This Bills Digest replaces the preliminary Bills Digest published on 20 April 2023.

Glossary

Please note: terms defined in the NRM Bill or other Acts are italicised throughout this Digest. All stakeholder submissions referred to in this Digest are to the DCCEEW’s consultation on the Exposure Draft of the Nature Repair Market Bill 2023, unless specifically indicated otherwise.

History of the Bills

The Agriculture Biodiversity Stewardship Market Bill 2022 (ABSM Bill) was introduced to the House of Representatives on 9 February 2022 by the then Minister for Agriculture, David Littleproud. The ABSM Bill was not debated and lapsed on the dissolution of the 46th Parliament on 11 April 2022.

The Nature Repair Market Bill 2023 (the NRM Bill) and the Nature Repair Market (Consequential Amendments) Bill 2023 (Consequential Amendments Bill) (collectively, the Bills) were introduced to the House of Representatives on 29 March 2023 by the Minister for the Environment, Tanya Plibersek.

The NRM Bill is drafted in broadly similar terms to the ABSM Bill. The Bills Digest prepared for that Bill outlines the policy history to February 2022.[1]

This Bills Digest provides a brief background to the evolution of the NRM Bill, including recent policy developments, and provides analysis of key issues that it raises. Perhaps the most central policy question is: will the proposed nature repair market contribute to the enhancement and protection of biodiversity in Australia?

Purpose and structure of the Bills

Nature Repair Market Bill

The purpose of the Nature Repair Market Bill 2023 (NRM Bill) is to provide a legislative framework for the establishment and operation of a voluntary national market in biodiversity certificates. The market would enable project proponents to undertake projects that protect or enhance biodiversity. Projects could be implemented on a range of land tenures including in aquatic environments and the ocean to the extent of Australia’s territorial sea. The project proponent would be able to apply to the Clean Energy Regulator for a unique biodiversity certificate that could then be sold to and traded by an interested person in a new ‘nature repair market’.

The NRM Bill establishes key elements of the framework including:

• creating a new form of personal property – a biodiversity certificate – which is owned and traded separately from the land or waters on which biodiversity exists
• empowering the Minister to make biodiversity assessment instruments and methodology determinations setting out the specific requirements for how distinct types of biodiversity projects may be implemented and outcomes measured
• requiring the establishment of a registration scheme and allowing the Clean Energy Regulator (CER; the Regulator) to approve and register biodiversity projects in the Biodiversity Market Register
• establishing the Nature Repair Market Committee (NRMC) to advise the Minister, including on whether biodiversity assessment instruments are appropriate and whether methodology determinations are consistent with biodiversity integrity standards
• requiring the CER to maintain an online platform to facilitate trading in biodiversity certificates
• providing for the CER to administer and regulate the scheme
• providing for project assurance, and compliance and enforcement of the regulatory framework to offer certainty in the nature repair market and
• providing for the review of the operation of the regulatory framework, including whether the scheme is meeting its objectives.

Tables 1 and 2 in the Appendix provide a summary of the roles and responsibilities of market participants and a quick guide to each Part of the Bill.

Nature Repair Market (Consequential Amendments) Bill

The purpose of the Nature Repair Market (Consequential Amendments) Bill 2023 (Consequential Amendments Bill) is to make minor consequential amendments to the Clean Energy Regulator Act2011 (CER Act) and the National Greenhouse and Energy Reporting Act 2007 (NGER Act) to support the operation of the nature repair market.

Items 1 to 21 of Schedule 1 make amendments to the CER Act to:

• expand the functions of the CER to include roles conferred on it by the NRM Bill
• expands the fields of expertise that members of the CER may have to include agriculture and biological or ecological science (but does not increase the number of members of the Regulator)
• enable the CER to delegate functions and powers to specified officials of the Department administered by the Biodiversity Minister (referred to as the Biodiversity Department)
• provide for new authorised uses and disclosures of protected information under the CER Act relating to administration of the NRM Bill and instruments made under it, or in facilitating compliance with Australia’s obligations under the Biodiversity Convention
• requires the Minister administering the CER Act to consult with the Minister administering the NRM Bill before giving a direction about the Regulator’s powers and functions under the NRM Bill.

Items 22 to 25 of Schedule 1 make amendments to the NGER Act to:

• add the terms biodiversity audit and biodiversity audit report as defined in the NRM Bill to the Act
• enable the responsible Minister to determine, by legislative instrument, the requirements to be met by registered greenhouse and energy auditors in preparing and carrying out biodiversity audits and in preparing biodiversity audit reports
• provide for the registration of, and the keeping of a register of, greenhouse and energy auditors, noting those auditors recognised as having the qualifications, knowledge, expertise, competence and independence as specified in the legislative instrument for carrying out biodiversity audits.

Background

Biological diversity (biodiversity) refers to the:

...the variability among living organisms from all sources including, inter alia, terrestrial, marine and other aquatic ecosystems and the ecological complexes of which they are part; this includes diversity within species, between species and of ecosystems.[2]

As affirmed in the Convention on Biological Diversity, under which Australia is obliged to conserve biological diversity within its jurisdiction and use its biological resources in a sustainable manner, ‘the conservation of biological diversity is a common concern of mankind’.[3]

Biodiversity may be considered as part of ‘nature’ – taking into account biodiversity, ecosystems and the services they provide, as well as spiritual conceptions of Mother Earth and other systems of life.[4] In either case, biodiversity and nature have intrinsic value, underpinning cultural and spiritual systems, providing educational and scientific opportunities, and providing critical ecosystem services (including air purification, fresh water, climate regulation and carbon sequestration, pollination and pest control) which underpin economic and social systems (including subsistence livelihoods) the world over.[5]

The efforts of Parties under the Biodiversity Convention to protect and conserve biodiversity under the 10-year Aichi Biodiversity Targets have largely failed,[6] leading to the establishment of the Kunming-Montreal Global Biodiversity Framework (GBF) at the 15th and most recent Conference of the Parties in December 2022. The GBF sets 4 high-level goals to be achieved by 2050 and 23 action-oriented targets to be achieved by 2030, including:

• at least 30 per cent of areas of degraded terrestrial, inland water and coastal and marine ecosystems are under effective restoration by 2030
• at least 30 per cent of terrestrial, inland water, coastal and marine areas are effectively conserved and managed through systems of protected areas or other effective area-based conservation measures by 2030
• the halting of human induced extinctions of known threatened species
• minimising the impacts of climate change and ocean acidification on biodiversity
• identify and phase out or reform incentives (including subsidies) harmful to biodiversity
• substantially and progressively increase the level of financial resources from all sources (including the private sector) to implement national biodiversity strategies and action plans as well as assist developing countries in protecting and conserving their biodiversity.

The development of the GBF was preceded by a detailed 2019 report that identified a global biodiversity funding gap of between US$598 billion and US$824 billion per year.[7] The report found that 57% of current global biodiversity conservation financing came from domestic budgets and tax policy, with a further 9% from biodiversity offsets, nature-based solutions and carbon markets, or philanthropy.[8] Total global biodiversity conservation financing however was significantly overshadowed by the estimated US$542 billion in harmful subsidies provided to the agriculture, forestry and fisheries sectors, together with an additional US$395–478 billion in fossil fuel production subsidies.[9]

State of Australia’s biodiversity, reviews and the Government’s response

Australia is one of 17 megadiverse countries, with a disproportionate political responsibility for conservation and biodiversity management.[10] Australia occupies just 5% of the world’s landmass but supports almost 12.5% of vertebrate animals (fish, amphibians, reptiles, birds and mammals) and 8% of all described plant, animal and fungal species.[11] In addition, 85% of Australia’s plants, animals, reptiles and amphibians are endemic (that is, found nowhere else).[12]

The most recent State of the Environment Report 2021, released by the Minister for the Environment in July 2022, found that Australia’s:

• native plant and animal species are in a poor, or very poor and deteriorating state
• aquatic ecosystems are in a poor state, with aquatic ecosystem condition in southern, eastern and south-western Australia in a very poor state
• marine habitats, communities, taxa groups, species and ecosystems processes in a predominantly good, stable condition overall, but with reefs and reef-associated species in poor condition and deteriorating.[13]

The State of the Environment Report highlights the mounting cumulative impacts of a multitude of poorly addressed threats to biodiversity, including climate change, habitat disturbance and land clearing, invasive species, fishing, extractive industries, and pollution.

