Permafrost peatlands store vast amounts of frozen carbon across northern landscapes. When ground ice melts, surface subsidence produces thermokarst landforms that expand wetlands at the edges of permafrost plateaus. Thermokarst represents an accelerating climate feedback, but uncertainties remain about how ground ice, hydrology, and vegetation interact to shape landscape change and carbon fluxes. We extended the process-based model ecosys to simulate thermokarst dynamics in laterally coupled 2D transects at a well-characterized boreal peatland site in Canada’s Northwest Territories. After benchmarking against site observations, we varied ground ice content and hydrologic boundary conditions across ranges typical near the southern permafrost limit. Simulations revealed distinct degradation regimes governed by the elevation difference between the frost table and the external water table. Rates of lateral retreat, the thaw-driven encroachment of wetlands into adjacent plateaus, ranged from 0 to >2 m yr−1 under identical weather forcing, consistent with observations and highlighting the strong role of WT and ground ice. Simulated vegetation dynamics indicate that black spruce mortality cannot be explained by anoxia alone, pointing to additional stressors such as root damage, pathogens, or physical destabilization. Despite large hydrologic shifts, net ecosystem CO2 exchange remained a slight sink after collapse, while methane (CH4) emissions rose by one to two orders of magnitude. As a result, lateral retreat substantially increases the greenhouse warming potential of permafrost peatlands (1.7 million km2 in area), with simulated emissions of 0.1–10 Mt CO2-eq decade−1 depending on hydrology and retreat rates. These results underscore the need to account for both ground ice and hydrologic dynamics when assessing thermokarst-driven climate feedbacks.

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