## 1islea2022002

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---

### 1. The Index of Macroprudential Measures — Surging House Prices
- Real house prices (adjusted by the CPI) increased by 20 percent during the period from end-2019 through April 2022.
- Appreciation is 22 percent when house prices are deflated by the CPI measure that excludes house prices.
- Using a Hodrick-Prescott (HP) filter, real house prices were 16 percent higher than their long-term trend in January 2022.
- Drivers of demand:
  - historically low interest rates,
  - higher income,
  - looser credit standards,
  - shifts in housing needs with work from home.
- Supply constraints exacerbated imbalances, in part due to stalling economic activity and supply chain disruptions.
- Metrics indicating growing imbalances:
  - Ratios of house prices to income and to building costs have exceeded their pre-GFC levels.
  - These ratios have grown faster than in peer countries and compared to the average growth in OECD countries.

### 1. The Index of Macroprudential Measures — Rising Systemic Risks
- By end-2021 household credit growth reached 10 percent, raising household debt to 84 percent of GDP.
- Overvalued house prices combined with higher household debt could increase systemic risks and trigger a negative spiral between the financial system and the economy in the event of a house price correction.
- Mortgage structure and inflation risk:
  - Large share of indexed and variable rate loans means persistently high inflation would result in greater household indebtedness and impair borrowers’ debt service capacity.
  - A 30-year fixed-rate mortgage loan is not offered in Iceland; the closest product (a ‘fixed-rate, non-indexed’ mortgage) is in principle an adjustable-rate mortgage loan (ARM) with a fixed interest rate for up to 5 years.
  - For indexed loans, the effect of inflation on indebtedness depends on the underlying measures of indexation.
- Interconnectedness and amplification channels:
  - House price variation is closely correlated with private consumption and residential investment.
  - Increasing default rates on household debt to the pension funds would weaken pension funds’ balance sheets, resulting in lower future benefits, reducing borrowers’ debt service capacity, consumption, and spending.
- Correlation matrix (cyclical components, 2000Q1–2021Q3, HP filter):
  - GDP and Private Consumption: 0.76
  - GDP and Investment: 0.69
  - GDP and House Price: 0.61
  - Private Consumption and Investment: 0.89
  - Private Consumption and House Price: 0.87
  - Investment and House Price: 0.88

### Informing Housing Market Policies (VAR analysis and MPM index)
- VAR model specification:
  - Vector Y (in order): private consumption, residential investment, CPI, the real house price, monetary policy rate, an index of macroprudential measures (MPM), and the real effective exchange rate.
  - Identification: A_0 matrix has a Choleski structure.
  - Sample period: 1995Q3–2021Q3.
  - Data frequency: quarterly, seasonally adjusted when appropriate.
  - Model in log-level except policy rate and MPM index (both in level).
  - Optimal lag order: 2.
  - Results presented as one standard deviation orthogonalized impulse-response functions (IRFs).
- Box 1 — Index of Macroprudential Measures:
  - Database basis: IMF cross-country database (available through 2021) and Alam et al. (2019).
  - Pandemic and policy adjustments:
    - At the height of the COVID pandemic: CBI eased capital requirements by lowering the countercyclical capital buffer (CCyB) from two percent to zero.
    - June 2021: CBI lowered the loan-to-value ratio (LTV) for consumer mortgages from 85 percent to 80 percent (keeping it at 90 percent for first-time buyers).
    - September 2021 (effective December 2021): CBI introduced a debt-service-to-income (DSTI) limit of 35 percent (40 percent for first-time buyers).
    - CBI raised the CCyB back to two percent (effective September 2022).
  - Construction of the MPM index:
    - A specific MPM takes the value of +1 if tightened and -1 if eased in a given quarter, zero otherwise.
    - The aggregate index sums dummies across tools; multiple actions in the same direction within a quarter lead to values of +2, +3, etc., and opposite actions can cancel.
  - VAR analysis uses two aggregate MPM measures:
    - Sum of all measures.
    - Sub-index using only borrower-based LTV and DSTI measures.
- VAR/IRF findings:
  - Shock to house prices has a meaningful impact especially on private consumption, and to a lesser extent on residential investment.
  - A positive monetary policy shock (one standard deviation increase in the key policy rate) leads to a significant decline in house prices, especially after the first few quarters.
  - Borrower-based measures (lower LTV and/or lower DSTI) dampen house prices significantly for a few quarters; the effect is transitory.
  - Aggregate MPM tightening (including capital adequacy, liquidity measures) has a more limited impact on house prices than monetary policy tightening.
  - Results align with cross-country evidence that borrower-based measures can be effective, with DSTI or LTI caps acting as automatic stabilizers when house prices grow faster than disposable income.

### Containing Housing Market Risks — Policy Recommendations
- Monetary policy:
  - The ongoing monetary policy tightening cycle should help address Iceland’s house price pressures by steering inflation expectations toward the target and dampening the feedback loop between house prices and inflation.
- Macroprudential policy:
  - Further macroprudential tightening through binding and effective borrower-based measures could help contain systemic risks and create further buffers in the financial sector.
  - Recalibrate the existing DSTI regulation by requiring lenders to apply a premium over the contractual rate in the analysis of borrowers' debt-service capacity.
  - Introduce a debt-to-income (DTI) cap to complement LTV and DSTI caps.
    - Rationale: DSTI limits—calculated at origination—depend on loan maturity and interest rates at origination and can be hindered when mortgage loans are based on variable (or indexed) rates; a DTI cap could be more constraining as it limits a borrower’s aggregate debt level at origination.
  - Consider the risk profile of mortgage loans in calculating risk-weighted assets and standard capital adequacy.
  - Use well-designed stress-testing exercises to inform MPM tightening and investigate effects of various asset price and business cycle scenarios on banking system resilience.

---

### 12. A surge in house prices could aggravate already low housing affordability — Tenure patterns and distributional pressures
- Tenure patterns and recent changes:
  - Iceland traditionally has a high home ownership rate compared to other Nordic countries, although the share of renters increased over time, partly due to growing immigration.
  - Almost 30 percent of families are renters in 2019—about 6 percentage points more than in 2010.
  - In 2018, almost half of the bottom income households rented, compared to only 6 ½ percent of the top-quintile households.
- Affordability indicators:
  - Housing cost (mortgage and rent) accounts for almost 30 percent of total disposable income in Iceland.
  - Bottom-quintile households spend 35 percent of total disposable income on housing.
  - Housing cost overburden rate: over 16 percent of the population spend more than 40 percent of disposable income on housing cost.
  - Housing cost overburden rate for renters is more than double that of owners.
  - Satisfaction with availability of quality affordable housing: only 46 percent of respondents report satisfaction.
  - Overcrowding rate is relatively small but has increased over time.

### Housing supply dynamics and tourism effects
- Supply:
  - Number of new residential buildings declined sharply after the GFC.
  - In 2020, completed residential buildings surpassed the pre-GFC peak, but the COVID-19 pandemic significantly slowed new constructions.
  - Housing output per 1000 inhabitants declined in 2011–20.
- Tourism and short-term rentals:
  - Airbnb-type supply rose more than six-fold during 2013–18, accounting for 5 percent of the housing stock.
  - During the pandemic, availability of long-term rental housing rose due to the collapse in the tourism sector; tourism recovery could again strain the long-term rental market.

