Biodiversity Offset and Credit Schemes

Articles Written by Samantha Daly (Partner), Angus Hannam (Senior Associate), Heather Pym (Associate)

A biodiversity offset is a measure used to compensate for impacts on biodiversity resulting from development or vegetation clearing if there are no other means available to avoid, mitigate or restore the affected biodiversity. A biodiversity credit is a common unit of measure for both the unavoidable impacts on biodiversity from development or vegetation clearing and the predicted improvement in biodiversity condition gain at an offset site. Both offset and credit schemes exist at a federal and state level in Australia, but differ slightly as between different jurisdictions.

Overview of federal scheme

The Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act) is the primary piece of federal environmental legislation in Australia. It provides a legal framework to protect and manage “matters of national environmental significance” (MNES), which include items of world and national heritage, threatened species and ecological communities, nuclear actions, and water resources in relation to coal seam gas and large coal mining development.

Under the EPBC Act, actions which have, will have or are likely to have a “significant impact” on one or more MNES require approval by the federal Environment Minister. Prior to granting approval, an action will be subject to detailed environmental impact assessment, and approval is often on conditions which include that the proponent or developer offset the relevant impacts of the action.

Offsets are considered during the assessment phase of a proposed action under the EPBC Act. Issued by the Department of Sustainability, Environment, Water, Population and Communities in 2012, the EPBC Act environmental offsets policy provides guidance on how the Department considers the suitability of a proposed offset. A proposed offset should be ‘like for like’ in that the amount and type of biodiversity lost must be gained by the offset.

The offsets policy provides that offsets can be delivered by either market-based credit mechanisms or by contracting third party providers. Market-based mechanisms include biodiversity credit schemes, which provide a system whereby offsets can be traded between buyers and sellers of conservation activities, measured in units called credits which determine the conservation value of a proposed action and offset site. These transactions or trades can be brokered by land brokering services. Contracting a third party involves entering an agreement with a landholder or organisation to manage an offset on the developer’s behalf. Approval is required to contract a third party to manage an offset. Project proponents remain responsible for meeting the conditions required for approval regardless of method adopted. In some cases developers may elect to secure their own offset site and retire the credits generated by that site to meet their biodiversity offsetting obligations under State and Commonwealth approvals.

The EPBC Act is subject to statutory review every 10 years. The most recent review concluded in early 2021 recommended that the application of offsets under the EPBC Act should be reformed so that biodiversity offsets are only available after all possible avoidance and mitigation measures have been taken. It remains to be seen whether the reform proposal will be acted upon.

State-based schemes

In the majority of states, any development involving impacts on biodiversity or vegetation clearing requires that the developer procure a biodiversity offset. Generally, arrangements between the state government and the Australian government will be made to avoid a developer needing to ‘double offset.’ Biodiversity offset schemes are generally established and maintained under state legislation and regulated by state policies, with the exception of the Northern Territory, which is currently in the process of developing a Biodiversity Offsets Policy and associated Technical Guidelines. Pursuant to state-based legislation and policy, biodiversity offsets are effected primarily by three methods:

  • the establishment of a site owned by the developer for the purpose of conservation, protection or enhancement;
  • the purchase of biodiversity credits or offsets where the site is owned by a third party; and/or
  • payment into a conservation fund.

The exception to the above measures is Queensland, where, offsets are either a proponent-driven offset requiring action on the part of the developer, a financial settlement offset requiring the developer to pay an amount to an authority, or a combination of the two. The rest of the states have a biodiversity credit scheme, although sometimes referred to as environmental offset schemes.

Biodiversity credit schemes enable landholders to establish a biodiversity offset site on their land and generate credits to sell to developers or landholders to offset activities at other sites. Accreditation or registration as a credit provider is dependent on approval processes which differ by state. In NSW, Biodiversity Stewardship Agreements are entered into by the landholder and the NSW Minister for the Environment, whereas in Queensland, the biodiversity credit equivalent of an ‘advanced offset’ must be registered with the local or state government.

The classification of credits for the kind of offset required varies by state. In NSW, credits are classed as either ecosystem or species credits, whereas Victoria classes credits by either general or species habitat units (HUs). Tasmania operates a credit scheme only for specific species and activities, rather than a general credit system.

The price paid for any given biodiversity credit is ultimately determined by the market. Brokers can assist in the purchase of biodiversity credits.

Most states maintain a register of saleable credits available for purchase by developers. In NSW these are the Biodiversity Offsets Scheme public registers, and in Victoria the Native Vegetation Credit Register.

Reef Credits

The Reef Credit Scheme is a newly established environmental market that allows landholders in reef catchments to generate tradeable units of Reef Credit by reducing pollution and improving water quality, and an opportunity for investors to meet their own policy, investment or ECG charter goals and requirements through responsible investment via the purchase of reef credits. Developed in Queensland by environmental markets investor GreenCollar in collaboration with landholders and the Queensland Government, the Scheme is managed by independent environmental markets administrator Eco-Markets. Each Reef Credit represents a kilogram of nitrogen pollution or half a ton of sediment averted from reaching the Great Barrier Reef. Global Bank HSBC and the Queensland Government have both committed to purchasing credits from the market, the first water quality market of its kind worldwide.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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