Australia under pressure to get it right on biodiversity credit scheme

Published 09:31 on November 24, 2022  /  Last updated at 10:40 on November 25, 2022  /  Biodiversity  /  No Comments

Some project developers fear that Australia’s biodiversity credit market could become a commercial failure under the proposed framework, while observer groups have expressed concerns over potential perverse outcomes.

Some project developers fear that Australia’s biodiversity credit market could become a commercial failure under the proposed framework, while observer groups have expressed concerns over potential perverse outcomes.

Australia’s Labor government in August announced plans to set up the world’s first nationally regulated voluntary biodiversity scheme, with Environment Minister Tanya Plibersek touting an ambition to become the “green Wall Street”.

But with the absence of other markets to learn from the pressure is on Australia to get the scheme design right from the outset in order to avoid failure.

A report released earlier this week concluded that the state-based biodiversity offset scheme in New South Wales is vulnerable to corruption and manipulation and should be revamped completely, illustrating the challenges for the federal government.

The credit market is meant to be different from the NSW offset scheme in that the credits won’t be used directly to compensate for biodiversity loss, though many observers are asking the government for firmer guarantees that there won’t be an offsetting aspect to the credit scheme.

The draft framework Australia published in August was broad, and the more than 100 submissions consequently penned by stakeholders showed there are concerns about almost every aspect of the market.

COMMERCIAL FLOP

The consultation process drew comments from a number of project developers with long experience in the carbon market that are also active in the biodiversity space.

One of those, Sydney-headquartered sustainable forest management firm New Forests, was left unimpressed by the government’s proposal to just issue a single credit from each project regardless of its size or what it had achieved.

“While the standardisation is critical, we think that this project-based certificate approach will be commercially unsuccessful,” New Forests managing director for impact and advocacy, Radha Kuppalli, said in a submission.

“To commercialise the biodiversity project, we would need a way to unitise the project-based biodiversity certificate so that the values it represents could be sold to a variety of buyers … and to have those biodiversity units made available over time.”

With the biodiversity market still in its infancy, there is not yet a widely agreed upon approach to the metrics suitable for crediting.

Researchers at the University of Nottingham in the UK earlier this month began work on developing a biodiversity credit standard based on work done by the Wallacea Trust that uses an approach inspired by the consumer price index.

However, most of the credit types introduced so far – such as that of Colombian conservation group Terrasos or GreenCollar Group in Australia, which launched its NaturePlus credits as recently as last month – base crediting on area of land protected or restored.

New Forests has previously taken an area-based approach when working on the Malua Biobank in Malaysia, and recommended a similar option for the Australian market.

“One option would be to structure a [Biodiversity Unit] so that a project could generate a volume of additional Biodiversity Units each year and allow the holder of the project certificate to then be issued with a commensurate volume of Biodiversity Units,” it said.

“Biodiversity Units would then become the tradeable unit and be able to be taken to market each year.”

Such an arrangement would allow a market to emerge that would pay a premium for high-quality credits, which would drive investments towards flora and fauna most at risk, according to New Forests.

“New Forests’ concern is that a one-off biodiversity certificate issued and monetised for project development will not facilitate long-term biodiversity enhancement as it will focus on short term interventions that are unlikely to maintained over time,” it said.

Another company involved in project development, RegenCo, echoed New Forests’ sentiment, saying the crediting approach proposed by the government would likely lead to a market price below projects’ worth.

FITTING IN

A number of submissions urged the government to clarify the relationship between biodiversity credits and biodiversity offsets, wanting reassurances that the credits would not be used for offsetting purposes, as well as between biodiversity credits and carbon credits.

But there were also concerns around how an emerging crediting market might impact existing conservation initiatives.

“[A] biodiversity market should not replace or erode existing environmental protections,” said the submission from the University if Queensland’s Landscapes Group.

“On the contrary, we argue that the existence of a biodiversity market means that strong environmental protections are even more important, so as to avoid perverse outcomes arising from the market,” it said.

That view was echoed by green group the Nature Conservancy Australia.

