Overcoming barriers to the engagement of supply-side actors in Scotland's peatland natural capital markets - Final Report

4 Findings – Cross-cutting themes

In this section, findings from the survey, interviews, workshops and financial modelling are drawn together. A number of cross-cutting issues are explored first, including drivers and barriers to engaging with peatland restoration, sources of guidance, additional considerations for restoration on crofting land and wider benefits of restoration.

4.1 Motivations for peatland restoration

Participants were asked their motivations for restoring peatland. The most frequently mentioned reason was for environmental gain or preventing environmental degradation, followed by financial gain, either for profit or to be reinvested into the business. Insetting of any carbon credits gained was a less-cited motivation, but one discussed more by farmers.

4.1.1 Environmental motivations

Several participants highlighted that supporting biodiversity and mitigating climate change was a key part of their motivation to restore peatland. These motivations were more commonly given together, rather than independently. NGOs highlighted that they saw it as their job to manage land for "maximum biodiversity" and that peatlands were a key part of that strategy (Participant 11). Private landowners also indicated that they already managed land to support environmental outcomes. These included a crofter whose land formed part of the Golden Eagle Special Protection Area (Participant 15), a crofter who undertook habitat restoration for waders as part of restoring "an overgrown neglected croft that hadn't been crofted in decades" (Participant 20), and a farmer who considered nature restoration to be their primary interest:

"We want to look after the land starting with the soil, the flora, the vegetation, the birds, the insects, the whole thing because … nature is my primary interest actually and also carbon storage with the peatland." (Participant 23)

Several participants alluded to a sense of "land stewardship" (Participant 14), with peatland restoration being seen as the "right thing to do" (Participant 12). One participant referred to land managers as "ambassadors" (Participant 33). Other participants perceived a sense of duty to restore degraded peat and that "with land comes responsibility" (Participant 3). Restoring peatlands was seen to have spillover benefits for multiple parties:

"We are doing it to enhance the landscape and for wildlife and for people that come to our holiday cottages, the fishermen, lots of different people" (Participant 18)

Healthy peatlands are important for mitigating harmful natural events such as flooding and wildfires. Some participants were worried about the spread of wildfires (particularly as the largest fire in Scottish history occurred during interviewing) and saw restoration as a wildfire mitigation strategy.

Two participants highlighted that their land formed part of the catchment to a reservoir and that improvements to water quality was a motivator, which they saw as part of their duty as a "responsible land manager" (Participant 11) and to "protect their community water asset" (Participant 1).

4.1.2 Financial motivations

The potential to generate revenues from carbon credits was commonly referred to, however, relatively few participants indicated that carbon revenues were their ultimate focus. Often it was highlighted that revenues would be attractive to help fund existing management objectives, to support further restoration, or that carbon revenues were attractive alongside wider benefits. Illustrating this, one farmer highlighted that revenues were important in the context of uncertainty around future agricultural support:

"Any money I make goes back into the place anyway … I would be interested in a payment because what is going to happen when our single farm payment goes? If there is money from the peatland that would be very welcome." (Participant 23)

Another participant highlighted that while they were seeking a financial return "as fast as [they] can" to "generate more cash flow", this would be leveraged to support further restoration (Participant 33). Similarly, a long-term landowner indicated peatland restoration would create "profit [that] can be re-invested to create a more sustainable local economy and also creates a landscape and jobs that people can stay in the local area." (Participant 16)

Some participants thought that profit was required to convince landowners to begin restoration projects, as landowners were currently "sitting on" (Participant 25) large amounts of land, and that the government "can't expect land managers to do things just for that altruistic fuzzy feeling" (Participant 33).

