The Threatened Species Conservation Amendment (Biodiversity Banking) Act 2006 was commenced on 4 December 2006. It inserts a new part into the Threatened Species Conservation Act 1997 (being Part 7A) which provides for a voluntary biobanking scheme to be implemented.
In summary the main elements of the scheme are as follows:
- a landowner can enter into a biobanking agreement with the Minister for the Environment for their land to be a biobank site. Once entered into, that land is secured and managed in perpetuity to protect the biodiversity values of the site
- the landowner of the biobank site is given biodiversity credits for managing the land. The biodiversity credits may then be traded (most likely to developers) and a portion of the funds generated by the sale would be used for the future management of the site
- a developer can, if they obtain a biobanking statement from the Minister (i.e. if they obtain the Minister's approval), use the biodiversity credits purchased to offset against the environmental impact of their development. If a biobanking statement is issued, the developer is not required to undertake a species impact statement. The biodiversity credits will be required to be retired
- the Act provides for a biobanking assessment methodology to be formulated to determine the number of biodiversity credits to be created in respect of a biobank site and the number of biodiversity credits which must be retired to off-set the impact of a development.
The scheme is voluntary. This leaves it open to a developer to decide whether to obtain a biobanking statement or obtain a species impact statement.
At this stage, many of the main operational aspects of the scheme have not yet been detailed. For example, the biobanking assessment methodology and regulations have not yet been gazetted. Such documents will likely identify the types of sites which may become biobank sites, actions for which biodiversity credits may be created, and the number and class of credits required to be retired in relation to a development. We are informed by the DECC that the regulations and biobanking assessment methodology should be publicly exhibited in November this year.
The scheme will not effectively come into operation until the biobanking assessment methodology has been published, as until then biobanking agreements and biobanking statements may not be issued.
Object of the Act
The Threatened Species Conservation Amendment (Biodiversity Banking) Act 2006 commenced on 4 December 2006. The Act inserts into the Threatened Species Conservation Act 1997 (TSC Act) a new part, being Part 7A which provides for a voluntary biobanking scheme to be implemented.
The object for these amendments is considered in the second reading speech for the Bill. It is stated that by participating in the scheme, developers will save time and have more certainty and our threatened flora and fauna will be better preserved. Further, that the scheme will send a strong price signal that maintaining and rehabilitating bushland can produce a valuable asset rather than producing a potential future liability. Biobanking works through counter-balancing the sum of small losses at many development sites with investment into consolidated, well-maintained and secure areas where the risk of extinction is greatly reduced. To give you a snapshot into how the system is proposed to work, the second reading speech includes the following example:
A landowner might live on 200 hectares of land at Picton that includes 150 hectares of high conservation value of Cumberland Plain Woodland. The landowner could enter into a biobanking agreement to control grazing and weeds and foxes to protect the habitats and breeding of rare mammals and birds. In exchange, the landowner can sell a specified number of credits on the open market. Purchasers might include developers, the government and philanthropic organisations. Part of the funds generated from the sale of the credits are held on trust to the landowner. The landowner receives an agreed sum each year for a defined minimum period from this fund to help pay for the management actions.
From the landowner's perspective, biobanking enables landowners to obtain income from managing their land for conservation. An important additional benefit is that the scheme sends a price signal that healthy habitat and bushland are valuable assets in the land market. Let us assume that there is a developer who is proposing a new residential area near Liverpool. However, to build the houses he needs to impact on a small patch of degraded Cumberland Plain Woodland. Under the current system, the developer must undertake an extensive and sometimes costly threatened species assessment process, and potentially set aside part of the site from development. From a conservation perspective, the problem is that these remaining areas are too small to be viable in the long run, and once the development is sold there is no one who will guarantee that the land is cared for into the future.
Under biobanking, the developer would use the biobanking assessment methodology to work out the number of credits needed as an offset, and obtain a biobanking statement to confirm the credits required and any other conditions. Then once the project is approved the developer can purchase the credits as an offset from the Picton landholder. The result is that an important development goes ahead and biodiversity is better protected – most importantly, in areas where it will be more viable in the long term. Conservation effort is shifted from small pockets of expensive land which is more suited to development onto lower priced land, where the pressure of weeds, pests species and degradation is lower.