### Policy design, tradeoffs, and recommendations
- Demand-side measures:
  - Measures supporting homeowners (mortgage interest deduction, subsidies for first-time buyers) are often poorly targeted, can result in higher housing prices, and lower affordability.
  - Demand-side rental supports can lead to offsetting price increases if supply is inelastic.
- Supply-side measures and tradeoffs:
  - Tax on vacancy can increase supply of rental dwellings without raising prices but requires a comprehensive vacancy database.
  - Obligating landlords to register leases in a public database is recommended.
  - Limits on short-term rental services tend to benefit middle- to high-income households.
  - Social housing is useful where supply is inelastic but can crowd out private rental market if excessive.
  - Expanding public infrastructure and easing administrative procedures for construction can increase supply but are costly and time-consuming.
- Medium-term structural measures:
  - Reduce construction costs and increase supply by eliminating red tape and shortening the period for obtaining building permits.
  - OECD recommendations: simplify and clarify planning regulations; reduce administrative burdens; introduce one-stop shop for permits and inspections.
- Short-term support and targeting:
  - Public spending on housing allowances in Iceland is relatively low at 0.2 percent of GDP.
  - More than 20 percent of the allowances support households in the 3rd quintile, suggesting room to retarget allowances toward low-income households.
  - Gradually phase out incentives favoring homeownership; target financing measures to construction of new homes to avoid fueling demand pressures.
  - Social housing stock in Iceland accounts for 11 percent of the total housing stock; eligibility should be transparent, targeted, reviewed periodically, and portable.

---

### 6. The authorities’ goals for reducing the domestic carbon footprint are ambitious — Targets and outlook
- Commitments and targets:
  - Reach carbon neutrality (net zero emissions) no later than 2040 and eliminate use of fossil fuels by 2050.
  - Jointly with the EU and Norway: a 40 percent reduction of total emissions, without land use, between 1990 and 2030.
  - Iceland’s contribution to the joint commitment was to reduce emissions by 29 percent from their 2005 level.
  - The group raised its commitment to reduce emissions by 55 percent from their 1990 levels; Iceland’s contribution to this commitment has not yet been established.
- Forecasted impact of quantified measures:
  - Authorities’ latest forecast estimates that already quantified climate measures would deliver a reduction of 28 percent during 2005–2030 (2,261 kt CO2e).
  - Under the Kyoto Protocol, Iceland was granted allowances for 15 million tons of CO2 for the period 2013–2020, whereas, net of carbon sequestration, Iceland generated 19 million tons outside the ETS.

### Strategy, constraints, and framework
- Climate action plan:
  - Comprehensive plan updated in 2020 with 48 actions across economic activities and sectors.
  - Plan includes fiscal incentives, government regulation, and infrastructure provision.
  - Achieving carbon neutrality would entail upgrading capital stock, switching to cleaner energy sources, encouraging lower-emission activities, and expanding emission-absorbing activities.
- Temporal and technical constraints:
  - Capital stock life spans cited (cars 12–15 years; elsewhere 12–13 years).
  - Viability of energy-exchange and absorption technologies, environmental tradeoffs, and financial sector transition risks noted.

### Sectoral outlook — Road transport and fishing
- Fishing fleet:
  - Consolidation reduced the number of vessels, increased ship size, and led to a more sustainable and lower catch.
  - Latest official forecast suggests only moderate progress is expected in the next 20 years.
  - Challenge partly due to the young age of existing vessels that consume the most energy.
- Road transport:
  - Very little progress over the last 20 years in reducing overall emissions from road transportation.
  - Share of gasoline in road transportation declined from almost 60 percent in 2008 to about 30 percent in 2020.
  - Share of diesel cars increased to 35 from 8 percent during 1995–2020.
  - Of all diesel cars, the households’ share has remained stable at about 70 percent.
  - Stock of electric vehicles amounted to about 4 percent of the total stock by 2021.
  - Plug-in hybrids amounted to 6.5 percent of the stock by 2021.
  - Share of electric vehicles in new registrations was 58 percent.

### Energy-exchange transition, e-fuels, and timing risks
- Policy actions and timing:
  - Authorities decided to ban registration of fossil fuel-dependent vehicles by 2030.
  - Typical car life spans (12–13 years) imply the transition should be well advanced by 2030 at current registration pace.
- E-fuels:
  - Convert renewable electricity into low-carbon fuels; currently produced at low scale and very high cost.
  - E-fuels expected to become competitive between 2030 and 2040 at current technology projections.
- Diesel vs gasoline and health tradeoffs:
  - Diesel vehicles on average generate about 40 percent less emissions than gasoline vehicles of similar weight.
  - Diesel vehicles also generate other emissions associated with heart disease and cancer.
- Timing risks of a 2030 registration ban:
  - Could lead to stockpiling ahead of the prohibition and longer retention of older vehicles if costs of new electric vehicles do not fall fast enough.
  - Policy responses need incentives for renewal and mechanisms to prevent rising emissions from older vehicles.

### Fiscal incentives, taxation, and sustainability
- Current incentives and concerns:
  - Incentives resemble Norway’s approach; effective but pose fiscal sustainability challenges.
  - Taxes/fees applied: acquisition taxes tied to lifecycle emissions; temporary VAT exemptions for clean vehicles; temporary accelerated depreciation for eligible green investments.
  - Electricity is not subject to excises or carbon tax but is subject to VAT: heating electricity taxed at 11 percent; other electricity taxed at 24 percent.
  - Fuel excises are significantly larger than the corresponding carbon tax; per liter pump prices for diesel are generally lower than gasoline in Iceland due to lower excises on diesel.
  - Tax revenue from vehicles has been declining as substitution away from fossil-fuel vehicles occurs.
- Principles:
  - Incentives should be revenue neutral and factor other fiscal objectives.
  - Taxes/fees should be sustainable and apply to acquisition, ownership, and use of transportation capital stock.
  - Changes in tax structure need to transition from taxing energy to direct measurement of actual use.

### Policy recommendations for the transition
- Periodically adapt measures to technological and economic developments and measure progress periodically.
- Ensure fiscal incentives are revenue neutral and align with broader fiscal objectives; redesign tax base away from fossil fuel consumption toward measures of usage and cleaner technologies.
- Complement vehicle registration bans with measures to avoid stockpiling and prolonged use of older high-emission vehicles.
- Expand public transportation, rapid charging infrastructure, and promotion of walking/cycling.
- Plan renewable energy capacity expansion while balancing environmental tradeoffs.
- Monitor and manage financial sector risks from transition, including redirecting financial flows and mitigating abrupt stranding of carbon-intensive capital stock.
- Prepare for gradual but sustained investment needs in capital goods and charging infrastructure during the transition period.

