There are only a limited number of recent national initiatives to support planning in Iceland and no formal framework for regional or local actors to apply for funding at the national level (Huynh et al. 2022). That means that examples of the state level supporting local-level planning in relation to sustainable urban development efforts are mainly based on visions as they are presented in voluntary regional plans (Planning Act 2010). Through regional plans, municipalities can collectively decide on common priorities and certain projects. Those can then be funded and made possible with state funding if the purpose of the project accords with national policy. The most obvious example of a large-scale project is the Agreement on Transportation in the Capital Area (Stjórnarráð Íslands 2019b), which builds on the vision put forward in the regional plan for the Capital Area (SHH 2015). That project impacts sustainable urban development and is set to transform transportation within and around the capital region. It is a landmark agreement on ambitious development of transport infrastructure and public transport. The agreement includes a common vision and overall strategy for the planning area (which includes the municipalities of Reykjavík, Kópavour, Hafnarfjörður, Garðabær, Seltjarnarnes, Mosfellsbær and Kjósarhreppur) with the goal of greatly increasing public transport and reducing pollution caused by particulate matter and greenhouse gas emissions. The initiative also aims to contribute to and promote a carbon-free society to meet the climate goals of the Icelandic government and municipalities (Borgarlínan 2022a; Stjórnarráð Íslands 2019c).

The Capital Area of Iceland has grown considerably in the last few decades in terms of both land use and population. From the mid-1980s until 2012, geographical growth of the urban area was at 132 percent while population growth was at 52 percent. That means that the population density went down by 35 percent. At the same time, private car ownership rose by 86 percent (Interviews; Borgarlínan 2022a). That massive growth has resulted in a marked urban sprawl with the side effect of increased car dependency. Since the population growth of the Capital Area is expected to continue in the coming years, authorities were keen to reverse that trend and promote more sustainable urban development, as well as increasing densification and the use of public transport. The initiative to transform transport through the establishment of a well-functioning public transport network also contributes greatly to international climate obligations and the overall policy of the Icelandic government. By downscaling dependency on private car usage and thus reducing the amount of carbon emissions from land transport, some of the national policy and international obligations would be met, so the state was willing to participate in financing a large-scale transport transformation project. This initiative was also viewed as a necessary step to prevent further urban sprawl and was seen as a prerequisite for more sustainable urban development (interviews). The initiative to transform the means of transport in the Capital Area also aligns with a more holistic urban development perspective as put forward in local plans of the municipalities in question and their collective regional plan, as well as other visions and policies, such as Green Steps of Reykjavik City and the idea to develop 20-Minute Neighbourhoods (Reykjavíkurborg 2020). In addition, the collective regional plan for the Capital Area has been fairly successful in terms of preserving, protecting and developing green urban areas (Lidmo & Bogason 2020). However, due to a transformation of the municipalities in the Capital Area and its suburbs, new modes of transport are considered necessary to take the visions of more sustainable urban development forward (SSH 2015). 

The agreement between the state and the municipalities around the capital includes various development projects which are to contribute to a more sustainable transport system in the whole Capital Area. The goals of the agreement are fourfold: i) more efficient transport and diversification of modes of travel, ii) a carbon-neutral society, iii) increased road safety and iv) state and municipal cooperation for more sustainable urban development. The main element of that agreement is what is commonly called Borgarlína, a BRT (Bus Rapid Transport) system in the Reykjavík area, but other infrastructural projects are also included, such as the expansion of bicycle paths (Reykjavíkurborg 2021; Stjórnarráð Íslands 2019a). The total financing of transport projects in the area during the period amounts to ISK 120 billion. The state will provide ISK 45 billion directly, while municipalities will provide ISK 15 billion (Stjórnarráðið 2019c). It is assumed that special financing, which is the responsibility of the state, will cover ISK 60 billion (Stjórnarráð Íslands 2019b).

It should be noted that these numbers have not been updated to reflect expected increases and price changes due to inflation and other factors.

