Relying more heavily on private finance to fund nature restoration risks undermining Scotland’s net zero ambitions, new research has revealed.

 

The report, published by the think tank Future Economy Scotland, warns that relying more heavily on private finance to create woodlands and restore peatlands would drive up costs – potentially deterring landowners from acting and slowing down progress towards net zero. 

 

The warning comes as the Scottish Government and its nature agency, NatureScot, step up efforts to attract private investors to help fill Scotland’s funding gap for nature restoration. The report finds that:

●      The status quo is failing – despite pledging to dramatically scale up woodland creation and peatland restoration, the Scottish Government has repeatedly fallen far short of targets – posing a threat to Scotland’s net zero transition. 

 

●      The £20 billion “nature finance gap” is overstated – the figure used to justify a turn to private finance has been widely discredited. While more investment is required, the additional funding needed to meet Scotland’s woodland and peatland targets is likely less than a tenth of this.

●      Private finance means public risk – attracting private finance at scale would require costly subsidies, diverting taxpayers’ money to guarantee investor profits and creating significant future liabilities for the Scottish Government.

 

●      Costs could soar – replacing public grants with commercial loans could increase peatland restoration costs by up to 48%, while saddling landowners with risky and expensive debt that could actively deter them from taking part.

 

●      Systemic barriers are blocking progress – beyond funding, restoration is being stalled by uncertainty, skills shortages, weak regulation, unsustainable deer numbers, and concentrated land ownership.

 

Instead of turning to private finance, the report recommends an alternative approach focused on increasing public support for nature restoration and tackling systemic barriers that are preventing action. It recommends:

●      Public investment for public goods – the Scottish Government should replace up-front peatland grants with zero-interest, income-contingent loans. As with student loans, these would be written off if future revenues from carbon credits fail to materialise. However, if landowners subsequently make profits from rising carbon prices, these would be shared with the state and local communities – ensuring costs and benefits are fairly shared.
  

●      Reducing uncertainty – up-front financial support for landowners should be combined with ‘operating payments’ – annual grants to cover maintenance costs for the first 15 years of peatland restoration projects, mitigating the financial uncertainty associated with carbon markets.
  

●      Tax reform – phasing in a green Land Value Tax and considering a new tax on degraded peatlands to incentivise restoration.
  

●      Fairer land ownership – introducing stronger public interest tests on large land sales, strengthening Community Right to Buy, and scaling up public land acquisition for nature  restoration.
  

●      Tackling deer numbers – committing to a National Deer Management Plan to cut unsustainable populations and accelerate woodland recovery.
  

●      Building skills and housing – funding apprenticeships, workforce training, and rural housing to support the expansion of the restoration sector.

Commenting on the report, Future Economy Scotland Senior Economist Hanna Wheatley, said:

 

“Scaling up woodland creation and peatland creation is absolutely vital if Scotland is to become net zero by 2045. Yet despite some progress, targets have consistently been missed. While the Scottish Government hopes that private finance can plug the investment gap, our research reveals that this approach is fundamentally flawed. 

 

“Not only is the ‘nature finance gap’ far smaller than has been assumed, but relying on private finance may actively deter restoration by increasing costs and risks for land managers while diverting scarce public funds towards extractive investor returns. As Scotland found out by embracing PFI contracts for infrastructure, such arrangements can be lucrative for investors while imposing large costs on everyone else.

 

“If the Scottish Government is serious about meeting its nature targets, it must adopt a more holistic and coordinated strategy – one that moves beyond market-based approaches and recognises nature as a public good. This means combining a new public investment model with steps to overcome systemic barriers. Our comprehensive proposals would mobilise investment, unlock systemic barriers, and ensure that Scotland’s approach to nature restoration is aligned with the principles of a just transition.”

 

-ENDS- 

 

NOTES TO EDITORS 

 

[1] The report containing the full findings and methodology can be found here [add link]

 

[2] In recent years the Scottish Government has placed a strong emphasis on attracting responsible private investment into nature projects. In 2022 it published its ‘Principles for Responsible Investment in Natural Capital’, while in 2023 NatureScot announced a new private finance pilot aiming to mobilise £2bn private investment in woodland creation. Most recently, the Scottish Government’s Natural Capital Market Framework pledged to establish a new peatlands pilot to attract more private finance into peatland restoration.

 

[3] Future Economy Scotland is a non-partisan think tank that aims to create a new economy that is democratic, sustainable and just. The organisation does not have a formal stance on Scotland’s constitutional future, and is not aligned to any political party or any politician. The organisation is a not-for-profit company limited by guarantee operating with charitable principles. For more information, visit: www.futureeconomy.scot

 

[4] To book an interview with a spokesperson, or for any other questions, please contact press@futureeconomy.scot or call 07909107890