---

### 17. High taxation of fossil fuels — Roles, carbon pricing, and CPAT simulations
- Roles of high fossil-fuel taxation:
  - Serves multiple functions beyond discouraging use: charging for public use of roads and providing a substantial source of revenue.
  - If energy exchange succeeds while fossil fuels remain taxed and electricity/e-fuels are not, the state would lose a nontrivial amount of fiscal revenue.
  - Options to replace the tax base: tax electricity and e-fuels; develop other ways of charging for road usage.
- Coverage and levels of carbon pricing:
  - Climate objectives require universal or widely expanded explicit carbon tax coverage.
  - For Iceland to achieve a reduction in emissions of 40 percent with respect to their 1990 levels, carbon prices would need to rise to about US$ 220 per tCO2e from 37 US$ per tCO2e, depending on fuel excise treatment (CPAT simulation).
  - Under the baseline carbon tax simulation (assuming the increase in carbon price takes place in 2023), the model suggests an increase of about 70 percent relative to 2018 CPI-adjusted gasoline and diesel prices.
- Fiscal and macroeconomic impacts (CPAT baseline simulation):
  - The envisaged increase in carbon taxes would add about 1 percent of GDP in fiscal revenue.
  - Baseline revenue use assumption: half the revenues are used to reduce labor taxes and the other half to increase public investment.
  - The model suggests the increase in carbon taxes would slow GDP growth by about 0.25 percentage points in 2023–2024, but the net effect on the growth rate would disappear by 2030.
  - The model highlights positive net welfare benefits when accounting for climate gains, improved health from lower air pollution, and reductions in congestion and accident deaths.
- Pace and design:
  - Immediate large increases would cause unnecessary disruption; staged, preannounced increases are preferable.
  - A more gradual path produces more stable GDP impacts but delays economic benefits from reallocating fiscal revenues.

### Carbon absorption, CCS, and negative emissions
- Absorption options:
  - Afforestation, wetland restoration and protection, land reclamation, and emerging technological options.
- CCS and technologies:
  - Carbfix gas-to-rock method is applied to geothermal emissions and expansion feasibility is studied.
  - Direct air capture combined with mineral storage (Orca from Climeworks with CarbFix) has been used since 2020.
  - Gas-to-green methane option is being studied by national electricity company and silicon producer PCC SE at Bakki.
  - These methods are technologically feasible but not yet economically viable on a mass scale.

### Conclusions and policy priorities
- Strategic observations:
  - Iceland’s climate goals are appropriately ambitious given average emissions per capita and per GDP are above the median of the OECD.
  - Iceland has the lowest emissions in energy generation in the OECD but underperforms in other areas; emissions under the European ETS have accounted for most growth in Iceland’s emissions since the 1990s.
- Policy priorities:
  - Advance technological development in road transport and fishing.
  - Implement uniform carbon pricing policies and realign the energy taxation base.
  - Large expansion or redirection of renewable energy production.
  - Ensure fiscal incentives are revenue neutral and factor other fiscal objectives.
  - Maintain a tax gap favoring cleaner technologies while setting incentives high enough to support fiscal objectives.
  - In road transportation, apply incentives at acquisition, ownership, and usage levels; major reform likely needed at the usage level as the fossil-fuel tax base declines.

*Prepared by Mahir Binici and Nujin Suphaphiphat; data and analysis as presented in the source chapter.*

### 1. The Index of Macroprudential Measures ____________________________________________ 6

### 1. The Index of Macroprudential Measures

### Surging House Prices
- Real house prices (adjusted by the CPI) for the whole country increased by 20 percent during the period from end-2019 through April 2022.
- The appreciation is 22 percent when house prices are deflated by the CPI measure that excludes house prices.
- Housing demand increased strongly due to:
  - historically low interest rates,
  - higher income,
  - looser credit standards,
  - shifts in housing needs with work from home.
- Supply constraints exacerbated imbalances, in part due to stalling economic activity and supply chain disruptions.
- Various metrics indicate growing imbalances:
  - Ratios of house prices to income and to building costs have exceeded their pre-GFC levels.
  - These ratios have grown faster than in peer countries and compared to the average growth in OECD countries.
- Using a Hodrick-Prescott (HP) filter, real house prices were 16 percent higher than their long-term trend in January 2022.

### Rising Systemic Risks
- By end-2021 household credit growth reached 10 percent, raising household debt to 84 percent of GDP.
- Overvalued house prices combined with higher household debt could increase systemic risks and trigger a negative spiral between the financial system and the economy in the event of a house price correction.
- Mortgage structure implications:
  - A large share of indexed and variable rate loans means persistently high inflation would result in greater household indebtedness and impair borrowers’ debt service capacity.
  - Unlike in the United States and other advanced economies, a 30-year fixed-rate mortgage loan is not offered in Iceland; the closest product (a ‘fixed-rate, non-indexed’ mortgage) is in principle an adjustable-rate mortgage loan (ARM) with a fixed interest rate for up to 5 years.
  - For indexed loans, the effect of inflation on indebtedness depends on the underlying measures of indexation.
- Interconnectedness and amplification channels:
  - House price variation is closely correlated with private consumption and residential investment.
  - Increasing default rates on household debt to the pension funds would weaken pension funds’ balance sheets, resulting in lower future benefits, reducing borrowers’ debt service capacity, consumption, and spending.
- Correlation matrix (cyclical components, 2000Q1–2021Q3, HP filter):
  - GDP and Private Consumption: 0.76
  - GDP and Investment: 0.69
  - GDP and House Price: 0.61
  - Private Consumption and Investment: 0.89
  - Private Consumption and House Price: 0.87
  - Investment and House Price: 0.88

### Informing Housing Market Policies (VAR analysis and MPM index)
- VAR model specification:
  - Vector Y (in order): private consumption, residential investment, CPI, the real house price, monetary policy rate, an index of macroprudential measures (MPM), and the real effective exchange rate.
  - Identification: A_0 matrix has a Choleski structure.
  - Sample period: 1995Q3–2021Q3.
  - Data frequency: quarterly, seasonally adjusted when appropriate.
  - Model in log-level except policy rate and MPM index (both in level).
  - Optimal lag order: 2.
  - Results presented as one standard deviation orthogonalized impulse-response functions (IRFs).
- Box 1 — Index of Macroprudential Measures:
  - Database basis: IMF cross-country database (available through 2021) and Alam et al. (2019).
  - At the height of the COVID pandemic:
    - CBI eased capital requirements by lowering the countercyclical capital buffer (CCyB) from two percent to zero.
  - With increasing household debt and house price pressures:
    - June 2021: CBI lowered the loan-to-value ratio (LTV) for consumer mortgages from 85 percent to 80 percent (keeping it at 90 percent for first-time buyers).
    - September 2021 (effective December 2021): CBI introduced a debt-service-to-income (DSTI) limit of 35 percent (40 percent for first-time buyers).
    - CBI raised the CCyB back to two percent (effective September 2022).
  - Construction of the index:
    - A specific MPM takes the value of +1 if tightened and -1 if eased in a given quarter, zero otherwise.
    - The aggregate index sums dummies across tools; multiple actions in the same direction within a quarter lead to values of +2, +3, etc., and opposite actions can cancel.
  - VAR analysis uses two aggregate MPM measures:
    - Sum of all measures.
    - Sub-index using only borrower-based LTV and DSTI measures.