Since Iceland does not have a formal programme for state-level support that municipalities can apply for, this case study focuses on the initiative introduced above, namely the Agreement on Transportation in the Capital Region and in particular on its largest project, Borgarlína. For that purpose, interviews were conducted with experts in the field and in relation to the specific project. The interviewees hold positions, or have previously held positions, such as regional planning director at the Association of Municipalities in the Capital Area, project manager for the public company overseeing construction and the director of strategy planning and communication at the Icelandic Planning Agency

A formal way of applying for funding is not applicable in the Icelandic case. However the interviewees – despite their varying knowledge of the political process itself – all agree that the initiative itself would not have been possible without the Association of Municipalities in the Capital Area and the municipalities’ common vision for sustainable urban development. In 2015 the seven municipalities in the Capital Area – Garðabær, Hafnarfjörður, Kópavogur, Mosfellsbær, Reykjavík, Kjósahreppur and Seltjarnarnes – collectively approved a regional plan for the period up until the year 2040. The backbone of the regional plan for the capital area 2040 is a strategy for a new, high-quality public transport system that connects the cores of the municipalities in the Capital Area. Based on analysis of the future of transport in the region, a better public transport system was viewed as a cost-effective and environmentally friendly way to increase transport capacity between the municipalities and enable them to respond to the increase in population without increasing the load on the main road system to the same degree. It was also seen as a prerequisite for densification and sustainable urban development. A drastic change in the transport system within and around the Reykjavík area was therefore seen as essential. The regional plan was also developed in close cooperation with relevant state agencies, mainly IRCA (the Icelandic Road and Coastal Administration) as well as the National Planning Agency which provided expertise and general advice with respect to specific parts of the planning. The main goals of the initiative were therefore relevant for all the municipalities around the capital. Since those goals also aligned with policy priorities at the national level, the proposals were then formally put forward to the government (interviews).

The project was initially driven by the Association of Municipalities in the Capital Area (SSH). The main aims of the new transport system aligned with the policies and commitments of the state, allowing for dialogue on state financing of the project. “As often is the case, policies and goals of different levels of governance go hand in hand. In such a large-scale project, where the political sphere prioritised issues like the climate and overall sustainable development, it is necessary for widespread cooperation to be established, both to be able to be successful in reaching the intended goals, as well as to finance the necessary infrastructure. Shared policies and visions for the future are the main reasons why this particular project could become reality,” said one interviewee. 

It therefore seems that the Icelandic governance structure allows for municipalities to influence the state level, at least when policies and priorities align. According to the interviewees, that is partly due to the small size of the country and short communication channels both between separate subject areas and between different levels within the governance structure. It should, however, also be noted that the state level has considerable influence on the municipal level when it comes to overall planning and strategic priorities. The National Planning Policy (Landsskipulagsstefna) includes the state's policy on planning matters and general considerations for guidance in municipal planning. It is intended to protect overall interests in the preparation of local plans and promote sustainable development. National planning policy also promotes coordination of state and local government policy on urban development and land use, for example with respect to quality of the built residential landscape, climate issues, protection of nature and cultural heritage, natural hazards, interaction between land use and transport, as well as the connection between land use and public health. All regional plans, municipal plans and detailed plans must also reflect the main goals that are put forward in the National Planning Policy. It may also influence government programmes on specific issues concerning land use (Skipulagsstofnun 2020; Skipulagslög 2010). Additionally, the National Planning Policy may require planned projects, such as guidelines or development projects, to implement certain policy objectives, such as the Agreement on Transportation in the Capital Region. Since the state policies put forward in the National Planning Policy are mainly implemented through regional, municipal and local plans, there are naturally synergies between the policies and plans at the two different governance levels.

“In developing a project like Borgarlína, the municipalities and the Association of Municipalities in the Capital Area have to have strong cooperation with state institutions like the Planning Agency. That, along with the fact that it is not just a matter of the Reykjavík area but Iceland as a whole, makes it possible to make progress,” said another interviewee, adding that it was also critical that a large part of the road system in and around the city is defined as national roads and therefore as the state’s responsibility: “In this instance, policies, national commitments on the climate, emission goals and the priorities of the municipalities go hand in hand. And although it is an expensive venture, all relevant actors see it as a good investment for the future.”

Once the agreement between the municipalities in the Capital Area and the state was signed in autumn 2019 and the new National Plan on Transport (Samgönguáætlun 2020) was adopted by the Parliament in summer 2020, a public company for development of transport infrastructure in the capital area was formed. The company Betri samgöngur was given the formal role of overseeing the development of Borgarlína and construction of transport infrastructure in relation to the transport agreement in the Capital Area. For the specific task of overseeing investments in transport infrastructure in and around Reykjavík, a public company, co-owned by the relevant municipalities and the state, was created. By choosing to establish a public company, the state was able to hand over assets to the company that were to be used as investment for the project. The asset in this instance was a piece of land called Keldnaland on the outskirts of the City of Reykjavík, which was then to be sold to fund the development of a dense, mixed, diverse and carbon-neutral new urban quarter (Reykjavíkurborg 2023).

