A “shift in ambition” on biodiversity (Part I)

On 7 December 2023, the Nature Repair Bill 2023 finally passed both houses of federal Parliament in Australia, and on 14 December 2023 the Nature Repair Act 2023 (Cth) (Nature Repair Act) was assented to and became law. The Nature Repair Act introduces a legal framework for a voluntary national “nature repair market” in Australia.

The Nature Repair Act reflects, in the words of the Minister for the Environment Tanya Plibersek, a “shift in ambition” from the Australian Government on biodiversity. Under its Nature Positive Plan released in December 2022, the Government committed to protect 30% of Australia’s land and seas by 2030. The Nature Repair Act establishes machinery to assist Government to achieve that commitment.

The Nature Repair Act creates a national biodiversity certification and trading framework, which will allow landowners to monetise biodiversity improvements and potentially “stack” biodiversity and carbon credit benefits, and provide business with opportunities to invest in nature-based projects.

Formerly known as the Nature Repair Market Bill (emphasis added), the legislation was first introduced to federal Parliament by the Government in March 2023, but its passage through Parliament was “indefinitely postponed” in June. This was largely due to opposition from the Greens and members of the crossbench to the Government’s proposal to elements of the legislation. Amendments (to the Nature Repair Market Bill and to other legislation) were finally agreed by the Government with the Greens and crossbench in early December, allowing the legislation to pass the Senate and the Nature Repair Act to come into force.

In this article, we look at the similarities and differences between the new biodiversity certificates framework and the existing Australian carbon credits framework – a useful comparison given that the former is heavily based on the latter. We also compare the new biodiversity certificates framework with a similar scheme in the United Kingdom, the “Biodiversity Net Gain” scheme.

Similarities & differences compared to the carbon credits framework

The Nature Repair Act is deliberately similar to the legislation underpinning the existing Australian carbon credits market, the Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth) (CFI Act).

According to the Government, this is to assist landowners who are already familiar with the carbon credits framework to readily understand opportunities under the new biodiversity certificates framework, and to facilitate investment in carbon projects which have biodiversity co-benefits.

Of course, the alignment across the two frameworks also allows the Government to apply some important “lessons learned” from the development of the CFI Act to the new biodiversity certificates framework, not to mention allows for certain efficiencies in implementation and administration.

Similarities

The similarities between the proposed new biodiversity certificates framework and the existing carbon credits framework include:

• Methodology determinations: The Nature Repair Act will enable certification of a wide variety of biodiversity projects, including projects that enhance remnant vegetation and create habitat for native species. Like under the CFI Act, methodology determinations (methods) will establish the technical requirements for project registration. The Minister for the Environment (Minister) will need to receive the advice of a Nature Repair Committee (NRC) before making a methodology determination.
• Additionality: Methods will ensure that projects are only registered if they result in genuine and verifiable biodiversity protection or enhancement. Certificates will only be issued for projects that support biodiversity benefits that would be unlikely to occur in the absence of the project – this is the “additionality” principle, which is also reflected under the carbon credits framework.
• Permanence: Like under the CFI Act, unless the method stipulates otherwise, proponents may choose either a 25-year or 100-year “permanence period”, i.e. the duration of time for which the project (and the biodiversity affected by the project) must be monitored and protected, following its registration.
• Monitoring and reporting: Proponents will be subject to stringent record-keeping and project monitoring and reporting requirements. The Clean Energy Regulator (CER) will have the ability to audit projects and require third-party auditing. The provisions in this respect generally reflect equivalent CFI Act provisions, while also enhancing them in some important ways (see below comments on integrity and transparency).
• Relinquishment: The Nature Repair Act allows for cancellation of projects and relinquishment of certificates in response to specific circumstances of non-compliance. Similar to the CFI Act concept of a “carbon maintenance obligation”, the Nature Repair Act also includes the concept of a “biodiversity maintenance declaration” which may be made by the CER in the event of non-compliance or likely non-compliance with a relinquishment notice.
• Trading: Biodiversity certificates, like carbon credits, will be personal property and will be able to be transferred and sold. A proponent will be able to on-sell their certificate to a third-party buyer, who may be interested in buying the certificate in order to achieve philanthropic objectives, meet ESG or sustainability targets, compensate for biodiversity impacts resulting from developments and/or manage risks associated with dependencies on nature.
• Government purchase: Biodiversity certificates will also be able to be purchased by the Commonwealth under so-called “biodiversity conservation contracts”, as part of a tender, reverse auction or other Government procurement process, in a way similar to the process for Commonwealth purchase of carbon credits under “carbon abatement contracts” under the CFI Act.
• Public register: Like the register of emissions reduction projects under the CFI Act, there will be a public register (the Biodiversity Market Register) of all registered biodiversity projects and certificates to allow for tracking of project progress.
• Administration: The framework will be primarily administered by the CER, who will be responsible for registering projects, issuing certificates, maintaining the Biodiversity Market Register, undertaking compliance and enforcement, and providing market oversight – the same roles that regulator plays under the carbon credits framework.
• Integrity standards: Similar to the carbon credits frameworks, methods under the biodiversity certificates framework will need to conform to “integrity standards’, in this case relating to project design and delivery, biodiversity assessment, and biodiversity information on the register and certificates. The NRC, consisting of independent experts and playing a similar role to the Emissions Reduction Assurance Committee under the CFI Act, will advise and provide recommendations to the Minister on methods, and the NRC and the Minister will assess methods against the standards to ensure integrity.