Leading Australian scientists have identified 19 Australian ecosystems that are already collapsing.[14] These include ecosystems such as the Murray-Darling River Basin and Great Barrier Reef which have hitherto underpinned significant sectors of the Australian economy.

A range of studies have explored the adequacy of funding for biodiversity conservation in Australia, funding need, and the direct value of ecosystem services provided by nature, finding:

• Australia spends just 15% of what is needed to avoid extinctions and recover threatened species[15]
• ‘spending approximately $2 billion annually for 30 years could restore 13 million hectares of degraded land without affecting intensive agriculture or urban areas’[16]
• approximately half of Australia’s GDP (valued at $892.8 billion in 2021) has a moderate to very high direct dependence on ecosystem services provided by nature.[17]

Several performance audits by the Australian National Audit Office (ANAO) have found that the Department’s administration of numerous aspects of the EPBC Act has been ineffective and inefficient.[18]

Most recently, the Independent Review of the EPBC Act (Samuel Review), released in January 2021, found that Australia’s national environment law is ineffective at arresting the declining trajectory of Australia’s natural environment and iconic places. The Samuel Review’s 38 recommendations included wholesale reform of the EPBC Act centred around National Environmental Standards, reform of the use of environmental offsets, greater use and integration of national and regional scale planning for the protection and restoration of the environment, and the development of new mechanisms to leverage private-sector investment aligned with national outcomes for the environment.[19]

Government response

In the last quarter of 2022, the Minister for the Environment, Tanya Plibersek, formally presented the Albanese Government’s response to both the State of the Environment Report and the Samuel Review. This includes:

• Threatened Species Action Plan: Towards Zero Extinctions. This revision of the former Morrison Government’s Threatened Species Action Plan 2022–2032 includes new objectives of preventing new extinctions and a commitment to protecting and conserving at least 30% of Australia’s land mass.
• Nature Positive Plan: better for the environment, better for business.[20] Formalising commitments made in the lead up to the 2022 election and the Government’s response to the Samuel Review, the Nature Positive Plan sets out a range of reforms including reform of the EPBC Act centred on National Environmental Standards, the establishment of an independent Environment Protection Agency, greater use of regional planning and improved conservation planning arrangements, reform of environmental offsets, introduction of a nature repair market, increasing access to environmental data and information, and improving working relationships with First Nations people.

The Minister described the Nature Positive Plan as ‘the biggest environmental reform agenda in a generation’.[21] The Minister indicated that legislation to implement the reforms to the EPBC Act would be ‘released as an exposure draft prior to being introduced into the Parliament before the end of 2023’.[22] The NRM Bills are the only Bills released or tabled at the time of writing.

The Government has partnered with the governments of New South Wales and Queensland to develop regional plans for 7 priority areas facing development pressures for urban development, renewable energy zones and extractive industries.[23] These will be ‘built around a three-level (traffic light) map, designed to pre-identify areas for protection, restoration and sustainable development’.[24] The first round of regional plans won’t be completed until 2028.[25]

The Government has also commenced consultation on ‘other effective area-based measures’ (OECMs), with a view to including these areas to ensure Australia meets its target of protecting and conserving 30% of Australia’s land by 2030. Submissions can be made until 21 April 2023.[26]

Related developments

Chubb Review

The NRM Bill is extensively based on the Carbon Credits (Carbon Farming Initiative) Act 2011 (CFIAct) which established Australia’s carbon market. This is evident from the Bill’s structure, terminology, and regulatory framework, including nomination of the Clean Energy Regulator as the primary administrator of the proposed nature repair market.

In July 2022, the Albanese Government established an Independent Review of Australian Carbon Credit Units (Chubb Review) following allegations of integrity problems in the carbon market.[27]

The Chubb Review made 16 recommendations,[28] which the Government has accepted in principle, and which are relevant to the implementation of the proposed nature repair market – particularly with respect to ensuring integrity and transparency, clarifying roles and responsibilities of the Clean Energy Regulator, and the administration of land sector projects (that is, native vegetation projects).[29] While some of the recommendations have been implemented through the Safeguard Mechanism reforms and revocation of the avoided deforestation methodology determination, the Government has not indicated when it will implement the remaining recommendations.

The NRM Bill, as tabled, reflects some of the recommended reforms, specifically:

• methodology determinations will be developed by the Department (rather than the Regulator as currently occurs, but not be proponent-led (Recommendation 5)), with the Nature Repair Market Committee (NRMC) to advise the Minister as to the priority for establishing different methodologies (Recommendation 5, in part)
• the NRMC and Minister are required to publish reasons for making recommendations and decisions respectively in relation to the making, varying and revoking of biodiversity assessment instruments and methodology determinations (Recommendation 5.4)
• if a proposed biodiversity project is on native title land[30], the consent of the relevant native title body corporate is required prior to registration of the proposed project and the issue of a biodiversity certificate (Recommendation 11)
• the NRMC will have at least one member with substantial experience or knowledge, and significant standing in Indigenous knowledge (Recommendation 2.3)
• the Secretary of the Department may conduct biodiversity conservation purchasing processes and purchase biodiversity certificate on behalf of the Commonwealth (Recommendation 3.3) (but noting the Secretary’s power could be delegated to an official of the Regulator).[31]

However, as discussed in ‘Key issues and provisions’, the Bills do not appear to address other important recommendations.

Climate and Nature Related Financial Risk Disclosures

There are parallel efforts underway to develop frameworks for the consistent, credible and internationally-comparable disclosure of climate and nature related financial risks by businesses and, in Australia, potentially Commonwealth public sector corporate entities and investment funds.[32]

Together, formal adoption of the financial risk disclosure frameworks are expected to stimulate participation in both biodiversity and carbon markets, as businesses seek to meet regulatory requirements as well as increasing pressure to be accountable for environmental, social and governance (ESG) considerations.[33] This includes supporting existing net zero commitments and building a social licence to operate. For example, in a speech to the Nature Conservation Council Business Breakfast on 8 May 2023, the Minister said ‘the nature repair market is a chance to prove your environmental credentials and reinforce your social licence’.[34]

In December 2015, the Financial Stability Board established the Task Force on Climate-related Financial Disclosures (TCFD) to ‘develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to lenders, insurers, investors and other stakeholders’.[35] The TCFD released its recommendations in 2017, ‘structured around four thematic areas that represent core elements of how companies operate: governance, strategy, risk management, and metrics and targets’.[36] One of the metrics and targets is consistent reporting of scope 1, 2 and (if appropriate) 3 emissions.

Subsequently, in July 2020, the Taskforce on Nature-related Financial Disclosures (TNFD) was established:

to develop and deliver a risk management and disclosure framework for organisations to report and act on evolving nature-related risks, with the ultimate aim of supporting a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.[37]

The TNFD is developing a market-led, science-based TNFD framework, incorporating disclosure of direct, upstream, downstream and financed activities and assets, with the final framework expected to be released in September 2023.

In December 2022, the Australian Treasury launched a Climate-related financial disclosure consultation paper, indicating that it would ‘introduce standardised, internationally-aligned reporting requirements for businesses to make disclosures regarding governance, strategy, risk management, targets and metrics – including greenhouse gases’.[38] The submission period closed on 17 February 2023.

