Iceland’s population enjoys good environmental quality and a relatively high standard of living. This chapter provides a snapshot of key environmental trends in Iceland over the period since 2000. It highlights some of the country’s main environmental achievements and remaining challenges on the path towards green growth and sustainable development. The chapter describes Iceland’s progress in using energy and natural resources efficiently; in reducing the carbon intensity of its economy; in managing its natural asset base; and in improving its people’s environmental quality of life.

Iceland has strengthened its institutional and legislative framework for environmental management in line with its broader environmental agenda. This chapter analyses Iceland’s environmental governance system, including mechanisms for horizontal and vertical co-ordination and for evaluating the environmental impact of sectoral policies. It reviews key environmental and sustainable development initiatives, including the country’s National Strategy for Sustainable Development 2002-2020. It examines the regulatory framework for environmental management and the enforcement and compliance assurance activities. The promotion of environmental democracy is also discussed.

Part of Iceland’s response to the 2007-09 economic and financial crisis has been an increased emphasis on green growth. This chapter examines the use of taxes and other pricing instruments to pursue environmental objectives and to reduce the impact of production and consumption on the environment. The removal of environmentally harmful subsidies, such as to agriculture and fossil fuels, is also discussed. The chapter examines the public and private investment in environment-related infrastructure and services, as well as the promotion of “green” goods and services and eco-innovation. Finally, Iceland’s efforts to mainstream the environment in development co-operation programmes are reviewed.