Below are detailed responses to frequently asked questions around topics associated with peatland restoration and financial pathways to funding it. Underlined words are further explained in the Glossary.
Why restore peatland?
Peatland restoration refers to the process of actively improving the health of a degraded peatland ecosystem, to turn the peatland from a net source of carbon to a net sink over time. Restoration aims to reverse the damage caused to the peatland ecosystem by natural erosion, e.g., exposure to wind, heavy rain-fall, and desiccation, as well as human activities, e.g., drainage, peat extraction, and intensive land-use.
A directed series of restoration activities – such as ‘rewetting’, ‘revegetating’, ‘reprofiling’ and controlling land management practices – are commonly applied to progress peatlands through the category conditions (as defined by Peatland ACTION) from ‘Actively Eroding’ (the most degraded condition), ‘Drained’, or ‘Modified’ to ‘Near-natural’ (the healthiest condition).
We can evaluate the health of peatlands through observing their prominent characteristics and comparing them to four category conditions, defined by Peatland ACTION. The defining features of these catergories are detailed below:
Near-Natural:
The ‘near-natural’ peatland condition is the ideal state in terms of ecosystem health and resilience. It possesses the following characteristics:
a. Sphagnum mosses dominate the vegetation cover;
b. No known fires (prescribed or wild) within living memory;
c. Evidence of grazing and trampling is rare or absent;
d. Little or no bare peat surface;
e. Heather (Calluna vulgaris) is not dominant.[1]
Healthy peatlands provide a host of benefits, commonly referred to as ‘ecosystem services.’ As well as storing and sequestering carbon, healthy peatlands filter water and regulate its flow, important for managing floods, and supporting fisheries and drinking water supplies. Peatlands form a natural defence against wildfire and are important internationally as habitats for rare plants, birds and invertebrates.
Modified:
A peatland that has been used, for example, for grazing or peat cutting purposes is classified as a ‘modified’ peatland. It is indicated by:
a. Surface water that is rarely visible and an absence/rare presence of Sphagnum mosses;
b. Fires or a history of burning;
c. Bare peat in small patches;
d. Frequent impacts of grazing and trampling;
e. Extensive cover of heather or purple moor grass (Molinia caerulea);
f. An undesirable level of scrub which is drying out the peatland.
Drained:
A ‘drained’ peatland, as the name indicates, has undergone drainage activities in the past and is indicated by:
a. Dried out peat and reduced height of the water table;
b. Reduced sphagnum cover;
c. Erosion features, such as peat hags and gullies, drainage ditches, bare peat surfaces.
Actively Eroding:
An ‘actively eroding’ peatland is the result of long-term interventions as listed above (draining, peat cutting, intensive grazing). It is indicated by:
a. Actively eroding hagg/gully systems, with limited vegetation in gully bottoms and steep bare peat “cliffs”;
b. Extensive continuous bare peat surfaces (peat “pans”);
c. Extensive bare peat surfaces at former peat cutting sites;
d. Restoration may require a period of de-stocking of livestock and exclusion of wild herbivores.
Each category condition has a different emission factor which indicates the estimated average quantity of tonnes of CO2 emitted per hectare per year (tCO2e/ha/yr).
· An actively eroding site has an associated emission factor of 23.84 tCO2e/ha/yr.
· A drained site has an associated emission factor of 4.54;
· A modified site has an associated emission factor of 2.54;
· A near-natural site has an associated emission factor of 1.08.[2] (See Table 1 in Appendix below)
[1] NatureScot, Peatland Condition Assessment Leaflet, 2016.
[2] IUCN, Peatland Code Field Protocol v1.2, 2022. https://www.iucn-uk-peatlandprogramme.org/sites/default/files/2022-05/Peatland%20Code%20Field%20Protocol%20v1.2.pdf.
The process of peatland restoration involves several steps from planning to implementation and maintenance:
1. Assessing/Surveying Peatland Condition:
The restoration process begins with a comprehensive assessment of the peatland’s condition. This involves evaluating factors such as vegetation cover, hydrology (water levels and flow patterns), carbon storage, and identifying any man-made features such as drainage channels or areas of peat extraction.
2. Setting Restoration Objectives:
Based on the assessment findings, restoration objectives are established. These objectives may include raising water levels, re-vegetating bare peat areas, restoring natural hydrological processes, and enhancing biodiversity.
3. Actively restoring using various techniques:
NatureScot has developed a comprehensive list of restoration techniques, available online at: https://www.nature.scot/doc/peatland-action-technical-compendium. Techniques may include:
a. Blocking drains/Rewetting – To retain water on site, raising water levels and restoring natural hydrology, ditches and drains (originally created for land drainage purposes) are blocked.
b. Revegetation – Native vegetation is reintroduced to the peatland to promote biodiversity and stabilize the ecosystem. This may involve planting native plant species, such as sphagnum mosses, heather, sedges, and shrubs.
c. Erosion control – Techniques such as revegetation, the use of sediment traps, and the installation of erosion barriers or geotextiles are employed to protect the peat surface from erosion caused by wind and water.
d. Grazing management – The following interventions might be considered: appropriate livestock grazing regimes, e.g., patterns of grazing; whether winter grazing is permissible on the restored area for X number of years post-restoration; stocking density of cattle and/or sheep, implemented to maintain vegetation diversity, control the growth of invasive plant species and, as far as possible, maintain and help manage the restoration process.
e. Monitoring and adaptive management – Regular monitoring is crucial to assess the progress of restored peatlands and make any necessary adjustments. Monitoring involves measuring changes in vegetation composition, water levels, carbon storage, and other relevant indicators. Adaptive management allows for the modification of restoration strategies based on monitoring results which highlight what is/is not working, and improves the likelihood of long-term success.
Globally:
Peatlands are unique ecosystems that, despite only covering approximately 3-4% of the planet’s land surface, contain up to one-third of the world’s soil carbon, and twice as much carbon as is held in the world’s forests. Keeping this carbon locked away is critical if we are to prevent extreme climatic warming. However, approximately 12% of the world’s peatlands have been drained or damaged in some way, contributing to 4% of annual global human-induced greenhouse gas emissions[1]. The biggest threat to peatlands worldwide is agriculture, where peatlands are drained to create drier land for farming. Infrastructure projects, commercial forestry and peat extraction for fuel and horticulture cause further extensive damage[2]. Global warming increases the risk of fires, especially in highly flammable drained peatlands. Peatland fires can burn for months, sometimes undetected underground, releasing vast amounts of CO2 and causing dangerous pollution. As decreasing carbon emissions is key to climate change mitigation, peatlands are now of global political importance.
Scotland:
Peatlands cover one fifth of the Scottish landscape and store an estimated 1.6 billion tonnes of carbon – equivalent to more than 140 years of the country’s greenhouse gas emissions[3]. An estimated 80% of these peatlands are considered degraded by activities including heavy grazing and drainage, for agriculture and forestry. As part of its net-zero strategy, the Scottish government announced in 2020 that it would invest £250 million in peatland restoration over the next 10 years, to restore 250,000 hectares by 2030[4]. Ensuring that Scotland’s peatlands transform from being emitters of carbon to environments that sink and store it, is of key importance, for mitigating climate change, and for creating resilient ecosystems which can continue to provide habitats for wildlife, and to provide us with resources for our animals and ourselves. Restoration will enable this transformation.
[1] https://www.unep.org/resources/global-peatlands-assessment-2022
[2] https://grid-arendal.maps.arcgis.com/apps/Cascade/index.html?appid=84864644c50f4c048562cf6cec58aa43
[3] https://soils.environment.gov.scot/resources/peatland-restoration/
[4] https://www.nature.scot/climate-change/nature-based-solutions/peatland-action
How do I finance peatland restoration?
The most common pathway to finance peatland restoration so far has been to apply for public funds via the Peatland ACTION programme. This governmental grant scheme funds the full capital costs of the initial restoration works and the setup of a ten-year maintenance contract signed by the land-managers and landowner jointly. This maintenance contract is to prevent anything that would deliberately undermine the condition of the peatland after the initial restoration work is completed, including peat-cutting and muir-burning, but does not affect grazing unless it is intensive. The activities of Peatland ACTION are delivered in partnership with NatureScot, the Cairngorms National Park Authority, Loch Lomond & the Trossachs National Park Authority, Scottish Water, and Forestry and Land Scotland. Peatland ACTION is non-legislative, which means it is not a conservation agency or in the business of establishing protected areas.
Peatland ACTION supports landowners/land-managers throughout the whole restoration process. It provides the initial peat depth and peat condition surveys; hydrological surveys; offers support with funding applications (which can be over several phases/several years); lines up contractors to do the work and supports throughout the delivery of works on the ground.
