Australia’s Nature Repair Market (NRM) rules need greater transparency and additionality assurances to increase investor confidence, while the government must lead investment in order help support its fundamentals, stakeholders have urged.

The Labor government last month consulted on the rules for its Nature Repair Market, the world’s first government-run voluntary biodiversity credit market.

It is currently consulting on biodiversity assessment instruments and methodology determinations, as it seeks to launch the market in Jan. 2025.

Despite the market launch being less than three months away, submissions to the NRM rules consultation raised key questions that have been lingering around biodiversity certificates for some time, namely where demand is expected to be sourced from and how it will work in practice.

The Business Council of Australia (BCA) noted biodiversity certificates (BCs) issued under the scheme would be barred from environmental offsetting purposes, which would “significantly” reduce potential demand.

In its submission, industry body the Carbon Market Institute (CMI) noted there are still “unclear demand signals and sources, and other challenges to market growth and scalability”.

Noting the costs involved in registering and running a biodiversity project under the NRM are “likely to be high and … possibly unknowable”, CMI said this is a potential barrier for investment.

Initial NRM projects are likely to be established through partnerships where the investor is the end buyer, using the BC to address supply chain nature-related risks, it said.

However, it noted it is unclear at this stage why an NRM project would be more attractive than a traditional biodiversity or conservation project on private land, a state-based biodiversity scheme, or a carbon market project with verified biodiversity co-benefits.

CMI recommended the government set up a fund guided by an investment strategy to kickstart demand in the market, taking inspiration of the Queensland state government’s Land Restoration Fund.

Chartered Accountants Australia, meanwhile, suggested tax incentives to encourage landowners and investors to participate.

ADDITIONALITY

Multiple submissions urged the government to ensure registered projects exceed requirements beyond Commonwealth, state, or territory laws, in order to ensure genuine biodiversity gains occur as a result of the NRM.

NGO Farmers for Climate Action noted that environmental legal requirements act as a baseline which provide a minimum biodiversity protection.

“Incentivising project proponents to meet this base requirement does not assist in achieving the goals of the Act of creating biodiversity improvements, thus additionality beyond environmental protection laws is necessary,” it said.

The BCA noted that method “stacking”, whereby biodiversity projects are conducted on the same land as Australian Carbon Credit Unit (ACCU) projects, for example, is “highly desirable”, saying this would maximise the value proposition for potential project proponents.

However, it added this should only be the case provided double counting can be avoided and interacting impacts are well-understood.

CMI supports the idea of stacking, but noted this “raises questions about project outcome additionality and appropriate guardrails are required”.

It said the NRM Rules should provide clear guidance to ensure additionality of distinct, tradeable abatement, and biodiversity outcomes.

ACCU and NRM projects would likely need to be concurrently registered with the Clean Energy Regulator, CMI said, calling for “careful administration” to ensure this dual registration does not void the “newness requirement” legally required for ACCU projects under the offset integrity standards.

Farmers for Climate Action also stressed the regulator needs to be independent and allowed to operate to meet the goals outlined in the Act.

“A robust regulatory framework is vital to prevent corruption and ensure that the Nature Repair Market genuinely benefits farmers and landholders, and to address inadequacies observed in the carbon farming scheme,” it said.

The BCA, meanwhile, emphasised the regulator will need to be adequately funded to manage both the ACCU Scheme and the NRM, alongside its other activities.

One element that observers have said might negatively impact demand in the scheme as proposed is the government position that each project will only be issued a single credit, regardless of its size or achievements.

“If the market legislative rules proceed on the presumption that only one certificate can ever be issued per biodiversity project, it could limit the accessibility and the biodiversity outcomes of the scheme,” the Australian Land Conservation Alliance (ALCA) said in its submission.

It recommended that that the government further consider the advantages and disadvantages of multiple certificate issuances, and, at this early stage of market development, simply retain flexibility in the legislative rules to allow time for the issue to be fully explored and as methods are developed.

TRANSPARENCY

CMI urged the government to update the transparency rules under the NRM to align with the proposed reforms being implemented under the ACCU Scheme as part of the Chubb review.

The group is concerned that the proposed transparency arrangements for NRM projects differ from ACCU Scheme projects, urging the government’s NRM and carbon crediting branches to collaborate to ensure equivalent, high-transparency project register arrangements, and mirrored exemption provisions.

Ensuring mandatory information requirements at the application stage of a project will also be crucial, according to Farmers for Climate Action, saying comprehensive details about project objectives, methods, and expected biodiversity outcomes are necessary to ensure participants what is required from the outset.

However, ALCA argued the legislative rules should seek to balance the need for clarity regarding project requirements with the need to allow “innovative and adaptive approaches to market methods”.

It encouraged setting a common minimum standard within the legislative rules for information required in project plans.

ALCA recommended proponents include a statement in project registrations on whether the proposed management actions are accepted in practice in a particular location, or whether they are innovative.

The National Farmers Federation also said BCs themselves must ensure “transparency, verifiability, and clear descriptions of biodiversity outcomes”.

SIGNING UP

Stakeholders agreed that existing projects should be able to participate in the NRM, saying it would be a way to encourage participation in the scheme, and reward good work that was already being done.

However, Farmers for Climate Action emphasised these projects must exceed jurisdictional environmental protection requirements.

CMI said existing projects should be eligible, so long as there is an applicable NRM method for them to transition onto.

Regional Natural Resources Management noted in its submission that allowing existing projects to participate in the market would give projects reaching the end of their management or permanence period a financial pathway to incentivise ongoing work to protect or restore nature.

Areas with existing biodiversity project funding could also be leveraged to amplify nature repair at existing and adjacent sites, it said, and could be more attractive investment propositions for buyers given the lower restoration costs.

“Many biodiversity projects, including First Nations-led projects, have suffered through stop-start government funding. The Nature Repair Market offers opportunities to continue to protect the achievements and nature outcomes of these projects,” it said.

QUESTIONS

While many of the submissions are supportive of the government’s overall intent of the NRM scheme, there is still confusion over how the scheme would work in practice.

“It is unclear how the NRM will function and if its intent is for it to operate in a similar way to a financial market,” Chartered Accountants Australia’s submissions said.

“Further, it is unclear how the NRM will interact with existing domestic and international financial investment markets.”

CMI said the government’s current consultations on the biodiversity assessment instrument and methods will help address some of these concerns.

Those consultations close on Oct. 30.

However, questions were also raised by some submissions around how the NRM would interact with requirements of the proposed federal Environmental Protection Agency, given that the legislation to establish it is still stuck in parliament.

The government has long attracted criticism for focusing on establishing the NRM before addressing the more fundamental reforms to the Environmental Protection and Biodiversity Conservation Act, with some saying it has put the cart before the horse.

By Mark Tilly – mark@carbon-pulse.com

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