Kate Chaney (Curtin, Independent) Share this | Hansard source

The State of the environment report released last year was a huge wake-up call for so many of us who knew that our environment and nature were degrading but didn't realise the extent of the crisis. There's been a lot of focus on decarbonisation in recent years. Biodiversity has been the poor cousin, despite the fact that, as Ross Garnaut told me, we only have one scalable technology that can pull carbon out of the air; it's called the tree.

The South West of WA is one of the 25 original global hotspots for wildlife and plants and the first one identified in Australia. In fact, about half of south-west WA's 8,000 species are found nowhere else. Overlaid with this is the fact that WA has one of the highest extinction rates in the world. So it's no surprise there are so many people in my community who care so much about restoring and protecting biodiversity.

Australia has signed up to the United Nations Convention on Biological Diversity, which commits us to protecting and restoring 30 per cent of the land for nature by 2030. This means 30 per cent of every kind of habitat. It can't just be deserts and salt lakes, for example. And suddenly that's only seven years away. This urgent environmental crisis requires money, resources and planning. It requires a government-led, holistic response to try and preserve and rebuild all we have lost and are still losing.

To be really clear, this bill, the Nature Repair Market Bill 2023, is not that response. This bill is a small piece of the puzzle. It sets up a framework for a new nature repair market so the private sector can voluntarily participate in nature repair. It has limited detail, and we're told that the critical detail will be developed in later standards, rules and methodologies. It's not a bad idea, but despite its good intentions I have some real concerns about it. At a high level, my concerns are in three areas: timing, purpose and the appropriateness of a market mechanism.

My first concern is in relation to timing. This scheme should not be a substitute for strong legislative protection for biodiversity. The Environment Protection and Biodiversity Conservation Act is the main mechanism for protecting nature. It's currently being reviewed, and significant once-in-a-generation changes are anticipated. Many in my community and across Australia are waiting with bated breath to see the new EPBC Act. Under the EPBC Act, we need legally enforceable standards of national environmental significance and a national environmental protection agency. Any trading of nature-positive certificates should complement the standards established under the EPBC Act. A national EPA would be better positioned to regulate a nature repair market and ensure it's delivering on its objects. For this reason, it would make much more sense to amend the EPBC Act first, implementing the Samuel and Chubb recommendations in full, and then create a complementary nature repair market. So this is a bit 'cart before the horse'.

My second fundamental issue with this bill is its object. Its stated object is 'to promote the enhancement or protection of biodiversity in native species in Australia'. At the very least, this needs to be changed to 'and'. We need to promote protection and also promote enhancement. We have to prevent further damage and make good on damage already done to the extent that it's possible. We must set a fixed baseline, not a trajectory of decline, and define 'nature positive' as an improvement, not slightly better than the terrible decline we're expecting.

This fundamental difference shows up in one big question about the bill: the extent to which its longer-term purpose is to set up a market for offsets. It has all the hallmarks of a future offset mechanism. The difference between offsets and credits is that offsets are a specific response to the destruction of nature and should only be used when all other mitigation efforts are exhausted. Voluntary credits make something better than it would otherwise be, without there being commensurate damage. Offsets are hard enough to make work in a carbon market, with a relatively simple concept of emitting gas and avoiding emitting gas. But a nature market is so much more complex that the concept of offsetting damage to koala habitat by improving frog habitat makes very little sense.

The New South Wales Biodiversity Offsets Scheme is referred to as leading practice in Australia, but a recent Audit Office of NSW assessment found significant flaws in terms of integrity, strategy, transparency, sustainability, implementation and delivery of gains. The Samuel review said immediate changes are required to the Commonwealth environmental offsets policy to ensure that offsets don't contribute to environmental decline. We currently assume that this will be addressed in the EPBC Act, which reinforces the timing issue that I've already raised. If the NRM is to be used for offsets, it will need to be based on strong national standards and create a clear hierarchy to ensure it drives changed behaviour, rather than creating an expectation that you can just pay your way out of environmental damage. I'll be supporting any amendments that make it clearer in this legislation that the current purpose is voluntary credits rather than offsets.

My third fundamental concern is whether or not a market mechanism is in fact suitable for efficient and effective outcomes on nature repair. In principle, I'm supportive of markets as an efficient way to deliver outcomes. Markets can achieve the lowest-cost solutions, access new capital and drive innovation through experimentation. Market participants can develop and implement solutions that are beyond the innovative capacity of the state. There are some environmental markets that already work with some degree of effectiveness, including for water and carbon. But characteristics of the proposed nature repair market make it a bit different and will require very sophisticated structuring to ensure that it delivers on its objects. Turning a million-dimensional object, the biodiversity of Australia, into a market is really hard.

There are commonly accepted characteristics of effective markets, and each of them raises issues for the nature repair market. The basic characteristics of an effective market are well-defined and assignable property rights; a sufficient number of sellers and buyers to enable a market price to develop; equitable access to information, and trust among buyers and sellers; ease of entry and exit; and effective regulation. I want to go through these in turn and look at whether these characteristics exist in the proposed nature repair market, the potential consequences of them being a bit shaky, and what we need to do to deliver on the objects.