The contractors are paid initially up front, the grant money is awarded afterward. The grant money arrives quickly and alleviates any capital management risks.
· Project start: 2019
· Project area: Phase 1, 11 hectares (2019-2021). Phase 2, 20+ hectares (2021-2022). Phase 3, 20 hectares (2023-).
· Stakeholders: Ranish Common Grazings, Scottish Water, Soval Estate, Peatland ACTION.
· Techniques used: Re-profiling peat hags, blocking drainage ditches, stabilising vegetation around the edge of the loch.
· Benefits of the restoration: Reduce water-treatment costs in the local catchment (preventing peat run-off into the loch), reduce greenhouse gas emissions and create a carbon store, protect the loch habitat for two of Scotland’s protected species: the Black-throated diver and Great skua.
Allan Iain MacLeod, of the Ranish Grazings Committee, says:
“Peat cutting has been a part of our life for my lifetime, and the generations before me as well. You went out to do it with your neighbour and your neighbour came out with you and regardless of how many in the household, everybody in the household was involved.
When we cut the peat, you’re left with this bare land part of it and if you have running water running off it, the silt will then make its way through the water course naturally into the reservoirs.
Scottish Water explained to us exactly what they were wanting to do and how they were trying to do it, and we decided that we would like to take the opportunity to move forward with them to try and improve source water quality – if it reduces the amount of dirty run off, it costs them less to produce the water that we drink.”[1]
[1] https://www.scottishwater.co.uk/About-Us/News-and-Views/2021/11/021121-Lewis-peatland-projects
A second finance stream for peatland restoration is associated with the Peatland Code. This is a UK government-backed scheme that allows landowners to register their damaged peatland and to sell the carbon units saved through the restoration of it on the domestic, voluntary carbon market. Registering with the Peatland Code provides no financial backing itself; it is an accreditation service which provides assurances to buyers of carbon credits that the registered peatland is on-track for restoration, or has been restored, and therefore that the carbon credits sold in association with the restoration activities are “real, quantifiable, additional and permanent.”[1] Landowners or project developers with Peatland Code accreditation can sell their carbon credits on the UK Land Carbon Registry, a public online database connecting sellers with those seeking to buy carbon units. Buyers of carbon credits can range from small businesses, governments, global corporations or even individuals looking to ‘offset’ their carbon emissions generated from other investments, travel or polluting activities, so long as they are registered as residing in the UK (to satisfy the ‘domestic’ element of the Code).
Examples of project design documents can be found on the UK Land Carbon Registry.[2]
[1] https://www.harpermacleod.co.uk/insights/monetising-the-natural-capital-benefits-of-peatland-restoration/
[2] https://mer.markit.com/br-reg/public/index.jsp?entity=project&sort=&dir=ASC&start=0&acronym=PC&limit=15&additionalCertificationId=&categoryId=100000000000001&srd=false&name=&standardId=100000000000157
· Project start: 2018
· Project area: 249.08 hectares
· Stakeholders: Lochrosque Estate, Angus Davidson Ltd, Scottish Water, NatureScot, SEPA.
· Techniques used: Reprofiling peat hags and gullies, raising the water table, extensive installation of timber and peat dams.
· Summary: This is a ‘blended finance’ project (explained below). It is extremely uncommon to find Peatland Code projects that do not utilize Peatland ACTION grant-funding to fund the restoration work and supervise contractors for the project. The sale of carbon credits is expected to supply 20.64% of the overall project costs over the 100 year duration. £4980 is collected annually by the estate at a rate of £20 per hectare through AECS. Livestock farming and deer stalking also contribute to the finances of the estate. It was stated in the project design document that without carbon finance, the estate would incur costs in relation to monitoring and remedial works over the project timeframe. This passes the additionality check.[1]
Pros:
· Potentially high return on investment (ROI) from restoring actively eroding sites with a high emission factor to a ‘drained’ or ‘modified’ condition.
· Project timescale introduces liabilities to the landowner for maintaining peatland condition over the long-term.
· Larger hectarage site restored.
· Will improve water quality in the local catchment.
Cons:
· A 100-year project duration passes contractual liability to maintain the restored peatland onto future landowners or inheritors.
· The estate had no agricultural tenants or crofters, and it is unclear how the Peatland Code contract would pass onto tenants or crofters were they to be introduced to the estate. Financial and bureaucratic complications could fix sole landownership for the full project duration.
· Poor financial governance can lead to the front-loading of financial benefits in the present generation: the sale of all PIUs at the start of a project can saddle future generations with a stranded asset. Stranded assets no longer provide revenue but must still be maintained with ongoing liability.
[1] For a brief summary see: https://www.caledonianclimate.com/peatland-projects
Blended Finance refers to the use of public funds to encourage additional buy-in from private investors, i.e., through public finance de-risking or taking on the initial restoration costs. The initial restoration costs are often high in the case of peatland restoration, so public funding taking on this financial burden encourages private finance to ‘buy-in’ and cover remaining costs with the expectation of securing profit from carbon credit sales. Alternatively, private investors may look to take on the role of ‘carbon broker’, meaning that in return for providing finance, investors look to sign a contract with the landowner which awards them with some or all of the rights to the carbon credits. The investors as a broker would then manage the selling of credits.
A ‘blended’ model could entail using Peatland ACTION funding, or other public, charitable or philanthropic funds, to finance the 85% of the total project costs required for Peatland Code eligibility. Carbon income could then be used to finance ongoing maintenance costs.
Peatland ACTION could therefore perform the initial restoration work (including hiring and training contractors) with up to 100% public funding, whilst generating carbon credits from the peatland restoration through registration with the Peatland Code. Currently, for landowners pursuing Peatland Code registration, this is overwhelmingly the route taken to avoid the financial burden of the initial restoration work and employing contractors. Peatland ACTION still implement their ten-year maintenance plan, with follow-up visits to the restored site and completing any extra contractor work or remediation that is deemed necessary. After ten years, the site then fully follows the Peatland Code protocol for the full project duration.
· Project start: 2017
· Project area: 119.89 hectares
· Stakeholders: Achnacarry Estate, NatureScot (Peatland ACTION), SEPA.
· Techniques used: Reprofiling, installation of peat and timber dams.
· Summary: Peatland ACTION provided the grant and supplied the contractors for the initial restoration work using Angus Davidson Ltd as the contractor. Peatland ACTION’s ten-year maintenance period was put in place followed by Peatland Code registration to generate PIU’s from the restoration. The only activity in the project area was deer stalking, with no crofters or tenant farmers and a sole landowner.
Pros:
· Peatland ACTION or other public funding can help meet the initial maximum of 85% of total project costs coming from sources other than carbon credits, necessary for the financial feasibility eligibility check for Peatland Code registration. This concentrates revenue from carbon credit sales with the landowner rather than paying back private loans and investors.
Cons:
· As restoration pursued through a blended finance model still entails Peatland Code registration, it inherits all of the cons identified with the private finance model above, with the exception of the investor repayment component (associated with covering initial restoration costs) of the privately financed model.
What about carbon credits?
A carbon credit is a ‘tradeable certificate’ that always corresponds to 1 tonne of CO2 that can be purchased or sold on carbon markets. The ‘certificate’ or ‘security’ for a carbon credit can be provided through the Peatland Code’s accreditation process. The Peatland Code verifies that the project will generate carbon credits through peatland restoration and, importantly, that the restoration could not have happened without the introduction of carbon finance. This policy is what is called additionality.
Peatland-generated carbon credits (hereafter ‘peatland credits’) are split into two different units:
PIUs (Pending Issuance Units): The ‘promise to deliver’ a PCU at a given point in the future. At the beginning of the project, the landowner will be awarded all of the PIUs up front, which represent an estimate of the total avoided emissions in tonnes of CO2 resulting from restoration. The PIU is a tradeable carbon credit and can be sold on carbon markets. It has a lower value than a PCU (explained below) because it is a ‘promised’ unit and thus higher risk. In five to ten yearly blocks, an independent verifier visits the restored peatland to declare how many PIUs have transformed into PCUs. The amount of PIUs that transform into PCUs in a given 5-10 year block is called a ‘vintage’.
PCUs (Peatland Carbon Units): The avoidance of 1 tCO2e emitted to the atmosphere through the restoration of peatland environments. Upon verification, PIUs transform into PCUs.
When you register your peatlands with the Peatland Code, inputs to the Peatland Code calculator will determine the volume of emissions your peatlands are generating pre-restoration (related to peatland area and depth), and the volume they would likely generate post-restoration. The difference in emissions between these two totals is a quantity of ‘tonnes of CO2 equivalent’ (tCO2e) and is translated into carbon credits, which represent the number of carbon units, i.e., emissions, ‘saved’ through restoration, over the full project timescale. These emissions are called ‘avoided emissions’, as the restoration has prevented CO2 from being released into the atmosphere. These are contrasted to ‘removed emissions’, which reflects the situation where a healthy, near-natural peatland is sequestering carbon, i.e., removing it from the atmosphere. The Woodland Code, the equivalent accreditation process for forest-based projects, has a method of measuring ‘removed emissions’ through tree growth.