Land previously owned by the state was taken over and a permit was introduced in the Transport Agreement to collect so-called rush and congestion fees, which would provide close to half the planned cost (Samgönguáætlun 2020; Lög nr. 81, 2020). A special task office for the project, with considerable expertise on the subject, was also established at the government institute of Icelandic Road Administration (Vegagerðin) since it would be involved in much of the planned construction work. The task force is required to review the existing public transport route system, complete the preliminary design for Borgarlína, make cost estimations and plan work and the preparation of environmental assessments in order to launch the overall project design and prepare for the construction phase (Borgarlínan 2019).

The process of transforming the transport system in Reykjavík was therefore initiated at the municipal level but in later stages governmental institutions and ministries have played a large role in leading the project and organising it. Overall, the project has been made possible by cross-sectoral cooperation, as well as collaboration between administrative levels.

Since the Borgarlína project is an extremely large-scale project and is a single initiative that is not based on applications to a national fund that regularly funds sustainable urban development projects or supports municipalities in their strategic planning work on sustainable urban development (such as partnership building or knowledge sharing), experiences from the project can only provide a limited picture of the need for further state support. During interviews for the case study, however, the interviewees expressed the view that more state funding for urban development projects is needed in some cases. “What the Borgarlína project has taught us is that widespread cooperation between municipalities and the state can achieve great outcomes. In general, the policy field between public actors has been better coordinated in recent years. That means shared goals, shared interests and therefore better groundwork for cooperation,” said one interviewee, while another noted that in recent decades more tasks and responsibilities had been shifted from state to municipal level: “These tasks cannot be fulfilled if the necessary funds do not follow, and it also calls for clearer policies and guidance.”

Introduction of the National Planning Policy in 2016 was therefore an important top-down policy tool from the national level since it is mainly implemented through local plans at the municipal level. “When urban development projects are well aligned with the National Planning Policy and other political priorities, e.g. matters related to the climate and environment, there is good groundwork for more cooperation between the state and local level on such projects. If the necessary projects are to take place, funding is needed, and since the municipalities in Iceland are numerous and have few inhabitants, their financial status is also limited. That is where the state needs to come in.”

Overall, there seems to be a lack of financial resources at the municipal level in Iceland, as reflected in recent statements by the Association of Municipalities. Its most recent strategic plan states that there is a deficit in the everyday operations of both large and smaller municipalities, along with uncertainty regarding their sources of income (Samband 2022). The main cause of the revenue mismatch lies in projects that have been transferred from the state to the municipalities in recent years without the adjustment of funds needed to perform such services. That means that normal operations can barely be sufficiently financed, so funds for investments in sustainable and green urban development projects come secondary to providing basic services.

Newly adopted laws on public finances are said to have had a positive influence on certain aspects of the economic situation of municipalities and contributed to long-term thinking. Those laws provide for a more holistic planning framework for public finances, both in the long and short term, while also creating conditions for the integration of goals into the economy and finances of the public sector as a whole, including the municipal level, which was not the case some years ago (Alþingi 2015). Nonetheless, the majority of municipalities in Iceland have had a deficit in the past years (Samband 2022) so more state finance is needed, both in general and for special initiatives like sustainable urban planning projects.

The Borgarlína rapid bus system is the result of extensive and close cooperation between the municipalities in the Capital Area, based on analyses of the future of transport in that region. The state and the municipalities share the view that it is a cost-effective and environmentally sensible way to increase transport capacity between the municipalities around Reykjavík and to enable them to respond to the increase in population without increasing the load on the main road system to the same degree. That aligns with international, national and local political priorities, enabling the collaboration needed to make the project reality, with the largest share of the costs provided by the state.

In the case of Iceland, there is no formal programme or fund that the municipalities can apply for when it comes to sustainable urban development initiatives. Rather, projects related to green urban planning can be implemented on an individual basis in agreement between a municipality or group of municipalities and the state, providing the initiative meets the overall policy goals of the government. That of course has many limitations. It calls for lobbying on behalf of the local level and it requires the government level to take note and be willing to cooperate. That takes both time and resources, which are rather scarce in Icelandic municipalities. A more formal and institutionalised way of obtaining governmental funding for local sustainable urban development projects would therefore certainly benefit the municipalities and level their opportunities for obtaining such support since they differ considerably in their resources, knowledge and ability to influence state institutions and the government.