- VAR/IRF findings:
  - Shock to house prices has a meaningful impact especially on private consumption, and to a lesser extent on residential investment.
  - A positive monetary policy shock (one standard deviation increase in the key policy rate) leads to a significant decline in house prices, especially after the first few quarters — suggesting housing prices are a channel for monetary policy transmission.
  - Borrower-based measures (lower LTV and/or lower DSTI) dampen house prices significantly for a few quarters; the effect is transitory.
  - Aggregate MPM tightening (overall index including all measures) has a more limited impact on house prices than monetary policy tightening, because it includes measures aimed at banking system resilience (capital adequacy, liquidity) rather than directly mitigating the house price cycle.
  - Results align with cross-country evidence (e.g., Cerutti et al. (2017); He et al. (2016)) that borrower-based measures can be effective, with DSTI or LTI caps acting as automatic stabilizers when house prices grow faster than disposable income.

### Containing Housing Market Risks (policy recommendations)
- Monetary policy:
  - The ongoing monetary policy tightening cycle should help address Iceland’s house price pressures by steering inflation expectations toward the target and dampening the feedback loop between house prices and inflation.
- Macroprudential policy:
  - Further macroprudential tightening through binding and effective borrower-based measures could help contain systemic risks and create further buffers in the financial sector.
  - Recalibrate the existing DSTI regulation by requiring lenders to apply a premium over the contractual rate in the analysis of borrowers' debt-service capacity.
  - Introduce a debt-to-income (DTI) cap to complement LTV and DSTI caps in addressing systemic risk.
    - Rationale: DSTI limits—calculated at origination—depend on loan maturity and interest rates at origination and can be hindered when mortgage loans are based on variable (or indexed) rates; a DTI cap could be more constraining as it limits a borrower’s aggregate debt level at origination.
  - Consider the risk profile of mortgage loans in calculating risk-weighted assets and standard capital adequacy to improve banking system resilience.
  - Use well-designed stress-testing exercises to inform MPM tightening and investigate effects of various asset price and business cycle scenarios on banking system resilience.

*Prepared by Mahir Binici and Nujin Suphaphiphat; data and analysis as presented in the source chapter.*

### 12.      A surge in house prices could aggravate already low housing affordability. Iceland

### 12.      A surge in house prices could aggravate already low housing affordability. Iceland

### Tenure patterns and recent changes
- Iceland traditionally has a high home ownership rate compared to other Nordic countries, although the share of renters increased over time, partly due to growing immigration.
- Almost 30 percent of families are renters in 2019—about 6 percentage points more than in 2010.
- In 2018, almost half of the bottom income households rented, compared to only 6 ½ percent of the top-quintile households.

### Housing affordability indicators and distributional pressures
- Housing cost (mortgage and rent) accounts for almost 30 percent of total disposable income in Iceland.
- Bottom-quintile households spend 35 percent of total disposable income on housing.
- The housing cost overburden rate—with over 16 percent of the population spending more than 40 percent of disposable income on housing cost—is one of the highest among the OECD countries (based on 2018 data).
- Housing affordability pressures are higher for renters than for homeowners: the housing cost overburden rate for renters is more than double that of owners.
- Satisfaction with the availability of quality affordable housing: only 46 percent of respondents report satisfaction.
- Overcrowding rate is relatively small but has increased over time.

### Housing supply dynamics
- The number of new residential buildings declined sharply after the GFC, contributing to a sharp rise in housing prices and rents.
- In 2020, completed residential buildings surpassed the pre-GFC peak, but the COVID-19 pandemic significantly slowed new constructions.
- Although the housing stock has grown, housing output per 1000 inhabitants declined in 2011–20.

### Tourism and short-term rental effects
- Pre-pandemic surge in tourists put pressure on the long-term rental market as owners converted existing apartments into short-term rentals.
- A study (Mermet, 2019) shows that Airbnb-type supply rose more than six-fold during 2013–18, accounting for 5 percent of the housing stock.
- During the pandemic, availability of long-term rental housing rose due to the collapse in the tourism sector, moderating rental price increases. The tourism recovery could again strain the long-term rental market and put upward pressure on rental prices.

### Design of effective policies to tackle affordability — findings and tradeoffs
- Empirical evidence shows measures supporting homeowners (mortgage interest deduction, subsidies for first-time buyers) are often poorly targeted, can result in higher housing prices, and lower affordability.
- Demand-side policies promoting rental affordability (housing allowance, subsidies) can lead to offsetting price increases for the targeted group if supply is inelastic.
- Supply-side policies have tradeoffs:
  - Tax on vacancy can increase supply of rental dwellings without raising prices but requires a comprehensive database of housing vacancy.
  - Obligating landlords to register leases in a public database is a step in the right direction.
  - Limits on short-term rental services tend to benefit middle- to high-income households.
  - Social housing can be effective when supply is inelastic to price but excessive provision can crowd out private rental market and suppress its development.
  - Expanding public infrastructure and easing administrative procedures for construction can increase supply but are costly and time-consuming.

### Recommended medium-term structural measures
- Focus on measures that reduce construction costs and increase supply by eliminating red tape and shortening the period for obtaining building permits.
- OECD recommendations highlighted:
  - Simplify and clarify planning regulations.
  - Reduce administrative burdens and the lengthy process of obtaining building permits.
  - Introduce one-stop shop for permits and inspections.

### Short-term support measures and targeting
- More targeted housing assistance:
  - Public spending on housing allowances in Iceland is relatively low at 0.2 percent of GDP.
  - More than 20 percent of the allowances support households in the 3rd quintile, suggesting room to retarget allowances toward low-income households.
- Gradually phasing out incentives favoring homeownership:
  - Mortgage interest deduction and similar homeowner tax incentives tend to be non-targeted and regressive, benefiting mainly high-income households.
  - Measures facilitating financing should target construction of new homes to avoid fueling demand pressures on a limited housing stock.
- Social housing:
  - The social housing stock in Iceland accounts for 11 percent of the total housing stock.
  - Social housing is useful where supply is inelastic to prices but can be costly and less flexible than allowances.
  - Eligibility criteria for social housing should be transparent, targeted, reviewed periodically, and portable to facilitate labor mobility across cities and regions.

_Italic: International Monetary Fund staff summary of chapter 12 of the Iceland country report contained in the provided PDF._

### 6.      The authorities’ goals for reducing the domestic carbon footprint are ambitious.

### 6.      The authorities’ goals for reducing the domestic carbon footprint are ambitious.

### Ambitious targets and current quantified outlook
- Iceland has committed to reach carbon neutrality (net zero emissions) no later than 2040 and to eliminate its use of fossil fuels by 2050 (Government of Iceland, 2021c).
- In the context of the Paris Agreement, jointly with the EU and Norway, Iceland committed to achieve a 40 percent reduction of total emissions, without land use, between 1990 and 2030.
- Iceland’s contribution to the joint commitment was to reduce emissions by 29 percent from their 2005 level.
- More recently, the group has raised its commitment to reduce emissions by 55 percent from their 1990 levels, but Iceland’s contribution to this commitment has not yet been established.
- The authorities’ latest forecast estimates that already quantified climate measures would deliver a reduction of 28 percent during 2005–2030 (2,261 kt CO2e), which suggests that more measures would be required to achieve their commitments (Government of Iceland, 2022).
- Under the Kyoto Protocol, Iceland was granted allowances for 15 million tons of CO2 for the period 2013–2020, whereas, net of carbon sequestration, Iceland generated 19 million tons outside the ETS.
- The fiscal cost of missing this target is yet to be determined.

