Energy shortage policy puts Iceland at odds with EU

In an opinion article published by Morgunblaðið, Þórður Gunnarsson argues that the European Union’s energy policy could harm Iceland’s economic interests. He says countries that fail to produce enough energy will not maximise their long-term economic growth.

Iceland’s development of its energy resources has served the country well over the past six decades, Gunnarsson writes. The launch of the Búrfell power station in 1969 marked a turning point in Iceland’s economic history. Iceland now ranks first in the world for installed power capacity per capita, which he describes as another reflection of the country’s prosperity.

Energy use predicts growth

Gunnarsson contrasts Iceland’s experience with that of the European Union, where electricity production has fallen significantly over the past two decades. He says the EU as a whole grew by just under one-third during that period, while Iceland’s economy grew by more than twice as much.

He attributes this difference to what he calls a deliberate EU policy of reducing energy production and consumption. In 2023, the European Commission approved a target to cut energy use by nearly 12% by 2030. Although the EU’s reduction targets have only been partly met, Gunnarsson argues that the effects are clear and that economic growth in EU countries has suffered from the policy.

He also says the European Union has already fallen out of the global race to develop artificial intelligence because of its approach to energy production and use. Developing artificial intelligence models is an energy-intensive activity, he writes, regardless of the bloc’s regulation of the technology.

Europe’s power cable policy

Alongside its policy of reducing energy production and consumption, the EU is seeking to connect all member states to a single electricity market. Cyprus is the only country still outside that arrangement, according to Gunnarsson. A 1,000-kilometre undersea power cable to Cyprus is now being planned, a distance only slightly shorter than the cable that has been discussed between Iceland and mainland Europe.

A French infrastructure investment fund recently bought a majority stake in the Cyprus project, which is also receiving strong support from various EU funds. The estimated cost is nearly 280 billion Icelandic krónur. Although Cypriot consumers have been promised lower electricity bills, Gunnarsson says the parties financing the cable will need to receive a return on their investment.

The Cyprus cable is not the only such project under discussion in Europe. Sweden recently cancelled plans for a new undersea cable to mainland Europe, called Konti-Skan Connect, which was intended to export electricity. Gunnarsson says the decision followed a demand from the European Commission that one-quarter of Sweden’s so-called “excess profit” from electricity exports should go to an EU reconstruction fund supporting the development of other member states’ electricity systems.

Gunnarsson concludes that the EU’s energy shortage policy does not suit Iceland. Household retail electricity prices in Iceland, despite rising somewhat in recent years, remain well below half the level common in northwestern Europe.

He adds that even if Iceland’s electricity prices would not rise immediately should negotiations on EU membership continue after the 29 August decision, Iceland cannot ignore the implications of the EU’s energy policy.