A summary of the Government's proposal and what it could mean for you 5 min read
The Federal Government has announced its plans to create a national voluntary biodiversity market and biodiversity certification scheme (BCS) which would be underpinned by legislation and operate in parallel to the existing federal carbon credit scheme (CCS). The proposal—which is open for public consultation until 16 September—comes on the heels of the State of the Environment report, which found significant investment is needed to reverse the steep decline in Australia's native biodiversity.
Here we briefly summarise the Government's proposal and what it could mean for you.
What is the Government proposing?
While details are currently limited, the Government has published a fact sheet (on which it intends to undertake public consultation) which sets out the 'foundational elements' of the proposed market. Below, we have summarised some of the key takeaways from the fact sheet and other public communications from the Government about the proposal:
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Who can participate? |
The market will be open to all landholders – including conservation groups, the agricultural sector and First Nations People. |
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Who would be the regulator? |
Clean Energy Regulator. |
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How would the market operate?
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To participate in the market, landholders would need to undertake biodiversity projects which enhance or protect native biodiversity. Examples listed include: planting a mix of local species on previously cleared land; and improving or restoring existing native vegetation by fencing or weeding. |
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The biodiversity project would need to be covered by, and meet the requirements of, protocols. The protocols are to be developed by the Government in consultation with, and endorsement from, an independent expert Advisory Committee. The protocols will set out how projects are to be managed, and define things like: requirements for activities to be carried out in a particular area; how projects are to be assessed; and information to be included in reporting on the project. |
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The biodiversity project can be registered on a public register if it meets necessary conditions for approval by the regulator, such as meeting a 'fit and proper person test', and being covered by, and consistent with, a protocol. The CER would both establish and manage the public register. |
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A single, tradeable, biodiversity certificate will be issued electronically per project, at an appropriate time in the project lifetime, and if the project has measurable improvements to the environment. The trade of these certificates will be regulated by new legislation. The fact sheet notes that while these certificates will be tradeable personal property (akin to Australian Carbon Credit Units (ACCUs)), there will be certain important differences between an ACCU and a biodiversity certificate, namely:
Biodiversity certificates would capture key project attributes in a standardised way, including location, area and the activities to be conducted. Information on the certificate and project register would allow potential buyers to consider the attributes and put a price on the certificate. |
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A compliance and assurance system would be established, which would outline:
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Interaction with carbon credit market |
The biodiversity market will operate in parallel with the carbon credit market, and is intended to allow for the commodification of biodiversity benefits generated by carbon projects. The Government has noted: 'as companies look to invest in carbon offsetting projects… we need to make sure there is a path for farmers and the environment to benefit'. |
Corporate action on biodiversity in context
The proposal comes at a time of increased scrutiny on corporate responses to biodiversity loss, and growing expectation that companies report on biodiversity loss and nature-related opportunities. We note:
- Earlier in the year, the Taskforce for Nature-related Financial Disclosures (TNFD) released the first beta version of its new framework, which seeks to establish a standardised global method for companies to identify, assess and report on biodiversity loss risk and opportunities. Our overview on the TNFD framework—which is expected to be finalised in September 2023—can be found here.
- More recently, it has been reported that a shareholder of a listed company has written to the company seeking an undertaking that its annual directors' report (to be released at the end of October) contains appropriate disclosures about biodiversity risk. The shareholder—who has given the company 21 days to respond—has argued that the company's failure to make such disclosures would be a breach of the board's duties under the Corporations Act 2011 (Cth).
- This is echoed by a new report dated 5 September 2022 commissioned on behalf of the Australian Conservation Foundation and prepared by IDEEA (with assistance from Australian Ethical Investments and Pollination). The report found that the failure by a director to consider nature-related risks (to the extent they are reasonably foreseeable and intersect with the interests of the director's company) could be a breach of the director's Corporations Act duties, and could result in prosecution and fines.
- Globally, over 100 nations have signed up to the '30x30' initiative—a commitment to preserve at least 30% of the planet's land and oceans in its natural state by 2030.
Key considerations
As noted above, the public consultation process will close on 16 September. The Government has also indicated it will be proactively consulting over the coming months on detailed rules for the scheme, including on how biodiversity benefits should be measured and verified.
We consider that the issues to be worked through as the regime is further developed are likely to include:
- the interaction of the federal BCS with state-based biodiversity credit schemes; and
- the commercial consequences of a single certificate being issued for a particular biodiversity project—noting that it is not uncommon, at least with respect to carbon projects, for multiple parties to be involved in a project, and for these parties to agree to share the ACCUs generated by their project.
Companies seeking to participate in the proposed BCS should consider making submissions on the above, and any other, relevant issues.
Additionally, companies currently preparing agreements for long-term carbon farming projects should consider including provisions in those agreements specifying whether the parties intend for the project to be co-certified under the BCS once enshrined in law, and if so, which party is entitled to relevant certificates.