How will the Nature Repair Market help your business invest in the environment?

By Dennis Smith, Jillian Button
Environment & Planning Environment, Social, Governance

An opportunity for businesses to invest in green initiatives 8 min read

Many companies are considering their role in contributing to the global goal of halting and reversing biodiversity loss, including by investing in nature repair projects.  The recently introduced Nature Repair Market Bill 2023 has put nature repair projects in the spotlight, and will, if passed, establish a new means by which to facilitate investment of this type. 

In this Insight, we provide an overview of how the Nature Repair Market could reduce barriers to investment and give businesses and investors a robust basis for making 'green claims' about their projects in nature repair.

Key takeaways 

  • The adoption of the Kunming-Montreal Global Biodiversity Framework at the COP15 UN Biodiversity Conference aims to safeguard 30% of the Earth's lands, oceans, coastal areas, and inland waters by 2030. The Australian Government has also committed in its Nature Positive Plan to protect 30% of Australia's land and seas by 2030.
  • A central component of the Nature Positive Plan is the establishment of a Nature Repair Market which will be designed to make it easier for landholders to carry out nature repair on their land and for businesses and individuals to invest in nature. This is in turn aimed at facilitating the significant investment necessary to meet the 30% by 2030 target.
  • The Nature Repair Market will allow registered biodiversity projects to generate government-backed Biodiversity Certificates that can be traded.
  • Moreover, the Government has announced that these projects may qualify for both Biodiversity Certificates and Australian Carbon Credit Units (ACCUs) under the Carbon Credits (Carbon Farming Initiative) Act 2011 (CFI Act).
  • As the ACCC and ASIC are increasingly cracking down on 'greenwashing' by businesses who make 'green claims' that are misleading or deceptive, not only is it important that businesses make appropriately ambitious environmental commitments, they must ensure that they have a robust basis for making these claims.

Changes for developers, landholders and carbon market participants

Developers and other participants in existing state and territory based biodiversity credit markets

The Nature Repair Market will (at least initially) be very different to the existing biodiversity credit markets that operate at a state or territory level.

Anyone who proposes to carry out development that will have an impact on biodiversity (for example because the development includes clearing of suitable habitat for threatened species) may (depending on the nature of the impact) already be required to address these impacts as part of the Government, state and territory approval processes. Ordinarily, a developer will be required to avoid and mitigate these impacts to the greatest extent possible and then offset any residual impacts.

One way a developer can offset residual impacts is by purchasing biodiversity offset credits generated under an existing state or territory based biodiversity offset trading scheme. Under these schemes, projects that improve biodiversity outcomes can generate credits. These credits relate to the particular species or ecological community that benefits from the project. The credits can then be traded to developers who can surrender the credits in order to satisfy biodiversity offset obligations under an approval.

It can often be very difficult to secure necessary credits under these schemes due to limitations in supply and the requirement in most jurisdictions that the credits surrendered by a developer be for the same (or in some cases very similar) species to the species impacted by the development (a 'like for like' requirement).

The Government also has an offsets policy that applies to actions approved under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act). The Government is currently reviewing these offset requirements and aims to implement a National Environmental Standard for Environmental Offsets which will maintain a strict 'like for like' requirement in addition to a new requirement that offsets net benefits to matters of national environmental significance.

The Government has foreshadowed that, in the future, a Biodiversity Certificate could be relied upon to offset the impacts of a project approved under the EPBC Act. However, at least for now, the Nature Repair market will operate entirely separate from the existing state and territory biodiversity offset trading schemes.

If proponents of biodiversity projects decide to participate in the Nature Repair Market instead of the existing schemes, we see scope for further reductions in the supply of credits available to existing biodiversity trading schemes. This may in turn make it even more difficult for developers to secure the offsets they need to carry out development.

Landholders and proponents of biodiversity projects

As explained above, landholders and proponents of biodiversity projects already have the opportunity to participate in various state and territory based biodiversity trading schemes under which they can generate offset credits which can be sold to developers. However, because of the 'like for like' requirements of these schemes, a person or organisation that generates an offset credit for a particular species can generally only sell that credit to a developer who requires that particular credit. This introduces a risk that you might not find a buyer for the credit you are generating.

On the other hand, Biodiversity Certificates will not (at least initially), be used to satisfy offset requirements under development approvals. Due to this, purchasers of Biodiversity Certificates will potentially be less concerned about the precise species or ecological community that benefits from a Registered Biodiversity project. This is provided that the Registered Biodiversity Project represents a genuine investment in nature repair.

This means that the potential pool of purchasers for a Biodiversity Certificate could be wider and the risk that the proponent of a Registered Biodiversity Project will not be able to find a purchaser for a Biodiversity Certificate will be lower.