Firstly: well-defined and assignable property rights. The framework proposed creates a new type of property right called a biodiversity certificate. Biodiversity certificates will be issued on a project basis, with impacts measured based on an accepted methodology and a forecast counterfactual—for example, a quantified increase in the number of a specific species on a property compared with a no-intervention approach. The carbon market, by comparison, seems simple: one unit of carbon will always equal one unit of carbon, regardless of where it originates. Defining a marketable biodiversity unit is much, much harder. Each biodiversity certificate will be different. It will be almost impossible to compare one certificate with another. In order to deliver meaningful nature repair, there must be a nuanced framework established to guide priorities, standards, monitoring and validation.

The second criterion for an effective market is a sufficient number of sellers and buyers to enable a market price to develop. The bill relies on the assumption that the private sector will voluntarily join the market and that Australian biodiversity certificates will be a marketable and desired property. There are some factors supporting the development of demand. The international Taskforce on Nature-related Financial Disclosures, in which Australia plays a key role, is publishing its final report in September. This is likely to contain recommendations that support a shift in global financial flows away from nature-negative outcomes and towards nature-positive outcomes—that is, companies may increasingly be seeking nature investments that they can tell their shareholders and other stakeholders about. But it still seems a stretch to think that there will be enough liquidity in the market for meaningful repair, especially in the early days. And it's hard to believe that international capital, seeking projects under a voluntary market, would be attracted to Australian projects when in competition with those in equatorial, island and lower GDP countries where they may get better bang for their buck. Global shareholders may feel that Australia should be in a financial position to solve its own biodiversity problems. To address this liquidity problem, as with the Emissions Reduction Fund, government may need to step in and create demand by underwriting certificates to drive widespread adoption and early wins. This is required to meet the immediate needs of a rapidly degrading environment and tackle Australia's extinction crisis.

The third characteristic of an effective market is equitable access to information and trust. In its high-level form, the proposed market mechanism does not have sufficiently robust integrity provisions and doesn't identify any consequences for nondelivery. Markets have inbuilt incentives for both proponents and buyers to seek out projects with the lowest possible costs. Without clear provisions to ensure otherwise, a market will drive towards projects that lack integrity or cut corners. The NRM will need a way to differentiate between different levels of difficulty in restoration. Restoring a hectare of grassland is much simpler than restoring a hectare of banksia woodland. It's difficult to believe that this nuance will be recognised through the market price in a voluntary market. Again, this will depend on the priority, standards, monitoring and validation that's put in place.

The next characteristic of an effective market is the ease of entry and exit. Barriers to entry include the complexity of methodology determinations and the time lag between registering a project and being able to sell a biodiversity certificate. Intermediaries may emerge, and it's unclear whether a secondary market in biodiversity certificates is anticipated or desirable. A secondary market would return no additional funds to projects and create no nature repair outcomes. These barriers to entry make it more important that government invests initially to create a liquid market.

The last characteristic of an effective market is effective regulation. This is very broad, but the issues I've illustrated so far show that the regulatory environment will need to be nuanced, sophisticated and adaptable. Market outcomes are only efficient and effective if the guardrails drive the right behaviour. Given the complexity, it seems unlikely that we'll get this regulation right from the start. We're putting the cart before the horse by proceeding with a nature repair market before the EPBC Act and the full implementation of the Chubb and Samuel reviews. The purpose is not entirely clear, with the likelihood that it is used for offsets driving a race to the bottom.

The idea of creating a voluntary market is not a bad one, but many things will need to line up to make it an effective mechanism to actually repair nature. In this context, the government will need to proceed with three approaches. Firstly, I think government investment is going to be required upfront to kickstart the market. Unfortunately, we don't have years to waste waiting around to see if a market emerges organically. Secondly, regular and robust review of the effectiveness and integrity of the market will be key. We'll not get this right the first time, and the regulator will need to be able to respond nimbly to the way the market is emerging, and I'll be supporting any amendments that improve the review mechanism.

Thirdly, the development of the standards and mechanisms that create the guardrails for the market will need to be done by experts. My electorate, Curtin, is full of biodiversity expertise. In fact, four of the 12 members of the Threatened Species Scientific Committee live in Curtin, including botanist Professor Kingsley Dixon of City Beach, who was appointed yesterday as an Officer of the Order of Australia. The University of Western Australia's School of Agriculture and Environment is educating future biodiversity experts, and, although Kings Park is on the edge of my electorate, we'll also claim the WA seed bank.

Ensuring that this market actually delivers outcomes will mean that the committee overseeing the market will need biodiversity and restoration ecology experts like those who live in my electorate, not just lawyers and economists. I'll be supporting amendments to this effect. Supporting and expanding this type of expertise will be vital to the success of the NRM. One very practical suggestion is for the Commonwealth to provide Austudy support for students to undertake postgraduate qualifications in biology, biodiversity and conservation across the country.

In conclusion, the idea of creating a voluntary market to repair nature is a small but useful part of the government response. It will need to tie in with the very important EPBC Act and be guided by clear national standards. Getting it to work effectively will require clear objectives and carefully drafted regulation, guided by experts, and may also require investment from government to kick-start the market.

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