4.1.3 Insetting motivations

Those with agricultural businesses indicated that a strong motivator to engage in peatland restoration was a perception that there may be a future requirement to achieve net zero within their business. It was suggested that this could occur as a condition of sale, or that the future agricultural support could become conditional upon achieving a certain carbon balance. Overall, it was highlighted that there was significant uncertainty around the form such requirements could take, however it was clear that this was considered a risk to guard against. Commonly, participants highlighted that their aim would be to "bank up the carbon credits" (Participant 18) until there was a better understanding of future compliance needs. Contrastingly, participants during the Online workshop suggested that uncertainty over the future support and compliance landscape could presently pose a barrier to engagement and the greater clarity was required of post CAP arrangements. Investing in carbon storage within your business's supply chain is known as insetting.

4.1.4 Access

Crofters considering peatland restoration indicated that improvements to access and grazing were part of their considerations. It was highlighted that degraded / unrestored peat has little agricultural benefit as "bare peat does not feed anything" and that the bogs and holes can make land difficult to access (Participant 1). It was also suggested that restored peat may reduce lamb losses (Participant 18) and allow for easier access for quad bikes and other crofting activities (Participant 13).

4.2 Perceived barriers to undertaking peatland restoration

Many participants expressed how they would like to engage with peatland restoration but noted several barriers. These included a lack of capacity from both supply and demand-side actors, negative attitudes towards carbon finance, and site-specific issues. The barriers manifested themselves as hesitancy (wariness around entering into agreements, low risk tolerance), a lack of urgency (waiting for carbon markets to develop or holding out for more incentive) or participants feeling discouraged (at the complexity, price or technicalities of restoration, or peatland restoration not being perceived as a suitable fit for crofting).

4.2.1 A lack of capacity at multiple points across the supply and demand-side

A lack of capacity within the industry was indicated as a barrier to delivery at scale. While it was noted that contractors were working hard to increase capacity, a common perception was that there was a lack of local contractors with suitable skills and experience, which could hold up delivery of projects and was an issue in relation to a desire to support the local economy.

"The company who did the work came from Yorkshire …It was disappointing that no local firms were interested in doing the work." (Participant 12)

Seven other participants expressed similar opinions to the above, however, one participant expressed an alternative perspective:

"We put four tenders out over the last couple of weeks and they have all had over ten expressions of interest … and all of them have availability. Some of them are new entrants desperate to get into it as well. It really frustrates me, this lack of contractor thing, I just don't believe it." (Participant 9)

A lack of capacity at both Peatland ACTION and the Peatland Code were further highlighted as a barrier to a timely approval process, and indeed a lack of capacity to address the volume of applications was acknowledged by Peatland ACTION, stating they had "waiting lists as long as their arm" (Participant ID retracted). It was further highlighted that the timescale of the Peatland ACTION approvals process, combined with contactor availability and the relatively short restoration season, created a bottleneck in the system which resulted in projects being pushed into the following year and increased project management costs to the landowner. This sentiment was also expressed at the Peatland Code validation stage:

"[It] still hasn't been validated but we have done all the work. All the validation documents have been there for months with the validators" (Participant 22)

Several participants expressed how supply-side actors lacked the capacity to introduce peatland management into their remits, given existing priorities and a perception that there would be a steep learning curve. This was the case for NGOs, private companies, estates and some of the larger farms.

"Number one reason would be the amount of time required to learn about it, do it, organise it, potential open ended financial obligations … it is never going [be] top of the priority list. … I really don't know how valuable that is against other projects I could be spending an equal amount of time on which I can see a more tangible return on them and move to net zero." (Participant 36)

This point relates to the opportunity costs involved with the initial stages of education and capacity building as well as the alignment with existing business interests and existing land management trajectory both being barriers that need to be overcome, even before a project is in the planning stages.

Participants also discussed their financial capacity, with some stating it as a barrier. It was indicated that a requirement to raise finance or inconsistent cashflow could pose a barrier particularly to smaller businesses. Concerns were raised that initial upfront costs were high and financial returns took a long time to arise – especially as verification and validation costs were also incurred before payments released.

