Federal Government introduces new biodiversity credit market legislation

On 29 March 2023, the Commonwealth Nature Repair Market Bill 2023 (Bill) and related Nature Repair Market (Consequential Amendments) Bill 2023 were introduced to the House of Representatives by the Minister for the Environment and Water, the Hon Tanya Plibersek MP (Minister). The creation of the Nature Repair Market is part of the federal Government’s response to the recommendations of the Samuel Review of the Environment Protection and Biodiversity Conservation Act 1999 (as set out in the 2022 ‘Nature Positive Plan’), and also the 2021 State of the Environment report. See https://jws.com.au/insights/articles/2022-articles/major-reforms-on-the-horizon-for-australia for our previous overview of that response.

Both Bills have been referred to the Environment and Communications Legislation Committee for inquiry and report, and the closing date for submissions is 1 June 2023. The Department of the Environment and Water (Department) hopes to ascertain details of the market and produce appropriate methodologies and rules to allow for trading to open in the second half of 2024.

Overview

The Bill provides a framework for the generation of tradeable ‘biodiversity certificates’, enabling companies to invest in approved projects (‘biodiversity projects’) which enhance or protect biodiversity in native species (Biodiversity Certificates).

Biodiversity Certificates can be issued to Australian landholders and on-sold to a wide array of entities including companies, governments and individuals. Biodiversity Certificates represent the biodiversity outcomes that registered biodiversity projects are designed to achieve and are intended to provide an easy way for businesses, governments and individuals to invest in nature repair projects without owning an interest in the land.

The Bill also establishes an online public register of projects to provide transparency to investors prior to purchasing Biodiversity Certificates or investing in the market (Biodiversity Market Register). The regime will be overseen by the Minister and regulated by the Clean Energy Regulator. The Clean Energy Regulator will be provided with wide audit and investigative/enforcement powers. A new Nature Repair Market Committee established under the Bill comprised of independent experts will advise the Minister on the development of ‘methodology determinations’ (explained in further detail below) and requirements on how projects must be carried out and how Biodiversity Certificates can be issued and traded.

Eligibility requirements

To apply for registration of a biodiversity project with the Clean Energy Regulator, a proponent must own Australian Torrens title land, crown land or Australian waters. Eligible proponents include individuals, companies, trusts, Traditional Owners, conservation groups and local governments. The Department has provided the following examples of projects which landholders may undertake:

• improving or restoring native vegetation through activities such as fencing or weeding
• planting a mix of local native species
• protecting rare grasslands that provide habitat for an endangered species

Overview of process for issue of tradeable Biodiversity Certificates

Application for registration of biodiversity project

Under Part 2 of the Bill, eligible persons (landowners) begin the process by applying to register their project on the Biodiversity Market Register. Applications for registration must specify the applicable area, propose the methodology determination that will cover the project, outline the activity and ‘permanence periods’, and provide other reports and documents. There may be multiple project proponents for a single registered biodiversity project.

Methodology determinations are legislative instruments that cover particular kinds of biodiversity projects, setting out how a project is to be carried out and the circumstances in which a Biodiversity Certificate will be issued for a project.

The Clean Energy Regulator can approve the project and proceed with registration, or reject the project with written notice of the decision. Initial registration may be subject to conditions, such as the acquisition of other regulatory approvals or a requirement to obtain consent from interest holders in land such as mortgagees, Ministers or the relevant Aboriginal Land Council.

The Clean Energy Regulator also has the ability to cancel registration of a project where certain conditions/requirements are not met, or relinquish registration of a project where there is a significant reversal of a biodiversity outcome, or where misleading information was provided. In the event of non-compliance with a relinquishment notice, the Clean Energy Regulator may then declare the subject area to be a ‘biodiversity maintenance area.’

To be approved, a project must;

• be carried out in Australia;
• meet the conditions under the specified applicable methodology determination (once released by the Minister);
• identify a proposed activity period for the project and identify a proposed permanence period (25, 100 years, or as specified, being the period at the end of which the registered biodiversity project will be cancelled);  
• have a project plan in place (if required by the methodology determination);
• be proposed by a proponent who is eligible, fit and proper;
• take place on eligible land and not on land declared as a biodiversity maintenance area by the Clean Energy Regulator;
• be likely to result in a Biodiversity Certificate being issued through implementation of the project plan; and
• not be explicitly excluded by the regulations, for example the project must not have an adverse impact on water, employment, community, indigenous community, biodiversity, agriculture or the environment generally.

