By Peter Burnett
There’s no doubt that Tanya Plibersek is a serious environment minister. Not yet in office for 12 months, she has already made major policy commitments to conserving 30% of Nature by 2030 and to end human-induced extinctions by 2050; tabled the Nature Positive Plan reform package; and committed to resuming water buy-backs in the Murray Darling Basin.
But not everything a serious minister does is seriously good. In this blog I outline some serious doubts about the Nature Repair Market Bill 2023, which Plibersek introduced into Parliament in late March.
Plibersek’s bill is pretty much a rebadged version of the Agriculture Biodiversity Stewardship Market Bill introduced by Agriculture minister David Littleproud late in the Morrison Government. It’s also complicated, at nearly 250 pages of machinery and legalese.
Although the two bills are similar, the two ministers used different narratives, reflecting their different constituencies: Littleproud’s narrative was mainly about paying farmers to protect biodiversity rather than regulating them to do so. Plibersek’s narrative, on the other hand, is about stimulating private sector investment in Nature repair, because the task is too big for government.
Is a market in ‘Nature repair’ an oxymoron?
Markets are a mechanism in which people buy and sell things for private gain. If I buy a block in the bush, it’s mine to enjoy. But if I pay a farmer to plant native vegetation to provide habitat for native birds, everyone gets the benefit of any increase in biodiversity (ie, in ecosystem services).
So, who would pay for something that others get to enjoy for free?
Well, there are some public-spirited people out there. There are also some businesses who would like to enhance their social licence; if they buy Nature repair we all benefit, but the business gets a private gain on the side — enhanced social licence.
And then there are some business that need to buy some Nature, usually because a regulator has told them to offset some damage they are doing elsewhere.
So a Nature repair market is not an oxymoron; there are some buyers out there and sometimes there is a private gain attached to a public benefit. But I’ve always thought this was at the margins, a drop in the ocean compared to mainstream markets.
Not so fast, say Price Waterhouse Coopers, a ‘big four’ consulting firm. They’ve produced a report, A Nature-Positive Australia, which says that there could be $78 billion of private investments in Nature repair by 2050. That’s serious money — in comparison, PWC expect government expenditure (presumably from traditional government programs) over the same period to be $8.5 billion.
In other words, as long as governments ensure the right conditions for investment, you could multiply existing programs by a factor of about 10.
Tanya Plibersek says that’s not to be sneezed at, and so she’s legislating to help create just those conditions for investment.
Grains of salt
I can see a couple of problems here. The first has to do with the $78 billion figure.
PWC is a reputable firm, and they say they based their calculations on an OECD methodology. On the other hand, their report does not refer to any client, which means they are the client — ie, they published the report to promote their own business, which means we must take the $78 billion with a grain of salt.
A second problem has to do with the proposed nature repair market. Even if the number is accurate, the PWC report says their forecast is based three assumptions:
- increased government regulation and prevalence of environmental impact assessment (EIA)
- improved natural capital accounting (NCA)
- clear mechanisms for financial returns.
I’m not sure whether there will be more regulation in the next 25 years, but we’ll give them the benefit of the doubt. Certainly we’ll have to improve the quality of our regulation, which probably supports the point they are making here.
As for improved accounting, Australia has been a leader in helping develop international NCA standards, but slow out of the blocks in implementing NCA itself. The government will have to get its skates on to replace our now-dated, and always underwhelming, national strategy.
Spanners in the mechanism
As for ‘clear mechanisms for financial returns’, the argument would be that the Bill will make it easier for farmers to sell some ‘Nature repair’ because it will allow them, for example, to plant some native vegetation and get a ‘Biodiversity Certificate’ from a regulator; this certificate can then be readily bought and sold. (I’ll stick with this example for the rest of this blog.)
The Bill allows the Clean Energy Regulator to maintain an online platform to facilitate trading. That’s like establishing a stock exchange to make it easier to buy and sell shares, although I have my doubts as to whether a regulator is the right person to facilitate a market. We’ll see on that.
At least the government is not coming from a standing start: when former Agriculture minister David Littleproud kicked of the predecessor Bill, he funded some pilot projects designed to stimulate the supply of certificates from farmers, including a National Stewardship Trading Platform, and Plibersek has kept these pilots going.
On the other hand, you could argue that all this artificial market stuff is unnecessary, that if businesses want to invest $78 billion in Nature repair they could just go to the existing market — eg, by buying land and planting vegetation, or by advertising for tenders to do the same. It’s the subsequent trading of such contracts that the bill facilitates, but is there a demand for such trading and is the bill up to the job?
I’m not sure the bill is up to the task of facilitating the repeated buying and selling of the biodiversity certificates. The legal reasons are a little complex, but boil down to the certificate being an item of personal property rather than an interest in land.
If the certificate were an interest in land (like a mortgage or conservation covenant), the certificate and the obligations to maintain Nature would always be attached to the land and the current certificate owner could always sue the current landowner if they were not looking after the planted native vegetation.
However, with the certificate being personal property, it gets more complicated. It’s a bit like pass the parcel: if the certificate had been traded five times and the land three times, all to different people, that’s two chains of contracts to unscramble if the current certificate owner wishes to enforce the obligation on the landowner to take proper care of the native vegetation.
Sure, they can tell the regulator, but some outcomes of regulatory action — eg, a fine or the cancellation of the certificate — could leave the native vegetation degraded and the certificate owner holding a worthless piece of paper.
How will this play out?
The Senate Environment Committee is conducting an Inquiry into the bill. Submissions close on 1 June. Once the Committee has tabled its report the government will start looking for the numbers to get the bill passed. If the committee finds problems like the one above, hopefully the government will agree to amend the Bill.
Amended or not, I expect the bill will sail through — with it being so similar to the earlier Littleproud bill, the Coalition will probably content themselves with a rhetorical ‘you stole our good idea’. It’s unlikely the government will need to do deals with the cross bench.
The much bigger risk lies in going live. At the end of the day, the market created by this bill is artificial and complicated. More importantly, the business case looks rubbery to me and there’s no sign yet of improved natural capital accounting to support the market. Even with this fixed, the government can build a marketplace, but will the buyers and sellers come?
Banner image: $78 Billion from a Nature Repair Market? Seriously? We’re all ears. (Image by David Salt)