A lack of knowledge capacity was highlighted as a barrier to restoration. While noting a changing context, one participant considered that there continued to be a lack of awareness of the harms arising from degraded peat:

"The biggest barrier was what is peatland restoration, why are we doing it and what does it all mean, why should we do it. … what do we mean by degraded and what does a peatland that is emitting carbon look like." (Participant 5)

Another participant alluded to the significance of personal networks and trusted intermediaries as sources of knowledge, and it was highlighted that a lack of exposure to those with first-hand experience could pose a barrier.

4.2.2 Attitudes to carbon trading and carbon finance were a barrier for some actors

Various risks and uncertainties of carbon trading were highlighted throughout interviews and workshops and were incorporated throughout discussions involving all the scenarios that contained an element of carbon finance.

The relative newness of the market, and the knowledge and experience of ecosystem markets needed to enable participation, were both off-putting to participants. There is uncertainty around the current and future price of peatland carbon credits, which makes financial forecasting of a project difficult and risky, with participants also unsure that the quantity of verified carbon units obtained could be less than initially expected (conversion of PIUs to Peatland Carbon Units - PCUs). There was also a concern that the regulatory environment could change in future.

Some organisations and businesses indicated that reputational risk was a factor which warranted hesitancy, with managers, staff, and board members were unsure whether to ethically trust carbon finance.

Tied to this, the long durations of Peatland ACTION and Peatland Code contracts were highlighted as a potential barrier to uptake given perceived risks that may occur during the contact period. Participants noted uncertainty around the future of upland management, natural risks such as wildfire, and the wider context of climate uncertainty. Within this context, landowners related a hesitancy to "burden … future generations" (Participant 31) with long-term agreements.

The administrative burden required was said to be challenging by some participants and it was suggested that this process could pose a particular barrier to smaller landowners. Relatedly, one participant noted that securing a buyer for their carbon credits had entailed a far greater degree of time and effort than had been anticipated and that, while the Peatland Code maintain a brokerage service, they had found this process to be less than efficient.

Participants perceived that there could be frictions when combining Peatland ACTION and Peatland Code. They suggested that more effort could be made to align the required documentation and processes:

"The two schemes are too different, so they do not align, they do not align in time and they do no align in terms of the documentation required in the project development. They are actually diverging where they should be coming together." (Participant 6)

Areas of divergence noted by participants included the requirement for peat depth surveys (50m vs 100m) and buffers (30m vs 50m). It was further suggested that divergence reflected a lack of communication between Peatland ACTION and the Peatland Code which could pose a barrier to implementing blended finance (South of Scotland Workshop).

4.2.3 Site-specific practicalities and restrictions posed individual barriers

The relative remoteness and inaccessibility of (particularly upland) peat was highlighted as a barrier to restoration at some sites due to the additional cost and effort of mobilizing machinery.

"We have some very remote and inaccessible ground … getting it fully assessed, working out plans for what to do and then find people that are willing to take diggers all the way in … was a massive challenge." (Participant 25)

Potential restrictions to grazing were further highlighted as a barrier. In one case, a requirement to exclude livestock had entailed fencing off the area at a cost of over £50,000 due to the size and location of the fence (Participant 34). It was further highlighted that restrictions on grazing become more difficult to navigate where the land has been tenanted.

"Whether it is going to affect the current farming enterprise is really crucial because the contract is based on a certain amount per head. If I am going to take ground away that is going to mean we need to reduce our sheep numbers." (Participant 19)

Relatedly, it was noted that high deer densities could prevent projects from being eligible for support from Peatland ACTION.

4.3 Sources of guidance

Peatland ACTION was the most frequently mentioned source of advice. Multiple participants mentioned the importance of 'on the ground' Peatland ACTION Officers, including one who was employed through a National Park. Having these advisors and officers close to come and undergo site surveys was considered an excellent service and responses were overwhelmingly positive about the quality of advice.

