As the Australian government seeks input on its draft legislation for its nature repair market, policy watchers warn that its so-called Green Wall Street will crash if it doesn’t lead investment in the market.
The government said in its December consultation paper the market would be designed to encourage investments in biodiversity and drive environmental improvements across Australia.
The newly-created independent Biodiversity Council estimates it would cost something in the realm of A$2 billion ($1.38 bln) per year to achieve the government’s target of no new extinctions.
Australia National University’s Professor Andrew Macintosh told Carbon Pulse that the government was “hopelessly optimistic” about the idea that there would be private-sector demand for the credits generated under the scheme, saying the government needed to be the main buyer to begin with.
“It won’t get off the ground unless there’s public resources that are put into it, the government needs to buy, and there’s not going to be the wave of private investment, it’s just not going to happen,” he said.
“Without [public investment] the whole thing is going to stall, it’ll go nowhere and it’ll be derided by its critics.”
He said private investment would be tricky, given that many corporates would find it difficult to attribute responsibility to biodiversity and conservation outcomes, compared to the relatively stark measurability of carbon emissions, that leads them into purchasing carbon credits.
“In relation to biodiversity, that direct nexus generally is not there,” he said.
“I just don’t think there is anything like the sort of appetite in the private sector to fund the environmental provision of biodiversity services on farms and other landholdings,” he said.
However, University of Melbourne’s Rachel Morgain and University Queensland’s Professor Hugh Possingham, members of the Biodiversity Council, told Carbon Pulse they were more optimistic about private sector demand.
They said the scenario where the government became the sole buyer of biodiversity credits was “possible, but unlikely given the increasing requirements for nature-based risk disclosures and nature-positive targets that are being adopted by a multitude of corporations”.
The councillors pointed to a call put out in September last year by Australian superannuation fund HESTA, urging ASX300 companies to consider how they are planning and responding to what it described as the long-term systemic risks of climate change, social inequality, and biodiversity loss.
The fund, which has A$68 bln worth of assets under management, urged companies to assess if their operations and supply changes may be exposed to risks due to either a dependence on nature, or were causing a loss of nature.
“Companies are also encouraged to better enable integration of natural capital into decision making through consideration of the recommendations of the Taskforce of Nature-Related Financial Disclosures,” the letter said.
However, the councillors said it would be unrealistic of the government to expect private sector investment alone in its proposed nature repair market to meet its targets.
“Markets operate best by having clear rules, but having specific targets of 2,000 threatened species isn’t consistent with a market. Bottom line – the nature repair market is NOT a substitute for dedicated threatened species funding to stop extinctions,” they said.
They said the government should commit to spending the A$2 bln needed, highlighting it was less than one thousandth of Australia’s GDP.
“We should be ambitious and say that we think the government can afford even this much greater investment, including through other mechanisms, for example stewardship, which would support restoration on private land. We should be asking for this as a minimum.”
Laura Waterford, director at consultancy Pollination Group, told Carbon Pulse that a blend of finance from private, philanthropic, and public funding was needed to solve the biodiversity crisis.
“Businesses rely on and impact nature and biodiversity – through their direct operations and supply chains – and the degradation of nature has clear financial implications for them. This creates the imperative for businesses to contribute to regenerating our nature and biodiversity,” she said.
Waterford said the government being the lead buyer of biodiversity credits would help drive investment at scale and provide certainty to the supply side of the scheme, in the same way that the government was the largest purchaser of carbon credits.
“Ultimately, the success or failure of the nature repair market will be determined by the scale of investment that the scheme drives into nature and biodiversity, and this would be more certain if the government were to also legislate a positive obligation on companies to purchase biodiversity certificates,” she said.
Waterford pointed out that the draft legislation allows for the Department of Climate Change Energy Environment and Water to have the authority to buy nature repair certificates.
TRIAL AND ERROR
The concept’s critics meanwhile have compared the proposed scheme to the worst elements Australia’s carbon market and the New South Wales water market.
A state parliamentary inquiry into the NSW water market released last month found “the introduction of private and institutional investors … led to market destabilisation and manipulation at the expense of irrigation farmers, regional communities, and the natural environment”.
The biodiversity councillors said they expect the government would be able to take the lessons learned from the water and carbon markets, particularly in the wake of the Chubb review, and apply them to the nature repair market.
“Two things we have learnt, something economists and behavioural scientists have known for many decades, is that it can be very hard to predict changes in human behaviour in response to new policy, and markets have a life of their own – which is both good and bad,” they said via email.
“A market could be an important mechanism for encouraging greater investment in productive and private land conservation – which are critically needed to extend biodiversity protections across the [more than] 60% of land that is agricultural in Australia, to improve connectivity, to address pockets where species and ecosystems are largely or entirely outside of reserve systems.”
They argued that the government would never know if the concept of the nature repair market would work unless it tried to implement one.
“We are big fans of saying – lets try and learn while doing, making perfect policy straight away is hard. Notably, it is essential we have constant review and evaluation and accountability (to close the loop),” they said.
ANU’s Macintosh said the nature repair market could have its place in addressing Australia’s biodiversity crisis, and argued that it wasn’t inevitable that the market would fall into the same traps as the carbon and water markets had.
“They can avoid those problems if they ensure it is transparent, if they ensure the integrity rules are where they should be, and if they get the right people involved in making sure it gets in the right direction,” he said.
“All of those [problems with other markets] can be avoided, and the market can play a really constructive role in driving some of that investment,” he said.
The councillors said they would like to see the market understood as a way to encourage corporates to treat biodiversity impacts and dependencies as a core measure of business health and success, rather than an externality.
“[We] believe encouraging much greater business and private investment in nature is a good thing, especially if genuine transparency and accountability by businesses is encouraged through the process,” they said.
The consultation on the market’s draft legislation is open until Feb. 24.
By Mark Tilly – firstname.lastname@example.org