Thinking back to the emission factors, restoring an actively eroding site to a drained site equates to a change in emission factor from 23.84 tonnes of CO2 emitted per hectare per year to 4.54 tCO2e/ha/ya. This results in an avoidance of 19.3 tonnes of CO2 emissions per hectare per year from being emitted into the atmosphere. This difference in emission factors is multiplied by the area and depth of the peatland to calculate a quantity of tCO2e that will be held in the restored peatland over the period it would have taken to be emitted under business as usual, in order to determine the amount of carbon credits resulting from restoration interventions over the full project timescale.
The difference in emission factors between ‘drained’ and ‘modified’ peatlands is significantly smaller: 2 tonnes of CO2 equivalent per hectare per year difference, as the average emissions change from 4.54 tCO2e/ha/ya to 2.54 tCO2e/ha/ya with improvement in the category condition of the peatland. What this highlights is that there is more ‘bang for your buck’ (i.e., more carbon credits available per unit area) in restoring actively eroding sites (which have the highest emission factor) to a ‘drained’ condition than in restoring a ‘drained’ peatland to a ‘modified’ peatland.[1]
Table 1 (see Appendix below) demonstrates how the standard protocol, i.e., emission factors, that the Peatland Code uses to quantify the volume of carbon emissions associated with each peatland category, incentivises the restoration of highly degraded peatland sites over healthier ones, or “restoration for profit”. There is a concern that this may incentivise poor management of peatlands prior to registering with the Peatland Code, in order to maximise the revenue from restoration activities that provide more immediate results, as evidenced through a change in category condition. At present, landowners that previously heavily drained, afforested or damaged peatlands stand to gain the most from registering with the Peatland Code.
To avoid double counting, all projects, including documentation, and carbon units should only appear on one carbon registry – the publicly accessible UK Land Carbon Registry. On project validation, all PIUs for the project will be listed corresponding to the total amount of avoided emissions over the full project timescale. (See details below on project timescales.) PIUs sold in advance of verification shall either be transferred to the relevant buyer’s account or ‘assigned’ to that buyer. At each verification PIUs for that vintage shall be cancelled and the verified number of Peatland Carbon Units (PCUs) issued.
[1] IUCN, Peatland Code Field Protocol v1.2, 2022. https://www.iucn-uk-peatlandprogramme.org/sites/default/files/2022-05/Peatland%20Code%20Field%20Protocol%20v1.2.pdf.
Not all peatlands under restoration are currently eligible to be registered with the Peatland Code due to the eligibility criteria, summarised in Table 2 (see Appendix below). In the Peatland Code Field Protocol v1.2 [1], peatlands considered to be in the ‘modified’ category condition are ineligible for restoration, but can be included as a part of a project area which comprises areas of deeper peat, so long as the median peat depth does not fall below 30cm. However, “engaging with Peatland Code on land in the ‘modified’ base condition category could be interpreted as taking on a prior obligation, depending on the restoration program being delivered. This could affect the eligibility of land for other agri-environment schemes” (IUCN, Peatland Code v2.0 [2]). Crofters should therefore seek advice before including areas of ‘modified’ peatland within Peatland Code-registered projects to find out whether registration could interrupt or obstruct AECS payments.
In addition to eligibility, projects must consider technical feasibility, financial feasibility, legal ownership of the land, evidence of consultation, passing an additionality check, and the ability to supply a management plan and a monitoring plan for the project duration. The most up-to-date information regarding whether your peatland site qualifies for Peatland Code registration can be found at Peatland Code V2.0[2]. Examples of successful project design documents are available on the UK Land Carbon Registry[3].
The Peatland Code protocols refer to the same category conditions as Peatland ACTION when it comes to surveying peatlands, assessing technical feasibility of and setting restoration objectives. Peatland eligibility for Peatland Code accreditation is checked against the Peatland Code Field Protocol v1.2[1].
[1] https://www.iucn-uk-peatlandprogramme.org/sites/default/files/2022-05/Peatland%20Code%20Field%20Protocol%20v1.2.pdf
[2] https://www.iucn-uk-peatlandprogramme.org/sites/default/files/2023-03/Peatland%20Code%20V2%20-%20FINAL%20-%20WEB_2.pdf
[3] https://mer.markit.com/br-reg/public/index.jsp?entity=project&sort=&dir=ASC&start=0&acronym=PC&limit=15&additionalCertificationId=&categoryId=100000000000001&srd=false&name=&standardId=100000000000157
The aim of a Peatland Code-registered project is to improve the health of a peatland, through restoration activities (see FAQ: How is peatland restoration done?), and specifically to enable the peatland to improve by one category condition, to a category with a lower associated emission factor, i.e., transitioning from a ‘drained’ to a ‘modified’ state. Importantly, Peatland Code protocols stipulate that only restoration projects which constitute an “immediate category change” are eligible (e.g., projects that involve the blocking of drains), with the exemption of projects carried out in peatlands classified as ‘modified bog’[1]. This is because the primary restoration activity on a modified bog is rewetting and changing the vegetation composition (i.e., encouraging the recolonisation of Sphagnum mosses) which takes time: vegetation will not change immediately following restoration. Therefore, “projects will not receive Pending Issuance Units (PIUs) from the start date of the project for this baseline condition, but only from the date the independent verifier deems the condition to have moved to rewetted modified bog based on a verification site visit”. These site visits happen in the first year, the fifth year, and every ten years after that.
These are important points to consider as the majority of common grazings land likely qualifies as being in a ‘modified’ condition, except certain uncommon patches of eroding peatland historically used more intensively for grazing or peat cutting. The design of a restoration project should consider how much ‘modified’ peatland is to be included in the proposal based on the above. Future versions of the Peatland Code may provide revised guidance on the restoration of modified peatlands.
The way in which restoration projects registered with the Peatland Code are currently designed and evaluated, following the Code’s project design template, can lead to partial restoration. Let us consider the accepted project design of the Private Finance Case Study above, Achnacarry Estate, in more depth. Table 3 (see Appendix below) is taken from the Peatland Code Emissions Calculator, which calculates the difference in emission factors between the ‘pre-restoration’ and ‘post-restoration’ category conditions, based on an improvement in condition by one category. The Achnacarry Estate’s accepted proposal includes approximately 120 hectares, with some 14 hectares considered ‘actively eroding’, and 106 hectares considered ‘drained’. The peatland credits awarded for the project refer only to the change in category condition, i.e., from actively eroding to drained (12.75 hectares), and from drained to modified (107.14 hectares).
What this means in practice is that the landowner can choose to limit restoration activities to the point where they have improved and are maintaining the ‘actively eroding’ areas in a ‘drained’ condition, and the separate ‘drained’ areas in a ‘modified’ condition, for the full project timescale of 100 years. If the landowner wanted to continue restoring the site to a ‘near-natural’ condition, claiming further credits from that restoration, this would have to be part of a separate project. They have no obligation to do this, and arguably less incentive, as there are fewer credits to claim the healthier the condition category they manage to restore the peatland to. The peatland may recover naturally (i.e., without restoration interventions) beyond the official target post-restoration state, but the claimable credits only refer to the change from one category condition to another, i.e., ‘actively eroding’ to ‘drained’, or ‘drained’ to ‘modified’.
This current project design and incentive structure does not encourage continued restoration to achieve the optimal category condition in many cases, but instead incentivises, for example, landowners/project developers to ‘maintain’ a peatland in a drained condition for 100 years. As mentioned previously, restoring peatlands to a ‘near-natural’ condition is an important target to have, as it is only in this state that the peatland starts to sequester carbon and create more peat, thereby acting as a carbon sink.
[1] https://www.iucn-uk-peatlandprogramme.org/sites/default/files/2023-03/Peatland%20Code%20V2%20-%20FINAL%20-%20WEB_2.pdf
Peatland Code projects, in order to be eligible, must pass an additionality check[1]. In practice, this means that without the introduction of carbon finance (i.e., the sale of carbon credits), a restoration project would not have taken place in a ‘business as usual’ scenario, principally due to a lack of funding/motivation for these ‘additional’ restoration activities. The additionality check is comprised of two ‘tests’:
1. Legal compliance: A restoration project passes the legal compliance test when there are no binding legal or contractual requirements for the peatland to be restored prior to registration with the Peatland Code. Assuming that the restoration would not have proceeded in a ‘business as usual’ scenario, the emission reductions entailed by the restoration are considered ‘additional’ and so can be traded on the carbon market.