Methodology determinations

Under Part 4 of the Bill, a methodology determination must be made by the Minister for each kind of registered biodiversity project to specify how that kind of project must be carried out and the circumstances in which a Biodiversity Certificate will be issued for the project. The Minister is expected to enact a further biodiversity assessment instrument which prescribes the requirements to be complied with by methodology determinations.

A method will include:

• the conditions that must be met for a project covered by the determination to be registered and for a Biodiversity Certificate to be issued in respect of the project;
• the activities that are to be carried out or that are not to be carried out for the purposes of the project;
• information on the activity period for the project and the permanence period for the project. The activity period will cover the period of active management to achieve the anticipated biodiversity outcome. The permanence period will cover the life of the project. A project will have either a 25-year or 100-year permanence period unless a different period is provided for in the applicable methodology determination; and
• conditions and requirements relating to the measurement and assessment of the protection or enhancement of biodiversity.

A methodology determination will require the Minister to consider the biodiversity integrity standards in clause 57 of the Bill, advice from the Nature Repair Market Committee, and any adverse environmental, agricultural, economic, cultural or social impacts, along with any other matters considered relevant.

The biodiversity integrity standards require that: the project purpose is for the enhancement or protection of biodiversity in native species appropriate to the project area; the project prevents adverse impacts on protected species; and the conditions required under methodology determinations are supported by evidence and consistent with indigenous knowledge.

Application for Biodiversity Certificate

Once a project is registered and the methodology determination conditions are met, proponents can apply to the Clean Energy Regulator for a Biodiversity Certificate. Within 90 days the Clean Energy Regulator must either request further information or make a decision based on the assessment criteria outlined below. If issued, the Biodiversity Certificate is recorded on the Biodiversity Market Register. Only a single certificate can be issued for each project, as opposed to multiple fungible units.

To issue a Biodiversity Certificate, the Clean Energy Regulator must be satisfied that:

• the applicant is a fit and proper person;
• conditions of the registration of the relevant project have been met;
• the project is sufficiently progressed to result or likely result in a biodiversity outcome; and
• the methodology determination has been met.

Issue of Tradeable Biodiversity Certificate

Once issued, a Biodiversity Certificate is transferable personal property and a project proponent can then enter into a contract to sell it to a purchaser. Biodiversity Certificates will provide standardised information to enable the market to compare key attributes and value them accordingly. Guidance materials will be developed to support buyers in the market, which will include information on how the project aligns with science-based conservation and management priorities and how much management activities cost to implement.

Biodiversity Certificates may be bought by individuals, companies or the Commonwealth. To be eligible to buy a Biodiversity Certificate from a holder, a purchaser will need to meet account opening requirements, which are yet to be released.

Compliance

The project will continue to be subject to ongoing requirements of reporting, recording and monitoring, including the publication of biodiversity project reports on the Biodiversity Market Register. Record-keeping and project monitoring requirements can be imposed by a methodology determination as a requirement prior to a Biodiversity Certificate being issued for a project.

Once a Biodiversity Certificate has been issued for a project, civil penalties apply where a project proponent fails to comply with a requirement in the methodology determination for the project.

Alignment with existing biodiversity and carbon markets

The Department has advised that the Nature Repair Market established under the Bill will operate in parallel with existing carbon markets, so that landholders can obtain Biodiversity Certificates from carbon credit projects that create biodiversity co-benefits. The Clean Energy Regulator will endeavour to align carbon and biodiversity markets to make participation in both schemes easier for landholders.

The Federal Government’s Final Policy Impact Statement for the Bill provides that where Biodiversity Certificates satisfy the requirements of State and Territory schemes, they may be retired as biodiversity offsets required by environmental approvals. The Explanatory Memorandum to the Bill confirms that “the Bill would not prevent biodiversity projects that are registered under State or Territory biodiversity markets (or other such markets) from also participating in the national market created by this Bill”.

What could the Bill mean for developers and landholders?

The introduction of a new Nature Repair Market will unlock greater opportunities for landholders to generate revenue from otherwise unproductive land in meeting nature repair objectives of the Commonwealth. The scheme will permit multiple revenue streams to be generated from the same parcel of land, and potentially the same project where federal and state schemes align. The market also has the potential to generate a wider supply of offset projects to meet developer demand for biodiversity offsets imposed as conditions of environmental approvals, and may also assist companies in their ESG commitments and strategies going forward.