Previous iterations of the Bill and earlier consultation

Coalition’s ‘world first biodiversity scheme’

The Bills Digest for the ABSM Bill provided an overview of the policy background and associated elements of the Coalition’s proposed agriculture biodiversity stewardship market, described by the Leader of The Nationals David Littleproud as a ‘world-first biodiversity scheme’.[39] That scheme aimed to establish a voluntary market that ‘recognises and financially rewards [farmers] for their efforts to restore, enhance or protect biodiversity’.[40]

Relevantly, the Coalition’s agriculture biodiversity stewardship market was proposed as part of its broader Agriculture Stewardship Package and included two pilot schemes:

• Carbon + Biodiversity Pilot; this ‘trials market arrangements for farmers to create new income from plantings that deliver biodiversity improvements and carbon abatement’.[41] Eligible farmers implement an environmental plantings project, with plantings of native trees and shrubs on previously cleared land to be maintained for 25 or 100 years. Participating farmers enter into a carbon abatement contract to earn ACCUs and receive a biodiversity payment.[42]
• Enhancing Remnant Native Vegetation Pilot; this ‘trials a mechanism for farmers to provide biodiversity services by protecting and enhancing the condition of remnant vegetation on their properties’.[43] Participating farmers are required to enter into a 10-year agreement to protect and enhance the vegetation and receive a payment comprising an annual rental payment and a management activity component.[44]

These projects are expected to provide the first supply of biodiversity certificates, if the scheme commences. A review of these projects (to date) is reportedly underway;[45] however, no public information appears to be available.

Australia’s ‘green Wall street’

On 26 August 2022, the Prime Minister and Minister for the Environment jointly announced ‘the creation of a biodiversity certificates scheme’ that would ‘recognise landholders who restore or manage local habitat and grant them biodiversity certificates which can then be sold to other parties’.[46] In discussing the proposed scheme, the Minister said ‘maybe one day Australia will house its own Green Wall Street: a trusted global financial hub where the world comes to invest in environmental protection and restoration’.[47]

The Department consulted on a fact sheet which outlined the key elements of the scheme. Submissions closed on 16 September 2022; 167 of 220 submissions received are publicly available.

On 23 December 2022, the Department released an Exposure Draft of the Nature Repair Market Bill and a series of Fact sheets.[48] Submissions closed on 3 March 2023; 154 of the 182 submissions received are publicly available. The Department released a one page summary of stakeholder feedback. Stakeholder views are discussed in the ‘Position of major interest groups’ and ‘Key issues and provisions’ sections of this Digest.

On 29 March 2023, the Minister for the Environment introduced the NRM Bills to the House of Representatives. Information, including links to the second reading speeches, are available on the NRM Bill homepage and NRM (Consequential Amendments) Bill homepage.

In her second reading speech, Minister Plibersek described the scheme as intended to reinforce rather than replace the effort of the government, by adding ‘private money to the stream of investment [the] government is already making in nature protection and restoration’.[49]

The Government has indicated that further consultation will occur in 2023 on rules and methodology determinations, with the market to open for trade in the second half of 2024.

Committee consideration

Senate Environment and Communications Legislation Committee

The Bill has been referred to the Senate Environment and Communications Legislation Committee for inquiry and report by 1 August 2023. Details of the inquiry are available on the Inquiry homepage. Submissions can be made until 1 June 2023.

Senate Standing Committee for the Scrutiny of Bills

At the time of writing, the Senate Standing Committee for the Scrutiny of Bills was yet to consider the Bills.

However, during the 46th Parliament, in March 2022, the Committee considered the ABSM Bill.[50] The Committee identified numerous scrutiny issues which appear to remain relevant to the NRM Bill, given its similarities. These concerns include:

• incorporation of external materials existing from time to time
• exemption from disallowance
• significant matters in delegated legislation
• broad delegation of administrative powers
• non-invalidity clauses
• immunity from liability.

The then Minister for Agriculture, the Hon David Littleproud, does not appear to have provided a response to the Scrutiny Committee prior to the prorogation of 46th Parliament.

Policy position of non-government parties/independents

Liberal-National Coalition

As noted above, the NRM Bill is a revised version of the ABSM Bill introduced by the Coalition during the 46th Parliament. The scope of the ABSM Bill was significantly narrower; limited to agricultural land, it aimed:

... to provide a passive income stream for farmers, through a voluntary market that big companies will pay for, and not the tax payer, to not just abate carbon but actually improve the environment.[51]

Leader of the Nationals and Shadow Minister for Agriculture, David Littleproud, has described the Agriculture Biodiversity Stewardship Scheme as ‘one of [his] greatest achievements in Government’ and said he is ‘pleased that the new Government will adopt it’.[52]

Given the significant expansion of the proposed scheme and its revised emphasis on protecting and enhancing biodiversity – including to other types of landholders potentially delivering projects of greater scope, scale, ecological significance and longer duration – it is unclear whether the Liberal-National Coalition will support passage of the NRM Bills.

Australian Greens

The Australian Greens environment spokesperson Senator Sarah Hanson-Young indicated the Australian Greens will not support the Bill. Senator Hanson-Young described the prospect that the nature repair market would repair Australia’s biodiversity crisis while habitat clearing continues as ‘delusional’.[53] Senator Hanson-Young argued that ‘Australia’s environment needs protection, not a ‘Green Wall Street’ propped up by bogus offsets’.[54]

House Independents and Senate crossbench

In February 2023, the Independent member for Indi, Dr Helen Haines, launched a plan to support farmers take action on climate change. Dr Haines called on the Government to fund a network of 200 agricultural extension officers to support farmers access carbon markets and suggested the extension officers could also assist farmers to access programs such as the proposed nature repair market.[55]

Senator David Pocock will reportedly ‘push the government to spend as much as $2 billion more a year on conservation’ to secure his crucial vote on the Bills and on broader reforms to Australia’s national environment law.[56]

Position of major interest groups

Given the large number of submissions to the two rounds of consultation, this section provides a brief summary of the positions of major interest groups. Particular points of concern are discussed further in the ‘Key issues and provisions’ section of this Digest.

Ecologists and environmental markets academics and practitioners

Conservation and ecology, and environmental market, academics and practitioner groups raise a broad range of concerns about the proposed nature repair market, many of which are discussed further in the ‘Key issues and provisions’ section.

A key point made by many of these stakeholders is the crucial importance of fully implementing the interconnected recommendations of the Samuel Review to provide a robust framework for the strategic landscape-scale protection of biodiversity.[57] These stakeholders also called for clear linkages between Australia’s international commitments and the proposed scheme.[58] Moreover, many of these stakeholders argue that it would be preferrable to properly regulate activities that are harmful to biodiversity, including through the elimination of harmful subsidies, and to properly resource and coordinate government-led investment in biodiversity conservation on behalf of all taxpayers.[59]

The Biodiversity Council, like many other stakeholders, argues that the integrity provisions of the NRM Bill should be strengthened.[60] This includes ensuring that the biodiversity integrity standards ensure the achievement of biodiversity outcomes (rather than enhancement or protection of biodiversity) and clarifying ambiguous language.[61] Dr Megan Evans argues that the NRM Bill should be amended to specifically exclude avoided loss or protection projects – that is, projects purportedly protecting high-quality habitat that is not actually under threat (and hence not additional).[62]

The Biodiversity Council also proposes that open standing provisions should be added, allowing third parties such as environmentally oriented individuals and organisations without the ‘normal standing’ to initiate enforcement actions to restrain contraventions of the Act and seek judicial review of decisions.[63] They also suggest that eligible interest holders, and especially Indigenous peoples and Torres Strait Islander groups, should have the ability to make representations to the scheme regulator.

