The main policy document related to climate action in Iceland is the 2024 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. Afforestation, wetland and forest restoration on private and state-owned land can receive additional financial support under the current Climate Action Plan. Furthermore, contributions to activities that generate voluntary carbon credits such as afforestation, wetland restoration, and the geological injection of carbon dioxide are deductible from corporate income taxes. The government developed a methodology for carbon credit generation via the restoration of dry and wetland ecosystems.

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.

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.