23 Dec 2010

Biobanking - can you bank on it?

by Nick Thomas

Despite an increasing regulatory focus on biodiversity, the NSW biobanking scheme is yet to take off. Recent moves to simplify and promote the biobanking process could encourage more interest in biobanking.

The NSW biobanking scheme has been operational for over a year, but has been used only once so far.

Given the current interest from regulatory agencies in biodiversity conservation, we'll briefly re-cap biobanking's main features, identify some of the concerns with the scheme as it currently stands, and some comments on its future in the short term.

What is biobanking?

Biobanking is a market-based mechanism for offsetting biodiversity impacts from development.

Biodiversity offsets are actions taken outside a particular development site which compensate for biodiversity impacts of the development. They should be distinguished from "mitigation measures", which are typically actions which can be undertaken to reduce the impacts of a development.

Biodiversity offsets are intended to address those impacts which cannot be adequately reduced through avoidance or mitigation. They are likely to be used most commonly where substantial land clearing is required for a project, so that the impacts of the land clearing cannot be avoided or adequately mitigated.

In the past, biodiversity offsetting arrangements usually have involved the developer either buying land and handing it over to the government for conservation (eg. inclusion in a national park) or entering into a short-term arrangement (ie. paying a sum of money to the Government) or a long-term arrangement (ie. involvement in environmental management of land) to provide for the conservation of land outside the development site.

The biobanking regime is different. It allows:

  • the owner of land with biodiversity values to generate biodiversity credits by committing to, and carrying out, in perpetuity, a series of biodiversity management actions on that land, which are agreed with the NSW Department of Environment, Climate Change and Water (DECCW); and
  • a developer to purchase the credits generated by the land owner so as to offset the biodiversity impacts of the developer's project.

It is increasingly common for development approvals to contain conditions which require biodiversity offsetting. NSW planning legislation allows for the imposition of approval conditions which require biobanking as the means of offsetting biodiversity impacts for a project, if the project proponent agrees.

How does it work?

A land owner who wants to establish a biobank site on its land, in order to develop biodiversity credits, will need to:

  • undertake an assessment of the land to determine (among other things):
  • the biodiversity values of the land and the management actions which the land owner will undertake to enhance those values; and
  • the number and categories of biodiversity credits which will be created as a result of undertaking those management actions; and
  • enter into a biobanking agreement with the Minister for Climate Change and the Environment, which (among other things) specifies the number and categories of credits which will be created for the land, what actions the land owner must take to create them, and how those actions will be funded. The biobanking can be registered on the relevant land title and, once registered, runs with the land, with a view to ensuring the biodiversity conservation actions are maintained in perpetuity.

A developer who wants to use biobanking to offset the biodiversity impacts of its development will need to:

  • obtain a biobanking statement from DECCW for that development, which confirms the number and categories of credits, and any other on-site measures, which are required for the development to be eligible for biobanking;
  • enter into an agreement with a land owner to purchase enough of the appropriate credits to satisfy the requirements in the developer's biobanking statement; and
  • once the developer has purchased the credits, retire them by notifying DECCW, who will then cancel the credits to prevent their reuse.

What are biodiversity credits?

Biodiversity credits are one of two classes - species credits or ecosystem credits. Within these broad classes, credits have various categories for different species and different ecosystems or habitats. A person who wants to buy credits to offset the impacts of his/her development will need to make sure he/she can find credits which are compatible with the impacts from his/her development.

Land owners will determine the number and type of credits they can generate, and developers will determine the number and type of credits they will need, using DECCW's Biobanking Assessment Methodology. The Methodology is very technical document.

How are biodiversity credits priced?

Pricing credits can be a complex exercise. A land owner will need to work out matters such as the net present value of the biodiversity management actions it needs to take, the administrative costs of obtaining the credits (including the assessment process and DECCW application fees), the impact of the biobanking constraints on the value of the land, and the return the land owner wants to make on the sale of credits. The Australian Tax Office has provided various rulings in respect of the biobanking scheme, with a view to making the scheme tax-effective.

DECCW maintains registers of land owners' biobanking agreements, developers' biobanking statements, land owner expressions of interest for biobanking assessments, biodiversity credits which have been created, and biobanking transactions. This should facilitate biobanking transactions, by giving potential transacting parties some key information they need to identify each other.

What are the benefits of biobanking?

DECCW claims that biobanking offers the following benefits for developers:

  • it can reduce costs and time associated with biodiversity assessments;
  • it provides a transparent and consistent rule-based approach for determining offsets, enabling offset requirements to be assessed even in the initial stages of project design;
  • it allows credit requirements to be estimated and purchased at any stage of the project proposal;
  • it enables offset sites to be managed by the owner of a biobank site rather than by the developer; and
  • it enables greater flexibility in project management and costs.

Biobanking offers advantages for land owners as well, by offering them an opportunity to realise value from land which may not otherwise be capable of development, given its biodiversity values.

Why haven't developers used the biobanking scheme more?

So far, only one biobanking agreement has been registered on the DECCW register. That provided for a variety of species and ecosystem credits. The credits were purchased and have been retired. Apart from this, there have been no trades in biodiversity credits since biobanking began.

There could be a number of reasons for this. Possible reasons include:

  • the difficulty in establishing a market price for credits, making it difficult for developers to determine whether biobanking is more cost-effective than other forms of biodiversity offsetting;
  • the difficulty in identifying credits which are sufficiently compatible with the credits a developer needs in order to make a trade; and
  • the level of up-front investment (likely to be tens of thousands of dollars) which a land owner would need to make in order to have a biobanking agreement and identify credits for sale.

Developers could address these issues to some extent, by themselves finding potential biobanking sites and facilitating biobanking assessments and agreements, and so providing credits for them to purchase. They can get some help from the expressions of interest register on the DECCW website. However, this could require significant time and financial investment from a developer.

So what's happening with biobanking?

DECCW issued a revised draft Biobanking Assessment Methodology in October and November, for public comment. It was presented as a simpler and more efficient methodology, which should promote greater use of biobanking. DECCW is currently evaluating submissions on the draft Methodology.

It is also important to determine whether, if approval for a project is required under the Commonwealth Environment Protection and Biodiversity Conservation Act 1999 because of impacts on threatened species, the Commonwealth will accept biobanking as an appropriate biodiversity offsetting measure. The Commonwealth Government is likely to consider this on a case-by-case basis.

Where to from here?

It is too early yet to say whether biobanking will succeed. DECCW is encouraging developers and land owners to look at biobanking as a viable option for biodiversity offsetting. We should have a better idea of the fate of biobanking soon, as the regulatory interest in biodiversity offsetting increases.

So far, only Victoria has anything similar. The Victorian Government has also introduced a biodiversity offset trading mechanism, called the "bush broker" system. It is not supported by specific legislation and, as a result, has some practical difficulties in operation.

Biobanking is one of an expanding list of market mechanisms to tackle environmental issues. Whether or not it takes off, we should expect to see environmental market-based mechanisms more often.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.