Inga Račinska & Tilmann Disselhoff | 22.11. 2024
The European Union has set a climate neutrality objective to achieve net-zero greenhouse gas emissions by 2050, employing a socially just and sustainable transition to a climate-neutral economy. To reach climate neutrality by 2050, the EU aims to significantly reduce greenhouse gas emissions across various sectors, such as energy, transport, industry, and agriculture. The EU’s climate neutrality objective aligns with the goals of the Paris Agreement to limit global warming to well below 2 degrees Celsius above pre-industrial levels and pursue efforts to limit the temperature increase to 1.5 degrees Celsius. It also sets the EU emission reduction target 2030 of at least 55% compared with 1990 levels.
In February 2024, the European Commission recommended reducing the EU’s net greenhouse gas emissions by 90% by 2040relative to 1990.
Picture 1. EC Proposal for greenhouse gas emission reductions for the period 2015-2050
The emission reduction target of 90% by 2040 relative to 1990 assumes a net LULUCF sink of 320 MtCO2eq/y by 2040, up from 255 MtCO2eq/y in 2020. Given the steadily decreasing carbon removal capacity of European forests, this requires a drastic decline in emissions from organic soils and the large-scale reestablishment of peatlands as natural carbon sinks.
Picture 2. Historical LULUCF emissions, removals and net carbon removals in the EU, source: UNFCCC 2023
Peatlands: Europe’s Carbon Treasure and Climate Solution
Peatlands are the most carbon-rich ecosystems worldwide. They occur in almost all EU Member States, though a greater extent in Northwestern, Nordic, and Eastern European countries. They cover an estimated area of 350,000 km2 in the EU.
Current EU Member State reporting on peatlands shows that only 10% are in good condition. Over 50% of peatland areas in the EU no longer accumulate peat. Drained peatlands in the EU currently emit up to 230 MtCO2eq/y, approximately 7% of the total EU annual greenhouse gas emissions and 25% of the yearly agricultural emissions (Greifswald Mire Centre, 2020).
Rewetting drained peatlands can significantly reduce greenhouse gas (GHG) emissions. Therefore, restoring peatlands would dramatically contribute to tackling the climate crisis. Healthy peatlands also mitigate flooding risks, act as water purifiers and reserves, and buffer against pollution. They are also home to unique and threatened habitats and species.
To reach climate neutrality by 2050, virtually all drained peatlands in the EU need to be rewetted. Thus, restoring peatland under cropland and grassland use is recognised as a key GHG mitigation measure by the Intergovernmental Panel on Climate Change (IPCC, 2019). The huge mitigation benefits of rewetting arise from avoided emissions from degraded peat and, over time, from carbon removals by restored ecosystems.
Natural Carbon Sinks: A Key to Climate Stability
Moreover, natural carbon sinks, including forests, peatlands, oceans, and soils, are crucial for offsetting residual emissions after 2050. Restoring these ecosystems as carbon sinks complements emissions reduction efforts. Protecting and restoring them, particularly peatlands, is a cost-effective, immediate solution that supports long-term climate stability.
Targeting Peatland Emission Hotspots in Europe
As the lion’s share of drained peatlands are under agricultural use, their rewetting requires a transformation of regional rural economies and the creation of reliable economic incentives in the long term. However, the impact of this transformation is unevenly distributed throughout the EU. Based on a recent analysis of peatland emission hotspots in Europe, priority regions for peatland restoration are located in Ireland, the UK, Benelux, Northern Germany, Eastern Poland, the Baltic States, and Eastern Romania (van Giersbergen et al. 2024). The Peatland Atlas (Picture 3), joint publication by Boell Foundation, Friends of the Earth Germany, and Michael Succow Foundation, highlights the importance of countries with high emissions relative to the areas of drained peatlands, such as Latvia, Lithuania, Finland, Romania, Germany, Denmark, the Netherlands, and Ireland. According to the Greifswald Mire Centre, the largest peatland emitters in the EU are Germany, Finland, Poland, Ireland, Romania, Sweden, Latvia, Lithuania, and the Netherlands (Greifswald Mire Centre, 2019).
Picture 3. Böll Stiftung 2023 Peatland Atlas.