"I cannot fault them whatsoever. I thought they were fantastic and if it wasn't for them, I don't think that project would have gone ahead." (Participant 18)

Conversely, it was clear that those who had not contacted Peatland ACTION were struggling to understand or coordinate different sources of knowledge together without assistance:

"Loads of information but I can't sew it together, it is like a patchwork of information … I can't connect it up and apply it." (Participant 20)

Without assistance from Peatland ACTION, some participants were approached by private companies offering advice, however, overall, it appears that participants were hesitant to accept this advice, as there were trust issues over whether the company were acting in their own self-interest. Impartiality appears to be a key factor when assessing the quality of advice, and most landowners wanted information about how to restore peat, rather than advice on carbon credits and carbon trading, which is the underlying rationale of many private advisors. This sentiment was confirmed with one participant who worked for Peatland ACTION:

"Our role increasingly is to be the independent advisor; we give impartial advice … We are not afraid to say where we don't think the Peatland Code projects are going to work or too risky for the landowner." (Participant ID Retracted)

Peer-to-peer learning from those who have already undergone restoration was also seen as an important source of advice:

"I have seen it in action at an estate near us … where we arranged an event to show members what it looked like on the ground because obviously work happens in the winter, usually in quite inaccessible places. … The contractor was there, and we had interesting conversations about the practical side of it." (Participant 19)

Other sources of knowledge mentioned by participants include NatureScot, contractors (especially in helping to cost a project), National Farmers Union Scotland (NFUS), moorland management groups, wader bird advisory groups and the Crichton Carbon Centre.

4.3.1 Future guidance needs

Participants were asked directly what future guidance would be useful. There was a clear need for information to become more user-friendly and less academic. Beyond speaking to an advisor directly, participants found current guidance fragmented or hard to understand. Having clear guidance would help to streamline the number of requests for guidance and free up time for Peatland ACTION officers to conduct surveying and for granting approval to applications. It would also better prepare landowners for their initial contact with Peatland ACTION "to make sure that you have actually got the baseline data that you need at the beginning" (Participant 30) – meaning discussions can begin beyond an entry-level of understanding. Helping landowners to identify areas of peat, judge the quality of the peat (areas of severe degradation versus lightly degraded or healthy peat) will help to speed up initial engagements with Peatland ACTION and a judgement can be made much quicker as to the viability of the site, as well as its profitability based on potential carbon sequestration.

Participants also felt like more information about the methods and techniques used in restoration should be more clearly explained, to help them deal or negotiate with contractors.

Participants who had completed a restoration project thought future guidance should be focused on ongoing maintenance and the holistic management of peatlands to ensure they do not degrade in the first place.

Going further into the future, after initial guidance has been released, further guidance, expertise and research should focus on harder to restore sites, for which many restoration techniques do not produce satisfactory results. Lastly, relevant participants felt future advice should focus on the farming community where land is more heavily managed (as opposed to lightly managed upland estates) and to demonstrate how farming and peatland restoration can occur simultaneously.

4.4 Crofting considerations

A common question across all four of the scenarios was how applicable each scenario was for crofters. Crofting is a historic form of small-scale agriculture and a way of life in Scotland, with land held in common typically governed by a Common Grazing Committee. Crofting arrangements and laws are somewhat of a paradox for peatland restoration, as large swathes of Scottish peatlands are located on upland sites, where crofting practices are present. With the introduction of natural capital and carbon credits, several issues have arisen around the ownership and sharing of carbon credits.

The key question that needs answering when it comes to crofters engaging in peatland restoration is who owns the carbon credits that are produced, as landowners have mineral rights, yet crofters have the right to cut peat. Further questions stem from this, concerning whose responsibility the work or ongoing maintenance is, and where liabilities should lie.