This gives you an example of how the system is supposed to work. Detailed below is a basic outline of the provisions in the biodiversity banking legislation.
What does the Act allow?
In summary, the biobanking scheme has four key elements:
- it establishes a means of creating biobank sites through the creation of biobanking agreements which are entered into between the landowner and the Minister
- it allows the creation of biodiversity credits in respect of management actions carried out or proposed for biobank sites
- it enables biodiversity credits to be traded and used as an offset against the impact of proposed development on biodiversity values
- it establishes a biobanking assessment methodology (by order of a Minister published in the gazette) to be used in determining both the number of biodiversity credits that may be created in respect of a management action and the number of biodiversity credits that must be retired in connection with a development in order to ensure that it improves or maintains biodiversity values.
Each of these elements is dealt with below.
Creation of biobank sites
Biobanking agreements generally
In order to create a biobank site, it is necessary for the land owner to enter into a biobanking agreement with the Minister. All of the landowners, any tenants or lessees and any mortgagee or chargee must consent in writing to the agreement. Further, if the land is subject to a covenant, the Minister must consult with the person entitled to the benefit of the covenant.
It is important to note that the regulations can exclude any land, or land of a particular class, from being designated as a biobank site. Further, the regulations may require the Minister before entering into a biobanking agreement to consider whether the person is a fit and proper person to enter into, and fulfil the obligations imposed by, the agreement.
A biobanking agreement can contain terms binding on the owner of the land providing for any matter relating to a biobank including the following:
- requiring or authorising the owner to carry out specified management actions on the land
- providing for the number and class of biodiversity credits that can be created in respect of any of those management actions in accordance with the biobanking assessment methodology
- providing for the timing of the creation of biodiversity credits and their release for sale
- requiring the owner of the land to carry out or continue to carry out any management action in perpetuity, unless otherwise specified (even if a biodiversity credit has already been created in respect of the action or has been transferred or retired)
- restricting the use of the biobank site
- requiring the owner to permit access to the biobank site by specified persons and to allow those persons to take any specified action on the land
- providing for monitoring, reporting and audit requirements
- providing for the entitlement of the owner to payments from the Biobanking Trust Fund
- specifying the manner in which any money provided to the owner under the agreement is to be applied by the owner
- requiring the owner to repay money paid to the owner under the agreement if a specified breach of the agreement occurs
- specifying the remedial measures that must be taken in the event that any contingency that has a negative impact on the biodiversity values protected by the agreement or that prevents or disrupts the continuation of a management action in respect of which biodiversity credits are in force or have been retired.
A biobanking agreement may contain any of the following terms binding on the Minister:
- requiring the Minister to direct that payments be made from the Biobanking Trust Fund to the owner of the land
- requiring the Minister to provide technical advice or other assistance
- requiring the Minister to carry out specified activities or do specified things
- providing for any other matter relating to a biobank site.
The biobanking agreement takes effect from the day, or on the happening of an event, specified in the agreement. The biobanking agreement will have effect in perpetuity, unless it is terminated by the Minister. Termination of biobanking agreements is discussed further below.
The Minister must register the land the subject of the biobanking agreement as a biobank site. The biobanking agreement must also be registered on the title to the land, and any variation or termination of such agreement must also be registered. Once registered, and once the biobanking agreement is in force, it is binding on any successors in title and those successors in title are taken to have notice of the agreement.
Any management actions required under a biobanking agreement for which biodiversity credits may be created are taken to be exempt development for the purposes of the Environmental Planning and Assessment Act 1979.
Enforcement of biobanking agreements
There are essentially three ways in which a biobanking agreement may be enforced:
- proceedings in the Land and Environment Court to remedy or restrain a breach.
Under the Act any person may bring proceedings in the Land and Environment Court for an order to remedy or restrain a breach of a biobank agreement.
If the court is satisfied that a breach of the biobanking agreement has or will be committed, it may make such order as it thinks fit to remedy or restrain the breach. Such orders can include a direction to the owner of the biobank site to retire biodiversity credits and, if the owner does not hold sufficient biodiversity credits to comply with the direction, to acquire the necessary biodiversity credits for the purpose of retiring them.
