REPORTER:   Nick Lazaredes

Half an hour outside Iceland's capital, Reykjavik, families mingle and bathe in a shimmering rock pool. It's dubbed the Blue Lagoon, but it's man-made. Essentially they're swimming in a pond of industrial waste - sulphur-rich run-off from the nearby geothermal power station. It's quickly become Iceland's most popular tourist attraction, a remarkable example of how Icelanders have exploited their most precious resource - energy.   Iceland sits on a hot spot of geothermal activity. Combined with the hydro-electricity produced from its glacier-fed rivers this tiny country generates as much electricity as 20 nuclear power plants.

HILMAR SIGURBJORNSSON: Here you can see the finished products, the coils ready to put into containers. The T-bars and sows, at the far end.

With such enormous reserves it wasn't long before the world's most power-hungry industries came knocking - aluminium producers.

HILMAR SIGURBJORNSSON: Our first shipments of alumina came from Australia. We get alumina ships here every three or four weeks.

At Alcoa's sparkling new smelter in the far east of Iceland Hilmar Sigurbjornsson is proud of the efforts that have transformed this remote fjord into one of the world's largest aluminium trading hubs.

HILMAR SIGURBJORNSSON: So, in all, it's 1.3 million tonnes per year, which makes this the second- or third-biggest harbour in Iceland.

With the construction of a massive new dam and hydro-electric power station nearby and a constant supply of Australian bauxite, Iceland's aluminium industry has become even stronger.

HILMAR SIGURBJORNSSON: Ships can be up to six weeks on their way from Australia, and it takes days to unload them, so it's a long voyage. So, we have links with Australia. Strong ties.

REPORTER: Making money together?

HILMAR SIGURBJORNSSON: Yes, we are making jobs together.

Those jobs are desperately needed. Late last year, Iceland became the first victim of the global economic crisis, sparking riots in the streets. The country's banking sector had imploded under a mountain of debt, and within just a few months almost 10% of Icelanders were out of work. But the island's energy reserves remain unscathed. For many, exploiting those reserves is a tempting economic lifeline. But others fear the unleashing of a dangerous juggernaut.
The fear is that industrial development may cause irreversible damage, and although some of the biggest aluminium producers in the world are prepared to inject billions into the local economy here, some Icelanders are prepared to risk everything they have to stop what they see as the reckless destruction of a unique environment.

OMAR RAGNARSSON, ENVIRONMENTAL ACTIVIST: I know this area well and it's very beautiful and it has the possibility of being the most famous volcanic national park in the world, and we are going to destroy it for 40 jobs in an aluminium smelter. You know, I sometimes not know whether I should cry or laugh.

Not far from Reykjavik, Omar Ragnarsson is showing me the quiet valley where he spent his summers as a young boy, a place he now fears will be destroyed by yet another planned aluminium smelter.

OMAR RAGNARSSON: It's disaster, it's out of control, it's completely out of control.

Omar says he's not completely opposed to industry. But smelters are hungry for energy and the only way to feed them is by building still more dams and power stations, drowning much of the wilderness along the way.

OMAR RAGNARSSON: It's 20 places all planned. It's all, it's such a long, long list, and they want it all. That's the problem - they want it ALL.

This is the Karahnjukar hydro scheme, the biggest dam and power development ever undertaken in Iceland. It involves the damming of two mighty glacial rivers across an area of nearly 1,000 square kilometres of pristine wilderness. Now, vast dry canyons have been formed, whilst in the interior entire valleys have been flooded by the dams.

OMAR RAGNARSSON: The Karahnjukar project is the greatest environmental irreversible impact you can have on the nature and the image of the country, just for within 0.5% of the jobs in this country.

When the Karahnjukar hydro plan was first mooted, environmentalists were outraged. Facing off against big business, they drew inspiration from what happened in Tasmania in the 1980s.

KOLBRUN HALLDORSDOTTIR, ENVIRONMENT MINISTER: When we were fighting against the Karahnjukar project we tried to open the eyes of people and told them the story of the Franklin River, and we said, "We can stop this, it is possible, "activists did it back in Australia, and we can do it here." But we didn't.

