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Industrial Policies. Overview of presentation . Sustainable Development FDI-policy Energy Policy The Switch A new Industrial Policy in the making. Sustainable Development. Iceland´s pledges on climate change.
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Overview of presentation • Sustainable Development • FDI-policy • Energy Policy • The Switch • A new Industrial Policy in the making
Iceland´s pledges on climate change • Iceland has declared will to reduce GHG emission by 50-75% until 2050 and has at the UNFCCC pledged to participate in a joint undertaking with EU to reduce emissions by 30% by 2020 .
The Action Plan –priorities (2010): • Design and operate the ETS • Introduce carbon tax on emissions • Introduce tax incentives for non-carbon fueled vehicles • Public procurements preferring non-carbon vehicles • Promote city planning focusing on pedestrians and cyclists • Enhance R&D on alternative fuels for the fishing fleet • Replace oil with electricity in fishmeal factories • Increase forestry and restoration of degraded land • Restoration of wetlands • Increased R&D and innovation in eco-industries
Why Foreign Direct Investments? • The Icelandic economy is small and rather homogenous as is stands on three main pillars: Fisheries, aluminum production and tourism. Foreign trade of goods and services accounts for close to 55% of GDP – which reflects the importance of international trade and investment. It needs further diversification – that FDIs can provide. • Foreign investors look towards Iceland because of it´s strategic location midway between two continents (e.g. for server farms), because of the availability of renewable energy at affordable prices (e.g. firms that need considerable power and a green image), availability of large Sites close to an international airport and export harbor (for swift transport to locations on both sides of the Atlantic), availability of hot water or steam (up to 300°C) for e.g. industrial processes (as in chemical industry), plenty of cheap freshwater (from underground aquifers= totally fresh and free of any pollutants ) for industrial use (as in food processing) or for packing and marketing as a commodity on the thirsty international markets.
Foreign direct investment stocks in Iceland by geographical origin
Incentives: Two types of incentives are granted in Iceland: 1. For new investments* by the Act for initial investments in Iceland 2. Reimbursement s for filmmaking by Acton Temporary Reimbursements in Respect of Film Making in Iceland * New investment: An investment which consists in setting up a new project or new commercial activity in Iceland or an independent addition to an earlier project.
Investment Act http://eng.idnadarraduneyti.is/media/Acrobat/Translation-of-Act21juni.pdf Objectives: • Enhances investment, regional development and competitiveness by granting incentives to initial investment projects • Replaces previous case-by-case method for investment agreements
Investment Act – criteria: • A separate company must be established in Iceland (or a branch of an firm registered within EEA). • Detailed information available on the project, parties and financing. • Must show that the incentives are prerequisites for locating the project in Iceland. • A minimum of 65% of investment cost finance without state aid and a minimum of 20% of that portion must be finance by own equity of the party. • Annual turnover of proposed investment at least 300 million ISK (1.9 m €) or creating a minimum of 20 permanent jobs in it´s first two years. • Feasibility analysis need to show that a project is beneficial for the Icelandic economy, e.g. in terms of job creation, rural development, export, tax revenues, innovation and increased knowledge. • Investment must be initial – equipment should be new in compliance with law on health and pollution protection. • The investment shall be in operation in Iceland for at least 10 years. • All activities shall be in compliance with national law. • No unpaid due claims from state or municipalities.