Alternatively, in the case of proceedings brought by the Minister, the Court may award damages against the owner of the biobank site for a breach of the biobanking agreement where the breach arose from an intentional, reckless or negligent act or omission by or on behalf of the owner or previous owner of the land (being an act or omission of which the new owner had notice), including a failure by the owner or previous owner to prevent another person from causing a breach of the biobanking agreement. In determining the amount of damages payable, the court will have regard to any detriment to the public interest arising from the breach, any financial or other benefit that the owner or previous owner gained or sought to gain by committing the breach and any other matter that it considers relevant.
- Direction from the Minister
The Minister may direct a person who is the owner of a biobank site to carry out at the person's cost such work or other actions as the Minister considers necessary to rectify any breach of a biobanking agreement. If the requirements of the order are not complied with, the Minister may enter the land and cause the work or action to be carried out and may recover the reasonable costs of complying with those requirements as a debt from the person to whom the order was given.
Further, this does not prevent the Minister from seeking an award of damages against the owner of the biobank site for a breach of a biobanking agreement.
- Conveyance of land by order of the Court
Where a person has contravened a biobanking agreement, the Minister may apply to the Land and Environment Court for an order that the land be conveyed or transferred to the Minister, or to another person or body nominated by the Minister.
However, such an order may be made only where the court is satisfied, on the balance of probabilities, that:
- there is a serious risk to the biodiversity values protected by the biobanking agreement because of the contravention by the person; or
- there is no reasonable likelihood of the person complying with the obligations imposed by the biobanking agreement; or
- the person has previously committed frequent contraventions of the biobanking agreement; or
- the person has persistently and unreasonably delayed complying with the obligations imposed by the biobanking agreement.
Where land is conveyed or transferred to the Minister, consideration is payable by the Minister and is to be determined in the same way as the compensation payable under the Land Acquisition (Just Terms Compensation) Act 1991. However, it is reduced by the amount that, in the opinion of the court, is equivalent to any outstanding liability arising out of contravention of the biobanking agreement and the value of the land is to be determined having regard to the fact that it is subject to a biobanking agreement.
Voluntary termination of biobanking agreements
The Minister must consent to the termination of a biobanking agreement on the request of the owner of the biobank site if:
- the owner of the biobank site has requested the termination of the agreement within three months after it is entered into; or
- the owner of the biobank site has requested the termination of the agreement after the expiry of five years after the agreement has been entered into,
- and at the time of termination no biodiversity credits have been created in respect of the biobank site, or the owner of the biobank site is the holder of all credits that have been created since registration of the biobank site, none of the credits have been retired and all the credits are cancelled by the Director-General with the consent of the owner.
- The Minister otherwise has a discretion to consent to the termination of a biobanking agreement. However, the Minister cannot consent to the termination of the biobanking agreement unless such measures are taken by the owner of the biobank site to offset any negative impact of the termination on the biodiversity values protected by the agreement. Such measures could include the cancellation of credits created in relation to the biobank site, the retirement of credits created in relation to another biobank site, or entering into a biobanking agreement for the purpose of establishing another biobank site.
Creation of biodiversity credits
Biodiversity credits can be created by the Director-General on application by an owner of land that is a biobank site or without an application, where permitted under the relevant biobanking agreement.
The Director-General may only create a biodiversity credit if satisfied that the management action or actions in respect of which the credit is to be created has been carried out, is being carried out or will be carried out in accordance with the biobanking agreement. The Director-General is to determine the number and class of credits to be created in accordance with the biobanking assessment methodology and any relevant provisions of the biobanking agreement.
Once created, the credit must be registered in the register of biodiversity and the owner of the land must be recorded as the holder of the credit. The credit will not have force or effect until it is so registered.
A biodiversity credit when registered in the register of biodiversity credits remains in force unless it is cancelled or retired.
A biodiversity credit cannot be mortgaged, assigned, leased, charged or otherwise encumbered, except as authorised by the regulations.
Trading of biodiversity credits
Ability to transfer credit
A holder of a biodiversity credit that is in force may transfer the credit to any person. However, we note that the regulations may make further provision with respect to the transfer of biodiversity credits (including by prohibiting certain transfers of biodiversity credits).
Effect of transfer
Transfer of a biodiversity credit does not affect any requirement imposed on the owner of a biobank site under a biobanking agreement (ie. it does not affect any requirement that the owner carry out, or continue to carry out, management actions in respect of the land in relation to which the credit was created).