### Strategy and overarching framework
- Iceland has prepared a comprehensive climate action plan, updated in 2020, which contains 48 actions cutting across key aspects of economic activity and sectors of society.
- The plan includes a combination of fiscal incentives, government regulation, and provision of infrastructure to encourage activities and the use of technologies that reduce Iceland’s carbon footprint (Ministry for the Environment and Natural Resources, 2020 and 2021).
- Measures need to be periodically adapted to include technological and economic developments, and progress toward the objectives is envisaged to be measured periodically to adjust the pace of reform as needed.
- Achieving carbon neutrality would entail:
  - upgrading the capital stock toward one that produces less emissions;
  - using cleaner energy sources and securing their supply;
  - encouraging activities that generate less emissions; and
  - expanding emission-absorbing activities, including through new technologies.
- Box 1 conceptual framework: four processes to reduce greenhouse gas emissions — (1) upgrade capital stock; (2) switch to cleaner energy sources; (3) reduce high-emission economic activities or increase low-emission ones; (4) absorb emissions — and attendant timing, technological, economic, environmental tradeoffs, and financial flow implications.
- Key temporal and technical constraints highlighted: capital stock life spans (cars 12–15 years; cars elsewhere cited as (12–13) years), technological/economic viability of energy-exchange and absorption technologies, environmental tradeoffs from renewable expansion, and financial sector transition risks.

### Road transport and fishing: sectoral outlook and challenges
- The climate action plan recognizes that progress in reducing emissions from road transportation and the fishing fleet would be crucial to achieving Iceland’s goals.
- Fishing fleet:
  - Significant progress over the last 25 years: consolidation of the fishing quota system reduced the number of vessels, increased ship size, and led to a more sustainable and lower catch (OECD, 2021a, Government of Iceland, 2021a).
  - Latest official forecast suggests only moderate progress is expected in the next 20 years.
  - Challenge partly due to the young age of the existing vessels that consume the most energy but are otherwise efficient in catch (DNV Maritime, 2021, Government of Iceland, 2021a).
- Road transport:
  - Very little progress over the last 20 years in reducing overall emissions from road transportation, though most future emissions reductions are expected from this sector as energy exchange in vehicles occurs.
  - Emissions from road transportation have been relatively stable despite a significant increase in the number of vehicles, mostly reflecting substitution among fossil fuels.
  - The share of gasoline in road transportation declined from almost 60 percent in 2008 to about 30 percent in 2020.
  - Most of the gasoline decline has been absorbed by diesel vehicles.
  - The number of electric vehicles has increased since 2017, but they remain a very small fraction of the outstanding vehicle stock.
  - Share of diesel cars increased to 35 from 8 percent during 1995–2020.
  - Of all diesel cars, the households’ share has remained stable at about 70 percent.
  - Most heavy transportation is diesel.

### Energy exchange transition toward clean vehicles and e-fuels
- Policy actions:
  - Iceland has decided to shift toward electric vehicles and the action plan envisages a ban on the registration of fossil fuel-dependent vehicles by 2030.
  - Several other countries listed in the plan: Norway—by 2025; Ireland, Netherlands, Slovenia, and Sweden—by 2030; Cape Verde, Denmark, United Kingdom—by 2035; France, Spain—by 2040 (International Council of Clean Transportation, 2021). Ongoing EU discussions could support a ban across the 27-country block by 2035.
- Emissions and vehicle statistics (by 2021):
  - Stock of electric vehicles amounted to about 4 percent of the total stock.
  - Plug-in hybrids amounted to 6.5 percent of the stock.
  - Share of electric vehicles in new registrations was 58 percent.
- Macroeconomic and energy-security considerations:
  - Iceland’s high urbanization rate and relatively low driving ranges within urban areas make electric vehicles well suited for the typical driver.
  - The macroeconomic effect of a shift toward electric cars has been assessed as positive (University of Iceland and Reykjavík University, 2018).
  - Shift toward electric vehicles reduces fuel imports but, for a time, would require higher imports of capital goods to increase renewable electricity supply and investment in charging infrastructure.
  - Given the typical life span on cars (12–13) years, the transition toward electric cars should be well advanced by 2030 at the current pace of new registrations.
- E-fuels (Box 2):
  - E-fuels convert renewable electricity into low-carbon fuels (green hydrogen, methane, methanol; possibilities of ethanol and biodiesel are explored).
  - Currently produced in Iceland at low scale; production costs are very high relative to fossil fuels or batteries; vehicles using e-fuels tend to be more expensive.
  - For hydrogen, electrolysis energy costs more than the energy stored in hydrogen; may still make sense to produce green hydrogen during periods of excess electricity.
  - At current technology, expanding renewable electricity to produce e-fuels does not seem viable, but e-fuels are expected to become competitive between 2030 and 2040 (Government of Iceland, 2021b).
  - E-fuels could play a crucial role in reducing emissions of heavy transport in the future.

### Health and emissions tradeoffs of diesel, and policy timing risks
- Diesel versus gasoline:
  - Diesel has a higher carbon content than gasoline per gallon, but per unit of energy (BTU) diesel generates less greenhouse gas emissions than gasoline.
  - Diesel vehicles on average generate about 40 percent less emissions than gasoline vehicles of similar weight (Nieuwenhuis, 2017).
  - Diesel vehicles also generate other emissions associated with heart disease (Neophytou, 2019) and cancer (American Cancer Society, 2015).
  - Based on health concerns, many European cities have banned diesel circulation.
- Timing and stock effects of a 2030 registration ban:
  - Prohibition to register new fossil fuel vehicles by 2030 could lead to use of obsolete fossil-fuel dependent vehicles well after depreciation, potentially increasing emissions on the margin.
  - Outcomes depend significantly on the cost of new electric vehicles by 2030; if costs do not fall fast enough, there could be stockpiling ahead of the prohibition and longer retention of older vehicles.
  - Policy response needs to include incentives for maintenance and mechanisms to prevent rising emissions from older vehicles.

