This country note features selected environmental indicators from the OECD Core Set, building on harmonised datasets available on OECD Data Explorer. The indicators reflect major environmental issues, including climate, air quality, freshwater resources, waste and the circular economy, and biodiversity. Differences with national data sources can occur due to delays in data treatment and publication, or due to different national definitions and measurement methods. The OECD is working with countries and other international organisations to further improve the indicators and the underlying data.
Environment at a Glance: Iceland
Iceland has a small, open economy built on ample renewable energy potential, unique natural tourist attractions and fisheries. The country has a strong industrial base, mostly energy-intensive aluminium smelting. The population enjoys relatively high living standards. Average population density is low, but the majority of inhabitants are concentrated in urban settlements, which occupy only about 1% of Iceland’s area.
Iceland is just south of the Arctic Circle. Its topography is characterised by mountains cut by fjords and valleys in the central highlands, and lowlands along the coast. Glaciers, rivers and lakes cover 13% of the total area, resulting in abundant freshwater supplies. Agricultural land is scarce. Vegetation is mostly subarctic and characterised by abundant grasses, sedges and related species. Iceland is rich in geothermal energy. The seas around Iceland provide a rich diversity of marine resources, resulting from the influence of the Gulf Stream and the mixing of the warmer waters of the Atlantic with cold Arctic waters.
While Iceland has decoupled real GDP growth from production-based CO2 emissions, since 2005 energy supply grew more than GDP.
The per person production-based and demand-based (or footprint) greenhouse gas (GHG) emissions remain well above the OECD averages, and have witnessed very large fluctuations since 1996. Until 2007, demand-based emissions were higher than production-based ones, meaning that Iceland was net importer of GHG emissions embodied in its final demand. The situation has reversed since 2008 but the gap is tightening again.
The uniqueness of the Icelandic situation is reflected also in the sectoral composition of GHG emissions. The largest emitter is the land use, land-use change and forestry (LULUCF) sector, due to emissions from drained wetlands. It is followed far behind by the industrial sector, mainly aluminium production.
Iceland is unique among OECD countries, as 90% of its total energy supply and almost 100% of its electricity are obtained from renewable-energy sources, mainly coming from high-temperature geothermal fields. The country produces no fossil fuels and imports all of its petroleum products, which are mostly consumed in the transport and fishing sectors. Iceland converted from oil to geothermal district heating between 1940 and 1975. Today, 97% of heating output comes from geothermal sources and most of the rest is provided by electricity. Iceland’s annual per person electricity consumption is the highest in the world. More than 85% of it is consumed by the industrial sector, mainly in aluminium-smelting (OECD, 2023[1]).
Progress in air pollutant emission trends is mixed. While emissions of nitrogen oxides (NOx), non-methane volatile organic compounds (NMVOC) and small particulates (PM2.5) decreased, improvements in ammonia (NH3) have been very modest, and sulphur oxide (SOx) emissions have increased by more than half since 2000. This is mainly due to geothermal exploitation, which is a major source of SOx and H2S.
Iceland remains one of the few countries in the OECD close to the World Health Organisation threshold of 5 µg/m3 for PM2.5 concentrations.
Glaciers, rivers and lakes cover 13% of Iceland’s area, resulting in abundant freshwater supplies. This abundance, combined with the small population, results in one of the lowest intensities of water use among OECD countries (OECD, 2014[2]).
Iceland’s per person municipal waste generation has been increasing until 2018 and decreased since. It is above the OECD average. Waste management has somewhat improved. The share of municipal waste landfilled has been reduced but remains the main treatment mode.
Per person domestic material consumption (DMC) has been fluctuating but overall declined, albeit slowly, and is now very close to the OECD average of about 18 tonnes/person. Like many other OECD countries, material footprint is systematically higher than DMC. On the other hand, material productivity has been increasing and is well above the OECD average.
Less than 1% of the land area is artificially built, and agricultural land is scarce. Vegetation is mostly subarctic and characterised by abundant grasses, sedges and related species. In the highlands and lava fields vegetation is mainly mosses and lichens (OECD, 2014[2]).
Iceland is isolated in the middle of the North Atlantic Ocean, making it difficult for plants and animals to disperse to the island. Biological diversity is thus not very high, and there are few endemic species of fauna and flora. Nevertheless, about 72 bird species nest regularly in Iceland. The country's northerly latitude and harsh climate prevent traditional crop cultivation, limiting agriculture mainly to animal husbandry. Soil erosion is one of the most serious environmental problems facing the country. Iceland has lost over 95% of its original birch woodlands, which today cover only about 1% of the total area. This is mainly due to the early clearing of woodlands and subsequent overgrazing, throughout the centuries (CBD, 2022[3]).
The share of terrestrial protected areas is close to the OECD-Europe average, but the share of marine protected areas is negligible. More efforts are needed the achieved the 2030 GBF target to protect at least 30% of terrestrial and inland water areas, and 30% of marine and coastal areas.
