That's not the only damage hydroelectric does. The damns normalize naturally occurring floods with a view to maximizing electricity production, and material that would have been carried to sea gets trapped behind the dam.
In a traditional hydroelectric generator, yes. Norway has the advantage of numerous, steep cliffs and waterfalls. It is my understanding that the Norwegian HEG's are placed in the middle of the waterfalls, so that no dam is necessary...
That's hardly ever the case, and would be quite inefficient unless the waterfall provides the same amount of water all year.
Most hydroelectric power in Norway are generated with the help of a reservoir, usually a natural lake that's been regulated with the help of a relatively small dam, but there are some wholly artificial ones as well, the biggest one being 84 square km.
That said, yes - the environmental impact is small. It also helps that the Norwegian population is very small.