2. Financial feasibility: The financial feasibility test aims to determine whether the project would be financially feasible without carbon finance. A peatland project passes the test when the project can demonstrate that no more than 85% of the total costs (including the initial restoration work and ongoing maintenance) over the full duration of the project are covered by income other than carbon finance. The remaining minimum 15% must come from carbon finance.
In addition to passing an additionality check, projects must present a monitoring plan, a management plan, and undergo consultation with relevant stakeholders, which must be presented prior to Peatland Code registration. Using the Peatland Code field protocol, a self-assessment of the condition of the peatlands is undertaken by those designing the project. Examples of accepted project design proposals, carbon calculations and surveys of peatland sites can be found on the public Peatland Code registry[2].
[1] https://www.iucn-uk-peatlandprogramme.org/sites/default/files/2023-03/Peatland%20Code%20V2%20-%20FINAL%20-%20WEB_2.pdf
[2] https://mer.markit.com/br-reg/public/index.jsp?entity=assignment&srd=false&name=&standardId=100000000000157&acronym=PCC&additionalCertificationId=&unitClass=&sort=account_name&dir=ASC&start=15&categoryId=100000000000001
Peatland Code registration entails a clearly defined project duration. The minimum project duration is 30 years, whilst the median project length currently stands (anecdotally) at 88 years. The maximum duration is set to 100 years.
The project timescale is calculated against the depth of the peatland site. In a degraded state, peatlands decrease in depth/volume over time as they lose carbon, rather than increase through accumulating carbon, as they would in a healthy condition. A loss of 1cm per year in degraded blanket and raised bogs is assumed in any condition category that is not near-natural; therefore, a damaged peatland with a depth of 50cm would no longer be present in 50 years time if restoration were not undertaken. This sets the project timescale at 50 years, as after 50 years, assuming no restoration takes place, there would no longer be a peatland and therefore no further emissions from the site. A peatland site with a 70cm median depth would likewise be set to a 70-year project time period. These long timescales mean that most Peatland Code projects entail a generational commitment for landowners, shareholders and those liable for the peatland to remain in a restored condition. Revenue from the project and risks to future inheritors of the land/project should be factored into the overall project feasibility.
Financial governance with a view to the long-term – the full project timescale – is necessary to avoid front-loading the benefits of the project to the present generation and leaving future inheritors with a ‘stranded asset’. Climate change will likely impact on peatlands through exacerbating drying or erosion pressures, e.g., caused by drought, or heavy rainfall, and through salination from sea-level rise. These risks and liability should be considered against the project timescale.
In calculating the potential revenue of a Peatland Code-registered project, there are multiple considerations to take into account.
1. Additionality/Financial feasibility: A maximum of 85% of the total project costs (being the initial restoration work and projected ongoing maintenance costs for the full project timescale) can be funded from public/private sources. The remaining 15% must be funded by carbon finance, i.e., the credits generated by the project. Therefore a minimum of 15% of the peatland credits generated by the project will go toward paying for restoration/maintenance costs.
2. Risk Buffer: Peatland Code stipulate that 15% of the total PIUs generated from the project are set aside and kept in a ‘risk buffer’, to be used if and when the peatland regresses in its condition. This 15% is meant to cover the costs of interventions and maintenance to keep the peatland in a restored condition. This works like an informal insurance policy. 15% of the total PIUs are therefore subtracted and are not owned by the landowner directly.
3. Financial governance: Operating costs for maintaining the peatland in a restored condition may outpace the revenue generated from the sale of PIUs/PCUs, particularly in peatlands with lower associated emission factors. This is dependent on carbon market stability, price fluctuations, climate shocks and other factors. If the 15% risk buffer is exhausted in maintaining a restored condition, the landowner will be financially liable to maintain the peatland asset in its restored category condition. PIUs, as unverified peatland carbon credits, are less valuable and higher risk to purchase than PCUs, being verified emission reductions. Based on the need for sound financial governance of peatland assets over short to long timescales, it is advised that a financial advisor is consulted for all projects. This should be costed in to any projected revenue for the project.
4. Category condition: In general, the more degraded the area of peatland the more carbon credits will be generated from its restoration. It is unclear how much return on investment is possible from restoring ‘modified’ or ‘drained’ peatlands, making these projects higher risk with lower return (i.e., a high risk/reward ratio). Areas of peatland that were heavily drained, afforested or damaged in the past will likely generate the highest return from restoration registered with the Peatland Code. There may be scenarios under which landowners that have historically managed their peatlands poorly, in some cases carrying out damaging activities as a result of past Government incentives, stand to gain the most from peatland credits, whilst those that maintained peatlands in a better state of health will gain little if any reward under the current Peatland Code protocol.
5. Investor repayment: In purely privately financed models, the investors will, in almost all cases, be repaid first with interest through the sale of carbon credits, which may either force the sale of PIUs or PCUs earlier in the project lifespan or at sub-optimal prices, depending on the payback arrangement. This may significantly delay realised profit from the restoration for the landowner.
6. Varying costs of restoration: Some restoration activities and techniques are more expensive than others. Rewetting, for instance, achieved through establishing a stable water-table at the ground surface (essential in healthy peatlands), is estimated to cost £1,500 per hectare.
7. Project timescale: The length of the project corresponds to the depth of the peat across the chosen site. A restoration project that lasts 70 years will generate more PIUs than an equivalent project set at 30 years, as the restoration will generate an extra 40 years of avoided emissions. The longer the project however, the more that unforeseen risks, market failures and fluctuations, climate shocks, and future inheritors of the project factor into the overall feasibility and profitability.
8. Carbon market: The peatland carbon market is new, without insurances or regulations. There are no price floors or guarantees, meaning that the price of peatland carbon units can theoretically drop below zero. Avoided emissions do not currently participate in compliance markets or frameworks such as the Science Based Targets Initiative (SBTi), where corporations, governments and other bodies are required to purchase carbon offsets for their unavoidable greenhouse gas emissions, which are generated through the removal of emissions from the atmosphere, via technological or nature-based carbon capture and storage processes. This means that peatland carbon credits are only open to the voluntary carbon market, where corporations, social enterprises and institutions, and even individuals can purchase carbon offsets to report on their greenhouse gas emissions without any legal mandate requiring them to do so. This lowers the demand for peatland carbon credits as opposed to woodland credits, the latter of which participate in both markets. The increased utility of woodland carbon credits particularly becomes true after 2050, when a preference for removal credits (offered by Woodland Carbon Code projects) is assumed[1].
9. Crofter compensation: Whether through a Crofters (Scotland) 1993 Act – section 19a or section 20, or through an agreement made between crofters and the landowner in a section 5(3), crofters are entitled to compensation for the loss of grazings land, totalling to an one-half share of the revenue of the development. This compensation can either be in the form of one-half of the market value of the land were it to be sold on the open market, or one-half of the commercial value of the contract between the landowner and the Peatland Code. Taking into consideration that, after a minimum of 15% of the project finances are paid for by carbon income, and 15% of the total PIUs are reserved as a risk buffer, the commercial value for crofters equates to 50% of a maximum 70% of the total PIUs generated by the project. Additionally, the commercial value of the project is only realised over the full project length in the sale of PCUs (assuming sound financial governance). This calls into question over what time-scales compensation would be paid out in these circumstances, and how it would be distributed across all crofting shareholders in the affected common grazings. These questions of rights, compensation and distribution may also disincentivise private investment from financing the restoration of peatland that falls within the Crofters Acts. The question remains how crofters and the landowner would negotiate the compensation and agree to the land valuation in the event of a section 19a or section 20.
10. Uneven Geography of Restoration: If peatland restoration is pursued ‘for profit’, it risks encouraging what we call an uneven geography of restoration. The incentive structure of calculating carbon credits against emission factors entails that the most heavily degraded sites will be prioritised as they promise most financial rewards, with diminishing returns on restoration after this initial category change. There is little incentive to continue to restore peatland toward a ‘near-natural’ condition as there is less profit involved. This ‘restoration-for-profit’ has consequences not only for the health and resilience of the ecosystem but also for reducing atmospheric carbon emissions and the continuing loss of the peat substrate, which is only meaningfully stopped through the recolonisation of Sphagnum mosses on a rewetted peatland, returning peatlands to a ‘near-natural’ condition.
In conclusion, there are numerous factors to take into account that effect the potential profitability or financial sustainability of a Peatland Code project.
[1] Mobilising Private Investment in Natural Capital, 2023. Finance Earth, p23. Available at: https://finance.earth/wp-content/uploads/2023/05/mobilising-private-investment-natural-capital.pdf
What does the future hold?
The Scottish Government is currently developing a new agricultural bill that will set out new maintenance/management payment schemes to incentivise restoration and/or the maintenance of restored peatlands alongside other habitats.