The transfer of a biodiversity credit does not have effect until the transfer is registered by the Director-General in the register of biodiversity credits.
On the first transfer of a credit, the regulations may require a specified amount to be paid into the biobanking trust fund before the transfer is registered. The amount to be paid into the biobanking trust fund, or the manner of its calculation, is to be as specified in the regulations. Accordingly, the price paid for a credit will be essentially made up to two components, the amount required to be paid the trust and the amount agreed to be paid between the buyer and the seller. The funds placed in trust may then be paid out of the Biobanking Trust Fund to pay for the management actions required as provided for in the biobanking agreement
How the credit may be used by the purchaser?
Biodiversity credits may then be used by a developer to off-set any biodiversity impacts likely to be caused by their proposed development provided they obtain a biobanking statement.
A person who proposes to carry out any development for which biobanking is available may apply to the Director-General for a biobanking statement in respect of the development. Under the Act, developments for which biobanking are available are any development (ie Part 3A, Part 4 and Part 5 development) other than the following:
- any pruning of native vegetation that must not be carried out except in accordance with a development consent granted in accordance with the Native Vegetation Act 2003 or a property vegetation plan under that Act;
- development declared by the regulations to be development in respect of which biobanking is not available.
If a biobanking statement is obtained, the development is taken for the purposes of Part 4 and Part 5 of the Environmental Planning and Assessment Act to be development that is not likely to significantly affect any threatened species, population or ecological community under the Threatened Species Conservation Act, or its habitat. In other words, a species impact statement will not be required. Further, if a biobanking statement has been issued in respect of a development, a consent authority is not required to take into consideration the likely impact of the development on biodiversity values.
If the consent authority grants consent to the development, the consent authority must impose a condition on the consent that requires the biobanking statement to be complied with. A person cannot appeal to the Land and Environment Court in respect of such condition.
However, whilst the scheme has the benefit of dispensing with the requirement for a species impact statement, we note that in order to apply for a biobanking statement the developer has to provide:
- a description of the development to which the application relates;
- a statement of any on-site measures that are proposed to be taken in connection with the development to minimise the impact of the development on biodiversity values;
- an assessment of the impact or likely impact of the development on biodiversity values, prepared in accordance with the biobanking assessment methodology; and
- a statement of the number and class (if applicable) of biodiversity credits proposed to be retired to offset the impact or likely impact of the development on biodiversity values, prepared in accordance with the biobanking assessment methodology.
Only if the development will improve or maintain biodiversity values, may the Director-General issue a biobanking statement. The biobanking statement can include conditions such as a condition relating to the on-site measures that must be taken in connection with the development to minimise any negative impacts on biodiversity values and a credit retirement condition, being a condition that specifies the number and class of biodiversity credit (if any) that are to be retired to ensure that the development improves or maintains biodiversity values, and the timing of that retirement.
The Director-General can refuse an application if, amongst other things, insufficient information is provided to enable a biobanking statement to be issued or the application does not sufficiently address the biobanking assessment methodology, or the applicant has not demonstrated that all cost effective on-site measures to minimise any negative impact of the development on biodiversity values are being or will be carried out.
A biobanking statement may apply generally to the proposed development or may be limited by reference to one or more of the following:
- the impact or potential impact of the proposed development on specified biodiversity values;
- a specified aspect of the proposed development;
- a specified part of the land on which the development is to be carried out.
The biobanking statement lapses after two years from the date of issue unless acted upon, unless extended prior.
cancellation/retirement of credits otherwise than in accordance with a biobanking statement
It is important to note that the Director-General can cancel a biodiversity credit if (amongst other things):
- any management action in respect of which the biodiversity credit was created has not been carried out or completed, or has not been carried out, in accordance with the biobanking agreement, or
- if the person who applied for the creation of the credit provided any information to the Director-General in, or in connection with, the application that was false or misleading in a material particular.
However, the Director-General must not cancel a biodiversity credit unless before doing so the Director-General gives notice to the holder of the credit of the intention to cancel the credit (including reasons for that intention), gives the holder of the credit a reasonable opportunity to make submissions in relation to the proposed cancellation and takes into consideration any such submissions by the holder of the credit. Further, the Director-General is however, not to cancel a credit, if the Director-General is satisfied that the holder of the credit is a bona fide purchaser of the credit without notice of the circumstances that are grounds for cancellation of the credit.