### Fiscal incentives, revenue neutrality, and taxation reform
- Current strategy and measures:
  - Authorities’ strategy includes fiscal incentives encouraging the transition to electric vehicles, initiatives to significantly enhance public transportation, provision of public rapid charging infrastructure, and promotion of walking and cycling where feasible (Iceland’s Ministry for the Environment, Energy, and Climate, 2022).
  - An expansion in renewable energy capacity may be required to support these measures.
- Principles for fiscal incentives:
  - Incentives should be revenue neutral and factor other fiscal objectives.
  - Incentive structure needs to:
    - favour the use of clean energy over other fuels; and
    - meet other road transportation objectives (optimal number of cars on the road, periodic renewal of the car fleet, maintenance and safety of road infrastructure).
  - Taxes/fees should be sustainable and apply to acquisition, ownership, and use of transportation capital stock.
- Current incentive structure and sustainability concerns:
  - Current vehicle tax incentives resemble Norway’s approach and have been effective in encouraging electric vehicle adoption, but pose similar fiscal challenges and room for improvement (OECD, 2021c Box 15 and ¶74).
  - Taxes/fees are already applied on car acquisition tied to expected lifecycle emissions; temporary VAT exemptions for clean vehicles; temporary accelerated depreciation rules for eligible green investments affecting corporate income tax collections.
  - Carbon tax applied to carbon content of fuels; depreciation rates can be calibrated to factor carbon content and accelerate replacement of carbon-intensive capital stock.
  - Structure is not sustainable because the tax base of fossil fuels will disappear once transition completes.
  - Tax revenue from vehicles has been declining over time, more recently with substitution away from fossil-fuel vehicles.
  - Changes in tax structure need to transition from taxing energy to direct measurement of actual use.
- Specific tax details and incidence:
  - For diesel and gasoline, excise taxes are significantly larger than the corresponding carbon tax (OECD, 2019).
  - Per liter, pump prices for diesel are generally lower than gasoline in Iceland; diesel is cheaper to produce and carries lower taxes.
  - Although diesel carries a higher carbon per gallon tax than gasoline due to higher carbon content, overall taxes end up lower because of lower excises.
  - As a result of high taxes on gasoline and diesel, prices of gasoline and diesel are among the highest in the world.
  - Electricity is not subject to excises or carbon tax, but is subject to value added tax:
    - Electricity for house heating is taxed at the lower VAT rate (11 percent);
    - Other electricity is taxed at the standard VAT rate (24 percent).

### Policy recommendations and implementation considerations (synthesized from text)
- Periodically adapt measures to technological and economic developments and measure progress periodically to adjust reform pace.
- Ensure fiscal incentives are revenue neutral and aligned with broader fiscal objectives; redesign tax base away from fossil fuel consumption toward measures of usage and cleaner technologies.
- Complement vehicle registration bans with measures to avoid stockpiling and prolonged use of older high-emission vehicles (incentives for renewal, maintenance, and emissions controls).
- Expand public transportation, rapid charging infrastructure, and promotion of walking/cycling to reduce number of emission-generating units and congestion costs.
- Plan renewable energy capacity expansion while balancing environmental tradeoffs.
- Monitor and manage financial sector risks from transition, including redirecting financial flows and mitigating abrupt stranding of carbon-intensive capital stock.
- Prepare for gradual but sustained investment needs in capital goods and charging infrastructure during the transition period.

*Source: IMF staff summary of "6.      The authorities’ goals for reducing the domestic carbon footprint are ambitious."*

### 17.      High taxation of fossil fuels plays many roles other than discouraging their use. It is a

### 1islea2022002 - 17.      High taxation of fossil fuels plays many roles other than discouraging their use. It is a

### Roles of high fossil-fuel taxation
- High taxation of fossil fuels serves multiple functions beyond discouraging use: charging for public use of roads and providing a substantial source of revenue.
- If energy exchange in transportation succeeds (shift from fossil fuels to electricity or other low-carbon fuels such as e-fuels) while fossil fuels remain taxed and electricity/e-fuels are not, the state would lose a nontrivial amount of fiscal revenue.
- Options to replace the tax base:
  - Tax electricity and e-fuels to levels compatible with public services related to road transportation (road maintenance, security services, traffic control).
  - Develop other ways of charging for road usage while maintaining the tax wedge between fossil fuels and clean sources of energy.
- Authorities are considering usage charges as alternatives (Ministry of Finance and Economic Affairs, 2018).

### Coverage of explicit carbon pricing
- Climate objectives require universal or widely expanded explicit carbon tax coverage so that energy sources pay according to their carbon content.
- Practical implications:
  - Diesel would pay more than gasoline because of higher carbon content, even if it generates less emissions per mile.
  - Coverage should include emissions from electricity generation, which in Iceland would apply mainly to geothermal energy.
  - Geothermal emissions, although lower per unit of energy, have increased substantially and need adequate pricing.
  - Capture of CO2 emissions from geothermal energy could in principle be used as a credit to the tax (Government of Iceland, 202b).
  - Avoid double taxation of emissions from industries subject to the ETS, as these industries already pay directly for emissions, factoring free allocations to protect from carbon leakage.
  - For basic metals, main energy input is renewable electricity, so scope for double taxation is in principle small.
- Comparative assessment: Effective carbon pricing scores suggest Iceland fares comparatively well in terms of carbon pricing coverages around the world (OECD, 2021b).

### Required carbon tax levels and effective energy taxation
- Carbon taxes would need to be significantly raised and coverage expanded to better align climate incentives across industries (International Monetary Fund, 2011).
- Fuel excises function as a form of carbon taxes and form part of the effective tax on energy sources.
- Increasing carbon taxes to the level of effective energy taxation of gasoline (carbon tax plus excises) and eliminating excises would leave carbon taxes in Iceland the highest in the world.
- Fuel cleanliness and effective energy tax evidence is presented across several charts (World Bank Dashboard; OECD).

### Consumer impact and distributional considerations
- If carbon taxes are raised to the level of effective taxation of gasoline (with offsetting changes in excises), the overall level of energy taxation in road transportation would not materially change for individuals with a gasoline vehicle.
- Effective taxes would increase for diesel users as excises for diesel are currently lower than those for gasoline.
- Although gasoline and diesel are among the most expensive in the world, cost of living and incomes in Iceland are generally high.
- The share of gasoline prices in the consumer price index has declined to below 3 percent.
- Higher taxation of fuel in the fishing fleet may increase on the margin the price of fish, but most fish is exported.
- Formal studies conclude the impact on consumer prices and consumer purchasing power will be mild (Blöchliger, Johannesson and Gestsson, 2022; Institute of Economic Studies, 2019 and 2020; OECD, 2021).