Investment Act: – Regional aid incentives • State aid (incentives) granted within limitations under EEA Agreement • Limitations laid down in the Regional Aid Map for Iceland 2007-2013 issued by ESA • Ceiling for regional aid: 15% of initial investment cost • Medium-sized enterprises 25% • Small enterprises 35% • For large investments (in excess of 50 m€), aid ceiling decreases in line with the investment cost. • Derogations from taxes and charges • Fixed rate of income tax, in line with current rate • Company’s assets can be depreciated to no residual value • Property tax reduction of up to 30% • Direct cash grants • Authorization for a public authority to sell/lease sites for investment projects at prices below market price
General incentives: • Aid compatible with the common market, in accordance with Commission Regulation No. 800/2008 • Training aid • Max. 2 m€ • Aid to SMEs investments • Max 7,5 m€ • Aid to R&D investment projects • Aid to environmental investment projects • Max 7,5 m€
Application process • All applications submitted to the Ministry of Industry • Reviewed by the committee on initial investment • Invest in Iceland Agency performs cost-benefit analysis • Committee makes proposals to the Minister, resulting in an offer for incentives based on the Act • Tailor made incentives package – different combinations suited to meet the need of investment projects • Investment agreement signed • Usage of incentives monitored
Temporary legislation • Act will be valid until end of 2013 • Agreements made before that time will remain in force • Assessment of prolongation • In line with a new Regional Aid Map 2014 • Approved by ESA
Reimbursement Act • Act No. 43/1999 on Temporary Reimbursements in Respect of Film Making in Iceland • As of 2009, 20% of production costs reimbursed by the State Treasury • Costs incurred in the production of films and television programs in Iceland • All costs deductible from the revenues of enterprises pursuant to the provisions of the Act on Income and Net Wealth Tax
Conditions • Production shall be suited for • promoting Icelandic culture and the history and nature of Iceland • enhancing the experience, knowledge, and artistic ambition of the parties involved • A specific company shall be established in Iceland for the production; an Icelandic branch or agency of a company registered in another Member State of the European Economic Area shall be considered a specific company • Information on the principal parties, and domestic parties, involved shall be made available • An estimate of the production costs and sources of funding shall be made available • Information about the content of the proposed production shall be made available, such as a script and information about filming locations • The material must be intended for general distribution to cinemas or television stations • The subject matter of the film or television programming should not violate the provisions of law relating to film inspection and the ban on violent films, nor the provisions of the General Penal Code concerning pornography
Overview of presentation • The good-old Energy Policy • The energy resources and harnessing • Balance between conservation and utilization • Basic principles of the new Energy Policy
The good-old Energy Policy • Objective: to harness the clean and renewable domestic resources by constructing and operating hydro and geothermal power plants for electricity production, build and strengthen the national grid and build geothermal district heating utilities. • Current status: • 80% of primary energy supply from renewable resources • 99.9% of electricity production • 99% of space heating • the remaining 20% is fossil fuel used in transportation, fisheries, agriculture and metal industries.
Primary energy use in Iceland 1940-2008 Primary Energy use in Iceland 1940-2008
Electricity Sector main features • The electricity system • isolated • production in 2009 was 17 TWh • hydropower 75.5% • geothermal power 24.5% • A small fraction is produced by fuels for generators in isolated areas and for back up power • The electricity market general market 1/5 - power intensive industries 4/5
Electricity consumption 2008 Source: National Energy Authority
ElectricalPowerPotentialandUtilisation TWh/year 50 100% Geothermal 40 30 Hydro 20 Total market 34% 17 TWh/year Utilisation 2009 17 Power intensive 10 8 .5 Industry 80% Public utilities 20% 0
Conservation and utilization of the Energy Resources • Proposed power projects are being evaluated and classified on the basis of: • Energy efficiency and economics • Impact on the natural environment, cultural heritage sites, fishing, hunting and recreational activities • Impact on regional development • Ranking of priorities
The Icelandic Master Plan for Hydro and Geothermal Energy Resources. - the objective is to evaluate and compare various power development proposals • about 100 hydropower and geothermal projects are being evaluated and ranked • final report currently being prepared • will be presented for parliament later this year
New Energy strategy • A comprehensive energy strategy is being designed aimed at having renewable energy sources replace imported energy. • A precautionary and protective approach will be followed in harnessing hydroelectric and geothermal energy resources. Sustainable utilization will be a priority and thereby avoiding aggressive utilization of geothermal areas. • The energy strategy will support diversified industry, emphasizing the development of ecologically beneficial high-tech industry.
Alternative fuel • The government wishes to boost research, development and production of domestic, environmentally friendly fuel and increase the number of alternative energy outlets. • The aim is to enable Iceland to lead the way in coming years in experiments and production of environmentally friendly energy sources, in part by supporting research and development and building up infrastructure.
ElectricityasFuel • Almost all electricity in Iceland is produced from renewable energy sources – 99,9% • This means that all use of electricity in transport, in Iceland, can be fossil free from well to wheel • Possible to claim that no place is better suited than Iceland for the use of electricity in transport
UNU-Geothermal Training Programme • UNU Geothermal Training Programme • since 1979 • Part of the Icelandic development aid • Important capacity building – know how • Geothermal energy can be found in many developing countries • 424 scientists and engineers from 44 countries have completed the 6 month courses
Iceland 2020: Objectives regarding fuels for transportation • 20% of all fuel used in transportation and fishing shall be from renewable energy sources by 2020. • 75% of new cars registered in 2020 shall run on renewable fuels. • These objectives will be reached through incentive taxation and R&D in alternative fuel technologies.
Current tax Incentives: • Fossil fuel vehicles : • Taxes were previously based on engine size and weight • Now carbon taxes have been introduced. Import taxes can vary from 0-60% + VAT. • Vehicle with less than 80g/CO2/km have no CO2 tax but from there on for every increment of 20g/CO2/km the tax increases by 5%. • Alternative vehicles: • Hydrogen: No taxes (no VAT) • Electricity: Carry only VAT • Methane: Taxes same as for fossil fuels – less 6.100 € reduction (subsidy) on Customs fees.