No compensation is payable for the cancellation of a biodiversity credit. However, if a biodiversity credit is cancelled, the Minister may vary or terminate the relevant biobanking agreement (with or without the consent of the owner of the biobank site) to make it clear that any obligation to carry out, or to continue to carry out, a management action that arises only because of the creation of that credit ceases to have effect. The cancellation of a biodiversity credit does not prevent the Minister from seeking an award of damages against the owner of a biobank site for a breach of a biobanking agreement.
The holder of a biodiversity credit can by application in writing to the Director-General retire the credit on a voluntary basis.
Further, the Minister may direct the person to retire biodiversity credits of a specified number and class (if applicable) within a time specified in the order. A direction may be given to a person only if:
- the person is the owner of a biobank site (or a former owner); and
- the Minister is satisfied that, because of any act or omission by the person, one or more biodiversity credits were created in respect of a management action that was not carried out
- or completed, or that is not being carried out, in accordance with the relevant biobanking agreement; and
- the biodiversity credit or credits created have been transferred to another person or retired.
The fact that the person to whom the order is issued does not hold sufficient credits to comply with the order is not a sufficient excuse for failure to comply. Accordingly, the person would need to purchase further credits.
The number of biodiversity credits, and class (if applicable), that are required to be retired is to be equivalent to the number and class of biodiversity credits that, in the opinion of the Minister, were created in respect of management actions not carried out or completed, or not been carried out, in accordance with the biobanking agreement and which has been transferred or retired.
Rights of appeal to the Land and Environment Court are available in certain circumstances, such as:
- where a person is dissatisfied with the decision of the Director-General to suspend or cancel the registration of a biobank site
- where a person is dissatisfied with the decision of the Director-General to cancel a biodiversity credit; and
- where the Director-General refuses to register a transfer of a biodiversity credit.
However, there is no right of appeal to the Land and Environment Court about a condition imposed under a biobanking statement. Rather, a modification must be sought.
An appeal may be made by a person no later than three months after being notified by the Director-General of the decision.
Benefits/ disadvantages to biobank site holder
Some identifiable benefits to the land owner include:
- a commercial profit may be made through the sale of biodiversity credits.
- a biobank site is exempt from land tax (section 10(1)(b) Land Tax Management Act).
Disadvantages to the land owner:
- the biobanking agreement is likely to restrict the use of land, require action to be taken to maintain the land and provide for ongoing monitoring and reporting. Although, such costs may be recovered from the Biobanking Trust Fund
- the biobanking agreement is registered on title and therefore, runs with the land. As the agreement generally has effect in perpetuity, it is likely to make the land less marketable as a purchaser would need to continue with the works required under the biobanking agreement
- it appears that it will be difficult to terminate a biobanking agreement particularly where biodiversity credits created have been transferred. Further, there a severe penalties for failure to comply with the biobanking agreement, including the land being transferred to the Minister.
Benefits/ disadvantages to a developer
It is anticipated that obtaining a biobanking statement will be far less costly than undertaking the threatened species assessment process required under the Environmental Planning and Assessment Act 1979.
However, as noted above, the application for a biobanking statement is required to be accompanied by a description of the proposed development, details of any on-site measures proposed to minimise biodiversity impact, an assessment of the likely biodiversity impact and the details of the number and class of biodiversity credits proposed to be retired to off-set the impact as determined in accordance with the biobanking assessment methodology.
Therefore, there will clearly need to be some level of species impact statement prepared to understand the likely biodiversity impact of the proposed development and in order to assess the number of biodiversity credits required.
Further, the developer has to purchase the number of biodiversity credits required to off-set the impact of the development. It is difficult to estimate what the cost of such credits will be. The availability of such credits will be dependant upon the number of biobank sites created under the scheme and therefore the price will clearly be market driven. A prudent developer would want to ensure that such credits were available and likely enter into an option to purchase the credits prior to applying for a biobanking statement.
Further, the developer still needs to obtain development consent. The issue of a biobanking statement does not fetter the consent authority's power in that regard, other than in relation to the biodiversity impact of the development.