### CPAT simulations and policy scenarios
- The IMF/World Bank Climate Policy Assessment Tool (CPAT) is used to benchmark climate policies and simulate effects of climate mitigation policies (Black and others, 2022; IMF-WB, 2022; Parry and others, 2018).
- Key simulation outcomes for Iceland if carbon prices were the sole policy instrument:
  - To achieve a reduction in emissions of 40 percent with respect to their 1990 levels, carbon prices would need to rise to about US$ 220 per tCO2e from 37 US$ per tCO2e, depending on fuel excise treatment.
  - Under the baseline carbon tax simulation (which assumes the increase in carbon price takes place in 2023), the model suggests an increase of about 70 percent relative to 2018 CPI-adjusted gasoline and diesel prices.
  - Different combinations of fossil-fuel excises and carbon tax increases can achieve the goal, but likely require significant increases in the real price of fuel relative to 2018 levels.
  - Because Iceland does not rely exclusively on increasing carbon prices, the estimated price increase should be viewed as an upper bound.
- Fiscal and macroeconomic impacts in the baseline simulation:
  - The envisaged increase in carbon taxes would add about 1 percent of GDP in fiscal revenue.
  - Baseline revenue use assumption: half the revenues are used to reduce labor taxes and the other half to increase public investment.
  - The model suggests the increase in carbon taxes would slow GDP growth by about 0.25 percentage points in 2023–2024, but the net effect on the growth rate (not the GDP level) would disappear by 2030.
  - The model highlights positive net welfare benefits when accounting for climate gains, improved health from lower air pollution, and reductions in congestion and accident deaths.
- Pace of increases:
  - Immediate large increases would cause unnecessary disruption; staged, preannounced increases are preferable to avoid disruption and premature adoption of technologies that may become obsolete.
  - A more gradual path produces more stable GDP impacts but delays the economic benefits from reallocating fiscal revenues (lower labor taxes and higher public investment).

### Carbon absorption and negative emissions technologies
- Reaching carbon neutrality requires absorbing some emitted CO2 through:
  - Afforestation, wetland restoration and protection, land reclamation, and emerging technological options.
- Uncertainties:
  - Unclear whether land reclamation offsets should count as credits, given different international standards and commitments for land emissions.
- Carbon capture and storage (CCS) options:
  - For concentrated CO2 sources (geothermal steam, silicon production), capture and conversion to rock or green methane is now feasible.
  - Carbfix gas-to-rock method is already applied to geothermal emissions and expansion feasibility is being studied (Veal, 2020; Government of Iceland, 2022).
  - Direct air capture combined with mineral storage (Orca from Climeworks with CarbFix) has been used since 2020 to offset some emissions.
  - Gas-to-green methane option is being studied by the national electricity company and silicon producer PCC SE at Bakki.
  - These methods are technologically feasible but not yet economically viable on a mass scale (Government of Iceland, 2021b).

### Conclusions and policy recommendations
- Strategic observations:
  - Iceland’s climate goals are appropriately ambitious given average emissions per capita and per GDP are above the median of the OECD.
  - Iceland has the lowest emissions in energy generation in the OECD but underperforms in other areas; emissions under the European ETS have accounted for most growth in Iceland’s emissions since the 1990s.
  - Expansion of energy-intensive sectors should be assessed carefully for environmental, economic viability, international commitments, and public health implications.
- Policy priorities to meet non-ETS climate goals in a growing economy:
  - Advance technological development in road transport and fishing.
  - Implement uniform carbon pricing policies and realign the energy taxation base.
  - Large expansion or redirection of renewable energy production.
  - Ensure fiscal incentives are revenue neutral and factor other fiscal objectives.
  - Maintain a tax gap favoring cleaner technologies while setting incentives high enough to support fiscal objectives.
  - In road transportation, apply incentives at acquisition, ownership, and usage levels.
  - Major reform likely needed at the usage level as transition to cleaner technologies reduces the fossil-fuel tax base traditionally used to tax vehicle usage.

*Source: IMF/World Bank Climate Policy Assessment Tool (version CPAT 1.0pre_097) and related analysis in the supplied content.*

### References

### References

### International organizations and multilateral institutions
- International Monetary Fund, 2011, “Iceland: Advancing Tax Reform and the Taxation of Natural Resources,” IMF Country Report No. 11/138. Available at https://www.imf.org/external/pubs/ft/scr/2011/cr11138.pdf
- International Monetary Fund, 2019a, “Fiscal Policies for Paris Climate Strategies—From Principle to Practice,” IMF Policy Paper (Washington, DC: International Monetary Fund). Available at https://www.imf.org/en/Publications/Policy-Papers/Issues/2019/05/01/Fiscal-Policies-for-Paris-Climate-Strategies-from-Principle-to-Practice-46826
- International Monetary Fund, 2019b, “How to Mitigate Climate Change,” in Fiscal Monitor (October) Washington, DC, available at https://www.imf.org/en/Publications/FM/Issues/2019/10/16/Fiscal-Monitor-October-2019-How-to-Mitigate-Climate-Change-47027.
- International Monetary Fund, 2020, “Mitigating Climate Change,” World Economic Outlook, Chapter 3, October 2020 (Washington, DC: International Monetary Fund). Available at https://www.imf.org/-/media/Files/Publications/WEO/2020/October/English/ch3.ashx
- IMF-WB, 2022, Climate Policy Assessment Tool, version 0.97, www.bit.do/cpatimf.
- OECD, 2019, “Taxing Energy Use 2019: Country Note – Iceland,” electronically available at https://read.oecd.org/10.1787/058ca239-en?format=pdf
- OECD, 2021a, “Addressing climate change,” Chapter 3 in Economic Surveys: Iceland, OECD Publishing, Paris. Electronically available at https://www.oecd-ilibrary.org/sites/510d93b0-en/index.html?itemId=/content/component/510d93b0-en
- OECD, 2021b, “Effective Carbon Rates 2021,” available at https://www.oecd.org/tax/tax-policy/effective-carbon-rates-2021-highlights-brochure.pdf
- OECD, 2021c, “A framework to decarbonize the economy,” available at https://read.oecd.org/10.1787/4e4d973d-en?format=pdf

### Government of Iceland and Icelandic ministries/agencies
- Government of Iceland, 2020a, “A Sustainable Energy Future. An Energy Policy to the year 2050,” available at https://www.stjornarradid.is/lisalib/getfile.aspx?itemid=e36477fd-3bc1-11eb-8129-005056bc8c60
- Government of Iceland, 2021a, “Green steps in fisheries,” (in Icelandic), Available from: https://www.stjornarradid.is/library/02-Rit--skyrslur-og-skrar/Gr%c3%a6n%20skref%20%c3%ad%20sj%c3%a1var%c3%batvegi%20-%20sk%c3%bdrsla%20starfsh%c3%b3ps.pdf
- Government of Iceland, 2021b, “Feasibility of producing electric fuel in Iceland,” (in Icelandic). Available at https://www.stjornarradid.is/library/01--Frettatengt---myndir-og-skrar/ANR/Orkustefna/Fysileiki%20Rafeldsneytisframlei%C3%B0slu%20Skyrsla%20Jun%202021.pdf
- Government of Iceland, 2021c, “Update of the Nationally Determined Contribution of Iceland,” available at https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Iceland%20First/Iceland_updated_NDC_Submission_Feb_2021.pdf
- Government of Iceland, 2022, “Report on Policies, Measures, and Projections: Projections of Greenhouse Gas Emissions in Iceland until 2040,” Submitted to the European Union under the bilateral agreement between Iceland and the EU regarding the second commitment period of the Kyoto Protocol. (in Icelandic). Available at https://ust.is/library/Skrar/loft/NIR/PaMsProjections_Report%202022_published.pdf
- Iceland’s Ministry for the Environment and Natural Resources, 2021, “On the Path to Climate Neutrality. Iceland’s Long-Term Low Emission Development Strategy” October , available at https://unfccc.int/sites/default/files/resource/Iceland_LTS1_2021.pdf
- Iceland’s Ministry for the Environment and Natural Resources, 2020, “Iceland’s 2020, Climate Action Plan,” available at https://www.government.is/library/01-Ministries/Ministry-for-The-Environment/201004%20Umhverfisraduneytid%20Adgerdaaaetlun%20EN%20V2.pdf
- Iceland’s Ministry for the Environment and Natural Resources, 2020, “Iceland’s 2020, Climate Action Plan website,” (in Icelandic), available at https://www.stjornarradid.is/verkefni/umhverfi-og-natturuvernd/loftslagsmal/adgerdaaaetlun-i-loftslagsmalum/?
- Iceland’s Ministry for the Environment, Energy, and Climate, 2022, “Land Transport,” (in Icelandic). Available at https://www.stjornarradid.is/default.aspx?pageid=19a06326-604d-4bfe-8daf-57ab9b7301a6
- Ministry of Finance and Economic Affairs, 2018, “Taxes on vehicles and fuels 2020-2025,” (in Icelandic). Available at https://www.stjornarradid.is/lisalib/getfile.aspx?itemid=e301833f-a486-11e8-942c-005056bc530c
- Ministry of Finance and Economic Affairs, 2022, “Treasury revenue from vehicles and fuel: Development and Revision,” in Medium-Term Fiscal Strategy Plan 2023-2027 (Box 6) (In Icelandic), available at https://www.stjornarradid.is/efst-a-baugi/frettir/stok-frett/2022/03/29/Fyrsta-fjarmalaaaetlun-rikisstjornarinnar-kynnt-Framfarir-og-kraftmikil-verdmaetaskopun-i-framsaeknu-samfelagi-/

