This has to be one of the most ridiculous things I've read on this forum.
Firstly; few people in Iceland actually eat whale any more. It's mostly the older generations, and the younger ones who are used to more "western culture" shy away from it. Icelanders often lived in turf houses before WW2; that reflects the kind of stark reality of living in Iceland - it's cold, wet and difficult to get food (very difficult to grow crops in Iceland). Sheep and fish/whale were primary foods, and remain a core part of the diet today. With a population so small, whaling in previous days was necessary; even today with airplanes, shipping in food meant McDonalds meals were so expensive (all ingredients were air freighted in from Germany rather then using local produce) that McD withdrew from Iceland. Use what you have locally. Whalemeat used to be an important and essential part of Icelandic diet. Sheep are can often die in the middle of winter in snowfall (rescue teams to save sheep caught in snow are not uncommon in Iceland). When winter comes, and you're short on food and going hungry, a whale is an important lifesaver.
Next; deforestation happened a long time ago. The Vikings cut down the trees; I don't think environmentalism really existed then to a large degree. Iceland is so far north, that trees take bloody ages to grow. There's been a large *reforestation* project occuring in recent years; however because of the speed trees grow at in Iceland, they are still small. There's an Icelandic joke "if you are lost in a forest in Iceland, then just stand up". The trees are that short frequently, and often you'll see them mostly in areas protected from the high winds (behind slopes in the land).
Next; Iceland is big. Like really big. It's a little bigger then Maine state. With only 300,000 people today, and less then 100,000 before 1900. Making some hydroelectric dam in the far reaches of the country, where hardly anyone goes to generate huge amounts of electricity for the country is a great use of natural resources - within reason. Iceland generates all of it's electricity from green and renewable sources - I don't think most countries could even come close to that.