Voluntary planning agreement vs biobanking scheme
The idea of off-setting is not novel. It has been proposed and agreed previously in voluntary planning agreements. In that regard, we note that under the voluntary planning agreement provisions in the Environmental Planning and Assessment Act 1979 (NSW) a person can voluntarily enter into a planning agreement with a consent authority under which they are required to dedicate land free of cost, pay a monetary contribution, or provide any other material public benefit, or any combination of them, to be used for or applied towards a public purpose (section 93F(1)).
A public purpose is defined to include "the conservation or enhancement of the environment (section 93F(2)(f)). Further, there need not be any nexus between the development and the object of expenditure (section 93F(4)). Accordingly, a planning agreement could be entered into in which a developer effectively off-set any environmental impact on its site by putting money towards, for example, a fund which is to be used to maintain or enhance biodiversity on other land.
The benefit of a voluntary planning agreement arrangement is that it is not dependent upon the availability of biodiversity credits. Further, the amount required to be established in the fund would be the subject of negotiation between the consent authority and the developer, rather than negotiation with a biobank site owner where the price for a biobank credit may include not only an amount to fund the necessary conservation works but also an element of profit for the biobank site holder.
Does the issue of a biobanking statement solve all the developer's problems?
It is important to note that whilst a biobanking statement may absolve the developer of the need to undertake a threatened species impact statement, it would not override any requirements under the Commonwealth legislation.
Therefore, it is possible that approval may still be required under the Environment Protection & Biodiversity Conservation Act 1999.
Other people who may purchase credits
Whilst the scheme is focused towards developers purchasing credits by allowing them to use these as an off-set for biodiversity impact on their proposed development site, it possible that credits may also be purchased by charity organisations or government bodies who by purchasing and retiring the credits ensure that the biobank site is protected in perpetuity without any off-set being made.
Conservation or not?
Many have questioned whether the biobanking scheme actually promotes conservation.
In a submission made by the Environment Liaison Office (dated 30 August 2006) it was stated that the scheme "promotes loss of threatened species as a prerequisite to any conservation measures".
In this regard, we note that an off-set proposal was considered by the Court recently in the decision of BT Goldsmith Planning Services Pty Limited v Blacktown City Council  NSWLEC 229. In that case, the applicant proposed to subdivide land which had situated on it Cumberland Plain Woodland (an endangered ecological community under the TSC Act) and which supported the Cumberland Land Snail (an endangered species under the TSC Act). The proposal involved the clearing of 3.17 hectares of Cumberland Plain Woodland.
The applicant proposed, by way of a voluntary planning agreement, an off-set by maintaining and regenerating 8.55ha of Cumberland Plain Woodland (the majority of which was on a neighbouring reserve site).
The Court concluded:
"The use of an off-set proposal is consistent with DEC policy and with the principle of the Biodiversity Banking legislation; however, it should be as a last resort. Other options of retention and mitigation need to be considered first and only if not appropriate, should an offset proposal be considered".
In this case, nearly half the proposal included revegetation of cleared land off site, whereas the Cumberland Plain Woodland on the site was 40 to 50 years old. The Court was concerned that there was a high degree of uncertainty that the revegetation would successfully replace the ecological values lost by clearing the site. Further, the revegetated area was a different sub community to that on the site and would not likely achieve the same level of biodiversity. The Court also had regard to ESD principles.
However, as noted above, the scheme does contain a requirement that a developer who seeks a biobanking statement has demonstrated that all cost-effective measures are being carried out on-site to minimise any negative impact. Also, a biobanking statement will only be issued if the development will improve or maintain biodiversity values. Further, there is nothing preventing philanthropic organisations or government bodies from purchasing the credits who may then retire the credits resulting in an "off-set" free transaction where there is no negative impact on biodiversity involved.
If advising a client who is purchasing a biobank site, it is imperative to ensure, and we would recommend seek a warranty that the biobanking agreement has been complied with.
Similarly, if advising a client intent on purchasing biobanking credits, we would also recommend ensuring that the biobanking agreement in respect of which the biobanking credits were created has been complied with and will continue to be complied with.
Anthony Whealy, partner
t +61 2 9931 4867
Kersten King, solicitor
t +61 2 9931 4912