### Academic, research institutes, and working papers
- Arregui, Nicolas and Andreas A. Jobst, 2020, “Seven Charts on Climate Policies for Key Sectors in the European Union,” IMF Country Focus, September 24 (Washington, D.C.: International Monetary Fund), available at https://www.imf.org/en/News/Articles/2020/09/23/na092320-seven-charts-on-climate-policies-for-key-sectors-in-the-european-union.
- Arregui, Nicolas, Rui Chen, Christian Ebeke, Jan-Martin Frie, Daniel Garcia-Macia, Dora M. Iakova,Andreas A. Jobst, Louise Rabier, James Roaf, Anna Shabunina, and Sebastian Weber, 2020,“Sectoral Policies for Climate Change Mitigation in the EU,” Departmental Paper No. 20/14, European Department, September 16 (Washington, D.C.: International Monetary Fund),available at https://www.imf.org/en/Publications/Departmental-Papers-Policy-Papers/Issues/2020/09/16/Sectoral-Policies-for-Climate-Change-Mitigation-in-the-EU-49640
- Chen, Jiaqian, Maksym Chepeliev, Daniel Garcia Macia, Dora M. Iakova, James Roaf, Anna Shabunina,Dominique van der Mensbrugghe, and Philippe Wingender, 2020, “EU Climate Mitigation Policy,” Departmental Paper No. 20/13, European Department, September 16 (Washington, D.C.: International Monetary Fund), available at https://www.imf.org/-/media/Files/Publications/DP/2020/English/EUCMPEA.ashxz.
- Institute of Economic Studies, 2019, The effect of the carbon tax on households and firms, C-Series Reports C19: 03 (in Icelandic), (in Icelandic), available at https://ioes.hi.is/files/2021-04/Ahrif_kolefnisgjalds_a_eldsneytisnotkun.pdf
- Institute of Economic Studies, 2020, “Impact of carbon tax on companies' fuel consumption,” C-Series Reports C20: (in Icelandic), available at https://ioes.hi.is/files/2021-04/Ahrif_kolefnisgjalds_a_eldsneytisnotkun.pdf
- Parry, Ian, Victor Mylonas, and Nate Vernon. 2018. “Mitigation Policies for the Paris Agreement: An Assessment for G20 Countries”, IMF Working Paper, available at https://www.imf.org/-/media/Files/Publications/WP/2018/wp18193.ashx
- University of Iceland and Reykjavík University, 2018, “Macroeconomic Impact of Electric Cars,” report prepared for Samorka, the Ministry of Industry and Innovation, Orkusetur, Íslensk Nýorka and Græna Orkun, available at https://samorka.is/wp-content/uploads/2018/11/ahrif_rafbilavaedingar.pdf
- Blöchliger, Hansjörg; Sigurdur Johannesson; and Marias Halldor Gestsson, 2022, “The Effect of a Carbon Tax Rise on Iceland’s Economy,” OECD Working Paper No. 1708 (April), available at https://www.oecd-ilibrary.org/economics/the-effect-of-a-carbon-tax-rise-on-iceland-s-economy_76a7eaed-en
- Black, Simon, Danielle Minnett, Ian Parry, James Roaf, and Karlygash Zhunussova, 2022. “The Carbon Price Equivalence of Climate Mitigation Policies.” Working paper, International Monetary Fund, Washington, DC, forthcoming

### Industry, technical reports, and NGOs
- DNV Maritime, 2021, “Pathways for Decarbonization of the Icelandic Maritime Sector,” report prepared for Samorka; Ministry of Industries and Innovation; Associated Icelandic Ports and Fisheries, (in Icelandic), available at https://samorka.is/wp-content/uploads/2021/12/Decarbonization-IMS_Final-Rev2.pdf
- International Council on Clean Transportation, 2021, “Update on government targets for phasing out new sales of internal combustion engine passenger cars,” available at https://theicct.org/sites/default/files/publications/update-govt-targets-ice-phaseouts-jun2021_0.pdf
- Rapier, Robert, 2020, “Hydrogen Production With A Low Carbon Footprint,” Forbes Magazine (June 12), available at https://www.forbes.com/sites/rrapier/2020/07/10/hydrogen-production-with-a-low-carbon-footprint/?sh=2c60aaf7c2c2

### Health, environment, and media sources
- American Cancer Society, 2015, “Diesel Exhaust and Cancer Risk,”, available at https://www.cancer.org/healthy/cancer-causes/chemicals/diesel-exhaust-and-cancer.html#:~:text=IARC%20classifies%20diesel%20engine%20exhaust,diesel%20exhaust%20and%20bladder%20cancer.
- Neophytou, Andreas M, 2019, Diesel Exhaust, “Respirable Dust, and Ischemic Heart Disease: An Application of the Parametric g-formula,” available at https://pubmed.ncbi.nlm.nih.gov/30489348/
- Nieuwenhuis, Paul, 2017, “Fact Check: are diesel cars really more polluting than petrol cars?,” available at https://theconversation.com/fact-check-are-diesel-cars-really-more-polluting-than-petrol-cars-76241
- Veal, Lowana , 2020, “How Iceland is undoing carbon emissions for good,” BBC Future Planet (June 16), available at https://www.bbc.com/future/article/20200616-how-iceland-is-undoing-carbon-emissions-for-good

*Content compiled from the References section of the source PDF.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1islea2022002.pdf_