EU Policies Driving Peatland Restoration and Climate Action
As part of the European Climate Law, the EU has established ambitious national emission reduction targets relevant to the land sector, covered by the Land Use, Land Use Change and Forestry (LULUCF) Regulation. The LULUCF Regulation sets rules for how countries account for emissions and removals from land use, land use change, and forestry activities. Article 7 includes specific provisions for the accounting of greenhouse gas emissions and removals from managed wetlands, including peatlands. It targets reducing emissions from drained organic soils, including peatlands, by 32 million tons of CO2 equivalents annually by 2030. This target is part of the EU commitment to reduce emissions and enhance carbon sequestration in the land use sector.
The EU’s Nature Restoration Law (NRL) aims to restore damaged ecosystems, including peatlands. It provides a framework and time-bound targets for restoring and protecting habitat types of community interests, among which are several peatland habitats. Art. 4 of the NRL asks EU Member States to take measures for restoring these habitat types in 30% of the area where they are not in a good conservation status by 2030, 60% by 2040, and 90% by 2050. Art. 11 of the NRL addresses peatlands under agricultural use. It asks Member States to restore 30% of such peatlands until 2030 (of which at least one quarter needs to be rewetted), 40% until 2040 (with one-third being rewetted), and 50% until 2050 (with one-third being rewetted). These restoration targets are essential for improving Europe’s biodiversity, ecosystem resilience, and carbon sequestration capacity.
EU Biodiversity Strategy 2030 identifies that to meet the needs of the Strategy, including investment priorities for Natura 2000 and green infrastructure, at least €20 billion a year should be unlocked for spending on nature. This will require mobilising private and public funding at the national and EU levels, including through various programmes in the next long-term EU budget. Moreover, as nature restoration will make a major contribution to climate objectives, a significant proportion of the 25% of the EU budget dedicated to climate action will be invested in biodiversity and nature-based solutions.
Another significant development has been the recent EC proposal for the EU Carbon Removal Certification Framework (CRCF)that supports the development of the EU carbon markets and offers further opportunities for peatland restoration. Once the European Parliament and Council adopt it, it will lead to the creation of a central EU registry for voluntary carbon certificates and provide a standardised framework for certification methods. While the formal adoption of this legislation is still pending, discussions in its technical expert groups already show that it will need support from practitioners in the field in testing the methodologies and providing feedback to decision-makers.
Time is of the essence
Despite numerous EU-funded projects and other initiatives for peatland restoration, current efforts are not even close to the magnitude needed to meet the EU climate and biodiversity goals. For example, in Germany, it has been estimated that to reach nationally and internationally binding climate targets, 50,000-70,000 ha of peatlands per year would need rewetting, while over the last decade, an average of less than 2,000 ha per year has been rewetted (Abel et al. 2019).
While the growth in conservation finance and investments in nature-based solutions is noteworthy, they remain substantially below the scale needed to fully harness their potential for climate change mitigation and achieving Sustainable Development Goals, such as SDG 15, “Life on Land,” which aims to protect, restore, and promote the sustainable use of terrestrial ecosystems and halt and reverse land degradation and biodiversity loss, or SDG 2, “Zero hunger,” which aims to end hunger, achieve food security and improved nutrition, and promote sustainable agriculture.
The Financing Gap: Unlocking Private Investment for Nature-Based Solutions
Currently, only 2% of global climate finance is directed towards conservation finance, and a mere 17% of financing for nature-based solutions originates from the private sector (UNEP, 2022). Given that nature-based solutions account for 30% of the GHG mitigation potential by 2030 and serve as a vital tool for climate adaptation (UNEP, 2022), the increase in nature-based carbon credits in the voluntary carbon market in recent years reflects progress in the Paris Agreement’s carbon rulebook, but it is not enough. According to the United Nations Environment Programme’s State of Finance for Nature report, investments in nature-based solutions (NBS) must increase to$674 billion annually by 2050 to meet climate, biodiversity, and land restoration targets (UNEP, 2022). This financing gap will not be closed without significantly increasing the participation of the private sector
Corporate Accountability: Driving Demand for Verified Nature-Based Credits
Recently introduced EU legislation, namely the Corporate Sustainability Reporting Directive (CSRD), the Directive on Empowering Consumers for the Green Transition and the forthcoming Green Claims Directive, places stricter requirements on the verifiability of environmental claims made by private companies, triggering the need to develop legally compliant monitoring, documentation, reporting and verification rules regarding a company’s climate and biodiversity performance. Companies need to submit reliable and verifiable evidence for their claims if they want to contribute to national emission reduction targets or offset their emissions. Thus, these new reporting obligations will likely only drive expanding corporate engagement in voluntary nature markets if GHG emission reductions and other ecosystem services are quantified under standardised and widely recognised procedures.
