Biodiversity credits aim to help repair nature

“I’m sure the government would be hopeful that you’ll get some investors like superannuation companies who start to get interested in these certificates. And if that market opened up, that would be great,” she says.

“But I don’t think there’s much evidence to suggest that that’s likely at this point because, obviously, it’s all voluntary.”

Landowners will only be interested in the scheme if they can make money from it, Daly says.

It is possible the market could function as an offset market. This is where developers buy nature certificates to offset environmental damage their developments and projects are causing elsewhere.

“If they’re used for offsets, it’s likely there’ll be a lot more demand for these certificates,” she says.

Greenwashing concerns

New South Wales already has a similar scheme, known as Biodiversity Stewardship Agreements, which landowners can use for the management of weeds, pests, fire and ecological restoration, and can sell to others to offset the environmental impacts of their developments.

But Daly says there are “not nearly enough” landholders taking part as the NSW government would like.

There are also concerns about greenwashing in any potential nature repair market and Daly says buyers will need to be careful about any environmental claims they make about certificates they have purchased.

“If you buy the biodiversity certificates, what you actually say about the benefits of that will have to be carefully managed in annual reports and many other public disclosures by companies,” she says.

Megan Evans, senior lecturer in public sector management within the school of business at the University of NSW, says an offset market won’t help restore nature because each project that restores nature is offset by another project when they’re sold.

“Trading credits for loss is at best going to maintain existing trends,” says Evans, who has monitored developments in carbon and offset markets.

“If the consequence of selling a credit is that that business who is buying it uses it to offset a loss or uses it to maintain business as usual and not change their business practices at all, you’re not actually getting more nature at all.”

Evans points out that the government is planning to issue nature repair certificates, which signify that some conservation activities have been undertaken. A credit, by contrast, is issued based on measured outcomes from conservation activities.

Valuing conservation

Sydney-based GreenCollar, an environmental markets investor and project developer, began issuing its own NaturePlus biodiversity credits in early October, which are awarded to landholders for “measured, verified conservation outcomes”.

Chief executive James Schultz says the demand side of the nature credit market needs to be further developed, particularly on the voluntary side of the market where there are no offsets.

Companies will be able to buy these certificates to demonstrate that their supply chain isn’t having negative environmental impacts. A hamburger chain might buy beef from a producer who isn’t involved in deforestation, and buy accompanying certificates to demonstrate that.

“We have clients where we’re doing this with water quality, for instance, in sugar production, where we sell water quality credits to the soft drink manufacturers that are also buying sugar from the same part of the world,” Schultz says.

“It’s adding a cost to the cost of sugar, but it means that the sugar that they’re purchasing is limiting its runoff onto the Great Barrier Reef.”

He says there is already significant demand for nature credits from the private sector and that GreenCollar’s credits will operate alongside the proposed federal market.

Schultz says GreenCollar’s market doesn’t operate as an offset market. Unlike carbon markets, where a tonne of carbon is comparable with a tonne of carbon anywhere else, nature is less fungible, he says. How many sulphur-crested cockatoos is a koala worth, for instance?

Separately, Commonwealth Bank and the Reserve Bank are planning to create a real-life model for tradeable biodiversity credits using a digital version of the Australian dollar, allowing companies and investors to invest in nature repair as a new asset class.

The government is hoping to establish a nature repair market in the second half of 2024. The Nature Repair Market Bill has been passed by the lower house, but is yet to be passed by the Senate and is currently with the environment and communications legislation committee for inquiry.

The government’s nature repair market will be overseen by the Clean Energy Regulator, which already administers Australia’s carbon market.

Caps on carbon

The carbon market trades Australian carbon credit units, known as ACCUs, which represent the removal of or reduction of one tonne of carbon dioxide or equivalent emissions.

ACCUs are earned through a range of eligible projects, such as renewable energy, energy efficiency and land management initiatives. They can be sold either to the government or to companies wanting to offset their own carbon emissions.

Large emitters in Australia are subject to the government’s Safeguard Mechanism, which places a cap on the amount of carbon each is allowed to emit. Those which emit more than the cap will have to buy ACCUs to cover the excess.

The price of ACCUs slid from close to $40 to below $30 in July due to an oversupply in the market and lack of demand. There have also been questions raised about the assurance over issued credits.

However, market commentators expect ACCUs will rise in price thanks to a change in the Safeguard Mechanism. Under the changes, the amount of carbon that companies are allowed to emit will progressively reduce in line with Australia’s greenhouse gas targets, with the likely result that they will need to buy more credits.