Peatlands play a significant role in regulating the global climate, being one of the major sinks of atmospheric carbon as well as a source of greenhouse gases including carbon dioxide, methane and nitrous oxide. Peat accumulation involves the sequestration and storage of carbon from the atmosphere. The amount of carbon currently stored in peatlands equals approximately 75% of the total amount of atmospheric CO2.

Peatlands regulate local climates. The specific mesoclimate of peatlands influences regional and local climates through evapotranspiration and the associated alteration of heat and moisture conditions. The influence on micro- and meso-climate is larger in warmer or drier climates and smaller when the regional climate is colder or more humid. Consequently, in areas with extensive peatlands, the regional climate is cooler and more humid (Edom 2001).

Peatlands play an important role in catchment hydrology with respect to water storage, water quality, the support of groundwater levels and flood and drought mitigation. Peatlands often form major components of local and regional hydrological systems and have the ability to purify water by removing pollutants (Joosten and Clarke 2002). Large peatland bodies may regulate the surface- and groundwater regime and mitigate droughts and floods. For example, tropical peat swamp forests serve as overflow areas in flooding periods, while in the dry season the stored water is slowly released (Klepper 1992).

The water storage and retention function of peatlands is locally important for the supply of drinking water and for the irrigation of agricultural lands. In regions where catchment areas are largely covered by peatlands, as well as in drier regions where peatlands indicate a rare but steady availability of water, they can play an important role in maintaining water supplies for drinking and irrigation water. For example, much drinking water in Scotland is derived from peat-dominated catchments.