POBAS – “Piloting an Outcomes Based Approach in Scotland” – is a scheme led by NatureScot that is testing the effectiveness of paying land-managers when they can demonstrate that their activities have led to environmental improvements on their farms and crofts, e.g., improvements in biodiversity. The Scottish Government has indicated its intention to integrate an outcomes-based approach for future agri-environment and farming support schemes beyond 2024[1].
Whilst peatland restoration presently does not open up any new funding or grant opportunities via agricultural support schemes, the prospective deployment of POBAS (being outcomes-based) would award higher payments for a restored peatland than an unrestored peatland.
Presently POBAS is being trialled in a blanket bog ecosystem on the Arnol common grazings in the Isle of Lewis.
Outcomes-based agri-environment payments have strong potential to incentivise peatland restoration uptake on common grazings land. Using the public finance approach, with restoration being 100% funded through Peatland ACTION, POBAS scorecards would thereafter reward higher payments for restored and well maintained peatland habitats. These payments would come through a system of funding already familiar to crofters and common grazings committees, provide an incentive for them to continue restoring and maintaining the health of peatland ecosystems, and carry none of the risks of registering a peatland with the Peatland Code outlined above.
This type of support could give crofters more autonomy to make land management decisions with local nature and climate-outcomes in mind. The Scottish Crofting Federation (SCF) have supported the need for outcomes-based approaches to be an integral part of a new agricultural framework and to actively explore what is required to make outcomes-based payments a reality for crofters and farmers in Scotland.
[1] ‘Piloting an Outcomes Based Approach in Scotland (POBAS) Project, Phase 2 Report’. NatureScot. https://www.nature.scot/doc/piloting-outcomes-based-approach-scotland-pobas-project-phase-2-report.
Based on the Scottish Climate Change Plan, the agricultural sector must reduce its emissions by 31% by 2032. With the agricultural bill aiming to be deployed in 2026, this leaves a 6-year window for the sector to reduce a large volume of emissions. It is unclear whether insetting – the use of carbon credits registered from personal land-holdings to offset personal emissions rather than selling those credits on the voluntary market – will be necessary for crofters.
What does this mean to me as a Crofter?
As soon as a drain is dug into a peatland, it will start to lose water, changing the nature of the ecosystem and preventing the accumulation of layers of peat. Continuous drainage will allow shrubs to take root in parts of the peatland, leading to further drying of the peat (shrubby vegetation takes up more water from the ground than Sphagnum mosses and sedges would); it will likely also lead to erosion of peat that is exposed on surfaces where vegetation is absent, e.g., through over-grazing or fire. Dried peat (and vegetation) increases the risk of fires in peatlands, especially during drier periods, and it is vulnerable to being washed away during periods of intensive rain. Resulting hags, drains, gullies and other channels will get deeper and more problematic for animals and people traversing the peatland. Eventually, if most of the peat layer has been washed, burnt, or eroded away, or decomposed due to the absence of waterlogged conditions, the underlying bedrock may be reached and there may be little soil in which vegetation can grow.
Through restoring peatlands, this loss can be avoided. Through blocking drains, revegetating and carrying out other effective restoration activities (see also FAQ: How is peatland restoration done?), the peatland can recover and future generations can benefit from the multiple services this ecosystem provides. For example, the vegetation (both the quantity and quality) available for grazing animals on the peatlands can be improved. Stopping erosion of organic matter reduces the blocking of waterways and the risk of flooding downstream; it reduces the amount and cost of treatment required to make water from the catchment drinkable; and reduces the risk of fires starting on the peatland and spreading into adjacent habitats, e.g., heathland. Reprofiling a damaged peatland to make the surface more even (e.g., levelling/infilling gullies), as part of restoring the ecosystem to better health, can also prevent large pools of water accumulating or fast-flowing streams developing, both of which can make crossing a peatland dangerous. Scattered, shallow pools of water will start to form in a peatland that is improving in health.
In addition to the benefits mentioned above, peatlands may be important sources and/or centres of identity and cultural heritage for individuals and communities. Maintaining healthy peatlands, or restoring damaged ones, can provide opportunities to nurture natural and cultural heritage, the traditional relationships people have/had with these landscapes, and enable the development of new associations with these valuable ecosystems and the many tangible and intangible resources they contain.
For further information on the many benefits that peatland restoration can bring to your community, see FAQ: Why is peatland restoration happening now?; How does peatland restoration affect my grazing?; Does peatland restoration introduce any employment in my community?; and section: What does the future hold?
It is a common concern that rewetted peatlands, in particular the standing pools they contain, pose a risk to grazing animals and humans. However, restoration can improve long-term grazing condition, especially in areas where degradation has advanced and vegetation recovery is limited. Wilson et al.[1] found that “established moorland drains do not currently increase the amount of palatable plants available to livestock, and furthermore, that drained areas are generally less preferred by sheep under present low stocking densities”. This corroborates findings that moorland drainage did not improve livestock productivity by Stewart and Lance[2].
To date, restoration carried out under Peatland ACTION has not required the removal of livestock from common grazings. Appropriate grazing of livestock, in terms of numbers of animals and their location, is an essential part of accomplishing restoration, particularly in supporting revegetation of peat-forming species. The ten-year maintenance contract that land managers and landowners jointly agree with Peatland ACTION (subject to shareholder agreement and amendment) can stipulate stocking densities and grazing patterns on the restored area both during the initial restoration phase and the subsequent maintenance period. In some cases, limiting or removing grazing from areas under restoration management – particularly winter grazing – will be necessary to ensure the success of the restoration activities. With Peatland ACTION, all stipulations are removed after 10 years.
Similarly, a management plan is required for Peatland Code projects, subject to checks and amendments by the independent verifier in the first year, fifth year, and every ten years after that. As part of this, a monitoring plan must be developed and monitoring completed a maximum of 12 months prior to each verification cycle (occurring at 5 and 10 years). The monitoring plan follows the Peatland Code Field Protocol[3], and must be in place for the duration of the project, with all monitoring processes documented and outputs recorded. These outputs “shall lead to review and, where necessary, modification of mitigation and management measures as required”. Monitoring should include everything from impact of livestock or deer, to progress of revegetation of bare peat, reprofiling of haggs, success of dams, and reporting if any further erosion or any significant failures have occurred. It should identify any new risks and state any mitigation planned.
The IUCN comment that “sites with a harsher climate, extensive bare peat and high levels of erosion will take longest to recover and may require greater levels of stock reduction and/or wild herbivore control”[4].
[1] 2011. https://www.sciencedirect.com/science/article/abs/pii/S0006320710003721?via%3Dihub
[2] 1983. https://www.semanticscholar.org/paper/Moor-draining%3A-a-review-of-impacts-on-land-use-Stewart-Lance/c49ca4188b1f9c8e092c2fd1a4d535ece55475a6
[3] IUCN, Peatland Code Field Protocol v1.2, 2022. https://www.iucn-uk-peatlandprogramme.org/sites/default/files/2022-05/Peatland%20Code%20Field%20Protocol%20v1.2.pdf.
[4] https://www.iucn-uk-peatlandprogramme.org/sites/www.iucn-uk-peatlandprogramme.org/files/7%20Grazing%20and%20trampling%20final%20-%205th%20November%202014.pdf
The ten-year maintenance contract with Peatland ACTION stipulates that no muir-burn or peat-cutting can take place on the restored area over the contracted period. However, crofting shareholders, usually steered by the common grazings committee, have a guiding hand in project design with Peatland ACTION. Allowances can be made to retain active peat banks or banks which otherwise have meaningful value to shareholders. Restoration site boundaries are subject to negotiation. With Peatland ACTION, after ten years all restrictions over the site are lifted. For Peatland Code registration, it must be demonstrated that no new banks or drains have been introduced to the land within the project area since November 2015. As detailed in the Peatland Code v2.0 guidance: “November 2015 relates to the date of publication of the Peatland Code and is set as a benchmark to ensure that any financial incentives offered as a result of the Peatland Code do not incentivise peatland damage.”
On Peatland Code restoration sites, cutting and muir-burning are not permitted throughout the project period, and the agreement to halt these activities would form part of the stipulated management and monitoring plan.
Yes, at least in the short term it can create opportunities for community members with appropriate skills. The initial phase of restoration requires the skilled work of contractors trained in various techniques such as bunding, blocking and removing drains, reprofiling bare peat surfaces and banks, removing scrub, and others detailed in Peatland ACTION’s Technical Compendium[1]. A playlist of videos demonstrating some of these techniques can be found on Peatland ACTION’s “Peatland Restoration Techniques” page on YouTube[2].
