NatureScot's new Carbon Contracts pilot has the government agreeing today to buy peatland carbon that will not exist for years, a forward-purchase mechanism meant to unstick a private investment market that has covered barely a tenth of restoration costs.
Through a scheme called Carbon Contracts, NatureScot, the government agency that runs Scotland's flagship peatland restoration program, is now entering legal agreements to purchase a set share of future Peatland Carbon Units at a price fixed today, years before the restoration work that generates those units is even finished. The mechanism exists to solve a specific, stubborn problem: private capital keeps walking away from peatland restoration because nobody can promise what a tonne of bog carbon will be worth by the time the peat has regrown enough to verify it. Officials have watched private money supply only a sliver of what restoration actually costs, year after year, despite a decade-long public commitment running into the hundreds of millions of pounds. Applications for the current funding round, and its companion Carbon Contracts pilot, close on September 30, 2026.
Under the scheme, a landowner or developer registers a restoration project with the Peatland Code, the UK's certification standard for peatland carbon, and applies for both a Peatland ACTION grant and a Carbon Contract at the same time. If approved, the Scottish Government agrees in writing to buy a defined number of future Peatland Carbon Units, drawn from specific future vintages, at a minimum price fixed in the contract. In exchange, the applicant typically accepts a smaller upfront grant and commits at least 20 percent of the restoration's capital costs from private or third-party sources.
The government is not required to buy anything, and neither is the landowner required to sell to it. Once the peat has been restored, monitored, and the credits verified and issued years later, the project can sell those units on the open market if prices there are higher, or exercise the contract and sell to the Scottish Government at the pre-agreed floor if the market has moved the other way. NatureScot describes the mechanism, plainly, as a risk management tool rather than a way to maximize returns. Contracts can run for up to 25 years, cover up to 50 hectares of restoration per project, draw only from carbon vintages in years 5, 15, and 25 of a project's life, and the purchase price is index-linked annually to the Consumer Price Index. A pilot phase launched in 2025; the version now open, refined after that first round, targets projects with a start date after April 1, 2026.
The scale of the problem explains why the government is willing to sit on the other side of the trade. In 2020, the Scottish Government committed 250 million pounds over ten years to restore 250,000 hectares of degraded peatland, land that, in its current drained and decomposing state, is responsible for more than 15 percent of Scotland's total carbon emissions. NatureScot's own figures put private finance drawn into that effort in 2025 and 2026 at just over 1 million pounds a year, roughly 10 percent of the actual cost of the restoration projects it funded. The rest is public money. The National Lottery-backed public reporting adds up to a program that, by design, was always meant to be blended with outside capital, but where the outside capital has never shown up at anything close to the pace required to hit the 2030 target.
Government officials have been trying to solve this since at least 2023, when Finance Earth, commissioned by the Scottish Government and NatureScot, published a report examining two candidate mechanisms for crowding in private money: a pooled Scotland Carbon Fund sized at a minimum of 50 million pounds, and a Price Floor Guarantee built around a reverse auction. The Carbon Contracts pilot launched two years later is a direct descendant of that second idea, stripped down to a simpler, contract-by-contract version that NatureScot can run without standing up a new fund.
The reluctance the scheme is trying to counteract is not irrational. Peatland Code credits currently trade somewhere between 15 and 40 pounds per tonne of CO2, a market that industry advisers describe as illiquid, with the entire UK peatland credit pipeline for 2025 and 2026 estimated at under 50,000 validated tonnes, a fraction of what the much larger Woodland Carbon Code issues in a single year. Corporate buyers, still nervous after a string of scandals in overseas forestry offset markets, have been cautious about voluntary carbon credits generally, and Peatland Code units carry the added complication that they are certified for avoided emissions rather than carbon actively removed from the atmosphere, a distinction that has drawn scrutiny from researchers examining whether peatland restoration meets the additionality standard that credible carbon markets are supposed to require. Government-commissioned stakeholder research has found landowners citing the same worries: uncertain future prices, murky rules on who owns the carbon under tenant-landlord arrangements, and reputational risk from a voluntary carbon market that keeps generating bad headlines elsewhere.
A guaranteed floor price, backed by the government rather than a private intermediary, is aimed squarely at that hesitation. It does not fix the underlying thinness of demand for peatland credits, but it changes the calculation for a lender or an investor deciding whether to put capital into a 25 to 100 year restoration commitment on the strength of carbon income that will not be verified for half a decade or more.
Scotland's peatlands, when intact, are extraordinary carbon infrastructure. The Flow Country alone, in Caithness and Sutherland, stores around 400 million tonnes of carbon, more than double all of Britain's woodlands combined, and became the world's first peatland UNESCO World Heritage Site in 2024. Most of the country's peat is not in that condition. It is degraded, drained, and actively venting the gas it spent thousands of years locking away, and the government's own numbers show it is nowhere near restoring it fast enough on public money alone.
The Carbon Contracts pilot is a narrow instrument, capped in scale and limited to landowners who apply before the end of September. But it marks a shift in how a government has chosen to treat a decomposing bog: not as a grant recipient waiting for a subsidy, but as a future supplier whose output is worth locking in now, at a price agreed years ahead of delivery, because the alternative has been watching private capital sit on the sidelines while the peat keeps burning through what it stored.