Scientists have warned that damaged UK peatlands – areas formed over thousands of years from dead and decaying plants in waterlogged conditions – are a significant source of carbon dioxide.

They release the equivalent of almost 3.7m tonnes of CO2 a year – equal to the average emissions of about 660,000 UK households, more than all the households of Edinburgh, Cardiff and Leeds combined.

A report by the International Union for the Conservation of Nature describes peatlands as a “Cinderella” habitat: overlooked and undervalued, covering covers less than 3 per cent of the earth’s land surface but containg twice as much carbon as the world’s forests.

Within the UK, peatlands represent the single most important carbon store, with deep peat bogs containing more than 3.2bn tonnes of carbon: about 20 times that of UK forests. Scotland holds about half the UK’s peatland carbon.

The reports says: “A loss of only 5 per cent of UK peat carbon would equate to the total annual UK human greenhouse gas emissions. It is therefore vital for the UK to avoid the huge losses arising from peatland damage in order to meet its international obligations in tackling global warming.”

The scientists found much of the UK’s peatlands had been damaged, largely because of the way they had been managed, including drainage for agriculture or forestry, track building and peat extraction. Fire, overgrazing, climate change and atmospheric deposits could also worsen the effects of drainage.

The report said damaged peatlands also reduced the quality of drinking water at source, leading to discolouration and associated increased treatment costs for water companies and consumers.

However, healthy peat bogs had a net long-term “cooling” effect on the climate. Peatlands include the largest remaining semi-natural habitats in the UK and host internationally important biodiversity.

Clifton Bain, Director of the IUCN UK peatland programme said: “The good news is that this inquiry has shown that peatland restoration not only benefits wildlife, but has measurable carbon savings, and can quickly reduce the cost of treating drinking water.”

“In identifying a clear strategy for action to bring our peatlands back from the brink, the inquiry points the way forward to avoid the social and environmental costs of further deterioration,” he said.

Jonathan Hughes, director of conservation for the Scottish Wildlife Trust, said: “We’ve always had a strong environmental case for investment in peatlands, but with this landmark publication, we now have a clear and compelling economic case too.”