There is however variation in perspectives:

• Professor Hugh Possingham (associated with both Accounting for Nature and the Biodiversity Council) acknowledges the widespread concern about integrity but argues ‘with appropriate processes in place from governments, including independent authorities that verify biodiversity outcomes, and vigilance from the community, there is potential to create a well-behaved, net-positive biodiversity market in Australia’.[64]
• Dr Yung En Chee (a quantitative ecologist at the University of Melbourne) argues the proposed nature repair market ‘is a policy based on flawed premises, non-existent evidence of effectiveness and is a poor use of public resources relative to alternative policies and mechanisms’.[65]

Environmental non-government organisations, environmental law advocacy groups and think tanks

Environment non-government organisations, environmental law advocacy groups and think tanks have raised a broad range of policy and technical concerns (discussed in detail at ‘Key issues and provisions section’). Polly Hemming and Roderick Campbell’s observation that ‘decades of scientific research that have catalogued the extinction of native Australian species has failed to catalyse commensurate policy responses on the part of successive governments’ sets the scene for many of these stakeholders.[66]

A shared view among these stakeholders is the need for ongoing and substantial public investment to support the strategic conservation of biodiversity and the need to finalise reforms to Australia’s national environmental laws (primarily the EPBC Act) before progressing the proposed nature repair market.[67]

The Environmental Defenders Office (EDO) submitted:

Australia must not repeat the mistakes of previous environmental markets (for example in water and carbon) that have developed complicated methodologies and rules, created compensable property rights, established conflicted governance structures, and in many circumstances have failed to deliver actual environmental concerns.[68]

The EDO argued that the NRM Bill should be delayed pending completion of the EPBC Act reforms addressing the use of biodiversity offsetting and until the proposed independent Environment Protection Agency has been established.[69]

In an article canvassing the failures of other environmental markets in Australia, Polly Hemming cautions that ‘grants, education, monitoring and direct incentives could be delivered to communities to manage their properties without lining the pockets of “landlords” – brokers, project developers and other financial interests’.[70]

Farming groups

The National Farmers Federation is supportive of the scheme, provided it retains a focus on the stewardship of biodiversity outcomes on farmland. It considers the expanded scope of the scheme as potentially ‘distortionary and troubling’.[71]

Indigenous people and Torres Strait Islander groups

Indigenous people and Torres Strait Islander groups have a deep connection to Country. ‘Caring for Country is holistic, with the physical interconnected with the social, the cultural and the spiritual’.[72] There is no language for ‘nature’ or ‘biodiversity’ – key terms used in these Bills.[73] The participation of Indigenous Peoples and Torres Strait Islanders is central to the proposed nature repair market, with 57% of Australia recognised as part of the Indigenous estate and Indigenous Protected Areas making up over 50% of Australia’s National Reserve System (and expected to increase further).[74] A large number of native title and land rights claims remain unresolved,[75] and the Bill is silent in regard to consent requirements in such instances.[76]

Several Land Councils and other stakeholder groups made submissions in relation to the proposed nature repair market. The Land Councils call for significant ongoing and increased government investment in land management, explicit recognition of the unique rights and interests of Aboriginal and Torres Strait Islander people in the objects clause, the provision of funding and other resourcing to support Aboriginal and Torres Strait Islander groups to co-design key aspects of the scheme and to participate in and benefit from the market, and development of an Indigenous and Torres Strait Islander engagement strategy to build awareness and capacity.[77] The Indigenous Land and Sea Corporation and Indigenous Carbon Industry Network both suggest that the NRMC should include male and female Indigenous representatives to ensure cultural safety.[78]

The Aboriginal Carbon Foundation and Melbourne Climate Futures (AbCF) expressed concern that the NRM Bill had been ‘developed without any significant input from First Nations people or organisations’, calling participation ‘tokenistic at best’.[79] AbCF argues that the NRM Bill should include the Indigenous designed Core Benefits Verification Framework to recognise the multiple benefits of projects with First Nations social, cultural and environmental benefits, as was recommended by the Chubb Review and has been adopted by Queensland’s Land Restoration Fund.[80]

Investment and finance groups

Investment and finance stakeholders, including banks, have raised concerns around the fungibility of biodiversity certificates and liquidity of the market.[81]

Australian Ethical Investment (AEI) describes the inherent ‘tension between creating a market that attracts private investment (that is a market with competitive returns and liquid secondary markets) and ensuring that the scheme meets its biodiversity objectives’.[82] AEI noted the distinct differences between the underlying compliance basis of the carbon market and the highly bespoke and non-fungible character of biodiversity certificates.

Separately, it was reported in mid-April 2023 that the Commonwealth Bank and the Reserve Bank are developing a ‘real-life model for tradeable biodiversity credits’.[83] The trial – for biodiversity and carbon credits – uses ‘central bank digital currency and blockchain technology allowing trades in the credits to settle instantly. Payment and title would be exchanged simultaneously at a low cost while providing investors with transparency about the projects underpinning the credit’.[84]

Natural resource management groups

NRM Regions Australia, representing 54 natural resource management organisations, consider that insufficient information has been provided about how the proposed scheme will interact with the EPBC Act – in particular environmental offsets reforms – and should not be progressed until those reforms are finalised.[85] They argue that the scheme should be firmly grounded in scientific evidence (including consideration of the impacts of climate change) and that this should underpin key legislative instruments, reporting, and auditing of outcomes.[86]

NRM Regions Australia argue that the project proponents should – as is the case for carbon projects – be required to demonstrate that the proposed project is consistent with the regional natural resource management plan relevant to the project area.[87] They argue that such consistency is even more critical for biodiversity projects, thereby supporting delivery of landscape-scale outcomes and avoiding adverse outcomes.[88]

Resource and mining groups

The small number of submissions by resource and mining peak bodies and individual companies note the sector’s broad support for the creation of the market.[89] These submissions focus on the potential use of biodiversity certificates to meet offsets requirements for development approvals and, if this is not the case, potential limitations on the availability of suitable land to meet like-for-like offsets requirements.

The Association of Mining and Exploration Companies (AMEC) raises concerns about potential competition between underlying mineral resources (and exploration rights) and overlying biodiversity projects,[90] and together with the Minerals Council of Australia (MCA) suggests that the Minister should be able to consider the risk of material adverse impacts on land access for mineral exploration when determining excluded biodiversity projects.[91] In addition, the MCA suggests that the scheme should provide – through an appropriate methodology determination – for mining companies to be able to generate biodiversity certificates to be issued for rehabilitated mine.[92]

State and territory governments

The views of state and territory governments are relevant to consideration of the Bills because eligible biodiversity projects could be conducted on Crown land, including aquatic environments and in coastal waters. In addition, projects may, whether on private or public land, require a range of regulatory approvals or permits.[93] Biodiversity projects and biodiversity maintenance declarations may be listed on certificates of land title held in state and territory registers at the discretion of relevant land registration officials.[94] State and territory governments also support or manage a range of programs which could be perversely impacted by the establishment of the NRM.[95] For example, some states have already established market-based biodiversity credit schemes; these are compliance-based.[96]

Submissions on behalf of state and territory governments reflected a range of concerns, principal among these a general concern that the proposed market should not be a substitute for strong legislative protection for biodiversity and should only occur in concert with other existing mechanisms ‘such as direct support and advice for landholders, grant funding for conservation initiatives, and support for land acquisition for inclusion in the conservation estate’.[97]

The ACT Government’s submission notes the NRM Bill does not appear to recognise the ACT’s leasehold system,[98] while the Tasmanian Government’s submission notes that Tasmanian landholders would potentially face greater barriers to participation in the scheme given the relatively small size of landholdings and consequent higher transaction costs.[99]

Financial implications

The Explanatory Memorandum to the NRM Bill indicates that ‘the initial estimate of the cost to taxpayers of drafting, consulting on, and delivering the market arrangements was $13.2 million over two years from 2021–22 to 2022–23’.[100]

In 2022–23, a total of $11.4 million was allocated to the Department ($4.2 million) and Clean Energy Regulator ($7.2 million) for the design and consultation phase of establishing the market.[101]

The Government’s Final Policy Impact Assessment states that ‘further costs to administer the market over the longer term are estimated at $10m a year based on the experience of the CER in regulating the carbon market’.[102]

The Explanatory Memorandum to the Consequential Amendments Bill states that that Bill will have no financial impact.[103]

It is anticipated that a clearer picture of the financial implications of the Bills, including whether the Government will provide an initial appropriation to underwrite the market at commencement, will be known following the release of the 2023–24 Budget.

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed each Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that both Bills are compatible.[104]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights had no comment on the Bills.[105]

Key issues and provisions

The NRM Bill borrows conceptually from the Carbon Credits (Carbon Farming Initiative) Act 2011 (CFI Act) which establishes Australia’s carbon market and provides for the Clean Energy Regulator (CER), established by the CER Act, to undertake a range of functions, including regulation of the carbon market.

To assist in understanding the proposed operation of the nature repair market, the Appendix contains 2 tables that:

• summarise the key roles and responsibilities of different market participants
• provide a quick guide to each Part of the NRM Bill.