BOTTLENECKS for upscaling peatland restoration
Upscaling peatland restoration poses a significant challenge in the EU and worldwide. In the EU, it is hindered by various factors. Since 2023, Eurosite has been interviewing stakeholders in the European peatland restoration community to better understand the obstacles to scaling up the restoration efforts in the EU. The findings from these interviews show that the main bottlenecks for upscaling are:
- 1. Lack of high technical expertise and capacity within organisations to undertake complex (landscape-scale) restoration projects. Peatland restoration is a complex process requiring special knowledge in property, agriculture, water law, hydrology, ecology, soil science, engineering, management, and finances. The availability of experts and professionals with experience in peatland restoration is limited, making it difficult to conceive and implement restoration projects. Building and maintaining skills and technical capacity through training programmes and knowledge-sharing initiatives are crucial for eliminating this bottleneck. Numerous initiatives are building capacity within environmental organisations, but they do not sufficiently focus on relevant peatland restoration topics. Moreover, other stakeholders, including the private sector, need more involvement in the restoration process. However, working with them across an extensive portfolio of projects in various regions would increase learning and efficiency. Limited capacity is linked to another bottleneck – limited access to land due to complicated ownership and use of proper patterns. As peatland restoration is usually voluntary, it requires prior consent by affected landowners and land users. Peatlands are often hydrological units that span multiple property borders, and their rewetting can only be done effectively if all owners agree to it. This makes the process very complicated and lengthy.
- 2. Limited funding and capacity for the initial phases of restoration projects. Initial screening of projects and feasibility studies are costly and time-consuming. Even though the private sector might be interested in buying carbon certificates from peatland restoration projects (and even willing to pre-finance projects to secure a future stream of certificates), there are not enough projects to satisfy large-scale demand. Given the immature and fragmented nature of the market and the complexity of generating carbon credits from peatland rewetting, the private sector shies away from investing in the early stages of project development. Therefore, even in countries where private finance would be available for restoration projects in theory, the money is not accessible to restoration practitioners, as they cannot offer a satisfactory project pipeline. The same is true for public funding programmes. We are seeing examples of insufficient uptake in Germany and Lithuania, where new national funding programmes for peatland restoration cannot spend the allocated funds quickly due to a lack of implementation-ready projects.
- 3. Heavy focus of public funding on traditional restoration projects inhibits upscaling efforts, as there is not enough public funding available to finance all restoration projects necessary to meet the EU climate and restoration goals. To maximise their impact, public programmes must become more strategic about the type of projects they support. Peatland restoration projects often require substantial financial resources, but most of those can be supplied by the private sector. Momentarily, investing in peatland restoration as a business case must still be categorised as ‘early stage’ and, therefore, high-risk for non-public investors. This, coupled with the uncertainty around how the market and regulatory environment will evolve, makes broad investor appeal of peatlands as nature-based solutions challenging. Therefore, public programmes and philanthropic funding should be used as de-risking mechanisms, enabling blended finance and innovative approaches to leverage concessionary capital to support the peatland restoration market until it reaches maturity and becomes a self-sufficient market.
The financial gap is also linked to a limited understanding of the economic potential of peatland restoration and scarce examples of economically viable activities on restored peatlands. Securing funding for large-scale peatland restoration efforts can be challenging. EU conservation organisations are familiar with public funding opportunities (especially LIFE, Interreg, and HORIZON). However, the competition in these programmes is fierce, and their size needs to be increased to upscale nature restoration in line with political objectives. Last but not least, most public programmes do not fund ongoing incentives (an exception being the CAP, with its own set of challenges). There is a substantial pool of private funding available from private companies via voluntary carbon markets, and more may come from other nature markets (water, biodiversity), following recent regulatory trends for sustainability disclosures such as the CSRD. However, local stakeholders (owners, farmers, community) and the nature restoration sector must gain the skills to access that funding. Landowners and land users must be adequately incentivised, including long-term financial guarantees that they can base management decisions on (including a viable business plan), to agree to peatland restoration measures on their land. Public funding programmes often do not offer this long-term security, as they are contingent on political support, which is subject to change, or only fund projects of limited duration. The lack of tried and tested economic models is thus an ultimate bottleneck for upscaling. Without viable business scenarios, there is no path towards upscaling peatland restoration. Many initiatives address this challenge of diversifying funding, but it remains huge.
