From the eeriness of midnight sun, to gloomy winters illuminated only by the snow and ice, Iceland is a country defined by its extremes. When the banking crisis hit in 2008, the system of debt and credit on which the Icelandic economy was based, completely collapsed.

“We had the collapse – and I think it’s good,” says conservationist Omar Ragnarsson.

“Because now we’re in the ruins and we can learn from it. And we can build up a new society, a new environment, a new thinking.”

Since the implosion of the banking sector, ordinary Icelanders have come together with scientists, economists, farmers and other visionaries to not only question a society based on cycles of debt and consumerism, but come up with a blueprint for a sustainable, locally based economy.

“I would like Icelanders to act local, but think global,” says Guðjón Már Guðjónsson, speaking in the Future of Hope documentary, which charted the rise of this new movement. “Iceland has been missing a clear vision for what we’d like to stand for, so that’s why I think it is very important that we get an agreement on how we see ourselves in the world.”

Taking this task on his own shoulders, Guðjónsson founded the Ministry of Ideas – a grassroots Icelandic movement that acts as a forum for discussion about innovations in fields including industry, education, technology, economics and society. Working from the House of Ideas in Reykjavík, the ministry believes Iceland is the perfect place for prototyping new, sustainable solutions.

“This ministry can be looked at as the heartbeat of the grassroots when it comes to innovation and change in Iceland,” Guðjónsson says.

“We can visualise what we’d like Iceland to be in 20 years or 50 years without the involvement of big corporations or political parties. When we vote, we can vote for politicians we feel, as people of the country, are best fitted to fulfil this vision.”

“The best place to be when we really hit the energy crisis is Iceland,” says Kristín Vala Ragnarsdóttir, former dean of the school of engineering and natural science at the University of Iceland.

The country’s geographical and geological make-up means it is a haven of clean energy – it is famous for its hot springs, geysers and active volcanoes, and hot water pumped from under the ground supplies much of Iceland’s heating. Currently some 80% of the country’s electricity needs are met through hydropower while geothermal fields provide up to 20%. The subterranean fields that warm the likes of tourist favourite the Blue Lagoon geothermal spa, give Iceland an almost limitless supply of natural hot water.

Icelanders are now moving their attention to those sectors still dependent on fossil fuels. The country’s cars and ships may soon be fuelled by hydrogen cells, as research is under way into how to use geothermal energy to split hydrogen from water. This could make Iceland entirely self-sufficient in energy terms, 100% powered by renewable energy.

Organic greenhouse agriculture, a relatively recent phenomenon in Iceland, is allowing people to domestically produce tomatoes, cucumbers and peppers. Despite plunging temperatures, biological control has helped make this so successful that Iceland is soon expected to begin to export vegetables such as tomatoes to Europe.

“We’re making local groups in all parts of Iceland, like the Slow Food idea, to eat locally, eat seasonally, so it’s going to save a lot of energy and it’s going to reduce the pollutions caused by all this transport,” explained Eymundur Magnússon, who runs an organic farm at Vallanes in east Iceland. “For me, from organic there’s no way back. When you see the soil, when you see what you’re growing, when you taste how much sweeter and better it is, there’s no way back. This is the natural way to do it.”

Clean energy projects have also strengthened Icelandic universities and helped lay the foundations for a strong engineering and technical sector. This is helping Icelanders generate and develop their own ideas, rather than simply finance those brought in from elsewhere, as was the thinking before 2008. Already, Iceland is engaged with countries in Asia, Africa, Europe and the Americas on how to develop clean economies, punching above its weight for a country with just 320,000 inhabitants.

Democracy in action

But Iceland’s size is also a positive thing: political mobilisation in a country with so few people is perfectly possible. Nearly 1,500 people – half a per cent of Iceland’s population – gathered together at a national forum in November 2009 to decide on core values for the country’s future society. They came from a cross section of Icelandic society, from 18 to 88 years old, and from all six constituencies of Iceland.

There has also been a renewed focus on traditional Icelandic crafts and heritage, for example in sales of traditional Icelandic sweaters – perhaps part of a cultural shift which has proved more important than any economic one.

While Icelandic people learned long ago how to survive on a freezing, volcanic island, now they are learning how to endure the most significant manmade economic and climate catastrophes. Spearheaded by the likes of the Ministry of Ideas, they are working hard to create a new economy with clean energy and a sustainable vision at its heart. Crucially, it is being devised by the people – an insurance policy against difficulties to come in the future.

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Iceland’s restless volcanoes do more than just disrupt flights; they also pack a geothermal punch that provides a colossal source of cheap, clean energy. Combined with a network of vast hydropower stations, Iceland’s geothermal power plants give the country more renewable energy than it can use — and Britain’s on hand to help out.

Iceland’s state energy company, Landsvirkjun, announced this year that it was hatching a plan to run an undersea cable from Iceland to Scotland, allowing the British grid to slurp up Iceland’s excess energy. The idea dates back to the 1950s, but a new study suggests that technological advances have now made the project economically viable.

“We can serve as a green battery for the UK. We believe it’s a win-win situation,” Landsvirkjun CEO Hörður Arnarson told reporters.

The proposed cable, which would be the world’s longest undersea power line, could be brought online by 2020, allowing Iceland to offload surplus energy at market prices. That would be an economic and environmental boon for Iceland, which currently sells huge amounts of electricity at bargain-basement prices to the energy-intensive aluminium smelting industry.

Still, some Icelanders fear that becoming an energy exporter would leave their country vulnerable to the economic ‘resource curse’ that has afflicted oil-rich nations in the Middle East. Iceland’s energy companies “are looking for easy money, but who is going to pay in the end? We will all pay,” blogger Lára Hanna Einarsdóttir told the New York Times.

Iceland’s geothermal boom has also caught the attention of foreign energy giants: Canada’s Magma Energy drew protests in 2010 after snapping up a 99% stake in HS Orka, which produces about a tenth of Iceland’s heat and energy. After a campaign led by pop singer Björk, Magma agreed in 2011 to sell 25% of the company back to Icelandic investors.

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Sites identified in Cornwall, the Lake District, Northern Ireland and Scotland, could also meet 100% of the country’s space heating requirements, according to the report, which was commissioned by the Renewable Energy Association (REA).

Deep geothermal power stations produce electricity by pumping water to hot rocks deep underground, which is heated, creating steam used to drive turbines that generate power. In the UK, geothermal energy currently receives a low level of subsidy, around half the levels of support seen in Germany and Switzerland.

Ryan Law, chair of the REA’s deep geothermal group, said: “We don’t want to be left out of a global industry which is estimated to be worth £30bn by 2020. We could be at the forefront of this industry given the strength of British engineering skills. Clearly investment at home could also go a long way to meeting our future energy needs cleanly and safely.”

Eden Project founder Tim Smit, who is planning to build a geothermal heat and power station at the Cornwall attraction, backed the report.

Critics of deep geothermal have argued that it has the potential to cause earthquakes if unsuitably located.

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