This section provides analysis of key issues associated with the proposed nature repair market. This section refers to clauses in the NRM Bill, unless specifically indicated as referring to the NRM Consequential Amendments Bill.[106]

Objects of the Bill

The objects of the NRM Bill are set out in Clause 3. The objects are to:

• promote the enhancement or protection of biodiversity in native species in Australia
• contribute to meeting Australia’s international obligations in relation to biodiversity
• promote engagement and cooperation of market participants
• support and promote the unique role of Aboriginal persons and Torres Strait Islanders in enhancing and protecting biodiversity, and enable the use of the knowledge of Aboriginal persons and Torres Strait Islanders in relation to biodiversity
• contribute to building a knowledge base, and capacity, for the enhancement and protection of biodiversity.

While the Bill defines biodiversity as per the EPBC Act and the Biodiversity Convention,[107] other key terms employed – such as nature, enhancement, protection and native species – are not defined in the Bill.[108] There is also no further elaboration of Australia’s international obligations in relation to biodiversity – contrary to the approach in the EPBC Act where matters of national environmental significance are specifically linked to named Conventions and bilateral agreements.[109]

The objects Clause (nor the Bill generally) does not set out an intention to achieve specific outcomes, such as achieving Australia’s commitments under the Kunming-Montreal Global Biodiversity Framework (being 30% of terrestrial and marine ecosystems under protection and 30% of degraded terrestrial and marine ecosystems under restoration by 2030), nor to focus enhancement and protection activities to threatened species and ecological communities as listed under the EPBC Act, or to prevent new extinctions.

Stakeholders suggest that the objects clause – and where relevant, the Bill more broadly – should be amended to clearly articulate the purpose of the proposed market and the biodiversity outcomes it seeks to achieve.[110] Several stakeholders suggested the addition of a specific object making clear that each biodiversity certificate facilitates a net enhancement, restoration and protection of biodiversity.[111] Others suggest that ‘restore’ and ‘restoration’ should be included in the language used throughout the Bill (as in ‘to restore and protect’ rather than ‘enhance’) – reflecting the targets in the GBF and the character of the on-ground activities required.[112]

Different stakeholders propose a range of measures to support the achievement of the Bill’s objects. These include a theory of change and an outcomes-based framework,[113] a National Restoration Plan and accompanying targets,[114] and a National Biodiversity Investment Strategy to guide development of the market and send clear signals about the Government’s priorities in relation to the enhancement, restoration and protection of biodiversity.[115]

Project proponents and biodiversity projects

The NRM Bill provides for an eligible person (who is a fit and proper person) to apply to the Regulator for registration of a biodiversity project in a specified project area.[116] The applicant (that is, project proponent) could be the landholder, a corporate entity, or a body politic or local government.[117] The project proponent could also be a person or entity to whom a landholder has provided consent. The project proponent must also obtain the consent of eligible interest holders.[118] However, a proposed project could in some cases be registered on the basis that the written consent of an eligible interest holder is obtained and that a biodiversity certificate may not be issued until such consent is obtained.[119]

The Bill provides that projects could be proposed on an area of land, or Australia waters, or a combination of both.[120] The Bill does not exhaustively list the tenures on which a project area could occur in an ‘application’ clause. The Bill does not appear to address other tenures, such as the 1 percent of NSW described by the NSW Registrar General as still under Old system title (that is, non-Torrens title). [121]

Further clauses set out consent requirements of eligible interest holders on Torrens system land and Crown land that is not Torrens system land.[122] For example, the relevant Crown lands Minister would be the eligible interest holder for a proposed biodiversity project on Crown land (including leasehold land and coastal waters).[123] However, the Bill does not identify who the eligible interest holder(s) is in the case of proposed projects in Australian waters. The Bill does not appear to address circumstances such as:

• where a person or organisation has made a native title, or land rights, claim over the land on which it is proposed to undertake a project, but the claim is yet to be finally determined
• where there may be overlapping, and potentially incompatible, tenures or interests, such as an exploration lease under state or territory mining or oil and gas laws, or a feasibility licence granted over part of the Commonwealth offshore area under the Offshore Electricity Infrastructure Act 2021.

In deciding to register a biodiversity project, the Regulator must be satisfied of a large number of matters, including those matters specified in the rules and methodology determinations to be made by the Minister.[124] Project proponents must also secure relevant regulatory approvals.[125] Recent research has identified significant complexities in determining title to, and the boundaries of such titles, in the intertidal zone which may additionally be affected by climate change (including sea level rise).[126] These complexities will similarly arise in riverine and wetland ecosystems and may be a significant barrier to the development of biodiversity projects in these areas.

The NRM Bill provides that the requirements (or activities) for biodiversity projects will be set out in methodology determinations.[127] In deciding to make (or vary or revoke) a methodology determination, the Minister must seek the advice of the Nature Repair Market Committee (NRMC) and must only make (or vary) the methodology determination if the NRMC advises the Minister that the methodology determination is consistent with the biodiversity integrity standards and the Minister is similarly satisfied.[128]

Concerns have been raised about the continuance of carbon projects under methodology determinations that have been varied or revoked (including the continued awarding of ACCUs).[129] Clauses 49 and 52 provide for the rules to determine how existing projects will be affected (or not) or, on the application of the project proponent, for the Regulator to determine the application of a varied or revoked methodology determination to a particular project.

Replicating the provisions in the CFI Act, the Minister has broad discretion to specify that certain kinds of projects are excluded biodiversity projects, and therefore ineligible.[130] The provision has been used in the carbon market to address concerns that agricultural land is allegedly ‘being locked up’, although other stakeholders consider this an inappropriate imposition on the rights of landholders.[131] Stakeholders raised a range of concerns about the level of discretion afforded, the need for clarity on what constitutes ‘a material risk’ of a ‘material adverse impact’, and the priority to be afforded to different matters to be considered.[132]

Biodiversity certificates

Clause 67 of the NRM Bill provides for a project proponent of a registered biodiversity project to apply to the Regulator for the issue of a biodiversity certificate. A methodology determination would set out the ‘method of working out the time after which such applications may be made’.[133] The Bill would result in the generation of individual biodiversity certificates representing a diverse range of projects, on different tenures, of different scales, in different ecosystems, and purporting to achieve different biodiversity outcomes, issued on the basis of activities that have been, are being, or are proposed to be undertaken. Some stakeholders have described biodiversity certificates as essentially ‘non-fungible tokens’ (NFT).[134]

The Regulator would be required to publish the characteristics of each biodiversity certificate, as would be provided for in the rules, in the Biodiversity Market Register.[135]

The biodiversity certificate would be a new form of personal property right relating to the biodiversity outcome.[136] The certificate does not provide the holder of the certificate with any rights to or ownership of physical elements of biodiversity or the genetic components thereof. Biodiversity certificates would be issued on the basis that they ‘may be cancelled, revoked, terminated or varied, or required to be relinquished by or under later legislation’ and no compensation would be payable.[137]

The Government’s Final Policy Impact Assessment notes ‘the importance of issuing a biodiversity certificate as quickly as possible so that the project proponent can recover the upfront costs of the project’.[138] However, as the Explanatory Memorandum explains, ‘a biodiversity certificate would only be able to be issued for a registered biodiversity project that is sufficiently progressed to have resulted in, or be likely to result in, the intended biodiversity outcome’ (emphasis added).[139] Information required to be provided to the Regulator to enable an assessment would be established by the rules or the methodology determination, and could include a project plan and an audit report.[140]

Some stakeholders have raised concerns about the risks to landholders of participating in the scheme, the dearth of available information about costs of participation, and the ability of project proponents to recover establishment costs. For example, the National Landcare Network, whose members have long facilitated the delivery of grant-based stewardship programs to farmers and other landholders, notes that risks, transactions costs and establishment costs of developing a project lie with the landholder, thereby reducing the opportunity for participation by small landholders and family farmers.[141] Emeritus Professor Jon Altman, based on experience working with Indigenous groups and savannah burning projects, raises concerns about potential inequities between project proponents, project developers and certificate purchasers, whereby project proponents may accept and be locked into funding that turns out to be inadequate to support the long-term delivery of a project.[142]

Stakeholders raised a range of concerns about the issue of biodiversity certificates. Numerous stakeholders considered that more detailed information should be published in the Register about each project and biodiversity certificate, including whether other biodiversity or carbon projects are stacked on the same project area (or part thereof) and whether ACCUs are being generated, and the alignment of purported biodiversity outcomes with conservation planning priorities.[143] In particular, some stakeholders argued there should be clear disclosure of the bundling of projects to prevent double-dipping as opposed to the generation of a premium for co-benefits.[144] As is explained further below, many stakeholders argued that project proponents should be able to restrict the use and further trade of a biodiversity certificate for offsetting purposes.[145]

Stakeholder concerns about market aspects are discussed further in the ‘A market for biodiversity section’.

