With its geysers and steam vents, and vast barren lava fields, there's an "otherworldly" feel to the country of Iceland. Yet to some, this island nation is a bit of a paradise on Earth.

True, it's as likely as not to snow on the first day of Icelandic summer, and even on the warmest days, much of the island is inhospitable. But sitting atop one of the world's most active volcano fields, the Nordic nation has more readily available, renewable energy resources than any other place on Earth. And by tapping into those hydro and geothermal sources, Iceland hopes to become the world's first hydrogen economy.

A city bus pulls up to a stop near the harbor on the north side of Reykjavik, the country's capital. The calm waters shelter what is not only the largest fishing fleet in the world, but also Iceland 's biggest consumer of imported petroleum.

A gaggle of tourists disembarks, on their way to a morning's whale-watching expedition. As the last steps clear, the driver hits the throttle and the bus pulls off, a plume of steam erupting from its tailpipe. There'll be a brief detour, as he heads for a Shell station a few miles away. At first glance, it might look like any other service station, but a closer look suggests there's something a bit different about the nozzle the driver is connecting to his bus.

The clue can be found on the sign overhead; this was, in fact, the world's first public hydrogen filling station when it went into operation three years ago. It services three hydrogen buses that serve Reykjavik, along with the city's conventional diesel jitneys.

"Our goal is to eliminate oil imports to Iceland entirely within two decades," says Bjarni Bjarnason, an executive vice president at the industry/government consortium, Icelandic New Energy, or INE. "It is a goal that we believe is achievable," he says with enthusiastic conviction, adding that, "If it is not achievable in Iceland, it is not achievable anywhere."

Right now, Iceland is still heavily dependent on oil. It fuels not only the fishing fleet, but the country's trucks and automobiles; indeed the country has more cars per capita than anywhere in the world, but for the United States . But while there are still a few stubborn farmers "off the grid," and dependent on oil for heat, virtually all of Iceland's heat, hot water and electricity come from two renewable sources: hydro-power and geothermal.

The Shell station uses a process known as electrolysis to produce its fuel, electric current splitting water into its basic components: two parts hydrogen, one part oxygen, the latter vented into the atmosphere.

Electrolysis is an energy-intensive process, in itself, and if you were to follow the wires leading out from the back of the station, they'd connect to the big towers snaking east, nearly 30 kilometers into the country's rugged interior. Just outside the capital city, the high-voltage towers pair up with a meter-wide pipeline. Past a vast glacier, they weave and bob, around hills, through valleys, and cuts in ancient lava flows.

As they approach the source, one can spot steam pluming into the sky. Some are natural vents, hinting at the violence roiling deep beneath the rocky soil. But as you get closer, you discover other plumes coming from a squat, white building, tucked neatly into a small valley, where workers have long gotten used to the feeling of minor tremblers rocking the ground, sometimes more than 100 in a single day.

The wells at Nesjavallir straddle the Mid-Atlantic Ridge, the place where the North American and European tectonic plates are slowly tearing apart. Gradual, though it might be, the process creates hellacious heat. The groundwater, trapped as much as 5,000 feet straight down, can run up to 235 degrees Celsius, (455 degrees Fahrenheit). Pumped to the surface, it spins Nesjavillir's electric turbines and heats the water piped to Reykjavik and other nearby communities.

Today, even with the oil needed for boats, cars and airplanes, 72 percent of Iceland's energy comes from hydro or geothermal sources. These sources provide nearly all of the nation's heat and hot water, along with electricity for homes and shops, as well as Iceland's new aluminum smelters -- and the Shell station in Reykjavik.

Yet so far, less than 20 percent of the country's available, renewable resources have been tapped. Perhaps less, it turns out, says INE's Bjarnason. New technology, part of the Icelandic Deep Drilling Project, is pushing thousands of feet deeper, where the water, under immense pressure, can hit 550 degrees Celsius, or 1,000 Fahrenheit. Where a current geothermal well might provide five megawatts of power, the IDDP wells could push 50 megawatts.

"Our population is not growing fast enough to use all this electricity," Bjarnason explains. What to do with it? The energy-intensive aluminum industry is one application. Another is hydrogen production -- not just for Iceland, but perhaps for the rest of the world.

"We could have a good business exporting hydrogen," suggests one senior government minister.

There's a problem, though, or several of them, to be more precise. While Iceland may have the means and the power to create hydrogen, there's no market for the gas. Though there's plenty of progress being made -- as demonstrated by Reykjavik 's hydrogen bus fleet, widespread commercial use is still "years away," according to Larry Burns, research director for General Motors.

Like most of its competitors, GM is racing to come up with competitive hydrogen-powered vehicles. Its latest fuel-cell technology is starting to approach the cost, performance and reliability of a conventional, gasoline-powered vehicle. There are still plenty of issues to be resolved, particularly the challenge of onboard storage. But Burns believes the automaker will be in a position to bring that technology to market early in the next decade. Well, maybe.

To get there requires a hydrogen infrastructure. There are also plenty of questions about how to produce the gas efficiently -- for even with its vast energy resources, Iceland can't supplant OPEC. Even if the issue of production is resolved, there's the challenge of distribution and storage. There's no easy way to get Icelandic hydrogen to potential markets right now.

And then, setting up the service-station infrastructure in a country the size of the U.S. would likely cost tens of billions of dollars. Even in Iceland , it would be a financial strain.

"We need partners," concedes Icelandic New Energy's General Manager, Jan-Bjorn Skulason, "otherwise there will be no way to create a hydrogen economy in Iceland."

With a population smaller than the city of Tampa, Fla., Iceland simply doesn't have the dollars or technical resources to go it alone. It needs to work with leaders in hydrogen technology, like GM, Shell and DaimlerChrysler, which developed Reykjavik 's fuel-cell buses. But with its abundant energy resources, most of these players are beating the proverbial path to Iceland 's shores.

And with the recent run-up in petroleum prices as added motivation, hydrogen research is clearly intensifying. Whether it can replace oil as the energy of the future is still anything but certain, but on a small rock in the middle of the Atlantic, an entire nation is hoping that it will.

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