Iceland has the world’s most ambitious goal for reducing greenhouse gases: It wants to wean itself entirely off petroleum. Until recently, Icelanders believed that using hydrogen as a vehicle fuel would offer an environmentally responsible alternative to petroleum.

Last week, took a drive through Reykjavik in one of 10 hydrogen-fueled Toyota Prius hybrids, offered as part of Hertz’s Reykjavik rental fleet.

The world’s first hydrogen filling station for cars, opened in 2003, sits on a six-lane beltway on the Vesturlandsvegurin highway on the eastern outskirts of Reykjavik. But only 13 vehicles in the entire country use the hydrogen pumps, according to a report last week in the Reykjavik Grapevine, an English-language alternative weekly. Ten of those are Hertz’s rental cars, developed by California firm Quantum Technologies.

More recently, Icelanders themselves have become cynical about hydrogen power—especially now that Mitsubishi plans to market a fully electric car there by 2010. A pilot program that put Daimler-manufactured, hydrogen-powered buses on Reykjavik streets ended in 2007, and likely won’t get repeated. At issue: The inefficiency of making hydrogen itself, which takes an enormous amount of electricity to create a relatively small amount of fuel.

Hertz Hydrogen Prius

Hertz’s hydrogen-powered Priuses—available for around $300/day—make for an intriguing drive through the spectacular landscapes around Reykjavik.

Debates about energy aren’t academic in Iceland, which brings a slightly schizophrenic outlook to the table. On the one hand, the country’s love affair with SUVs and large automobiles has produced the world’s highest average vehicle emissions. With a population of 300,000, Iceland also tops other nations—including the US—in passenger cars per person.

On the other hand, Iceland can claim the world’s most forward-thinking energy policies. More than 80 percent of energy here already comes from renewable sources, against roughly 15 percent at most in parts of the US. The government has pledged very publicly to rid Iceland of fossil fuels by 2050. Geothermal heating already warms most of Reykjavik’s homes and businesses. Downtown parking is free for biogas- and ethanol-powered cars; multi-fuel pumps are becoming more common. Three electric charging stations already serve greater Reykjavik—mostly for electric scooters, bikes, Segways, and the five electric cars that now tool around the city. To encourage buyers, the government even plans to eliminate import and value-added taxes on Mitsubishi’s electric car when it hits the market.

Until then, Hertz’s hydrogen-powered Priuses—available for around $300/day—make for an intriguing drive through the spectacular landscapes around Reykjavik. The car looks and feels like a conventional Prius, but with a few obvious differences. On the outside, the back bumper boasts a diamond-shaped green “HYDROGEN” sticker, along with a flag from Quantum Technologies.