Traded biodiversity ‘credits’ are key to Labor’s environmental plans, but critics are not convinced

Traded biodiversity 'credits' are key to Labor's environmental plans, but critics are not convinced

Ever wondered how much money a single koala might be worth?

In several states, there's a market that can tell you.

“At the moment, the price for the koala credit is about $400,” explained Megan Evans, an environmental policy researcher at the University of New South Wales.

A credit is the compensation a developer would need to pay in New South Wales for killing a koala's habitat — known as a “biodiversity offset”.

And you could have bought one of those credits for $250 in 2020, making a 60 per cent return in a few years.

There's even a trading dashboard where you can keep an eye on the current price of koalas and any other threatened species, if you're looking to make a killing on nature.

“It's a market valuation, where the value of species credit is revealed through market transactions,” Dr Evans said.

Former federal treasury boss Ken Henry said what Australia needed now was a “market for restoring nature”.

“We've had those markets to destroy nature … What we're talking about here is markets to repair nature and not markets to destroy nature,” said Dr Henry, an economist who now sits on a number of boards for organisations that are trying to put an economic value on nature restoration.

And the federal Labor government is listening to people such as Dr Henry.

Biodiversity credits part of Labor's environmental plans

So far, there's no similar market at a federal level. But a market where koala credits are traded is now central to the federal Labor government's plan for halting Australia's extinction crisis — and Labor hopes it will do more than trade in the destruction of nature.

“One of our government's most important priorities is to see new private investment in nature,” Environment Minister Tanya Plibersek told a meeting of environment ministers at the G20 in August.

The reason for that focus on private investment is cost.

Halting Australia's extinction crisis would cost about $1.7 billion per year, according to peer-reviewed research by Brendan Wintle from the University of Melbourne and his colleagues.

However, Ms Plibersek told the National Press Club in July that spending an additional billion dollars a year is not something the government can commit to.

“The scale of this challenge means governments can't do it alone,” she said.

If we want to not only stop extinctions, but also to start to improve the condition of our forests, waterways and native habitats, many billions of dollars will need to be spent on protection and restoration.

Dr Evans said it was not clear why businesses would do that.

“They're not going to do anything seriously until they're required to,” she said.

Polly Hemming — a senior researcher with The Australia Institute who has done extensive work on the related area of carbon credits — agreed with Dr Evans.

“There's never been any indication of where that investment is coming from,” she said.

Various consultancy reports have claimed many billions of dollars of private investment would be “unlocked” by establishing a nature repair credit market.

In 2022, PwC estimated that, by 2050, such a market could be raking in $137 billion in Australia. However, little detail was given about what the motivation would be for private investors in these markets.

In the carbon space, there's a functioning credit system, and only a tiny proportion of it is voluntary — the vast majority of it is bought either by government, or by businesses that are required to under the law.

However, for Ms Plibersek, the plan to attract that private investment in nature seems to be “build it, and they will come”: create trusted, tradable nature credits, and businesses investment will be spewed into nature-restoration projects.

“Many businesses want to invest in nature. Their customers, their investors, their staff and their exposure to nature-related risks demand it. Governments must work to make that easier,” Ms Plibersek has said.

Dr Henry said the approach was the right one. However, he warned that voluntary markets were fickle, and could not be relied on for crucial tasks.

“There is a case for these markets to be used as supplementary instruments to help, because I think it is going to take a blend of private money and public money. And, to date, we haven't had enough of either.”

Investors not convinced there'll be demand

However, Martijn Wilder — the founder and chief executive of climate investment and advisory firm Pollination — said voluntary action would not “deliver massive amounts of private capital … serious market intervention is required”.

Mr Wilder is working with HSBC on a fund the bank just launched, which will invest $650 million in nature-based projects, a fund that, he said, he hoped would get to $5 billion.

However, he's not at all convinced by Ms Plibersek's reasoning.

“As an investor, I want to invest in things that provide me an economic return,” he said.

“I can invest in infrastructure, housing, companies and they'll grow and we'll make money … I don't get an economic return for investing in koalas.

“The thing that everybody avoids talking about is this issue of creating large-scale demand … you need a large-scale demand driver to get the money flowing into nature.”

And, for Wilder, that means either the government being the demand — buying the credits directly — or forcing businesses to buy these credits.

Ms Plibersek has never flagged any intention to force businesses to invest in nature.

“If they've got demand from their investors, from their customers to invest in nature, then they'll look for opportunities like this,” she told the ABC in September.

However, many players working in this nexus between conservation and business think that setting up the credits is the first step, while regulation that forces business to invest in them is likely to occur down the road.

Nearly 200 countries, including Australia, just agreed at COP15 — the UN biodiversity conference in December — to move towards requiring large, transnational companies and financial institutions to monitor, assess and disclose their impacts on biodiversity.

Many see that as the first step towards then regulating those impacts.

“Businesses should be anticipating that, you know, within three or five years, they'll need to start disclosing those impacts as well as presumably doing something to reduce those impacts,” Dr Evans said.

Dr Henry is not confident that mandatory action is on the cards.

“I suspect the political system is some way off having appetite for that,” he said.

“But, I think this is a discussion we're going to have.”

It's certainly not something the Labor government is flagging. Ms Plibersek's focus has been entirely on facilitating voluntary investment.

Critics say protecting the environment needs to come first

Ms Hemming said, if set up the right way, a nature restoration market was unlikely to do any harm.

However, she said, the focus on this was putting the cart before the horse.

“Yes, probably private investment has a role to play. But … we seem to have skipped over a lot of things that would prevent the harm being done in the first place,” she said.

“We've still got our foot on the accelerator regarding fossil fuel expansion and subsidies.

“And there is no hard-and-fast commitment to stopping that native forest logging [nor] even a commitment to stopping the rampant land clearing happening in New South Wales and Queensland.”

As an investor, Mr Wilder is on the same page about the order of things.

“The first thing you have to do is have legislation and laws that stop the environment being destroyed,” he said.

“Number two, you've got to make sure that all development and all investment is done in a way far more attuned with nature — it has to be sustainable.

“Then you say, ‘OK, well, there are large areas at risk or need to be rehabilitated. Who pays for that?'”

The government is currently rewriting Australia's federal environment laws, including establishing a new federal Environment Protection Agency and “red zones” where development can't proceed if it damages ecosystems.

Those laws are planned to be introduced to parliament in 2023.

However, Dr Evans said, for that to work, it needed to come with significant public money, something the government had not committed to.

“The primary reason why the national environmental laws don't work is because they're not adequately resourced. So, if you don't fix that, you're not going to fix those laws,” she said.


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