That being said, proponents of biodiversity improvement projects should carefully consider all available schemes in order to identify the best opportunities. In some cases, generating credits in statutory biodiversity offset markets could attract premiums, particularly for species for which the supply of credits is low.

Carbon market participants and the opportunity for new Biodiversity Credits

Minister for the Environment and Water, Tanya Plibersek said in her Second Reading Speech, that the 'Nature Repair Market will work absolutely hand in hand with carbon credits'. The Government has also said that the Clean Energy Regulator (CER) will be responsible to help align carbon and biodiversity markets. However, it is not clear from the Bill how this will happen. In particular, the Bill does not include a mechanism by which a project can generate both ACCU and Biodiversity Certificates.

One of the biodiversity integrity standards that is mandated by the Bill is that projects must be designed to result in enhancement or protection of biodiversity in native species that would be unlikely to occur if the project was not carried out. Therefore, we expect that if someone is undertaking actions to generate carbon credits (either ACCUs or non-statutory credits) they will not be able to rely on those same actions to obtain a Biodiversity Certificate. However, if a person takes actions that go above and beyond what is required to generate carbon credits, these additional actions could potentially be recognised in a Biodiversity Certificate.

For example, a reforestation project that involves the planting of a single species could generate the same amount of carbon stock as a project that involves the planting of multiple flora species and provides a habitat for a diverse range of fauna species. While both projects would be entitled to the same amount of carbon credits, the second project could potentially also be entitled to a Biodiversity Certificate to reflect the additional biodiversity gains arising from the project.

Carbon credits that are accompanied by a Biodiversity Certificate are likely to attract a significant premium on the market as purchases of credits are increasingly looking for projects that demonstrate 'co-benefits' beyond carbon abatement. However, while projects can generate multiple (and separately tradable) carbon credits representing each tonne of carbon abated, projects will generally only be able to obtain a single Biodiversity Certificate. Therefore, unless all carbon credits generated by a project throughout its crediting period are traded as a single tranche together with the Biodiversity Certificate, they will not all be able to enjoy the benefit of the Biodiversity Certificate.

Because of this limitation, we expect that someone looking to generate both ACCUs and biodiversity credits from a single project will adopt one of the following approaches:

  • ask the CER to make an exception and issue more than one Biodiversity Certificate for the project;
  • divide the project into a number of separate projects which can each be registered as a Registered Biodiversity Project that can generate its own Biodiversity Certificate;
  • retain ownership of the Biodiversity Certificate and instead issue derivative 'biodiversity units' that can be 'stapled to' and traded with the ACCUs generated by the project (or transfer the Biodiversity Certificate to an intermediary who is able to do this); and
  • decide that the Nature Repair Market does not meet their needs and participate in one of the number of existing non-government schemes under which the biodiversity co-benefits of an ACCU can be certified.

Purchasers of land

Any person who purchases land should search the Biodiversity Market Register and the CER's website for any Registered Biodiversity Projects, Biodiversity Certificates and declarations of Biodiversity Maintenance Areas that apply to the land.

If land has been declared to be a Biodiversity Maintenance Area, certain activities prescribed in the declaration will be prohibited on the land. These prohibitions apply to all people, including current and future landholders.

The CER can declare land to be a Biodiversity Maintenance Area if:

  • a Biodiversity Certificate has been issued for the land;
  • the CER requires the holder of the Biodiversity Certificate to relinquish the notice either because the certificate was issued as a result of false or misleading information, there is a significant reversal of a biodiversity outcome or circumstances prescribed by the rules exist; and
  • the Biodiversity Certificate is not relinquished.

While the Bill contemplates that Registered Biodiversity Projects and declaration of Biodiversity Maintenance Areas could be recorded on the title to land, this will not happen unless the state and territory governments which maintain Australia's land titles registers agree to this process.

How will the Nature Repair Market be established?

The Government intends that the Nature Repair Market will commence in the second half of 2024. Before that happens (and after the Bill is passed by Parliament), the Minister will need to make:

  1. rules for the operation of the Nature Repair Market;
  2. one or more Biodiversity Assessment Instruments which will prescribe the methods for measuring and assessing biodiversity, enhancements of biodiversity and the protection of biodiversity;
  3. Methodology Determinations, for each kind of biodiversity project, which will specify:
    1. the conditions that must be met for a project to be considered a Registered Biodiversity Project;
    2. requirements for the assessment, approval and implementation of Registered Biodiversity Projects; and
    3. conditions that must be met before a Biodiversity Certificate can be issued in respect of a Registered Biodiversity Project.

The Government has also said that it will support the Nature Repair Market by establishing a trading platform, template contracts and guidance documents.

How will the Nature Repair Market Work?

The CER will administer the Nature Repair Market.

