This paper develops a system dynamics model of Iceland's energy sector (UniSyD_IS) that is based on the UniSyD_NZ model of New Zealand's energy economy. The model focuses on the energy supply sector with endogenous representation of road transport energy demand. Equilibrium interactions are performed across electricity, hydrogen, biofuels, and road transport sectors. Possible transition paths toward a low-carbon transport in Iceland are explored with implications for fuel demand, greenhouse gas (GHG) emissions and associated costs. The consumer sector simulates the long-term evolution of light and heavy-duty vehicles through a vehicle choice algorithm that accounts for social influences and consumer preferences. Through different scenarios, the influences of four fundamental driving factors are examined. The factors are oil price, carbon tax, fuel supply-push, and government incentives. The results show that changes in travel demand, vehicle technologies, fuel types, and efficiency improvements Can support feasible transition paths to achieve sufficient reduction in GHG for both 4 C and 2 C climate scenarios of the Nordic Energy Technology Perspectives study. Initial investment in supply infrastructure for alternative fuels will not only mitigate GHG emissions, but also could provide long-term economic benefits through fuel cost saving for consumers and reduced fuel import costs for government. (C) 2014 Elsevier Ltd. All rights reserved.