When I first met Kolbrun Halldorsdottir, last year, the Left-Green politician was one of just a handful in public office taking a stand against the smelters, a position driven by her belief that the aluminium industry was simply using Iceland's clean, green image to erase its grubby track record.

KOLBRUN HALLDORSDOTTIR: The fact is that the country as a whole benefits extremely little by the selling, or the producing of raw aluminium here in Iceland. Very little of the value of this product stays in the country, and these companies, they are not Icelandic - they are foreign - and they come to Iceland in order to 'green' themselves. I mean, who wouldn't want... The aluminium industry, they have a record, and they're trying to make that record better, and I understand that.

Kolbrun's concerns had been largely ignored. That is, until the economic meltdown handed her a remarkable opportunity. Earlier this year Iceland's besieged government finally collapsed, and she was catapulted into the Environment Minister's seat in a caretaker administration. Now the aluminium industry is firmly in her sights.

KOLBRUN HALLDORSDOTTIR: Those who are energy consuming, and polluting, and Co2 emitting, they are not as welcome as the ones that can work in harmony with our nature.

Kolbrun has called for a temporary halt to all planned aluminium smelter proposals, but with the economy shrinking and elections set for next month the caretaker government to which she belongs has little time to convince Icelanders of the benefits of their progressive policies.

KOLBRUN HALLDORSDOTTIR: I mean, we have an extremely difficult situation concerning the economy. Now, for the time being, the Left-Green movement has the Minister of Finance, and he is proving himself, and our politics are proving themselves as being radical, but something that Icelandic society needs right now.

It's estimated that, worldwide, the aluminium industry uses as much electricity as the entire continent of Africa. And even though it's been labelled as one of the world's most environmentally damaging industries, in Iceland aluminium companies believe they have struck the right balance.

ERNA INDRIDADOTTIR, ALCOA REPRESENTATIVE: When you hear the debate sometimes it seems like we are drowning all the country, but actually it's a very, very small bite of the country that is, that we are drowning.

At its new smelter, Alcoa's spokesperson, Erna Indridadottir, is quick to dismiss any charges of corporate recklessness brought against it.

ERNA INDRIDADOTTIR: We have had inquiries, you know, people talking about that we were drowning animals, or, I don't know. In China, for example, when they are building their big dams, they are flooding big cities, people have to move away from cities. Here, in Iceland, we were flooding an area that nobody really cared that much about.

But while Alcoa is keen to dismiss its critics, the completion of the dam has brought some unexpected problems. Lagarfljot is the largest body of water in East Iceland, a picturesque location that even boasts its own mythical underwater creature, similar to the Lochness Monster. It's more than 100km downstream from the Karahnjukar Dam, but even at that distance, dramatic changes are starting to appear.

ORN THORLEIFSSON, BIOLOGY TEACHER (Translation): Into the river they dump hundreds of thousands of millions of cubic metres of glacial mud and peat, which they have no permission to do.
We just begin to make a small museum of things for the children.

Orn Thorleifsson is a biology teacher who has lived around here for much of his life. He says that the sediment dredged up by the dam's construction has even affected the surrounding ocean.

ORN THORLEIFSSON (Translation): The shrimp all disappeared from the bay, since 1978 two boats had been fishing there and were catching about 40 tonnes of shrimp per week.

As part of Orn's teaching duties he's regularly monitoring changes in the local ecosystem. And in the absence of any ongoing scientific study his investigations provide one of the only insights into Karahnjukar's environmental costs.

ORN THORLEIFSSON (Translation): And no one talks about it, they are allowed to do these things and they say they never damage nature. It might not be done deliberately - it’s just out of stupidity. People don’t think of anything except electricity and nothing else matters to these companies.

ERNA INDRIDADOTTIR: As I know the company, it's a very socially responsible company trying to do the best they can to be a good corporate citizen and protect the environment as they can.

OMAR RAGNARSSON: The industrial area will go from here and all the way up here. They already have a power plant here, but that's just a small fraction of the area.