Proponents will be able to apply to the CER to register a biodiversity project. The application must satisfy the requirements of the Rules and the applicable Methodology Determination. If the CER approves the biodiversity project, it will be included on the Biodiversity Market Register.

Once the applicable conditions of the Methodology Determination are met (and after the period prescribed by the Methodology Determination), the proponent of a Registered Biodiversity Project may apply for and obtain a Biodiversity Certificate. A Biodiversity Certificate must contain the information prescribed by the Rules.

A Biodiversity Certificate will be a form of personal property that can be transferred to another person.

The Government will have the power to purchase Biodiversity Certificates.

How Biodiversity Certificates differ to Australian Carbon Credit Units and other trading schemes

The legislative architecture governing the registration of Biodiversity Projects and the issue of Biodiversity Certificates will be quite similar to the legislative architecture for the issuing of Australian Carbon Credit Units under the Carbon Credits (Carbon Farming Initiative) 2011 (CFI Act).

The key difference relates to the number of Biodiversity Certificates that will be issued for a project. Unless the CER otherwise agrees, only one Biodiversity Certificate will be issued for each Registered Biodiversity Project. This is very different to the CFI Act under which the CER can issue separate ACCUs for each tonne of carbon abated by a project. The Nature Repair Market also differs from other biodiversity trading schemes in which multiple credits (that can be separately traded) are issued for a project to reflect the biodiversity outcomes achieved.

This may make it more difficult to trade Biodiversity Certificates and could reduce liquidity in the Nature Repair Market.

While the Government intends that Biodiversity Certificates will provide a standardised way for projects to be compared and valued, it will ultimately be up to the market to put a value on the biodiversity outcomes reflected in a Biodiversity Certificate.

If a business seeks to make claims that go beyond the contents of a Biodiversity Certificate (such as a claim that the positive impacts represented by the Biodiversity Certificate offset negative environmental impacts arising elsewhere in the business), the business will need a proper basis to make such claims. The Nature Repair Market will not provide a mechanism to quantify and compare the benefits represented by a Biodiversity Certificate with the negative impacts incurred elsewhere in the business.

This is very different to greenhouse gas emissions where a tonne of carbon emitted in one part of a business is broadly equivalent to a tonne of carbon abated in a different part of the business so a business can much more easily calculate its net greenhouse gas emissions.

What we don’t yet know about the Nature Repair Market

There are a number of key features about the Nature Repair Market that we won't know until the Rules, the Biodiversity Assessment Instruments and Methodology Determinations are finalised.

How soon after a biodiversity project is registered, can a Biodiversity Certificate be issued?

This is an important question because a proponent of a biodiversity project may be relying on the income from the sale of a Biodiversity Certificate to fund the upfront costs of establishing the project. Clause 70(2)(f) of the Bill suggests that a Biodiversity Certificate will not be issued until 'the project is sufficiently progressed to have resulted in, or be likely to result in, the biodiversity outcome for the project'. It is therefore likely that the proponent of a biodiversity project will need to do a significant amount of work before they can obtain and sell a Biodiversity Certificate.

How specific will the information recorded on a Biodiversity Certificate be?

The level of detail included on a Biodiversity Certificate will fundamentally influence the way in which the Nature Repair Market operates. For example, will Biodiversity Certificates show the precise quantity of species or habitat area that have been enhanced or will benefits be measured and documented at a more general level? Including more detail on a Biodiversity Certificate will benefit proponents of biodiversity projects by allowing them to distinguish their projects from other projects. However, it will reduce the fungibility of Biodiversity Certificates which will in turn reduce liquidity in the Nature Repair Market. In her Second Reading Speech, Tanya Plibersek said that Biodiversity Certificates 'will provide a range of standardised information—such as the size of land repaired, the kind of work conducted, the threatened species protected, and the length of time actions will continue'.

How much analysis does a project proponent need to do before a project is registered?

The analysis of a biodiversity project is a significant upfront cost. It also presents a significant barrier to entry to some of the existing state based biodiversity markets which require an extensive level of analysis to demonstrate the predicted biodiversity outcomes of the project. It is not yet clear how rigorous the assessment of biodiversity projects under the Nature Repair Market will be.

What happens now?

  • The Senate has referred the Bill to the Environment and Communications Legislation Committee for inquiry and report.
  • The Committee has invited submissions to the inquiry. The closing date for submissions is 1 June 2023.
  • The Committee will then be required to provide its report by 1 August 2023. We do not expect that the bill will be passed by Parliament before then.
  • The Bill may be amended by Parliament. In particular, the Australian Greens have expressed concerns about the Bill so, at the very least, are likely to request amendments to the Bill.
  • Assuming the bill is passed by Parliament, the Government intends that the Nature Repair Market will commence in the second half of 2024