- 4. Immature EU-wide nature markets: Voluntary carbon (and biodiversity) credit markets are the most promising sources for private funding of large-scale peatland restoration. However, they need political support and incentives to de-risk initial transactions and bring them to scale. Pilots have been implemented in the UK (UK Peatland Code), Germany (MoorFutures), Netherlands (Valuta voor Veen), and other countries, but the markets still need to mature. Several new voluntary carbon codes and accounting tools are currently under development, which brings the risk of fragmentation, overlap, methodological inconsistencies and the dilution of existing standards. The EU has recently stepped up its efforts to provide a regulatory framework with its Carbon Removal Certification Framework (CRCF). However, it is still unclear what the peatland methodology will look like and when it will be adopted. The discussion so far has centred around the issues of quality criteria (quantification, additionality, long-term storage, sustainability) and the process of monitoring, reporting and verifying the authenticity of removals and reductions.
- 5. Limited knowledge for informing business decisions: Effective peatland restoration requires ongoing monitoring and adaptive management to ensure restoration outcomes’ success and sustainability and quantify and monetise emission reductions and other ecosystem services. Monitoring capacity and sufficient data to back up the decisions impede the effectiveness and prevent the restoration and refinancing efforts. Measuring GHG fluxes in peatlands is technically challenging and expensive. Hydrological and vegetation data can be used as proxies for estimating GHG emissions of various peatland types. Most voluntary carbon certification schemes use this approach. Although the costs of collecting this kind of data are lower, it is still an essential factor in the total cost of the restoration project. Moreover, the underlying methodologies and scientific consensus on its application in additional geographic regions and peatland types are still incomplete and need further refinement. Several research projects address the challenges of quantifying GHG emission reductions in restored peatlands.
Overcoming Bottlenecks: Catalysing Private Investment in Peatland Restoration
Other initiatives mirror the bottlenecks identified by Eurosite. For example, the publication “Investing in Peatlands” by the project Horizon WaterLANDS identifies the following bottlenecks and needs.
- Lessons-learned exchange
- Development of methodologies to simplify the peatland landscape development work
- Training staff in the landscape approach and landscape finance
- Work with the finance sector to catalyse private capital / blended finance
- Funding for pilot projects
- Development of methodologies and tracking systems for carbon and nature credits
- Funding for feasibility studies – to prepare project pipeline for investors
The barriers to scaling up private sector finance identified in the report “Building the Capital Continuum for Nature-Positive Investments” by the Coalition for Private Investment in Conservation have identified the following bottlenecks:
- Insufficient regulation for social and environmental externalities
- Widespread fragmentation of land ownership -projects are usually small-scale, demanding lots of input and customisation
- The supply of investable projects does not meet the demand
- Nature-based solutions projects often experience a mismatch in their funding needs and investor timelines, and projects fall into the “valley of death” (see Picture 4 below) as their value does not rise proportionally to the risk decrease. Adding public funding to the initial phases of the project portfolio development significantly de-risks the investments and makes them more attractive for investor
- Lack of standardised, data-driven impact measurement and reporting standards for nature-based solutions provides another obstacle to attracting large-scale investment
- There is a shortage of human capital and financial expertise tailored to deliver nature-based projects at scale
Picture 4. Different stages of project development, their risks and value (Denke et al 2023)
Scaling Up Peatland Restoration: Bridging Gaps for a Sustainable Future
In conclusion, peatland restoration needs to be scaled up, and the bottlenecks that prevent this from happening should be eliminated with urgency. Eurosite has taken on the challenge and is building its Conservation Finance Accelerator, which will help organisations bridge the gap in knowledge and financing and scale up their efforts to restore nature.