“There are many programmes that seek to enhance biodiversity across a range of land tenures at local, regional, state, and federal levels. The biodiversity market should play a complementary role to these, not seek to replace them,” it said.

But having many conservation efforts operating in parallel, some earning biodiversity credits and others not, raises questions regarding who should qualify for crediting status under the scheme.

“[Properties] that have received past or current funding for biodiversity activities on their properties should not be excluded from biodiversity certificates, nor should the placement of a biodiversity certificate on a property exclude future funding sources (be they government or private) for biodiversity management or other ecosystem services on the same area,” the Nature Conservancy said.

The majority of submissions backed a scheme supporting projects that meet many of the same requirements faced by carbon projects – they must achieve real, measurable, and permanent results.

However, some stakeholders said the additionality concept, which in carbon is meant to ensure that no credits are awarded to projects that would have gone ahead anyway, would not be applicable to biodiversity.

“New Forests believes that this concept of additionality is not appropriate for biodiversity, as very little investment is taking place today in ‘nature-positive’ activities,” said the New Forests submission.

“Today, protection and enhancement of ecological values beyond what is required by law by land managers like New Forests is done because it is the responsible thing to do but typically comes at a financial cost borne by our investment clients,” it said.

“[We] believe it is important that the biodiversity framework recognise and reward the continuation of biodiversity-related projects already taking place (in accordance with protocols to be developed by the government) as well as new projects to be commenced.”

Should the government adopt that approach, most biodiversity protection activities in Australia might qualify for the scheme, which in turn might lead to a massive credit supply and deflated prices.

However, funding biodiversity activities is the entire point of the scheme, and the National Farmers Federation (NFF) shared New Forests’ view, referring to domestic legislation and regulations inherently recognising a value in existing habitat, making it “logically inconsistent to require protocols to only address additional attributes”.

“Any argument that existing habitat is not of value ignores the landscape facts, which was most recently articulated in the independent, comprehensive and evidence-based assessment, like the State of the Environment report. Such an argument also underplays the private commitment of a landholder to reserve habitat as a land steward without any regulatory obligation to do so,” the NFF said.

“That said, should a jurisdiction choose to only invest as a market participant, that is a different discussion. While we would maintain our view that additionality should not apply, the key point is that the framework of the legislation should NOT artificially limit what market participants are able to or prepared to invest in.”

BAD OUTCOMES

Australia’s biodiversity market proposal comes at a time when its carbon market is facing serious criticism, both for some of the project types approved under the scheme allegedly failing to generate actual emissions reductions and for the extensive role of the Clean Energy Regulator (CER), which operates the scheme.

The biodiversity market basics laid out by the government is very similar to that of the Australian carbon market, with the CER set to administer “many elements of the framework”.

The framework would include a biodiversity protocol under which an advisory committee would endorse methodologies and project types for projects that would then go on to generate credits – or one credit each, as proposed – that would be kept in a public registry.

The advisory committee would provide advice on integrity standards, and there would also be a compliance and assurance framework.

A number of stakeholders urged stricter regulatory rules to avoid ending up in the same situation as the market for Australian Carbon Credit Units (ACCUs).

“Driving private sector demand, reducing regulatory barriers and building investor confidence is essential to create effective markets for nature. Moreover, as with other markets, markets for nature must be governed with high levels of integrity and transparency to secure public faith and investor confidence,” said WWF Australia.

“This is even more essential for environmental markets, in which the benefits provided may be intangible or only discernible to highly trained experts, or where outcomes are delivered in remote and inaccessible locations.”

Others, however, argued that the best way forward would be to ditch the biodiversity market entirely in order to avoid outcomes that would cause more harm than good.

“The Australian government already has the tools to make significant improvements to Australia’s environment and biodiversity. It could stop subsidising the practices causing the damage in the first place such as native forest logging, fossil fuel use, and production,” said think-tank the Australia Institute.

“Environmental markets are an experiment that has not worked. It is difficult to point to a success of environmental markets, particularly in Australia. In this context it is difficult to understand why this a biodiversity market is being proposed now. This proposal should be abandoned and no further government or stakeholder resources devoted to it.”

By Stian Reklev – stian@carbon-pulse.com