New Federal Nature Repair Market established

Australia will have a national biodiversity certification and trading scheme, after the Federal Government steered its Nature Repair Bill 2023 (Cth) and Nature Repair (Consequential Amendments) Bill 2023 (Nature Repair Legislation) through Parliament following a deal with the Greens.

Following public consultation in early 2023, the Federal Government introduced the Nature Repair Market Bill (2023) into Parliament. The Bill aimed to:

• provide a national framework for measuring and delivering improved biodiversity outcomes, via the issuing of biodiversity certificates generated through land, marine or fauna regeneration or conservation projects, and
• establish a market for trading these biodiversity certificates that would be regulated by the Clean Energy Regulator and traded similarly to Australian Carbon Credit Units (ACCUs).

After striking a deal with the Greens, the Senate ultimately passed amended versions of the Nature Repair Legislation.

To secure the passage of the Nature Repair Legislation, three significant trade-offs were made:

1. a clarification was added that nature repair projects cannot be utilised to offset the environmental impacts of other developments;
2. the "water trigger" for approvals under the existing Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act) was expanded; and
3. the term "market" was removed from the legislation. It"s worth noting that, despite the removal of the term, the legislation will effectively operate as a "market."

Overview of the Bill as passed

Projects and participants

Under the new Nature Repair Legislation all landholders, including First Nations people, conservation groups, corporations, governments and farmers, would be able to participate in the market by undertaking projects to either enhance or protect existing habitat, or to establish or restore habitat.

Projects can be carried out:

• on land (both Torrens system and Crown land), inland waterways (lakes and rivers) or in marine and coastal environments (within 12 nautical miles of the low water mark),
• on the Australian mainland or the external territories, including land and waters that are exclusive possession or non-exclusive possession native title areas (with the consent of the relevant native title body corporate).

Biodiversity certificates can be issued for these projects and subsequently traded. This is to facilitate businesses, governments, and individuals to invest in nature repair projects without the need for land ownership or direct project involvement.

A project must satisfy a series of requirements to be registered for the scheme. These include (for example) that:

• the project is covered by a methodology which has been approved under the Nature Repair Legislation;
• the project has a compliant lifespan (or "permanence period");
• each of the project proponents satisfies a "fit and proper person" test;
• carrying out the project is likely to result in a biodiversity certificate being issued; and
• any consents required prior to registration have been obtained.

The legislation allows for legislative rules to define "excluded biodiversity projects", which could not be registered. Excluded biodiversity projects would cover projects that have a material risk of a material adverse impact on availability of water, other biodiversity, environmental matters, employment, the local community or the Aboriginal or Torres Strait Islander community or land access for agricultural production.

The registration of a biodiversity project could be varied or cancelled in certain circumstances. For example, if a project is not commenced within five years or if the Regulator is not satisfied that the project is likely to result in the issuing of a biodiversity certificate.

Biodiversity certificates to be issued but cannot be used as offsets

Aligned with the Greens' stance that nature repair projects should not contribute to environmental degradation elsewhere, the final version of the Nature Repair Bill 2023 (Cth) includes a crucial amendment. This amendment explicitly prohibits the use of biodiversity certificates as an "environmental offsetting measure" or for the purpose of environmental offsetting.

This means that project proponents who had anticipated utilising biodiversity certificates as an alternative avenue for fulfilling offset obligations must reconsider their strategies. The legislative shift reinforces a commitment to ensuring that nature repair initiatives remain true to their core objective of fostering environmental restoration without inadvertently contributing to environmental harm elsewhere.

Notwithstanding this, biodiversity certificates can be issued for these projects and subsequently traded in a similar fashion to ACCUs.

Each eligible project would be able to receive a single tradeable certificate that would be tracked through a national register. When a project is registered and has met any conditions and requirements, such as the project being sufficiently progressed, the project proponent would be able to apply to the Regulator for the issue of a biodiversity certificate. A biodiversity certificate would remain valid for the life of the project, unless relinquished or cancelled.

Certificates can also be used to support claims about a certificate owner's or project stakeholder's investment in nature. To support the development of the market and reduce the risk of greenwashing, it is intended that the Government would develop guidance, in consultation with the Australian Competition and Consumer Commission, to support how claims are made in relation to biodiversity certificates. Those who misrepresent or make false or misleading claims about their contribution to nature repair may be liable under Australian consumer law.

Relationship with the Carbon Market

The nature repair market framework mirrors and is designed to function alongside Australia's existing carbon market, established under the Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth). An aspect of uncertainty arises regarding potential amendments to the already passed nature repair framework.

It remains unclear whether the Government intends to make adjustments to align it with ongoing carbon market reforms. This lack of clarity raises questions about the potential implications for consistency between the two frameworks.

Moreover, the regulatory landscape introduces another layer of uncertainty. Currently, the Clean Energy Regulator oversees both the carbon market and is set to regulate the nature market. However, concerns have been voiced about the market's integrity under the Clean Energy Regulator's jurisdiction.

There is a suggestion that the independent Environmental Protection Australia agency, proposed as part of broader Federal environmental reforms, might serve as a more suitable regulator for the nature market. The impending decisions regarding regulatory oversight contribute to the evolving landscape and potential impacts on the Nature Repair Market's governance and effectiveness.

Water trigger

One other significant development in the environmental legislative landscape is the expansion of the "water trigger" under Federal environmental legislation. Under the current EPBC Act, water resources are a matter of national environmental significance in relation to coal seam gas and large coal mining development only. This means actions which involve a coal seam gas development, or a large coal mining development may require referral (and potentially approval) under the EPBC Act if the action is likely to significantly impact on a water resource. This is known as the "water trigger".

In its December 2022 Nature Positive Plan, the Government announced its intention to expand the water trigger to all forms of unconventional gas, not just coal seam gas. While this expansion was not anticipated to occur until mid-2024 as part of the broader Federal environmental reforms, the Nature Repair Legislation includes amendments to the EPBC Act to fast-track the expansion of the "water trigger".

References to "coal seam gas development" in the EPBC Act have been replaced with references to "unconventional gas development". While these amendments are framed broadly (and intentionally so, to ensure changes in technology can be captured over time), a number of transitional provisions have been included to help provide clarity to industry about when the expanded water trigger will apply.

This expansion is expected to have noteworthy implications for the gas industry and several other sectors in the future. This move aligns with the Government's commitment to safeguarding 30% of Australia's land and waters by 2030.

Accountability and assurance

The Nature Repair Legislation further includes a variety of mechanisms to encourage transparency and ensure the integrity of the Nature Repair Market, including:

1. Legislated biodiversity integrity standards would aim to ensure that projects deliver genuine improvements in nature and that information about those improvements can be relied upon by those purchasing biodiversity certificates and other project stakeholders.
2. A technical committee consisting of independent experts – the Nature Repair Market Committee – would be established to review proposed methodologies and advise the Minister whether they comply with the biodiversity integrity standards.
3. To ensure transparency, accountability and that information is publicly available, a public register (to be named the Biodiversity Market Register) would be established. Legislative rules would be able to specify additional information that must be listed on the register. This could enable, for example, the register to show whether projects have been used for regulatory purposes, to compensate for development impacts (as a remedial measure, not an offset).
4. Project proponents would be required to report on their projects at least every five years but would be able to choose to report more frequently once a certificate is issued. The legislative rules or methods (to be developed) would set out the requirements for project reports. However, it is anticipated that reports would be required to include information about the activities undertaken as well as the improvements in biodiversity achieved as a result of these activities.
5. The Regulator would have a broad range of monitoring, compliance and enforcement powers to ensure that projects are being properly conducted.