This section shows selected policy instruments based on data available for most OECD countries and does not provide a complete overview of countries’ policy mix to achieve their environment-related objectives. Interpretation should consider the country specific context.
Petroleum fuels used for transport are taxed both directly and indirectly through several taxes. All motor fuels used by road vehicles are subject to a general excise tax, a supplementary road tax for transport fuels, a carbon tax, as well as the standard 24% VAT rate. Transport fuels used in aircraft are exempted from excise taxes. Iceland’s carbon tax, introduced in 2010, covers four categories of fuels: gas diesel oil, motor gasoline, heavy fuel oil and LPG. Fuels used by the fishing fleet are fully subject to the carbon tax and VAT, and to no other forms of taxation. Also introduced in 2010 was an energy tax collected on the sales of electricity and hot water which has since been reduced to cover only hot water sales since 2016. In 2020, the tax on fluorinated gases was implemented. A recurrent weight charge is also applied to heavy road vehicles (OECD, 2023[1]).
Environmentally-related taxes have been decreasing as a share of GDP but remains above the OECD average. Like in most OECD countries, the tax base is almost exclusively energy and transport.
In total, 67.8% of GHG emissions in Iceland were subject to a positive Net Effective Carbon Rate (ECR) in 2023. Explicit carbon prices in Iceland consist of emissions trading system (ETS) permit prices and carbon taxes, which cover 67.8% of greenhouse gas (GHG) emissions in CO2 eq. With roughly 55.4% of total GHG emissions, coverage is largest for carbon taxes. Fuel excise taxes, an implicit form of carbon pricing, cover 31.1% of emissions in 2023. About 44% of GHG emissions have a Net ECR above EUR 60 per tonne of CO2 eq., a mid-range estimate of current carbon costs. Net ECRs are highest in the road transport sector, which accounts for 30.3% of the country's total GHG emissions. The Net ECR is on average positive in all sectors (OECD, 2024[4])..
Iceland is a minor player in environmentally-related innovation. The share of environmentally-related government R&D budget is negligible and the per person inventions by residents are well below the OECD average, as well as the share of environmentally-related inventions in total inventions.
Committed to fighting poverty, Iceland invests in marginalised and rural communities in low-income and fragile contexts through district-level approaches and multilateral and civil society partners. Iceland strongly emphasises respect for human rights, gender equality and the environment. It has committed almost half of its bilateral allocable aid to projects and programmes promoting the inclusion and empowerment of persons with disabilities. Iceland’s total official development assistance (ODA) decreased in 2024 to USD 111.7 million (preliminary data), representing 0.33% of gross national income (GNI)..
In 2022-23, Iceland committed 48.9% of its total bilateral allocable ODA in support of the environment and the Rio Conventions, up from 47.9% in 2020-21. The DAC average was 39% in 2022-23. Sixteen per cent of screened bilateral allocable ODA focused on environmental issues as a principal objective, compared with the DAC average of 9.6%. Thirty-eight per cent of total bilateral allocable ODA focused on climate change overall, up from 36.6% in 2020-21 (the DAC average was 34.8%). Iceland had a greater focus on adaptation (32.6%) than on mitigation (25.4%) in 2022-23. Thirteen per cent of screened bilateral allocable ODA focused on biodiversity overall, up from 8.9% in 2020-21 (the DAC average was 7.6%). Iceland committed USD 3.4 million in support of the conservation and sustainable use of the ocean in 2023, USD 2.3 million more than in 2022. The 2023 value is equivalent to 5.1% of Iceland’s bilateral allocable ODA. (OECD, 2025[5]).
References
[3] CBD (2022), Country profiles: Iceland, https://www.cbd.int/countries/profile?country=is.
[5] OECD (2025), Development Co-operation Profiles, OECD Publishing, Paris, https://www.oecd.org/en/publications/development-co-operation-profiles_04b376d7-en/iceland_5da76f8b-en.html.
[4] OECD (2024), Pricing Greenhouse Gas Emissions 2024: Gearing Up to Bring Emissions Down, OECD Series on Carbon Pricing and Energy Taxation, OECD Publishing, Paris, https://doi.org/10.1787/b44c74e6-en.
[1] OECD (2023), OECD Inventory of Support Measures for Fossil Fuels: Country Notes, OECD Publishing, Paris, https://doi.org/10.1787/5a3efe65-en.
[6] OECD (2023), Supplement to effective carbon rates 2023, OECD Publishing, Paris, https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/carbon-pricing-and-energy-taxes/effective-carbon-rates-iceland.pdf.
[2] OECD (2014), OECD Environmental Performance Reviews: Iceland 2014, OECD Environmental Performance Reviews, https://doi.org/10.1787/9789264214200-en.
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