Will Biobanking Simplify the Development Consent Process?

By Peter Briggs and Claire Smith

New biodiversity legislation currently before the NSW Parliament may offer property investors an alternative option for pursuing development activities that have previously been slowed or halted because of perceived adverse ecological impacts. The scheme, depending on its success, could also attract investors and speculative traders seeking financial gains through the generation and trading of bio-credits.

What is biobanking?

The new biodiversity banking and offsets scheme proposed by the NSW Department of Environment and Conservation (DEC) will, if introduced, allow developers in certain instances to buy biodiversity credits (bio-credits) to offset the adverse ecological impacts of their developments and use biobanking statements as alternatives to the current threatened species approval process.

The scheme will be introduced through the Threatened Species Conservation Amendment (Biodiversity Banking) Bill 2006 which will amend the Threatened Species Act 1995 to:

• allow biobank sites to be designated if the landowner and the Minister for the Environment enter into a biobanking agreement in relation to that site;
• create biodiversity credits from management actions undertaken or proposed to be undertaken on the biobank sites;
• introduce a system that enables registered bio-credits to be traded and used to offset the biodiversity impacts of other developments;
• establish a biobanking assessment methodology (by order of the Minister published in the Gazette) to determine the number or different classes of bio-credits that may be created in respect of the management actions carried out on the biobank site and identify any impact on biodiversity values that cannot be offset by the retirement of credits; and
• allow developers to apply for biobanking statements that will list the number and class of credits that the developer must obtain and retire to offset the biodiversity impacts of the development in order to improve or maintain biodiversity values.

Importantly, biobanking agreements will be registered on the title of land (which generates the biodiversity credits) and will generally be in perpetuity. This means that the obligations in the biobanking agreement to preserve biodiversity values will be binding on successors in title to the land (in a similar way to a restrictive covenant).

An obligation to maintain and improve biodiversity values in perpetuity, however, could place an unfair burden on landholders in the future, for example, if there is a natural disaster or severe bushfire. One way the Government proposes to alleviate this is to create a Biobanking Trust Fund which would receive a proportion of the sale proceeds arising from the sale of the credits. It is possible, however, that some form of additional private insurance may be necessary to protect against any future risk of biodiversity loss.

A hypothetical example illustrates how the scheme would work:

Landowner A owns a property with 100 hectares of a high conservation value bushland eg. Cumberland Plain Woodland. He decides to enter into a biobanking agreement which will designate the bushland as a biobank site and authorise him to undertake weed control, pest control and habitat protection measures.

Landowner A's biobank site generates biodiversity credits as his management actions improve the biodiversity values at the site. The biobank site and biodiversity credits are registered on the DEC's registers.

Landowner B is proposing to build a new residential development which will lead to the destruction of 10 hectares of Cumberland Plain Woodland. Landowner B uses the biobanking assessment methodology to work out the number of credits needed to offset the ecological impact, and then purchases the credits from Landowner A. The sale transaction is registered and Landowner B retires the credits from the scheme to offset the development's impact. Landowner A may, if necessary, be assisted with future management of the biobank site with funding from the Biobanking Trust Fund.

The Bill arguably provides for a more streamlined procedure allowing the developer to apply to the Director-General of the DEC for a biobanking statement in relation to its development proposal (provided that it does not involve the clearing of native vegetation which is regulated under the Native Vegetation Act 2003 or it is otherwise excluded under regulations).

A biobanking statement would only be issued if the development is shown to improve or maintain biodiversity values (unless it is a development under Part 3A of the Environmental Planning and Assessment Act 1979 ("Planning Act") where the Minister can direct the Director-General to issue a statement regardless of the impact on biodiversity).

A development or activity under Part 4 or Part 5 of the Planning Act will be deemed "not likely to significantly affect any threatened species, population or ecological community under the Act, or its habitat" only if a biobanking statement has been granted in respect of that development or activity. In essence, a biobanking statement removes the current requirement to prepare a species impact statement and consult with the Minister of Environment and Director-General under the Planning Act. In addition, the consent authority or determining authority would not be required to (but might) take into account the impact of the development on biodiversity values in considering the merit of the proposal. The credit requirements and any other conditions of the biobanking statement will be incorporated into the development consent or approval.

Even if a biobanking statement is granted, the proponent would still, in general, have to demonstrate that all cost-effective measures were being carried out on-site to minimise any negative impact of the development on biodiversity. In other words, developers would have to take active steps to avoid on-site biodiversity impacts where possible before taking advantage of the biodiversity offsets.

Participation in the scheme will initially be voluntary. However, the Bill makes provision for a state environmental planning policy to make biobanking mandatory for certain classes of development or specific developments.

Once registered, bio-credits can be traded, sold and retired from the scheme. Under the current proposed scheme anyone will be eligible to buy credits, opening up the market to those seeking buy and retire credits to achieve conservation outcomes but also investors and speculative traders seeking financial gain. DEC will hold the relevant registers and regulate the scheme.

It is too early to say how lucrative the biobanking market will be but there is definitely potential for companies with existing landholdings to negotiate biobanking agreements and build up a bank of bio-credits for on-sale. Investors may also want to consider strategic purchases of land to maximise the number and type of bio-credits in their portfolio for future trading. The scheme anticipates that "conservation brokers" will be used to identify potential biobank sites or management actions, negotiate biobanking agreements and assist with bio-credit trades.

On the face of it, the scheme appears to be a flexible and innovative way of allowing the Government to conserve biodiversity values and meet housing supply targets. However, the underlying mechanics of the scheme are not yet clear. Will only "like for like" habitat be used or will there be more flexibility in how biodiversity is assessed? The "biobanking assessment methodology" will be crucial to the success of the scheme as it will determine the way in which the scheme's currency (ie. the credits) will be identified, qualified and quantified.

It is likely that biobanking will be of greatest benefit to developers seeking to overcome an ecological impact which would be relatively easy to offset elsewhere. The scheme may also benefit large scale infrastructure and utilities companies that have no alternative routes for their pipelines, cables, roads etc. The scheme is not likely to be applicable, however, if the proposed development could impact very rare ecological communities or species or communities which have been over-cleared in the past as it would not be possible to generate a sufficient number of bio-credits in other locations.

The Bill is currently in the second reading stage in Parliament. If the Bill is passed before the end of the year, a pilot scheme is likely to commence in 2007. Participants will need to get comfortable with various risks, particularly during the trial stage. The current proposal allows offsets to be verified and credits created before the biodiversity gain has actually materialised. This may mean that the credit provider and/or developer may wish to insure against the risk that the biobank site will not generate the requisite credits (and enable alternative credits to be purchased to meet the biodiversity shortfall).

The DEC also has a large amount of discretion and special enforcement powers (with high penalties for non-compliance) which need to be factored into any decision to pursue this route over the existing threatened species assessments.

With the current legislative uncertainty and no trial results it is currently difficult to predict who will benefit most from biodiversity banking.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.