Environment at a Glance: Iceland
Table of contents
The OECD Environment at a Glance Country Notes are designed to support transparent, evidence-based information. They provide concise and descriptive overview of progress across major environmental issues, including climate, air quality, freshwater resources, waste and the circular economy, and biodiversity conservation. They feature selected environmental indicators, building on harmonised datasets available on OECD Data Explorer. Differences with national data sources can occur due to delays in data treatment and publication, or due to different national definitions and measurement methods. See the Reader’s guide to the Environment at a Glance Country Notes for more information.
Iceland has a small, open economy built on abundant renewable energy resources, distinctive natural attractions and fisheries. It also has a strong industrial base, dominated by energy-intensive aluminium production. Living standards are relatively high. Average population density is low, but the majority of inhabitants are concentrated in urban settlements, which occupy only about 1% of Iceland’s territory.
Located just south of the Arctic Circle, Iceland is characterised by mountains, fjords and valleys in the central highlands, with lowlands along the coast. Glaciers, rivers and lakes cover 13% of the territory, providing abundant freshwater resources. Agricultural land is limited and vegetation is mostly subarctic. Iceland has also significant geothermal energy resources. The surrounding seas provide rich marine ecosystems, shaped by the interaction of the Gulf Stream with colder Arctic waters.
While Iceland has decoupled real GDP growth from production-based (i.e. produced within the territory) carbon dioxide (CO2) emissions, between 2005 and 2022 energy supply grew more than GDP. The per person production-based and demand-based (or footprint, i.e. including emissions incorporated in imported goods) 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 (i.e. demand for goods and services by all residents). The situation has reversed since 2008, but the gap is tightening again.
Iceland has a unique GHG emission profile. The land use, land-use change and forestry (LULUCF) sector is the largest emitter, with emissions more than the double of the combined emissions from the other sectors. They are driven mainly by CO₂ releases from drained organic soils, past wetland conversions and lack of trees. When including LULUCF, total emissions have increased by almost 2% during 2000-24. When excluding LULUCF, the increase was almost 15%.
Total GHG emissions excluding LULUCF reflect Iceland’s distinctive energy mix and industrial base. Industrial processes are the main source of emissions due to the significance of the metal production, followed by transport and agriculture. Transport emissions come primarily from road vehicles, machinery and the fishing fleet. Agricultural emissions have been decreasing, driven by livestock and manure management and fertiliser use (Iceland, 2026).
Iceland is unique among OECD countries, for 90.3% of its total energy supply and close to 100% of its electricity are obtained from renewable-energy sources, mainly 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 moved 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 (IEA, 2026).
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 compared to 2000. This is mainly due to geothermal exploitation, which is a major source of SOx and H2S. NMVOC emissions have started to increase again since 2023.
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.
Iceland’s per person municipal waste generation had been increasing until 2018 and slightly decreased since. Amounts generated per person remain above the OECD average. Waste management has improved. The share of municipal waste landfilled has been reduced while the recycling rate increased.
Per person domestic material consumption (DMC) has been fluctuating but overall declined, and is now below the OECD average, at about 15 tonnes per person. Like many other OECD countries, the material footprint is higher than DMC. On the other hand, material productivity has been increasing and is 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, Environmental Performance Reviews: Iceland, 2014).
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).
The share of terrestrial protected areas is above the OECD average, but the share of marine protected areas is negligible. More efforts are needed to achieve the 2030 Global Biodiversity Framework (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% value added tax (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 liquefied petroleum gaz. 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, Inventory of Support Measures for Fossil Fuels: Country Notes, 2023).
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 Rate1 (ECR) in 2023. Explicit carbon prices in Iceland consist of emissions trading system (ETS) permit prices and carbon taxes, which cover 67.8% of GHG emissions in CO2 equivalent. With roughly 55.4% of total GHG emissions, coverage is largest for carbon taxes. Fuel excise taxes, an implicit form of carbon pricing, covered 31.1% of emissions in 2023. About 44% of GHG emissions have a Net ECR above EUR 60 per tonne of CO2 equivalent, 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, Pricing Greenhouse Gas Emissions 2024: Gearing Up to Bring Emissions Down, 2024).
Iceland is a minor player in environmentally related innovation. The share of environmentally related government research and development (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.
Human rights, gender equality, and environmental and climate affairs are the pillars of all of Iceland’s development co-operation. Iceland leverages its expertise in geothermal energy, fisheries and land restoration through its training programmes and multilateral support. The share of its bilateral official development assistance (ODA) for climate has been increasing during the past decade, to reach 41.1% in 2023-24. By contrast, the share for biodiversity has been declining, from 19.2% in 2013-14 to 14.3% in 2023-24 (OECD, 2026).
References
CBD. (n.d.). Country profiles: Iceland. Retrieved from https://www.cbd.int/countries/profile?country=is
Iceland. (2026). National Inventory Document 2026. Icelandic Environment and Energy Agency. Retrieved from https://unfccc.int/documents/656407
IEA. (2026). Energy system of Iceland. Retrieved from https://www.iea.org/countries/iceland/electricity
OECD. (2014). Environmental Performance Reviews: Iceland. OECD Publishing, Paris. doi:10.1787/9789264214200-en
OECD. (2023). Inventory of Support Measures for Fossil Fuels: Country Notes. OECD Publishing, Paris. doi:10.1787/5a3efe65-en
OECD. (2023). Supplement to effective carbon rates 2023. OECD Publishing, Paris. Retrieved from https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/carbon-pricing-and-energy-taxes/effective-carbon-rates-iceland.pdf
OECD. (2024). Pricing Greenhouse Gas Emissions 2024: Gearing Up to Bring Emissions Down. OECD Series on Carbon Pricing and Energy Taxation, OECD Publishing, Paris. doi:10.1787/b44c74e6-en
OECD. (2026). Development Co-operation Profiles. OECD Publishing, Paris. Retrieved from https://www.oecd.org/en/publications/development-co-operation-profiles_04b376d7-en/iceland_5da76f8b-en.html
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← 1. Effective Carbon Rate (ECR) is the sum of fuel excise taxes, carbon taxes and tradeable permits that effectively put a price on carbon emissions. The Net ECR equals the ECR minus fossil fuel subsidies that decrease pre-tax fossil fuel prices.