Tax options for reducing emissions from land and supporting land reform

Advice

Building on our previous advice, we have explored options for taxing emissions from land and considered the potential for a carbon land tax with a focus on peatland. Peatland was considered as a priority area during the initial engagement phase as it is the most significant source of Land Use, Land Use Change and Forestry emissions in Scotland.³ Peatland also has the capability to act as a carbon sink removing emissions from the atmosphere when in good condition. The peatland scenario has highlighted important factors that are relevant when considering tax in other land use contexts. 

There is no doubt that tax can be a highly influential factor in shaping land use behaviours. However, our research and engagement demonstrate that a potential tax needs to have a clear purpose and be considered in a joined-up way, in addition to all available levers that influence land use change.

Our work has exposed many practical challenges and potential unintended consequences when designing such a tax fairly and effectively. Extensive work and more data about ownership, peatland condition and potential impacts is required if Scottish Government wishes to continue to explore the feasibility of implementing a new carbon land tax on peatland. It is unclear that a carbon land tax based on emissions would effectively enhance peatland restoration delivery in the short-term, or whether it would be the most effective policy lever available to government.

There is currently no clear delivery pathway to the scale of peatland restoration set out in the Climate Change Plan that does not rely on significant private finance. While private finance markets are proving a viable contribution to woodland creation, there is no evidence yet that they can deliver on the scale and timeline needed for peatland restoration.

For example, it would be reasonable to expect that maintaining peatland in good condition is a regulatory requirement of responsible land ownership. It would also be reasonable to expect that public finance incentives support the more complex restoration costs. In the medium term, tax or other regulatory measures could ensure that keeping peatland in a degraded state carries a liability. A signal that such a measure would be introduced after a defined period, for example, 5 or 10 years, would provide certainty on policy direction and act as a further incentive to restore and maintain peatland in the meantime. Any such future tax would still have to address the practical issues we have identified but would allow time to do that.

A better balance between regulation and incentive would also help avoid contributing to escalating land prices. Recent years have seen some perverse impacts on land values in which degraded peatland has risen in value because of expectations of potential carbon market revenues and public grants. Ensuring a clear signal that degraded peatland will in future carry a financial liability would help counter this scenario.

The carbon land tax proposal is one example of a desire for government to be able to use tax in a more targeted and effective way to help deliver environmental and land reform outcomes. It highlights the need for more systemic improvements to the tax infrastructure – the data, valuations, capacity and systems – so that government has viable options to use tax differently in the future.

³ Scottish Land Commission (2025) Interim Advice on how tax could support land reform and  reduce carbon emissions  from land. Available from: https://www.landcommission.gov.scot/downloads/68be93ee2dd2b_Interim Advice on how tax could support land reform and reduce carbon emissions from land.pdf