government of Iceland signed a declaration of intent with six private companies to investigate the potential of the CO2 storage method developed by CarbFix to become a realistic emission reduction option.
Internationally, though a signatory to the London Protocol, Iceland has still not ratified the Amendment to Article 6 regarding trans-border CO2 transport for sub-seabed geological storage. Iceland enjoys unique CO2 storage capacities due to enormous basaltic formations in and around the territory, with most of the storage potential lying offshore. However, there is no official published plan in place regarding the ratification of the amendment to Article 6 of the London Protocol. While there are plenty of CO2 storage locations available on land, Iceland will not be able to exploit its offshore storage capacities until it ratifies the amendment. The governments of Iceland and Switzerland have also engaged in a bilateral cooperation process in the field of CDR and CCS, embodied through a Declaration of Intent signed in 2021.
Support for R&D and Innovation
Even though there are no dedicated deployment incentives for CDR, several different programmes and initiatives are relevant. The state budget for 2022-2026 includes increasing state contributions to nature-based climate solutions and climate-friendly agriculture. Furthermore, funding has been allocated to support research to further understand how the LULUCF sector can contribute to climate action and how LULUCF targets should be defined. This funding includes mapping carbon sinks within Iceland and the development of a certification framework for carbon units in agriculture and land use. The Climate Fund, overseen by the Ministry of Environment, Energy and Climate, supports innovative climate projects. The Technology Development Fund backs R&D and innovation activities in the industry sector.
Iceland is home to the largest active direct air capture plant in the world, run by the Swiss company Climeworks. Additionally, a Swiss research project called DemoUpCarma collaborates with CarbFix to demonstrate the technical feasibility of cross-border CO2 transport and CO2 geological storage abroad. In this project, biogenic CO2 captured from a wastewater treatment plant in Switzerland is transported to Iceland by train and ship and stored in Iceland.
Given its large geological storage capacities, Iceland is exploring becoming a CO2 storage hub in Europe. The most important project under development is the Coda Terminal, which received a grant by the Innovation Fund of EUR 115 million. Entry into operation is planned for 2026. From 2026 to 2028, 0.5 MtCO2 per year are planned to be imported by one ship and stored in onshore geological formations, scaling to 1 MtCO2 annually from 2028 to 2030 by two ships and 3 MtCO2 per year by five ships from 2031 onwards.
The Silverstone project, which received a EUR 3.5 million grant from the Innovation Fund, aims to capture and store CO2 emissions from a geothermal plant in Hellisheiði. Once the project is operational at the end of 2024, 34,000 tonnes of CO2 will be captured annually. Over the lifetime of the project, about 150,000 tonnes of CO2 are expected to be captured and stored, which represents about 10% of all emissions reductions needed in non-ETS sectors to reach the goals set out in the Climate Action Plan for 2030.
On the horizon
- Ongoing comprehensive work to update Iceland’s Climate Action Plan aim for a deadline set for the end of 2023 or beginning of 2024.
- A proposal for the implementation of a certification framework for soil and other land use is in progress, with no formal deadline. The Minister for Environment, Energy and Climate has appointed a working group that is working on a proposed strategy on carbon markets/carbon credits. The working group is expected to submit a proposal to the Minister at the end of February 2024. The proposal is one important part of the work on the implementation of the certification framework for soil and other land uses. Ongoing work at the international level, namely methodologies on Article 6.4 of the Paris Agreement, and at the EU level, namely the ongoing work on the Certification Framework for Carbon Removal, are crucial for the proposal.
- Net zero target: 2040
- First interim target: 2030
- Type of interim target: Emissions reduction target
- GHGs covered: Carbon dioxide and other GHGs
- Separate target for emission reduction and removals:
- Comprehensive CDR Target: na
- CDR Target for Conventional Removals: na
- CDR Target for Novel Removals: na
- Historical emissions:
- Annual reporting mechanism: Annual reporting
- Plans for carbon removal (CDR): Yes (nature-based and CCS-based removals)
- Planning to use external carbon credits: No
- Conditions on use of carbon credits:
Public consultations and upcoming policies
- The Ministry of Environment and Climate has formed a working group on carbon markets that will deliver recommendations to the Minister by February 2024. They have an ongoing call for stakeholder inputs.
- Ministry of the Environment, Energy and Climate – Ministry responsible for formulating and enforcing Icelandic policy for environmental affairs.
- Ministry of Higher Education, Science and Innovation – Responsible for coordinating universities, science, industry and innovation.
- Ministry of Food, Agriculture and Fisheries – Responsible for all sectors of ordinary business and economic activity. It is the result of the merging of the Ministry of Fisheries and Agriculture, the Ministry of Industry, Energy and Tourism and part of the Ministry of Economic Affairs.
- The University of Iceland – Has several research institutes relevant to CDR and carbon management in general, including the Institute of Earth Sciences, which focuses on studying geological conditions in Iceland and surroundings.
- The Icelandic Centre for Research (RANNIS) supports research, innovation, education and culture in Iceland.
- The Icelandic Climate Council functions as an autonomous organization responsible for overseeing governmental actions and offering guidance on policy goals and concrete actions concerning climate change.