There is also a new training scheme being piloted by Peatland ACTION, to support more people to develop skills in practical peatland restoration. You can read more about the scheme in this blog post[3]. If you would like to know more, email [email protected].
[1] https://www.nature.scot/doc/peatland-action-technical-compendium
[2] https://www.youtube.com/playlist?list=PLSTn6yg6zH_-f68gbAcjL4q4oHRCBt-NB
[3] https://scotlandsnature.blog/2024/01/26/rise-of-the-machines-for-peatland-restoration/
Peatland restoration is typically pursued on larger, more accessible sites like common grazings. This is due to a range of factors, including: ecological/hydrological feasibility (in terms of restoring hydrologically-meaningful areas of peatland); financial feasibility (allowing initial investments, e.g., in equipment, to service a greater extent of the landscape); machinery access; and the general presence of deeper peat (where peat is present on crofts it tends to be shallower). In the case of the Peatland Code, the documentation suggests that the landowner would be the stakeholder that is able to register land for accreditation through the Code (see questions below on ownership and consent).
For all intents and purposes, landowner consent is needed prior to peatland restoration either through Peatland ACTION or via Peatland Code registration. In the case of Peatland ACTION, it is possible that peatland restoration qualifies as a form of ‘alternative development’ under Section 50B of the Crofters (Scotland) 1993 Act, as it does not pose a detriment to the landowner’s rights of reservation. But in practice, landowner consent is still necessary for contractual sign-off: as part of Peatland ACTION’s ten-year maintenance contract, landowners and any land managers/crofters with permission to use the land, must agree not to exercise their statutory rights to cut peats, build roads or drains (as outlined in section 11 of Schedule 2, the statutory conditions). Furthermore, “Landowner permission” is one of the conditions of eligibility in the Peatland ACTION application process.
As for Peatland Code registration, current documentation suggests that common grazing committees (usually acting as land managers rather than landowners) cannot register carbon credits, because the code requires registration with the landowner (please see question below on ownership). In what way community consent is required depends on the interpretation of law:
1. Rights to Carbon
A present outstanding issue is whether the landowner’s statutory rights to minerals and/or peats on the common grazing extends to carbon rights, which are not mentioned in Crofting Law. According to the landowner’s statutory conditions as outlined in Schedule 2, para 11 of the 1993 Act[1], the crofter must permit the landowner or any person authorised by the landowner to enter onto the croft, and by extension the common grazing, for the purpose of exercising certain rights, such as “mining or taking minerals, or digging or searching for minerals, …the cutting or taking timber or peats, excepting such peats as may be required for the use of the croft, …the opening or making roads, fences, drains and water courses”, and other statutory rights[1]. These are known as the landowner’s ‘reservations’.
As mentioned, there is currently no law that dictates who owns, and thus has the right to sell carbon credits, derived from the (immaterial) resource of carbon associated with restored peatlands, quantified via Peatland Code procedures. The Peatland Code v2.0, which is a protocol rather than a legal document, stipulates that: “Until sold, the landowner is the sole owner of the emissions reduction benefits of the project [i.e., carbon credits], unless contractually agreed differently.” Thus, there are in principle opportunities for crofters to discuss appropriate benefit distribution arrangements with landowners/project developers; arrangements which can then enjoy legal protection via Contract Law. However, there are no pilots or examples of this scenario to learn from at present. If, in the future, carbon is included as a statutory reservation for the landowner in Crofting Law (which could translate to the landowner having exclusive rights to the carbon units/credits resulting from peatland restoration), for example on areas of common grazings registered with the Peatland Code, it is unclear how crofters would be compensated for disturbed access and/or share in the revenue of the landowner’s decision to exploit their rights.
Given that rights to exploit carbon units resulting from peatlands are not yet legally defined, the more important step in determining restoration procedure and benefits sharing on common grazing land is in defining the contractual agreement between landowners and all common grazing members. Under current Crofting Law, crofters retain unrestricted grazing rights in terms of their individual soumings, thus every single crofter would need to agree to comply with restricted access to common grazings/restriction of rights, including future generations of individuals, in order to guarantee the satisfaction of the generational commitment for any Peatland Code restoration. The feasibility of obtaining this consensus should be factored into the viability of any Peatland Code project on common grazings.
2. Restoration as development
In addition to the significant point raised above on needing to reach consensus and establish a contractual agreement in order to satisfy requirements for Peatland Code registration of common grazing land, there is also uncertainty as to whether an alternative pathway may be more desirable for landowners, if not mandatory. It seems unlikely that a landowner could enter a common grazing to carry out restoration activities, e.g., blocking drains, building dams, introducing vegetation, which could be considered a form of ‘development’, without applying to resume the land or without seeking approval for a scheme of development through the Land Court, because some of these activities could interfere with the crofters’ rights of grazing.
The likely avenues along which this could progress are as follows: the landowner can pursue Peatland Code registration either through Section 19(a) (‘scheme of development’) of the 1993 Act or apply for a section 20 (‘resumption’). According to section 19(a) of the 1993 Act, the landowner or any person acting with the consent of the landowner may apply to the Land Court to pursue a scheme of development on common grazings, but must intimate to the Land Court that “every person who has rights in or over… common grazing consents to its being developed” in accordance with the proposed scheme[2]. As crofters have the right to a one-half share in the value of any development on croft land and common grazings, an agreement would need to be drawn up between the landowner and crofters establishing this one-half revenue/compensation share in the development, whilst those who do not consent to the proposed scheme would need to submit their objections to the Land Court.
As described above, the landowner may choose to pursue restoration with the Peatland Code under Section 19(a), taking the peatland restoration to be a form of development. This would work similarly to the landowner submitting an application to the Land Court to pursue a scheme to develop wind turbines on common grazings, for example. The Land Court would only authorise a scheme of development if they consider:
– “that the development is for a reasonable purpose;
– that to carry it out would not be unfair;
– that the scheme provides for there to be fair recompense to each member of the crofting community in the area affected by the development for the effects of the development; and
– that, were the development carried out that community would be likely to benefit financially, and;
– such benefit would be at least commensurate with any financial benefit which the members of that community might obtain on the development proceeding other than by virtue of this section.”[7]
Even in the event of a successful 19(a) scheme of development however, it is not clear what is accomplished. With wind farm development, crofters would lose the ‘footprint’ of the land where the concrete and turbines were located, but there is no such footprint in peatland restoration. In a section 19(a), the land is not removed from crofting tenure (as in a section 20 resumption), so theoretically, after wind farms are decommissioned and the concrete/turbines removed, the land, having never left crofting tenure, can be grazed and cut in accordance with crofting statutory rights. As a grazing management plan would form part of the overall maintenance plan of a Peatland Code project, this could theoretically manage grazing over the registered restoration area, but the land continuing to fall under the Crofting Acts may act as a disincentive for investors as full control over the area is not assured.
3. Resumption
In the event of a section 19(a), ‘fair recompense’ for the scheme must be “at least equivalent to the recompense which the member might be expected to have obtained had that croft land been resumed.” In a section 20 resumption, crofters are entitled to one-half of the difference between the market value of the land on the date of resumption, minus the ‘crofting value’. Section 21(2) of the 1993 Act further stipulates that the ‘market value’ is the amount which the land, if sold in the open market by a willing seller, might be expected to realise. This commercial valuation of the land would take account of any commercial development which motivates and requires the landowner to ‘resume’ the land. In practice, this means that crofters would seek half the commercial value of any Peatland Code contract, unless this valuation is less than half the market value of the land to be developed. Ideally this agreement would be reached between landowners and crofters without recourse to the Land Court for a ‘market valuation’ of the land.
According to advice by Gillespie MacAndrew[3], an independent Scottish law firm, it is unlikely that land could be successfully resumed for peatland restoration (unless the full support of all shareholders was obtained). It is worth delving into this position in more detail to anticipate how a resumption application might proceed if the Land Court became involved.
The Land Court makes their decision against a range of factors, but pertinent in this case is that the Court has to be satisfied that the land is being resumed for some ‘reasonable purpose’, “having relation to the good of the croft or of the estate or to the public interest or the interests of the crofting community in the locality of the croft”[4]. The widening of the relevant interests to include “the public interest” goes back to Section 12 of the Crofters (Scotland) Act 1955 and ever since then the Court has been entitled to authorise the resumption of land in the public interest[5]. It is likely that peatland restoration, for the purpose of avoiding CO2 emissions and storing it over the long term, qualifies as being in the “public interest”. A strong argument against resumption would therefore be required, and likely focus on the conflict resumption would generate with the interests of the crofting community or the “good of the croft or the estate”, determined against:
a) “the sustainability of
– crofting in the locality of the croft or such other area in which crofting is carried on as appears to the Land Court to be relevant;
– the crofting community in that locality or the communities in such an area;
– the landscape of that locality or such an area;
– the environment of that locality or such an area.
b) the social and cultural benefits associated with crofting.”[6]
The Land Court have stated in SLC 31/16 that “resumptions of croft land should not be lightly authorised for purposes which may soon fail and where other arrangements are available for fulfilling the desired purpose without permanently depleting the pool of croft land”. It is uncertain how the Land Court would assess whether the Peatland Code project has a likely chance of success, but presently there exist “other arrangements” that fulfil the desired purpose of peatland restoration without permanently depleting the pool of croft land: Peatland ACTION restoration. For this reason (and others stated above) resumption is not likely to be authorised for Peatland Code projects, unless full support from crofting shareholders is given or other outstanding circumstances prevail.