Permanence periods

A permanence period ‘sets the time for which the project (and the biodiversity affected by the project) must be monitored and protected’.[146] A permanence period is different to – and would be longer than – the activity period. The activity period is the period of time over which a project proponent would be required to implement activities relating to the enhancement or protection of biodiversity.[147] The activity period would be determined in accordance with the relevant methodology determination.

Clause 34 of the NRM Bill provides that registered biodiversity projects may have a permanence period of:

• 25 years (type A)
• 100 years (type B)
• a period ascertained in accordance with a methodology determination (type C).[148]

The project proponent would be able to choose a 25 year or 100 year permanence period, unless the proposed project type is specified in a methodology determination as having a type C permanence period.[149]

The Regulator would be able to unilaterally, or on the application of the project proponent, extend the permanence period in certain circumstances, such as if there has been a significant reversal of the biodiversity outcome and the extension is necessary restore the biodiversity outcome or mitigate the reversal.[150] The Regulator would also be able to vary the permanence period of a project in accordance with rules made under subclause 20(1).

Several stakeholders consider the use of the term ‘permanence’ inappropriate, with the ALCA describing its’ use as ‘inherently contradictory and thus generally confusing’.[151] Stakeholders suggest it would be more appropriate to refer to the ‘certificate period’.[152]

Biodiversity projects are cancelled at the end of the permanence period.[153] The Government has not provided guidance as to its expectations for on-going protection of biodiversity outcomes, and thus, a landholder, or future landholder (in the event of the sale or transfer of the property) could conceivably clear any vegetation thereby negating any biodiversity outcomes achieved.[154]

The NRM Bill does not provide guidance as to the potential eligibility of existing projects under various Commonwealth, state and territory government or NGO-led private land conservation schemes. Some stakeholders, including state governments, have expressed concern that shorter permanence periods available under the proposed ‘nature repair market’ could negatively impact on participation in State covenanting schemes which provide for protection in-perpetuity.[155] Others suggested that there should be clear guidance in the Bill in relation to the added value and security of outcomes offered by in-perpetuity protection.[156]

The Bill does not clearly require that biodiversity projects be recorded on the relevant certificate of property title by the relevant land registration official, providing only that the relevant land registration official may make entries or notations on their registers for the purposes of drawing attention to the biodiversity project.[157] The Bill provides for the notification of certain events relating to a registered biodiversity project, such as variation or cancellation of a project.[158] However, the Bill does clarify that the Biodiversity Minister may enter into arrangements with the relevant Ministers of State or Territories in relation to the exercise of the powers to make such annotations.[159]

Part 14 of the Bill would enable the Regulator to declare, vary and revoke biodiversity maintenance declarations over a specified area in certain circumstances, and provide for a declaration to specify one or more declared prohibited activities.[160] The landholder would in effect be required to maintain any biodiversity on the specific area and refrain from undertaking the prohibited activities. However, these provisions only apply in the event that the Regulator has issued (or is likely to issue) a relinquishment notice under Part 13 in relation to one or more biodiversity certificates, in circumstances of non-compliance or likely non-compliance.[161] A biodiversity maintenance declaration remains in force until the sooner of the end of the permanence period or payment of a civil penalty order made in relation to failure to comply with the relinquishment notice, unless otherwise revoked by the Regulator.[162] The declarations are ‘a key integrity measure’ intended to protect the value of a biodiversity certificate.[163] Biodiversity maintenance declarations may be recorded on state land title registers at the discretion of the relevant land registration official.[164] Importantly, biodiversity maintenance declarations are different to the in-perpetuity protections provided by private land conservation agreements under Commonwealth and state laws.

Biodiversity certificates for environmental offsets

Stakeholder submissions indicate confusion as to the Government’s intent with respect to allowing biodiversity certificates to be used as environmental offsets. The EDO for example describes ‘the failure of the Government to clearly communicate its intention with regards to offsets [as] disappointing and disingenuous’.[165] Moreover, there is broad stakeholder opposition to the use of biodiversity certificates for offsetting purposes.[166] The Australian Land Conservation Alliance (ALCA) for example observes that the inclusion of offsets ‘may significantly skew both the purpose the market serves, and the biodiversity outcomes that the market delivers’.[167]

An environmental offset is a ‘measurable conservation outcome that results from actions designed to compensate for significant, residual biodiversity loss from development projects’ such as urban development, mining, infrastructure or agriculture.[168] Offsets ‘are intended to be implemented only after reasonable steps have been taken to avoid and minimise biodiversity loss at a development site’[169] and under schemes in Australia are implemented on a ‘like-for-like’ or ‘net gain’ basis.[170]

Environmental offsetting schemes – at both the Commonwealth and state level – have consistently been found to not be effective, [171] with the Samuel Review for example finding that the ‘current EPBC Act environmental offsets policy contributes to environmental decline rather than active restoration’.[172] The Samuel Review recommended immediate reforms to the EPBC Act environmental offsets policy, along with greater alignment of offsetting with regional plans and strategic assessments.[173]

The Government’s Nature Positive Plan outlines its intended approach to reforming environmental offsets under the EPBC Act.[174] This includes developing a National Environmental Standard for Environmental Offsets and establishing a hierarchy of action: avoid, reduce or mitigate, offset with net gain, and make a conservation payment. The Plan indicates that conservation payments would be ‘made to, and invested by, a body such as an independent government trust’, with ‘an evidenced-based investment strategy, underpinned by conservation planning documents, ... [to] be developed to ensure conservation payments are used to deliver optimal environmental benefits’.[175] The conservation payments would essentially be used by the Government to strategically purchase private land or fund conservation activities. Interestingly, the recent review of the Queensland offsets program reported that 97% of environmental offsets were delivered as a conservation payment.[176] The Plan also indicates that biodiversity certificates could potentially be used as offsets, and that Governments could invest conservation funds through the market.[177]

Confusingly, the Government’s Final Policy Impact Assessment states that there is a fundamental difference between environmental offsets and biodiversity credits, notes that the NRM Bill does not address offsets, but goes on to identify environmental offsets as a potential long-term source of demand for biodiversity certificates.[178] The Assessment also states that ‘projects certified under the Nature Repair scheme won’t be used as offsets – unless and until – they meet the MNES and Offsets standards’.[179]

Stakeholders observe that the NRM Bill does not contain the word ‘offsets’ or contain any language or provisions necessary to underpin an effective market for environmental offsets – including clear requirements for net gain and links to the proposed National Environmental Standard for offsets.[180]

The Explanatory Memorandum to the NRM Bill suggests that Clause 140, which allows a person to deposit a biodiversity certificate with the Regulator, could potentially be used to satisfy environmental offset requirements in other legislation, as ‘the relevant biodiversity will be protected for the life of the project’.[181] Rules made under Subclause 167(2), relating to matters to be recorded in the Biodiversity Market Register, could also require the Register to state whether a biodiversity certificate has been used an environmental offset.[182]

Several stakeholders recommended that project proponents, given their unique motivation for engaging in biodiversity conservation activities, should be able to specify that the resulting biodiversity certificates cannot be used for offsetting purposes, including in subsequent trade.[183] In a similar vein, other stakeholders suggested that transparent annotations be added to biodiversity certificates purchased for offsetting purposes.[184] Stakeholders also suggest that the Government – through its ability to purchase biodiversity certificates – should specifically be prevented from investing in biodiversity certificates that support or are connected to environmental offsets.[185]

Of note, the use of carbon projects to satisfy environmental offsets requirements under Commonwealth, state or territory legislation is specifically excluded under the CFI Act.[186] As noted above, the NRM Bill is ambiguous as to the use of biodiversity certificates for offsets and the stacking or bundling of projects. The Nature Positive Plan states that the proposed federal EPA ‘may allow certain types of market projects to be used to meet approval obligations’ in future.[187]

