Earlier ideas on the harnessing of glacial rivers to the north of Vatnajökull glacier assumed that the rivers Jökulsá í Fljótsdal and Jökulsá á Dal would be harnessed separately.
This arrangement would have meant two reservoirs, the former in Jökulsá í Fljótsdal at Eyjabakkar and the latter in Jökulsá á Dal at Háls. In the Kárahnjúkar project, however, both rives are harnessed in one power plant. This means that it was possible to withdraw from the controversial reservoir at Eyjabakkar and that the Hálslón reservoir will serve both rivers.
An extensive assessment of the environmental impact of the Kárahnjúkar project was completed in 2001 with a ruling by the Minister for the Environment. An enabling Act before the Althingi was approved with a significant majority in 2002, and the Minister of Industry issued a power development licence later that same year. Construction permits were issued by the municipal authorities in Nordur-Hérad and Fljótsdalshreppur in February 2003.
Energy supply contracts were signed with the US-based aluminium company Alcoa in March 2003. Road construction and other preparatory works started in late 2002, while actual construction work on the project began in spring 2003, as soon as the power contracts had been signed.