4. Crofters not included in Peatland Code
It is the advice of David Findlay, solicitor at the Crofting Commission, that “crofters sharing in a common grazing have no rights of tenancy over the common grazing and so the parts of the Peatland Code applying to tenants are not relevant to common grazings” (The Crofter, August 2023). There are different legal rights relating to tenants vs. crofters, and the latter are not referenced in the Peatland Code v2.0 documentation. The Peatland Code v2.0 however stipulates that, as part of the project proposal, “as a minimum, individuals, organisations and groups in any of the categories defined in the guidance below deemed to have a material interest in the project shall be contacted”. Relevant individuals for the consultation process are defined as “anyone who could affect or be affected by the outcomes of a Peatland Code project and may include… freeholders/tenants/sub-tenants, local communities… parties to existing agreements on the land, including trustees and beneficiaries, those with access, withdrawal, management or exclusion rights”[8].
This seems to establish with finality that, whilst crofters are not explicitly mentioned in current Peatland Code guidance documents, a landowner cannot pursue Peatland Code registration without the consent of the majority, if not all shareholders of a common grazing, given that every individual shareholder is implicated in the financial outcome of the project design and their statutory rights are affected. Each shareholder should be given ample time to make their objections and requests regarding the project design during the consultation phase of Peatland Code registration. The landowner must demonstrate they have “proactively engage[d] at an early stage with local communities, neighbouring properties and any other important but potentially marginalised groups”[9].
Concerns and objections raised during the consultation period must be answered within six weeks and take the form of requests to change or amend the project design proposal. The independent validation body determines the appropriateness of each request and makes a final judgement on how they are integrated into the project design.
[1] https://www.legislation.gov.uk/ukpga/1993/44/schedule/2
[2] https://www.legislation.gov.uk/ukpga/1993/44/section/19A
[3] https://www.gillespiemacandrew.co.uk/news-insights/2022/natural-capital-and-existing-leases/
[4] Crofting (Scotland) Act 1993, Section 20(1). For an example ruling, see for instance SLC/28/14: http://www.scottish-land-court.org.uk/decisions/SLC.28.14.a.html
[5] See the decision SLC/77/20, 2021. http://www.scottish-land-court.org.uk/decisions/SLC.77.20.html
[6] Crofting (Scotland) Act 1993, Section 20A.
[7] Crofting (Scotland) Act 1993, Section 19A-B.
[8] IUCN, Peatland Code v2.0, 2023. https://www.iucn-uk-peatlandprogramme.org/sites/default/files/2023-03/Peatland%20Code%20V2%20-%20FINAL%20-%20WEB_2.pdf
[9] IUCN, Peatland Code v2.0, 2023.
See also: https://www.iucn-uk-peatlandprogramme.org/sites/default/files/2023-03/Legal%20ownership%20of%20c%20units%20Eftec%20and%20S%26P310322.pdf (p10-16)
The landowner has de facto ownership over carbon credits generated on their property, according to the protocols outlined in the Peatland Code. These “carbon rights” (see question on consent above) are, as of now, not established in property law or in the Crofting Acts, but legal advice to the Peatland Code says it is “highly likely” that the landowner will be the recipient of the carbon credits generated by restoration as they are the ones who can currently register with the Peatland Code. The Peatland Code v2.0 states that “Until sold, the landowner is the sole owner of the emissions reduction benefits of the project, unless contractually agreed differently”[1]. Ownership can therefore be subject to contractual negotiation.
If landowners do share ownership of carbon credits amongst crofters, rather than owning carbon credits themselves and selling them on the voluntary market or “insetting” them to report against their own emissions, crofters could benefit by way of profit-sharing agreements (distributed individually or vested in the common grazings committee), community wealth funds[2], or some other model of distributed benefit. That means crofters can negotiate and agree contracts with landowners as to the distribution of (ownership of) carbon credits, including revenue and liabilities attached to their production and sale, according to their shareholder stake and within the limits of the Crofting Acts. A template Memorandum of Understanding is included in the final question of this FAQ. We recommend that all parties seek legal advice regarding how contracts between crofters and landowners, in relation to Peatland Code validation, should be drawn up.
In restoration financed by private investment, ownership can be extended by contractual agreement to carbon investors; it is possible they can be repaid through carbon income rather than monetary repayments if agreed between both parties, or own some/all of the carbon credits produced by the restoration. If investors come into ownership of carbon credits through these agreements, these credits can be used to ‘inset’ (report against their own emissions) or sold on the voluntary market, in effect making them carbon brokers. The investor’s agreement with the landowner could stipulate that some or all of the carbon credits from the project be transferred to the investor’s ownership.
It is unlikely that, unless contractually agreed otherwise, crofters would have any say in when the carbon credits are sold, how carbon credits are marketed (as carbon products), and to whom the credits are sold. These are important factors to consider before entering into a project that requires robust financial governance. Two projected models (‘poor financial governance’ and ‘good financial governance’) are provided in the report Mobilising private investment in natural capital [3].
[1] See page 8: https://www.iucn-uk-peatlandprogramme.org/sites/default/files/2023-03/Peatland%20Code%20V2%20-%20FINAL%20-%20WEB_2.pdf
[2] See page 29: https://www.landcommission.gov.scot/downloads/65572c79e77be_Guidance%20on%20Community%20Benefits%E2%80%9316.11.23.pdf
[3] See pages 73-75: https://www.gov.scot/publications/mobilising-private-investment-natural-capital/
As only the landowner is currently able to register carbon credits with the Peatland Code (see above questions on consent and ownership), the responsibility for managing and selling credits lies with the landowner. However, this can be subject to contractual negotiation. It is highly recommended that the contractual owner of carbon credits (also necessarily liable for the maintainance of the restored peatland) seeks financial advice to help manage the peatland asset over the full project timescale.
Shareholders of a common grazings are entitled to a one-half share of revenue resulting from any development scheme or resumption of the land, as stated in earlier questions on ownership and consent. This should be considered by both landowners and investors in determining the financial feasibility of any scheme. The distribution of this compensation to each crofting shareholder, and over what timescale, should be agreed to by the landowner and crofters, e.g., through a Memorandum of Understanding (for recommendations on the structure of this agreement see the final question of this FAQ).
Peatland carbon credits are tied to what are called avoided emissions, in contrast to removal emissions, which are currently mostly associated with woodland carbon schemes in the UK. Avoided emissions are calculated by taking the sum total of carbon emissions from an unrestored site and comparing that to the projected sum total of carbon emissions from the same site post-restoration. The difference between these two totals constitutes the avoided emissions. It is called ‘avoided’ because of the additionality principle: financing the restoration of the peatland has ‘avoided’ the emission of X volume of CO2, translating to X number of carbon units, marketable as carbon credits. The total amount of emissions ‘avoided’ is calculated based on the average depth of the peat at the site that has been restored; if the average peat depth of the area is 50cm, this equates to 50 years worth of emissions being avoided. This assumes 1cm of peat erosion per year on raised and blanket bog ecosystems, if no restoration takes place. (Fen peatlands are assumed to experience an average erosion rate of 1.5cm per year when in poor condition, according to the Peatland Code protocol.)
Removal emissions refer to the sum total of carbon emissions that have been ‘drawn down’, or sequestered, by a healthy peatland.
As a successful Peatland Code project refers to the improvement from one category condition to another, i.e., from ‘drained’ to ‘modified’, the calculated avoided emissions refer to the difference in emissions between these two condition categories over the full project timescale.
Liability for the maintenance and management of registered peatlands as a financial asset, is subject to contractual agreement between the landowner and crofting shareholders (see question above on the managment of carbon credits). Liability and maintenance are extremely significant to carefully account for when considering the financial viability and long-term maintenance of a restoration project, especially when taking into consideration the statutory rights of crofters protected by the Crofting Acts.