Measuring biodiversity outcomes

The NRM Bill defines a biodiversity outcome as ‘the enhancement or protection of biodiversity that [an individual biodiversity] project is designed to achieve’.[188] A methodology determination will specify the activities that a project must (or must not) undertake and may require a project plan to be in place, setting out ‘how the project is intended to achieve the biodiversity outcome for that project’.[189]

To ensure consistency in how biodiversity is assessed and measured across methodology determinations, Clause 58 provides that the Minister may, by legislative instrument, make one or more biodiversity assessment instruments. A biodiversity assessment instrument may prescribe requirements relating to the measurement or assessment of biodiversity, the enhancement of biodiversity or the protection of biodiversity.[190] The Minister would be required to obtain the advice of the NRMC before making a biodiversity assessment instrument, and would not be permitted to make an instrument unless the NRMC has advised the Minister that the instrument is an appropriate means of ensuring consistency and would assist in ensuring that methodology determinations comply with the biodiversity integrity standards.[191]

The biodiversity integrity standards are set out in Clause 57. There are 10 standards, split into 3 categories: project design and delivery, biodiversity assessment, and biodiversity information on the register and certificates. As noted elsewhere in this Digest, stakeholders have called for clarity in the standards and removal of language that could result in ambiguous interpretation. The proposed biodiversity assessment instruments may be an attempt to provide scheme-level principles to support the biodiversity integrity standards, as recommended by the Chubb Review.[192]

Stakeholders have raised a range of concerns about the measurement of biodiversity outcomes. For example, Professor Brendan Wintle argues that biodiversity outcome measures should be sufficiently sophisticated to capture the elements of biodiversity that should be conserved and restored - such as key species and habitat attributes – rather than ‘simply recording coarse measures of vegetation condition’.[193] Further, the Wentworth Group of Concerned Scientists argue that ‘any predicted outcomes for which certificates are issued should be based on robust, scientifically valid projections. Predicted outcomes should be verifiable and monitored through the life of the project, and safeguards should be in place if outcomes fail to materialise’.[194] There is of course quite a difference between identifying the outcome of a single biodiversity project and its contribution to the achievement of landscape-scale or national outcomes.

A market for biodiversity and risks of greenwashing

Two key questions in relation to the proposed nature repair market are firstly whether there is a market for nature repair, and secondly whether the scheme as proposed will deliver a product the market wants.

The Government’s Final Policy Impact Assessment points to 4 sources of demand for biodiversity certificates: compliance offsets, philanthropic investment, commercial decisions to meet biodiversity or environmental commitments, and a public good investment by government.[195] The Assessment states that ‘targeted consultation ... provided a strong indication that demand for projects ... will grow with the appropriate frameworks in place’.[196] The Minister has repeatedly referred to a report by PriceWaterhouseCoopers which estimated that a biodiversity market could unlock $137 billion in financial flows to advance Australian biodiversity outcomes by 2050.[197] Some stakeholders consider such estimates to be ‘wildly optimistic’.[198] Other stakeholders point to the integrity issues of other environmental markets in Australia, arguing that the establishment of markets in water, carbon and biodiversity (at the state level) have been counterproductive to the achievement of environmental outcomes and also that they have negatively impacted First Nations groups in particular.[199]

Many stakeholders suggested that the Government would need to lead early investment in the market to send a clear signal to the market and stimulate supply.[200] Dr Megan Evans suggests that the Government could, following the approach taken in Queensland’s Land Restoration Fund, provide initial support via a grant scheme to enable small and medium sized land managers, including First Nations, who might otherwise be locked out of the market to initiate projects.[201] Relevantly and as noted earlier in this Digest, the Government expects projects developed under the pilot schemes to provide the first supply of biodiversity certificates.

More broadly, in the absence of clear guidance from the Government as to its priorities for investment, there is a risk that private sector investment will be skewed toward a relatively limited number of charismatic or iconic species and/or ecosystems which may be more attractive to market participants for ESG purposes.[202]

As noted above, the proposed nature repair market will enable the creation of bespoke biodiversity certificates, each reflecting the unique characteristics of the biodiversity project from which it was generated. In contrast to ACCUs, or reef credits, the certificates are not unitised and are not fungible (interchangeable). Stakeholders such as NatureFinance and partners point to ‘stark concerns’ about the issue of single certificates and noting implications for market development.[203] The Australian Sustainable Finance Institute noted ‘the significant complexities that arise from an attempt to unitise nature for the purpose of comparing, pricing and trading’.[204] The Institute summarised the challenge as follows:

...balancing simplicity with scientific credibility is key to determining market participation from both the supply and demand side. If the scheme is too complex and costly it will deter both supply and demand. Likewise, if the market perceives that the scheme is not scientifically credible, it will not participate in it.[205]

Biodiversity certificates ‘cannot be traded in the same way as other environmental features [such as] water or carbon’.[206] This is likely to result in significant transaction costs, as potential purchasers would need to evaluate the characteristics of each certificate. NatureFinance and partners argues that ‘projects should instead generate certificates as a result of measured and verified per-unit enhancement and/or protection of biodiversity’, noting that this would in itself raise significant challenges.[207]

Finance and investment stakeholders also argue that the design of the scheme around ‘a one-time, upfront investment (by the initial purchaser) for a 25-year period is not providing an investor with sufficient security and is therefore unlikely to yield significant interest from the investment community’.[208] Along with other stakeholders, they argue that the scheme should provide for an upfront payment followed by periodic payments based on the achievement of specified milestones and outcomes.

In the absence of recognised processes for obligations to ‘account for nature’, noting these may flow from the TNFD, there is a risk that organisations may use their participation in the market (as the holder of biodiversity certificates) to support ESG claims made in other markets – that is, ‘green-credentialing’. Both purchasers, and the general community, cannot be sure that holding a bespoke biodiversity certificate in any way accurately reflects the nature-related dependencies and impacts of a particular business’s practices. For example, the Australian Competition and Consumer Commission’s (ACCC) recent internet sweep found 57% of businesses made concerning claims about their environmental or sustainability practices.[209] Australian Ethical Investments argues there is a need for broader regulatory reform, including clear guidance from regulators such as ACCC ‘about the circumstances in which claims of being nature positive constitute greenwash’.[210] Relevantly, the Senate Environment and Communications References Committee commenced an inquiry into greenwashing in March 2023, with a report due by 5 December 2023.

Differential treatment of biodiversity certificates and carbon credits as financial products and for tax purposes

A biodiversity certificate would be a new form of personal property, which could be traded in the Biodiversity Market and owned separately from the land.[211] Clause76 clarifies, for the avoidance of doubt, that equitable interests could be registered in relation to a biodiversity certificate and subclause75(1) provides for the rules to make provision for the registration in the Register of equitable interests in biodiversity certificates.

Subclause221(1) provides that the rules may make provision for the voluntary accreditation of persons who give advice, or provide other assistance, in relation to the operation of the Act, the carrying out of biodiversity projects and the trading of biodiversity certificates. However, subclause221(4) provides that the rules must not make accreditation mandatory.

These requirements are not consistent with Recommendation 12 of the Chubb Review and the existing regulatory arrangements for regulated emissions units (including ACCUs and safeguard mechanism credit units (SMCs)).

