Green finance, land reform and a just transition to net zero

Tackling the twin emergencies of climate change and biodiversity loss is an existential challenge, requiring concerted and coordinated action across all sectors of the economy. Scotland’s land has a key role to play, both in protecting existing stores of carbon and sequestering more. However, land is currently a significant source of emissions: rapid and extensive changes in land use are necessary to deliver any meaningful contribution to net zero.

The Scottish Government has made legally binding commitments to achieve net zero, and to ensure a just transition, providing a fairer distribution of benefits. Likewise, the Government has commendable policy commitments to social justice, land reform and community wealth building. However, delivery of these multiple objectives is problematic given Scotland’s largely unregulated land market and uniquely concentrated pattern of rural land ownership. This disposition is buttressed by a suite of grants, subsidies and tax exemptions which drive up land prices and build and protect private wealth. With access to land denied to all but a few, the distribution of benefits, often from windfall gains, is equally restricted.

To date, interventions to tackle climate change have focussed on providing additional incentives via green grants and developing mechanisms such as carbon credits to facilitate private investment. However, promoting increased flows of capital to land without reforming existing fiscal mechanisms only adds fuel to an overheated land market and will inevitably widen existing inequalities. These new incentives are attracting new actors, some motivated more by the promise of return on investment than the delivery of green objectives and with little knowledge of or concern for the local context of the land they acquire.

The Scottish Government has rightly acknowledged the importance of private sector involvement, but thus far has largely failed to utilise the very substantial levers already at its disposal, or recognise that their current deployment often inhibits, rather than supports, the achievement of its environmental objectives. Past experience suggests that unregulated markets are unlikely to effectively deliver even the primary objective of tackling the climate and biodiversity crises: a radical change of mind-set is needed to ensure that our land does contribute to its full potential, and that the transition to net zero builds community wealth and resilience.

This paper analyses the main green finance mechanisms, discusses the impact of fiscal measures on the land market and identifies a suite of interventions by which the Scottish Government can take a more proactive role, driving the land use changes necessary to achieve net zero whilst contributing effectively to social justice and community wealth building. These interventions include:

• • Review and regulation of green finance mechanisms to ensure that they contribute effectively to net zero;
• • Reform of subsidies and tax exemptions which distort the land market and perpetuate current unsustainable land use, ensuring that any future fiscal measures are fully aligned to delivering the full range of Government objectives;
• • Regulation of large-scale landownership and land use through a revised Land Rights and Responsibilities Statement, backed by Public Interest Tests;
• • Provision of community benefit funds to help ensure a broader distribution of benefits from the transition to net zero.