Crofting is protected by a set of historic crofting laws and these do not account for the relatively new phenomenon of carbon trading. There was confusion over whether crofter's rights allowed them to generate and hold/sell carbon credits:

"The key point is I don't even know if it is an asset I can ever hold as a tenant crofter so that is a fundamental to clear up. … There is a concern that carbon markets could run a coach and horse through the stuff that has been carefully balanced for hundreds of years" (Participant 15)

Another part of crofting law that is coming under debate with the introduction of carbon credits is apportionment which gives a crofter the right to take a portion of the common grazing for their own exclusive use. One participant questioned the ethics of taking an apportionment of peatland away from the common ownership:

"But you could take your portion on the hill and just take the peatland portion … You could take an apportionment at any time." (Participant ID retracted)

Crofters also have a right to cut peat for heating their houses. Although participants said that this historic practice is fading away, the right to do so remains, and a renewed uptake in this activity would obviously affect an ongoing restoration project. One participant in the workshops suggested that as the Cost-of-Living Crisis continues, and as some crofters are subjugated to fuel poverty, they were noticing an increase in peat cutting in their area.

The management of common grazing land is overseen by Grazing Committees which are made up of local crofters elected to positions. As alluded to in a previous quote, there appears a mismatch between the role of the Grazing Committee, with one participant expanding on this:

"We could, as a Grazing's Committee under the current regulations, take forward a peatland restoration [project] purely as a management role on the common grazings. It is not possible for us to engage with carbon trading because we cannot do that on behalf of our shareholders." (Participant 1)

This raises the question as to whether peatland restoration can occur on common land with the current laws and Committee arrangements, especially due to the extra "bureaucracy" (Participant 31). Tied to this, the Grazing Committees do not have liabilities protection which public bodies or businesses can attain, which is particularly salient when long-term agreements imply liabilities will be the responsibility of the land manager.

All major choices around investment needs group decision-making by the entire community and reaching consensus on scenarios that have uncertainties (e.g., maintenance fees) is proving hard for champions of peatland restoration in crofting communities.

Questions were raised as to when a group of crofters would sell their credits. If the current group of crofters had to front money to pay for the initial work to commence (plus potentially ongoing maintenance which will be expensive due to inaccessibility of many sites), the makeup of the group may be drastically different in 30 years' time (on verification) if people have died or moved away from the area. Groups would need to make decisions on when is best to sell the credits, potentially holding off for higher prices, using them to fund maintenance or to cash in as soon as possible, all of which are still hypothetical debates.

Like other farmers, crofting participants were unsure of how peatland restoration would interact or clash with new agricultural support systems. To make matters more complex for the crofters, since the Single Farm Payment was introduced, subsidies are largely based on their share of common grazing. If a peatland restoration project was to take a significant amount of land out of the common grazing, subsidies would effectively be reduced for all the crofters in the current system.

Potential scenarios C and D involved bringing private finance into the equation to help fund restoration projects. Like other participants, the crofters were wary of entering into agreements with private companies, especially considering the complexity of crofting law and the security of their tenancies:

"I don't know as a tenant if the private finance can't really take a charge against the land, [which] means that they wouldn't be interested at all." (Participant 15)

4.5 Wider benefits of restoration

The potential for peatland restoration (and introduction of blended finance) to deliver wider benefits was a further theme emerging from workshops.

During the Highland Workshop, participants discussed benefit sharing between landlords and crofters and further questioned whether the introduction of carbon finance could provide direct monetary benefits to communities:

"Depopulation, childcare shutting, no doctors, all of the things that the Highlands are facing… [is there] another scenario where the carbon credits, can go to become community wealth? It shouldn't just be about the peat; it surely has to be about the communities living there" (Highlands Workshop)

Participants also noted the potential for peatland restoration to deliver non- monetary benefits to communities, through biodiversity, hydrological regulation, and clean air, providing "tangible benefits for the people living in those areas"; following from this, it was noted that safeguarding the local water supply had been a key motivation for previous restoration nearby (Highlands Workshop).

At various stages, participants reflected on how financial mechanisms might best support multiple benefit schemes. Differences in the "quality" of credits became a focus for discussion during the South of Scotland Workshop, where participants questioned how differences between units could be priced. Similarly, during interview, one NGO land manager questioned whether a single price floor could effectively incentivise multiple benefit schemes (Participant 4). Relatedly, another participant suggested that the current interpretation of "additionality" could pose a barrier to market recognition of multiple benefits (Highland Workshop).