Under current arrangements, persons giving advice or providing assistance in relation to carbon projects – such as project developers or aggregators – are not subject to any regulatory standards or registration requirements. The Carbon Market Institute has however established a voluntary Carbon Industry Code of Conduct. The Chubb Review found that the Code contributed to the integrity of the carbon market and considered that ‘mandating performance standards for carbon service providers, including agents, would enhance market confidence and consumer protection’.[212] The Chubb Review recommended that carbon service providers and advisers should be accredited and regulated.[213] The Government has accepted this recommendation in principle but not indicated how or when it will implement the recommendation.[214]

ACCUs and other eligible international emissions units (including SMCs) are regulated emissions units and regulated as financial products under the Australian Securities and Investments Commissions Act2001 (ASIC Act) and the Corporations Act2001.[215] A person or organisation that carries on a financial services business that provides advice in relation to regulated emissions units is required to hold an Australian financial services (AFS) licence. Financial advisers are also required to meet certain professional standards.[216]

Regulation of regulated emissions units as financial products provides protections for individuals or organisations receiving financial advice, for example, against the provision of false and misleading information or unconscionable conduct.[217] The Chubb Review noted ‘concerns that there should be education and stricter enforcement of existing regulation around the provision of financial advice in relation to carbon market activities’.[218]

Carbon abatement contracts are specifically exempted from the definitions of derivative and financial product for the purposes of the Corporations Act[219] and thus a person (such as a project developer or aggregator) is not required to hold an AFS licence to provide advice about, or enter into, a carbon abatement contract.[220]

The NRM Bills, and accompanying Explanatory Memoranda, do not indicate whether it is the Government’s intention that biodiversity certificates be regulated as financial products. The inconsistent treatment of biodiversity certificates and regulated emissions units – particularly where the Government is promoting the huge investment potential of the scheme and its policy intent appears to support the stacking (rather than bundling)[221] of biodiversity and carbon projects – creates a confusing and inconsistent regulatory landscape.

A further issue is the potential differences between the tax treatment of biodiversity certificates and ACCUs. NRM Regions Australia for examples notes that the tax implications of a large one-off payment for a biodiversity certificate may be a disincentive to both project proponents and certificate buyers.[222] The proceeds of selling ACCUs are ‘assessable income on revenue account’ in the income year the ACCU is sold or surrendered, while supplies of ACCUs are GST-free.[223] Finally, the Government has committed to the provision of concessional tax treatment for ACCUs for primary producers, with The Treasury having consulted on the proposed arrangements in March 2023.[224] The Government has not indicated whether it intends to extend such treatment to biodiversity certificates, although the Coalition Government had proposed that this would be the case.[225] The uncertainty about tax treatment of carbon offsets and biodiversity certificates, including for different landholders, may raise concerns for some potential market participants.

Regulation of the nature repair market by the CER

The NRM Bills – which in many respects mirror the framework established by the CFI Act for the carbon market – provide for the Clean Energy Regulator (CER) to administer the nature repair market, including registration of projects, issuing of biodiversity certificates, project assurance, and compliance and enforcement.[226]

Under existing arrangements, the Regulator consists of a Chair and at least 2, and not more than 4, other members.[227] The Chair holds office on a full-time basis, while other members may be appointed on a full-time basis or part-time.[228] Existing subsection 18(2) provides that the Minister may only appoint a person if satisfied that the person has substantial experience or knowledge and significant standing in specified fields. The Consequential Amendments Bill proposes to amend subsection 18(2) of the CER Act to add two new fields – agriculture and biological or ecological science.[229] However, the amendments do not increase the number of members that may be appointed or, importantly, do not require that at least one member of the Regulator must have substantial experience or knowledge and significant standing in the proposed new fields.

Some submitters to the consultation on the Exposure Draft of the NRM Bill noted potential efficiencies in the CER simultaneously administering the carbon market and the nature repair market.[230] However, the vast majority of stakeholders, including the Threatened Species Scientific Committee, questioned the appropriateness of the CER as the administrator of the nature repair market, citing its lack of technical expertise in biodiversity and restoration ecology.[231] Other stakeholders suggested that the proposed new Environment Protection Agency would be best placed to administer the scheme (or large parts thereof).[232]

Numerous stakeholders raised concerns about the findings of the Chubb Review in relation to the multiple roles of the CER and associated transparency issues.[233] These stakeholders considered that the recommendations of the Chubb Review should be fully implemented and the NRM Bills modified accordingly.

Other provisions

The nature repair market framework largely replicates the reporting and auditing requirements provided in the CFI Act for carbon projects. This includes a requirement for project proponents to submit project reports, referred to the as Category A project reports and Category B project reports; the requirements for project reports, including their frequency, would be provided in the rules and methodology determinations.[234] Project reports may be subject to audit.[235]

As an alternative, Clause 104A provides that the Regulator and project proponent may enter into an alternative assurance agreement for a specific reporting period, with the assurance measures to be prescribed in the rules. No further information about these measures is provided, with the Explanatory Memorandum stating this clause would ‘provide appropriate flexibility for proponents, without compromising environmental standards or market confidence’.[236]

The Regulator would also be able to require an audit where they have reasonable grounds to suspect the person is contravening, or proposing to contravene, the Act (a ‘compliance audit’), or to monitor a person’s compliance with the Act.[237]

The NRM Bill emulates the requirements in the CFI Act, whereby audits are undertaken by registered greenhouse and energy auditors. Stakeholders were unanimous in their strong expression of concern that registered greenhouse and energy auditors would undertake audits of biodiversity projects, arguing that standalone provisions should be provided.[238]

As noted earlier in this Digest, and contrary to stakeholder feedback, the NRM Bill retains the language of ‘registered greenhouse and energy auditors’. However, Items 22 to 25 of the Consequential Amendments Bill would amend the National Greenhouse and Energy Reporting Act (NGER Act) to allow the responsible Minister to:

• determine, by legislative instrument, the requirements to be met by registered greenhouse and energy auditors in preparing and carrying out biodiversity audits and in preparing biodiversity audit reports and
• provide for the registration of, and the keeping of a register of, greenhouse and energy auditors, including noting those auditors recognised as having the qualifications, knowledge, expertise, competence, independence and other matters for carrying out biodiversity audits as specified in a legislative instrument or regulations.

Therefore:

• the responsible Minister would need to make a new, or amend the existing legislative instrument (being the National Greenhouse and Energy Reporting (Audit) Determination 2009), in accordance with subsection 75(1) of the NGER Act and
• the Regulator would need to make a new, or amend the existing legislative instrument (being the National Greenhouse and Energy Reporting (Auditor Registration) Instrument 2019), in accordance with subsection 75A(4) of the NGER Act.

Concluding comments

For decades successive Governments have failed to address the key drivers of cumulative biodiversity loss – land-clearing, agriculture and resources projects, invasive species and climate change.[239] The issue of comprehensive reform of Australia’s national environmental laws in order to adequately protect Australia’s unique biodiversity and iconic places remains high on public and political agendas.

The NRM Bills provide a framework for the creation of an artificial market in non-fungible biodiversity certificates, allowing the private sector to price something that is intrinsically invaluable for the purposes of supporting ESG claims or, potentially in future, being applied to offset biodiversity loss or damage.

Commentators have observed that the objects of the NRM Bill are only vaguely (and not strongly and unambiguously) linked to supporting Australia’s international obligations with respect to the conservation of biodiversity. The Bill does not provide for the measurement of biodiversity outcomes in terms meaningful from an ecological perspective – such as the successful conservation of threatened species and ecological communities and avoided extinctions.

The key elements of the nature repair market will be provided in subordinate legislation, including rules, biodiversity assessment instruments and methodology determinations. The Bill and Explanatory Memorandum provide no information on how the development of methodologies will be prioritised to focus on the restoration and protection of habitat that is critical for threatened species and ecological communities. Connections to other key aspects of national environmental law reform, such as a revised offsets policy, strategic assessments and regional plans under the EPBC Act (or as in revised form), are poorly articulated or missing.

Furthermore, there is a considerable risk that the earnest endeavour to provide sufficient flexibility in the drafting of the Bill and associated legislative instruments will ultimately lead to weaknesses, with ongoing pressure to minimise costs for participants undermining the scientific rigour necessary to assess, measure and deliver biodiversity outcomes.[240] The devil will indeed be in the detail.[241]

As the Minister for the Environment has said, ‘a bad market can be worse than no market – if it’s poorly designed, or under regulated, or if it creates perverse incentives, or if it just greenwashes bad behaviour’.[242]

Appendix

Table 1 An overview of roles and responsibilities of participants

Source: Library compilation based on Table in DCCEEW, Overview of the Nature Repair Market Bill, Fact sheet, March 2023.

Table 2 A quick guide to Parts of the NRM Bill

Source: Library compilation.

Acknowledgement: with thanks to Dr James Prest for helpful discussions and his peer review of an earlier version of this Digest.