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Can Iceland's geo-thermal power re-heat its economy?

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  • Iceland has been attractive to aluminum smelters because of cheap energy
  • Environmentalist worry about ecological damage if more industry comes to Iceland
  • Iceland also aims to export geo-thermal tech abroad to kick-start economy
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By CNN's Jim Boulden
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LONDON, England (CNN) -- As you drive along the main road from Reykjavik to Iceland's most famous tourist attractions, the geysers, you pass a rather non-descript farm in Laugarvatn.

Iceland plans to drag itself out of economic collapse by developing its geo-thermal energy technology.

You wouldn't notice it but for a constant stream of steam billowing up to the sky from a rusty derrick.

It's on the farm of Gunnar Ingvarsson, the 74-year-old who decided 20 years ago to tap the boiling hot water spewing out of the ground.

The unassuming Ingvarsson, who speaks no English, did this just to provide the free hot water to a few farms in the area. Now, he is paid by the owners of hundreds of holiday homes across the valley for this cheap gift from the Earth.

Ingvarsson says it costs pennies to maintain his business and that he has no idea how much money he has made from it all. He still farms.

Iceland as a whole has of course tapped this geo-thermal on a much grander scale. There are hot baths to draw the tourists to this remote island. There are massive power plants to use the power to create, well, power.

Iceland has even lured big aluminum companies to build a massive smelting plants.

The power in Iceland to do this is so cheap that it is economical for companies like Alcoa and Alcan to ship the raw materials all the way to Iceland and then ship the final product out it to its customers.

Of course Iceland has been in the news recently because of the meltdown of its banking system and its currency.

Iceland's banks used high interest rates to attract savings from hundred of thousands of customers in Britain and the rest of Europe. Icelandic banks then used the money to buy up every pricier assets around the world. All was going so well.

Beyond the near collapse of the Icelandic economy, Alcoa has reacted to the global economic slowdown by cutting back on aluminum production around the world.

But Iceland says its use of cheap energy will help bring its economy around.

In the past ten years it has not only developed technology to harness its own geo-thermal but it has started to export that technology to other countries.

In fact the country's president told CNN earlier this year that some 100 countries around the world are lucky enough to have the same kind of geographic advantage as Iceland. Video Watch Iceland's president talking about the global potential of geo-thermal energy »

And, Iceland itself admits is still has only tapped one fifth of the country's viable hydro and geothermal potential.

You could argue the answer is for more companies like Alcoa to set up in Iceland. But environmentalists are horrified at the prospect.

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They have fought the expansion of Alcoa in the country and say Iceland could exceed its Kyoto targets, which were actually expanded in part to allow Iceland to attract smelters.

So while Iceland is held up as an example of creating cheap energy without using fossil fuels, how it exploits that advantage, especially during an extremely tough economic climate, could be test case for other countries.

All About IcelandNature and the EnvironmentGlobal Climate Change

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