The Proposed Market
The Australian Government is proposing to establish a new voluntary “Nature Repair Market” which incentivises landholders to participate in projects that manage, restore and protect their local habitat in return for a tradeable “biodiversity certificate”.
If introduced, Landholders who participate in an eligible project will receive one “biodiversity certificate” in respect of their project, which can be sold to businesses, individuals or the government to help meet biodiversity targets.
Eligible projects are proposed to relate to (amongst other things) the protection of habitat and waterways, prevention of soil erosion and improvement of drought resilience. This may include projects that:
improve or restore existing native vegetation by activities such as fencing or weeding;
plant a mix of local species on a previously cleared area; or
protect rare grasslands that provide habitat for an endangered species.
The Draft Legislation
The Nature Repair Market is still in its consultation phase, and the Government has released an exposure draft of the Nature Repair Market Draft Bill 2023 (Cth) (“the Bill”) as part of this process. This round of consultation for the Bill will close on 24 February 2023, and the Bill is set to be introduced before Commonwealth Parliament by the end of 2023.
The proposed framework for the Nature Repair Market set out in the Bill largely mirrors that currently in place under the Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth) for the issue of Australian Carbon Credit Units (“ACCUs”) as part of the Australian carbon market (“Australian Carbon Market”).
The Nature Repair Market will be administered by the Clean Energy Regulator (“CER”) – the same body which regulates the Australian Carbon Market.
Interaction With Carbon Farming?
It is envisaged that the Nature Repair Market will operate in parallel with the existing Australian Carbon Market (or carbon farming as it is more generally known).
In Australia, carbon farming currently operates under the Emissions Reduction Fund (“the Fund”). The Fund was set up by the Australian Government in 2015 in an effort to reduce Australia’s greenhouse gas emissions. You can read more about carbon farming and the Fund in our earlier publication.
The intent of the Bill is that the same parcel of land could generate both carbon credits (ACCUs) under a carbon farming project as well as a biodiversity certificate under the Nature Repair Market. In our view, this potentially represents an opportunity for agricultural landowners to further diversify their income streams. Whilst each project would need to be assessed on its merits, it is quite possible that there could be real benefits for agricultural landowners in running both carbon farming and nature repair projects simultaneously on the same parcel of land.
As is the case with the Australian Carbon Market, the Nature Repair Market will involve approved methodologies specifying the requirements for each project (which are yet to be released), reporting and auditing requirements as well as record keeping and monitoring obligations. These requirements can be complex and far reaching, and significant consequences (such as civil penalties) may apply in the event of non-compliance.
The Bill proposes a biodiversity assessment instrument to measure improvements in biodiversity generated by a project. It is yet to be seen whether there will be one overarching instrument, or one instrument for each approved methodology (as the draft Bill provides scope for both).
An important difference between the existing Australian Carbon Market and the proposed Nature Repair Market is the pricing mechanism used for ACCUs (carbon farming) and biodiversity certificates (nature repair).
A carbon farming project can generate multiple ACCUs (for each tonne of carbon dioxide equivalent that is sequestered by the vegetation/stored in the soil of the land subject to the project). The value of an ACCU is standardised across all projects – and is determined by the spot price or agreed price under a carbon abatement contract with the CER (as applicable).
By contrast, because only one biodiversity certificate is issued in respect of each biodiversity project, there will likely be different values attributed to each certificate (depending on multiple factors such as the project type and location). Precisely how those values will be determined appears to be a matter for the market to decide, but in our view further clarity from the Government on this would be preferable.
What’s next?
We will continue to monitor the progress of the draft Bill and the implications of any Nature Repair Market on agricultural landowners.
If you have any queries in relation to the above, please contact Sam Richardson or Deanna Riebolge, or another member of our specialist Agribusiness team.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.