Differences

There are also some important differences between the proposed new biodiversity certificates framework and the carbon credits framework. Notably:

• Biodiversity assessment instruments: These instruments will be key instruments under the framework, establishing overarching rules to achieve consistency in how methods measure and assess biodiversity (including both a baseline and changes in biodiversity over time). Each method will be required to comply with relevant biodiversity assessment instruments in order to be approved. The intention is to enable potential biodiversity certificate buyers to compare different projects under different methods, and understand their relative value. This is necessary in the biodiversity market, where there will inevitably be many different metrics to account for different types of biodiversity, as opposed to the carbon market, where “a tonne is a tonne”.
• Crediting: It is proposed that each biodiversity project will be awarded only one biodiversity certificate. Each certificate will provide a range of standardised information such as the area of land repaired, the kind of work conducted, the biodiversity protected, and the relevant permanence period.
• Online platform: The Government has allowed in the Nature Repair Act for the possibility of establishing an online platform as a voluntary place for biodiversity certificate transactions to occur. The Government envisages that initially the online platform would operate to allow proponents to advertise biodiversity certificates for purchase, but the actual trade of the biodiversity certificates would be conducted privately between the proponent and purchaser. At a later stage, the operation of the online platform may be expanded so that trades can be conducted on the online platform itself.
• Depositing biodiversity certificates: The holder of a biodiversity certificate will be able to apply to the CER for approval to deposit the certificate with the CER. Once deposited, the holder will no longer be able to transfer or otherwise deal with the certificate. This is intended to be a mechanism allowing a holder to effectively communicate to the market that it has committed to not on-sell a certificate and is committed to the project for the life of the project.
• Offsetting: As part of agreement between the Government and the Greens and crossbench allowing the Nature Repair Act to pass Parliament, the Government agreed to prohibit the use of biodiversity certificates for any “environmental offsetting purpose”, that is, for the purpose of meeting an environmental offsetting requirement (however described) under a law of the Commonwealth, a State or a Territory. The deal done on this point will foreclose a “compliance” market in biodiversity certificates, at least for the time being. Project proponents who might have anticipated using biodiversity certificates as an alternative avenue for fulfilling offset obligations will need to reconsider their options.

A “world first”?

Certain commentary around the Nature Repair Market Bill at the time of its introduction to Parliament hailed the legislation as a “world first”. This is certainly the case in a number of respects. Notably, the level of Government support for the market – in terms of Government oversight and administration of the market, as well as support for the market through facilitation of transactions – appears unique.

However, in a number of other respects, the Nature Repair Act is similar to the United Kingdom’s “Biodiversity Net Gain” (BNG) requirements, as introduced by the Environment Act 2021 (UK Act), although the UK Act has broader scope and includes the possibility of developers offsetting their impact through the purchase of statutory credits.

As well as introducing the concept of a market for biodiversity units, the UK Act built on existing policy requirements to introduce a legal requirement for BNG to be secured for new developments, which is absent from the Nature Repair Act in Australia. Depending on the type of development concerned, this is achieved through the imposition of a deemed pre-commencement condition on all planning permissions (subject to limited exceptions) or the imposition of a requirement on decision makers. With the first tranche of the provisions of the UK Act expected to come into force in January 2024, they represent one possible solution to the, at times, competing demands of new development and the need to protect biodiversity.

UK developers will be able to meet the requirement for BNG introduced by the UK Act through either onsite provision as part of the development, offsite provision, offsite provision by a third party or purchase of statutory credits from the UK Government. While onsite provision will be incentivised through the allocation of greater value to biodiversity units provided onsite, it is expected that the availability of offsite provision by third parties will result in a market system. Similar to the Nature Repair Act, the UK regime will establish a register for biodiversity gain sites, with corresponding requirements for management and qualification.

In the UK, we have seen that clients are already seeking advice on the extent to which the BNG requirements could impact on their ability to bring forward development, both in terms of viability and availability of sites suitable for the delivery of BNG. We are aware of developers that are already actively seeking to acquire sites to ensure that BNG can be delivered without risking delay to planned development. We are also speaking to landowner clients that are considering acting as third-party providers of BNG as a result of the anticipated demand for such sites, once the relevant provisions come into force. Similarly, we are advising local planning authorities to ensure the necessary enforcement mechanisms are in place, with the additional resourcing strain resulting from the new requirements being a real concern for local planning authorities and developers alike.

The Nature Repair Act in Australia and the UK’s BNG requirements are both scheduled to commence operation within the next few years, with the first tranche of the BNG requirements coming into force in January 2024 in the UK, and the commencement of the nature repair market targeted for mid-2024 in Australia. Many stakeholders (not just in Australia and the UK) will be tracking the implementation of these frameworks, and the outcomes delivered. Ultimately, the respective frameworks are directed at the same problem – the global biodiversity crisis. “Lessons learned” from the implementation of the BNG framework in the UK may inform the implementation of the biodiversity certificate framework in Australia, and vice versa. Regulators in other countries will also be tracking the implementation of both the UK and Australian frameworks with much interest.

Next steps

Now that the Nature Repair Act has been passed by Parliament, there remains a lot of work for the Government and the CER to do – drafting the regulation and rules underpinning the operation of the legislation, making Biodiversity Assessment Instruments and methods, preparing guidance documents, not to mention establishing the online platform for market transactions. Until these are finalised, there are a number of key features of the nature repair market that are currently unclear. Such uncertainties include the timing of the issuance of a biodiversity certificate following registration, the standardised information to be recorded on a biodiversity certificate, and level of analysis required to demonstrate biodiversity outcomes of a project.

The Government has indicated that the new nature repair market will begin operation in the second half of 2024.

Look out for Part II of this article which will discuss the opportunities, challenges and issues to consider for potential nature repair market participants. In the meantime, should you wish to learn more about the Nature Repair Act and what opportunities and challenges it presents for your business, please reach out to one of the authors.