Mobilising private investment in natural capital: report

Section 6: Evaluation and design of financing mechanisms

The domestic peatland carbon market in Scotland and more widely in the UK is developing but, as shown through the stakeholder consultation process, there are multiple financial and non-financial barriers to achieving the Scottish Government's peatland restoration objectives. A key constraint identified through this process is a lack of appropriate mechanisms to support the maintenance of restored habitats over the long-term, undermining the credibility of this nascent market. Financial mechanisms have a key role in incentivising good financial governance, such as planning for long-term maintenance costs, as well as other target behaviours (see Figure 8).

Our recommendations over the following sections focus on how two key pieces of proposed market infrastructure, the SCF and the PFG can be designed to support a shift towards target market behaviour, working in tandem to both de-risk and crowd in investors but also to support and incentivise other project stakeholders. In addition, we look at how these mechanisms could work alongside traditional grant funding, which should, in turn, be restructured to build a coherent funding and financing ecosystem for peatland carbon projects.