Crofters who are exercising their statutory grazing rights on a common grazings cannot be held liable for a regression in a peatland’s category condition unless the crofters had voluntarily waived their rights for a period of time through a section 5(3); the area of land is no longer held within the Crofting Acts (i.e., was resumed); or the land is otherwise ‘zoned off’ within a ‘scheme of development’ (see question on consent above). We recommend seeking legal advice on the matter of liabilities in relation to new grazing management plans, agreed as part of restoration activities associated with Peatland Code or Peatland ACTION, and how liabilities might interact with crofting rights on common grazings.
Additionally, common grazings committees are subject to change every 3 years, making the generational commitments of the Peatland Code and contractual agreements drawn up at the beginning of the project problematic for those that inherit these liabilities and maintenance responsibilities. This can lead to situations of injustice, particularly if the restoration-generated carbon credits are frontloaded, i.e., sold in bulk during the validation phase, rather than sold as PCU’s during subsequent verifications. This leaves inheritors of the project, both landowners and crofters, maintaining a ‘stranded asset.’
Some companies are now offering ‘carbon credits cover’ for woodland carbon[1], but there are no insurance policies offered at present for peatland credits.
[1] https://www.lycetts.co.uk/insurance-services/rural/estate/forestry/
Peatland ACTION will pay for any maintenance needed during the ten-year contractual period involving the main phases of peatland restoration. At the end of this period, any costs associated with ongoing maintenance and management of the restored peatlands should be covered by agri-environment grant schemes such as AECS or POBAS (see FAQ section: What does the future hold?). After the ten-year maintenance period with Peatland ACTION, there is no contractual obligation for management/maintenance of the peatland in a particular condition, unlike with Peatland Code-registered projects.
Pursuing the blended/private finance model, revenue from the sale of carbon credits theoretically pays for ongoing land maintenance costs, though there are large uncertainties around the revenue the carbon credits will yield. There are also uncertainties over how much ongoing maintenance will cost, especially under changing climatic conditions. Registration with the Peatland Code may obstruct eligibility for public grant schemes, as mentioned above.
No, but with the prospective deployment of POBAS (see FAQ section: What does the future hold?) or a similar outcomes-based reward scheme, a restored peatland would qualify for higher payments (via a ‘payment-by results’ approach) than an unrestored peatland.
No direct financial or legal consequences. But with the advent of the new agricultural bill, net-zero targets and the potential deployment of the new POBAS scheme (see FAQ section: What does the future hold?) you might forfeit potential future income associated with restoration activities/evidence of a restored peatland.
Based on the above, it seems likely that the preservation of crofting rights in common grazings areas is incompatible with the need to restrict and manage these activities over generational timescales as is likely required for Peatland Code registration. At this moment in time, Peatland Code registration may require the resumption of areas of common grazings, or the ‘zoning off’ of areas pursued as a ‘scheme of development,’ such that they no longer come under the Crofting Acts or crofting statutory rights are controlled/managed in some way compatible with generational commitments to maintain a peatland’s restored category condition. This comes with further complications regarding the paying of compensation, over what timescales, and whether this compensation relates to the sale of PIUs or PCUs, as only the latter relate to the full commercial value of the project, but take far longer to realise. Additionally, registration with the Peatland Code could subtract these areas from agri-environment claims through AECS and, in the future, POBAS, were they to be resumed (and even in the hypothetical case of the area remaining within crofting tenure, as Peatland Code registration may be interpreted as a “prior obligation”)[1]. Further legal advice should be sought regarding all of the above and below.
A Memorandum of Understanding (MoU) may nevertheless prove a helpful resource for navigating and structuring conversations between crofters and landowners when considering the registration of a peatland restoration project with the Peatland Code. A typical phase of ‘consultation‘ during Peatland Code registration should comprise the following:
· what type and scale of project would be appropriate and acceptable to both parties;
· the distribution of carbon income/revenue from carbon sales to all shareholders;
· who is taking the lead in delivering the project;
· how responsibilities, costs, and incomes are to be shared, and over the course of the project period;
· how to make an agreement that is robust enough to meet Peatland Code requirements;
· how to deal with future changes in landlord (landowner) or tenant (crofters/shareholders);
· what happens if the project does not deliver the anticipated carbon benefits.
To make this crofting-specific however, the following non-exhaustive list of important considerations should apply:
• Whilst the landowner has de facto ownership over carbon credits on their property (see above sections on ownership and consent), this is not established in Property Law or in the Crofting Acts. Ownership of the carbon credits produced by restoration accredited by the Peatland Code can therefore be subject to contractual negotiation between crofters and the landowner/s. Equally, the distribution of revenue from the sale of carbon credits, and the subsequent liabilities and maintenance which these sales entail, are subject to contractual negotiation. The long-term financial governance of a project, ensuring that future shareholders and inheritors of the project equally benefit, is important to include in these shareholder negotiations.
• An agreement regarding the payment of compensation in the event of a Section 19(a) or Section 20 (Crofters (Scotland) 1993 Act), whether this relates to the open-market value of the land or half the commercial value of the Peatland Code project, and how these valuations are reached;
• Over what time-scale this compensation or benefits-sharing agreement is to be paid and distributed, and whether this relates to the full commercial value of the project (the sale of PCUs) or the sale of PIUs;
• If the landowner is contractually named as the recipient of the carbon credits, then having written assurances about what the landowner intends to do with the credits (use them to inset their own emissions, sell them as PIUs or as PCUs over the full project time period), when/how they intend to sell them and to whom, and how they intend to market them;
• Assurances around how long the project would last and who is liable for management/maintenance of the restoration site throughout the project timescale;
• If registration is pursued under a Section 19(a) scheme of development, whether this resumption is permanent or temporary, how long this will last and when the land is to return to crofting land;
• Transparency as to whether the landowner is financing the restoration themselves, using public money or inviting private investment. If the latter, then it should be transparent what the interest rate is and over what timescale the investor needs to be repaid, as this has implications as to whether PIUs or PCUs are prioritised for market;
• What happens to the land in the event of the peatland regressing in its condition, or the landowner defaulting on payments intended to maintain the asset, i.e., whether the land could be acquired by investors in order to salvage the investment.
This indicative list may serve as an interim template for drafting a Memorandum of Understanding (MoU) between crofting shareholders and the landowner during Peatland Code consultation, whether in the case of a section 19(a), section 20 or section 5(3). As no common grazings have yet been registered with the Peatland Code, no template or reference exists for how to pursue these projects. We do not yet know what best practice looks like[2]. The Scottish Land Commission have recently published advice in a report titled “Delivering Community Benefits from Land” (Nov, 2023), with discussion on potential avenues for establishing a community benefit fund from carbon offsets (page 29) [3].
[1] IUCN, Peatland Code v2.0, p3.
[2] Alistair McIntosh (2023) has likewise suggested the need for MoUs between communities and landowners when it comes to negotiating carbon finance and local benefits in his report “The Cheviot, the Stag and the Black, Black Carbon Natural Capital, the Private Finance Investment Pilot and Scotland’s Land Reform,” available here: https://www.communitylandscotland.org.uk/wp-content/uploads/2023/05/2023-CLS-Full-Cheviot-Carbon-Discussion-McIntosh.docx.pdf.
[3] See also: Bob McIntosh, ‘An Interim Guide to Securing Tradeable Carbon Credits in an Agricultural Holdings Situation’. Scottish Land Commission, 2022.
Appendix:
| Category Condition | Emission factors (tCO2e/ha/yr) | Avoided emissions through category change (tCO2e/ha/yr) |
| Actively Eroding | 23.84 | N/A |
| Drained | 4.54 | 19.30 |
| Modified | 2.54 | 2.00 |
| Near-Natural | 1.08 | 1.46 |
| Eligibility Criteria: | Description: |
| Peatland type | Eligible peatlands must be blanket, raised bog or fenlands (latter added in v2.0). For crofters, the vast majority of peatlands within common grazings are blanket bogs. |
| Peatland depth | A minimum of 75% of the project area must have a peat depth of 50cm or deeper (i.e., ≥75% of the peat depth measurements recorded within the project area must be ≥50cm). |
| Peatland condition | Peatland condition must be ‘actively eroding’ or ‘drained’ according to the Peatland Guide Field Protocol v1.2. |
| Duration | The project must be able to enter a minimum contract of 30 years. However, projects are more often longer than 80 years, up to a maximum of 100 years. |
| Additionality | Project must demonstrate ‘additionality,’ i.e., there must be no legal mandate to restore the peatland and it must require carbon finance to enable it to take place. See FAQ on ‘What is additionality?’ above. |
| Assessment Unit | Area (ha) | Pre-Restoration (Baseline) Condition Category | Post-Restoration Condition Category |
| AU1 | 5.49 | Actively Eroding: Flat Bare | Drained: Re-vegetated AE |
| AU2 | 7.26 | Actively Eroding: Hagg/Gully | Drained: Re-vegetated AE |
| AU3 | 107.14 | Drained: Hagg/Gully | Modified |