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International arbitration report
In this edition, we focused on the Shanghai International Economic and Trade Arbitration Commission’s (SHIAC) new arbitration rules, which take effect January 1, 2024.
An overview of the Nature Repair Market
Australia | Publication | September 2024
Introduction
In our previous articles (here and here), we highlighted that under Stage 1 of the nature reforms detailed in the Nature Positive Plan, the nature repair market was established.
The Nature Repair Act 2023 (Cth) (Nature Repair Act) established the nature repair market and although the Nature Repair Act commenced on 15 December 2023, the nature repair market is still in the infancy stages of development and various additional steps must be completed before the market can fully operate.
In this article, we provide:
- the background to the establishment of the nature repair market;
- an overview of the objectives of the Nature Repair Act and how it will operate;
- a short comparative analysis between the existing carbon market and the proposed nature repair market; and
- anticipated next steps that will allow the nature repair market to operate.
See our previous article for an explanation of capitalised terms not defined below.
Content
Background
In the context of the global movement towards valuing nature and biodiversity, the Samuel Review identified the need to foster private sector participation in the restoration of nature and the potential opportunity to leverage existing markets (including the carbon market) to do so.
In response, the Nature Positive Plan developed by the Australian Government specified that a voluntary nature repair market would be established to operate alongside the carbon market, to promote investment in the long-term repair of nature.
The Nature Repair Act is aimed at promoting the enhancement of biodiversity in native species in Australia and contributing to Australia’s international obligations relating to biodiversity. The nature repair market is intended to establish a simple means to invest in projects that will protect and foster nature and biodiversity, through the issuance and trading of biodiversity certificates (without the need to buy or lease land).
According to the Nature Repair Act’s policy impact assessment, the establishment of the market is based on strong institutional and shareholder interest in participating in biodiversity markets.
Furthermore, the market is seen as a complementary measure to legislative requirements, regulating offsets and providing environmental grant programs and / or conservation and restoration programs.
Like the carbon market, the nature repair market will be administered by the Clean Energy Regulator (Regulator), with the Minister for the Environment and Water being the responsible Minister (Minister).
How will the market operate?
Ultimately, the value derived from a registered project in the nature repair market is a tradeable biodiversity certificate. These can be obtained as follows:
- An application to register the biodiversity project is made to the Regulator. A biodiversity project must:
- comply with the methodology determinations (that will be determined by the Minister on advice from the Nature Repair Market Committee (Committee));
- specify the project proponent(s);
- specify the proposed permanence period (the permanence period may range from 25 to 100 years, or any other period covered by a methodology determination); and
- any other information specified in the rules.
- The Regulator may approve or reject a project. If approved, the project is registered on the publicly available Biodiversity Market Register (Register). In approving the project, the Regulator sets the life of the project and the period for which the biodiversity certificate applies (i.e. the permanence period).
- A biodiversity certificate can then be issued for the registered biodiversity project and the biodiversity certificate is also recorded on the Register.
The biodiversity certificate will have value as it is personal property, which can be transferred and traded. However, as only one biodiversity certificate will be issued over the lifetime of the project, there is a question as to how accessible and tradeable a biodiversity certificate may ultimately be.
In order to allow the market to operate, methodology determinations are required. The Minister will establish the methodology determinations (on advice from the Committee) for specified biodiversity projects and set the requirements for a project to be eligible for registration.
The Minister is also able to make prescribed rules (Rules) to give effect to the Nature Repair Act. The Rules are anticipated to:
- define “excluded biodiversity projects”, being projects that can’t be registered because there is a material risk of the project having a material adverse impact on the availability of water, other biodiversity, employment, the local communities (including Aboriginal / Torres Strait Islander communities) or land access for agricultural production;
- provide for project reporting requirements;
- require audit reports for projects; and
- include provisions around the Regulator’s power to vary the registration of a registered biodiversity project (including to add or remove project proponents, regulate the voluntary cancellation of the project or cancellation by the Regulator due to the project not meeting prescribed requirements etc.).
Comparison with the carbon market
Given that the nature repair market is modelled on the existing carbon market, there are similarities between how carbon projects and biodiversity projects are developed and registered.
As with carbon projects, biodiversity projects (and biodiversity maintenance areas declared to be biodiversity maintenance areas by the Regulator) may be registered on the land title at the discretion of the relevant registration official. Both provide for a tradeable commodity that exists separate from the project land (i.e. an Australian carbon credit unit (ACCU) or a biodiversity certificate).
Stacking biodiversity and carbon projects is permissible and, as a result, it is possible to deliver carbon and biodiversity outcomes from a single piece of land. This allows for the possibility of better utilising land to achieve environmental outcomes.
A key difference between the biodiversity and carbon market is that the Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth) (Act) facilitates ACCUs being used as offsets for voluntary or compliance purposes, while the Nature Repair Act specifically provides that a biodiversity certificate must not be used for environmental offsetting. This is because the nature repair market is intended to complement the regulation of offsets.
This means that a biodiversity certificate cannot be used to satisfy any requirement to offset environmental impacts imposed by conditions of environmental approvals issued under Commonwealth, State or Territory law. As an example, a biodiversity certificate cannot be used to satisfy native vegetation offset requirements that may be imposed through the Planning and Environment Act 1987 (Vic).
It is possible that this restriction could negatively impact the demand for biodiversity certificates but it aligns with the intention of the Nature Positive Plan, being to encourage and facilitate investment in activities that repair and protect nature.
Another key difference between the schemes which project proponents and biodiversity certificate purchasers will need to be alive to is that unlike ACCUs, which are essentially “project agnostic” on issuance, a biodiversity certificate continues to be connected with the performance of the relevant project and the conduct of the project’s project proponent.
Specifically, under the Nature Repair Act the Regulator can, in certain circumstances, require a project proponent to relinquish to the Regulator the specific biodiversity certificate issued in relation to the project. An equivalent biodiversity certificate (or certificates) will only be able to be relinquished in substitution for the project specific biodiversity certificate if they meet certain “relinquishment equivalence requirements”. This creates additional complexities which will need to be taken into consideration when entering into an agreement for the sale or purchase of a biodiversity certificate.
What’s next?
Whilst the Nature Repair Act formally commenced on 15 December 2023, the development of the nature repair market is still in the infancy stages of development, with the Rules and methodology determinations required to be made in order for the market to commence operation.
The Department of Climate Change, Energy, the Environment and Water (DCCEEW) has recently released a discussion paper on the proposed Rules which will support the Act, which we will cover in a separate update.
The Committee, who will provide recommendations on the development of methodology determinations, and requirements of registered biodiversity projects to provide for the issue of biodiversity certificates, has recently been established and work has now commenced on preparation of the methodology determinations. The initial pipeline of proposed methods includes:
- An Enhancing Remnant Vegetation method to encourage protection and enhancement of existing native vegetation.
- A Carbon + Biodiversity method to enable environmental restoration to create biodiversity certificates and carbon credits.
- A Native Forest method to protect, restore and manage native forests.
- An Invasive Pest Management method that focusses on the control of specific feral pests or weeds.
- A Permanent Protection method to protect and conserve biodiversity in line with Australia’s national goal of protecting 30 percent of land by 2030.
- A Rangelands method to manage and enhance habitat in the arid and semi-arid areas of Australia.
The market is anticipated to formally launch in January 2025 when the first methodology determination is made.
If you are interested in finding out more, please contact a member of our Environment and Planning team.
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