Today, Omar Ragnarsson is taking me up in his light plane to see the area around Lake Myvatn, in Iceland's far north-west. It's a pristine area on Iceland's northern coast which, until recently, was protected from development.

OMAR RAGNARSSON: These are the craters that were formed when the lava came into the lake, here.

But with pressure to feed new aluminium smelters proposed for the north of Iceland, plans have been developed throughout this region, including Lake Myvatn, to harness geothermal power, a form of energy considered as clean and green.

OMAR RAGNARSSON: Myvatn is the heart of the region, so taking some part of it for industrialisation is like taking the legs from a statue. We are told we HAVE to sacrifice it because we have to save the atmosphere and it's a clean energy.


Energy companies would like to build a series of geothermal power stations throughout the region, like this one - the first to be built here - and test drilling has already begun on other sites in the area. It's claimed that, unlike hydro-electric plants and dams, geothermal energy has few negative aspects. But scientists studying the ecosystem here are already alarmed about disturbing changes that are occurring.

ARNI EINARSSON, BIOLOGIST: So they are changing the groundwater chemistry - the heat of the groundwater - and this is a very important part of the Lake Myvatn ecosystem.

Biologist Arni Einarsson has been studying this ecosystem for years. He's deeply worried that rigorous environmental monitoring has been put aside in the haste to generate new jobs.

ARNI EINARSSON: What we have found is that the ecosystem is very sensitive to small disturbances. This energy development is going very, very fast and it's going much faster than we would like, because we cannot follow all the consequences.

As Environment Minister, Kolbrun Haldorsdottir is also very concerned about the potential impact of harnessing energy from the region's geothermal springs.

KOLBRUN HALLDORSDOTTIR: They're so delicate, and, I mean, the tank is just one tank. You can drill many holes, but you're taking from the same tank, and you must be extremely careful on that - how you do it. So in my mind, we must do it gradually and little by little.

In fact, environmentalists are concerned that a disturbance to Lake Myvatn's ecosystem may have global ramifications. This area provides a nesting ground for some extraordinary migratory bird life, a collection that exists nowhere else in the world.

ARNI EINARSSON: This area is quite unique because you have a mix of species of American origin and European origin, so it's what we would call bio-geographical crossroads here. It's kind of unique.

After losing their fight against the massive hydro-electric project in the east, activists like Omar believe THAT history should never be repeated. But the aluminium companies are spending big money in their campaign to win the support of Icelanders, including a multi-million-dollar donation from Alcoa towards the establishment of a new national park just a few hours drive away.

OMAR RAGNARSSON: They are spending money, they are spending into this is so little that it's not worth mentioning if you compare it to all the profit they are making now in Reydarfjordur and will be making here.

For her part, Iceland's new, albeit temporary, Environment Minister, is also trying to stop the advance on Lake Myvatn.

KOLBRUN HALLDORSDOTTIR: I would put into my power, my energy into preserving where the power companies have been wanting to drill, I would try to preserve that. I mean, all of these things are so precious that we must put all our emphasis on preserving them.

In spite of whatever economic lifeline these projects might provide, Icelanders like Orn Thorleifsson bemoan what's already an established pattern.

ORN THORLEIFSSON (Translation): We’re little gold diggers in Iceland and we want everything and we want it now, not later. We’ve exhausted our cod stocks, we’ve exhausted our herring stocks and we are now attacking nature. Why are we doing that?

Next month, Icelanders will choose the government they believe is best equipped to lead them out of financial chaos. At the same time, with parties like Kolbrun's Green-Left thumbing their nose at the world's aluminium companies, they'll also be voting for what sort of Iceland they want to retain for the future.

KOLBRUN HALLDORSDOTTIR: Hopefully we will learn from the mistakes done in the past. Those mistakes are enormous. We have destroyed part of our wilderness. So yes, I think and I hope that we will learn, and it has been a difficult lesson.

Reporter/Camera
NICK LAZAREDES

Location Producer
INGOLFUR SHAHIN

Editor
NICK O’BRIEN

Producers
AARON THOMAS
PETER CHARLEY

Translations / Subtitling
VILLI WAAGE

Original Music composed by
VICKI HANSEN