Commonwealth Nature Repair Bill passes: offsets are off the menu

Articles Written by Samantha Daly (Partner), Heather Pym (Associate)
aerial shot of water and grassland

Both houses of Parliament have now passed the Commonwealth Nature Repair Bill 2023 (Bill). The Bill received the Governor’s assent on 11 December 2023. Plans to establish a national voluntary framework for projects to enhance or protect biodiversity was first introduced to the House of Representatives as the Nature Repair Market Bill (original Bill) on 29 March 2023 by Minister for the Environment and Water Tanya Plibersek (Minister).

See our previous article for an initial analysis of the original Bill. 

Key change – biodiversity offset trading scrapped

The original Bill proposed a nature repair market for biodiversity offset certificates that could be purchased by developers as credits to ‘offset’ the environmental damage caused by development projects. This market has now been scrapped in a deal between Labor and the Greens, trading support for the Bill in exchange for the insertion of a water trigger clause into the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act) which will subject fracking projects to environmental assessment. 

“Environmental offsetting purpose” is defined in the Bill as “the purpose of meeting an environmental offsetting requirement (however described) under a law of the Commonwealth, a State or a Territory including through an environmental offsetting measure" where an environmental offsetting measure is defined as including, but not being limited to,

a measure to offset or compensate for the impacts of an action or project (however described) on the environment that is:

(a)  required as a condition of an approval, licence or permit (however described) under a law of the Commonwealth, a State or a Territory; or

(b)  directly financed from a fund into which money is paid as a condition of an environmental approval, licence or permit (however described) under a law of the Commonwealth, a State or a Territory; or

 (c)  undertaken as required or agreed to under a penalty or enforceable undertaking imposed or accepted under a law of the Commonwealth, a State or a Territory.

The limitation is hoped to encourage private investment and philanthropic contributions towards the protection of nature and wildlife. The removal of offsets also reinforces the Federal Government’s “nature-positive” environmental policy, by only allowing the generation of certificates for activities that protect existing nature, rather than offsetting biodiversity impacts on a species or ecosystem elsewhere.

Subsequently, the biodiversity certificate market created under the Bill is no longer comparable to state-based offsets markets, such as the New South Wales biodiversity offsets scheme which allows the trading of biodiversity credits to offset the environmental impacts of development.

The original Bill was also amended to remove the term “market” from the Bill, although it will still operate as a market wherein biodiversity certificates can be traded between landholders, businesses, governments and individuals.

Rules for the operation of the market and details concerning methodology determinations will need to be drafted in order for the market to become operational in mid-2024 as planned by the Federal Government. As noted in our previous article, the Clean Energy Regulator will endeavour to align carbon and biodiversity markets to make participation in both schemes easier for landholders. The rules for the operation of the market will clarify the extent to which projects can qualify for both carbon and biodiversity co-benefits.

What does this mean for developers and landholders?

The new scheme will not permit developers to trade credits to offset the impacts of habitat destruction as part of their projects. Developers will need to rely on state-based schemes in respect of their offset obligations.

Removing this source of demand will likely reduce overall demand for biodiversity certificates, which could disincentivise landholders from participating in the scheme if the market is not robust. The National Farmers Federation has commented that the Bill is weaker than anticipated with the removal of offsets, and that this exclusion is peculiar given the permissibility of offsets under the EPBC Act as well as the proposed new Nature Positive laws currently the subject of consultation.

Organisations may seek to purchase certificates to meet their ESG targets, as well as philanthropists, and other businesses and stakeholders who see value in the investment into this emerging market. A potential source of demand in the voluntary market may be the Taskforce on Nature-related Financial Disclosures (TNFD) Recommendations and Additional Guidance – finalised in September this year – a voluntary framework to help organisations report and act on nature-related issues and shift towards nature-positive outcomes.

As part of the TNFD recommendations, organisations are encouraged to disclose how the organisation identifies, assesses and prioritises nature-related dependencies, including opportunities. Voluntary disclosures under the TNFD framework could cultivate another source of demand for biodiversity certificates as companies are put under increased investor pressure to focus on nature-related risks. However, given the scheme is voluntary, it seems unlikely that TNFD alone will generate sufficient demand for the nature repair market without significant government investment.

This article was written with the assistance of Isabella Rodgers, Seasonal Clerk. 

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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