On 29 March 2023, the Australian Government introduced two Bills to the federal Parliament that, if passed, will introduce the world's first voluntary biodiversity market. This would allow eligible landholders to generate tradeable certificates for undertaking projects that enhance or protect biodiversity and to sell these certificates to the private sector or the Government, thereby generating revenue from projects that protect nature.
The Australian biodiversity market has been estimated to be worth $137bn, more than half of which is forecast to be driven by biodiversity, conservation and natural capital-themed bonds, loans, debt, and equity. The Government anticipates that unlocking this potential investment is critical to reversing the long-term decline in Australian biodiversity revealed in the 2021 State of the Environment Report, which found that Australia's environment is in a poor and deteriorating state, due to factors such as habitat loss, invasive species, pollution and climate change. The biodiversity market also seeks to support the Government's commitment to protect 30 percent of the country's land and seas by 2030.
- Minister for the Environment and Water, Tanya Plibersek, introduced Bills into federal Parliament that would create a legal framework for a national nature repair market.
- Participation in the market would be voluntary, and allow landholders and other eligible persons to generate certificates for projects that protect, manage and restore nature.
- Holders of certificates would be able to sell them to buyers, providing income to the project proponent(s). Buyers of certificates could be companies or organisations as part of their ESG and sustainability initiatives or potentially – and more contentiously – project developers who are required to offset the biodiversity impacts of their projects.
- The mechanics of how the market would operate will be resolved after the Bill is passed.
The Nature Repair Market Bill 2023 (the Bill) sets out the proposed framework for the voluntary market. The government also introduced the Nature Repair Market (Consequential Amendments) Bill 2023, which would make minor amendments to the Clean Energy Regulator Act 2011 and the National Greenhouse Gas and Energy Reporting Act 2007.
The Bill has been referred to the Senate's Environment and Communications Legislation Committee, which is due to report on the Bill by 1 August this year. Further public consultation will occur this year with a view for the scheme to begin operation in the second half of 2024.
How will the scheme operate?
Eligible biodiversity projects
The Bill proposes that an "eligible person" would be able to apply to the Clean Energy Regulator (Regulator) to register a biodiversity project on a Biodiversity Market Register (Register). An eligible person can be an individual, body corporate (including native title body corporates), trust, corporation sole, body politic, or a local governing body. If the project area is subject to native title and there is a registered native title body corporate for that native title area, then the registered native title body corporate must either consent to the project or be the project proponent. The Bill allows multiple eligible persons to be project proponents for a biodiversity project, and multiple biodiversity projects can be undertaken on same area of land.
Put simply, any project is designed to enhance or protect biodiversity in native species would qualify as a 'biodiversity project' under the Bill. The Government has stated that examples of such projects could include improving or restoring existing native vegetation through fencing or weeding, planting a mix of species, or protecting grasslands. However, it also proposed to empower the Minister to determine through subordinate legislation that certain projects cannot be registered under the scheme if they present a material risk of material adverse impact to matters such as water availability, biodiversity, the environment, and any local Aboriginal or Torres Strait Islander community with a connection that area.
The Bill would empower the Minister to make methodology determinations that set out the requirements for undertaking different types of biodiversity projects. The methodology determinations would set matters such as the type of information that must be included in the Register, and the conditions that must be met in order for an eligible person to apply for a biodiversity certificate. A methodology determination could also impose requirements relating to reporting, notification, record-keeping or project monitoring, as well as prohibiting specified activities. The Minister would need to received the advice of the Nature Repair Market Committee before making a methodology determination.
Methodology determinations would need to meet statutory biodiversity integrity standards and comply with any biodiversity assessment instrument prescribed by the Minister. The biodiversity integrity standards could address requirements such as the:
- measurement or assessment of biodiversity;
- measurement or assessment of the enhancement of biodiversity; and
- measurement or assessment of the protection of biodiversity.
Project registration and issuing certificates
To register a biodiversity project, the Regulator would need to be satisfied the project meets several requirements, including that it is being carried out by fit and proper persons, and that the project complies with a methodology determination.
If the Regulator approves the application, it would be registered on the Biodiversity Market Register. The Regulator would be able to impose conditions on the approval, such as obtaining regulatory approvals, or consents from eligible interest holders or native title body corporates.
The Bill proposes that the proponent of a registered biodiversity project may apply to the Regulator for a single certificate for each registered project. The certificates under the proposed Bill would represent projects of different size, lasting for different lengths of time, and with different aims in terms of protecting or enhancing biodiversity. Applications for biodiversity certificates must include a biodiversity assessment report, and proponents must periodically report to the Regulator on the biodiversity project for the duration of the permanence period nominated in the notice of approval of registration of the biodiversity project. The registered biodiversity project and any biodiversity certificate are cancelled at the conclusion of the permanence period.
A biodiversity certificate would be personal property that can be traded and owned as a separate property to the underlying land.
Both the Commonwealth and private investors would be able to purchase certificates. The Bill sets out the purchasing process that would apply when the Commonwealth is the purchaser. The payment structure for a certificate would be determined in the commercial contracts agreement between the buyer and the seller.
The market for biodiversity certificates would be driven by voluntary purchasers, such investors and companies motivated by ESG concerns, including those driven by reporting and disclosure requirements such as those under the Taskforce for Nature Related Financial Disclosures, or participants of the carbon market who wish to invest in projects which also benefit biodiversity and nature.
The Government has also flagged that pending reforms to the Environment Protection and Biodiversity Conservation Act 1999 may allow biodiversity certificates to be acquired by project developers to offset the biodiversity impacts of the project, resulting in a higher demand for biodiversity certificates.
Regulation, Review and Relinquishment
The Regulator would be responsible for approving biodiversity projects for inclusion on the Register, and would be granted a range of powers to require biodiversity projects to be audited, prohibit certain activities within a project area, and require project proponents to relinquish their biodiversity certificates. The Regulator would also be required to monitor and publish reports on the delivery of the projects, publish information regarding the ownership and use of the certificates, and release relevant data to the public.
Under the Bill, the Regulator would also have the power to require a biodiversity certificate to be relinquished if it was issued because of false or misleading information, if there was a significant reversal of a biodiversity outcome, or if other circumstances as prescribed by subordinate legislation exist. Failure to comply with a relinquishment notice would be a civil penalty provision.
The Bill proposes that if the relevant person does not relinquish the certificate, the Regulator would be able to make a biodiversity maintenance declaration by declaring a biodiversity maintenance area. A biodiversity maintenance declaration may prohibit activities within the biodiversity maintenance area.
Operation alongside Australian Carbon Credit Units
The Bill has been designed to align with the Carbon Credits (Carbon Farming Initiative) Act 2011 to ensure investments in land sector carbon projects also deliver biodiversity co-benefits. It is envisaged that landholders will be able to use the same project area to generate carbon credits and biodiversity certificates.
Kate Butler (White & Case, Associate, Melbourne) contributed to the development of this publication.
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