Financialisaton of nature repair: visionary innovation or short-sighted chimera?

 

See, sons, what things you are

How quickly nature falls into revolt

When gold becomes her object.

2 Henry IV, Act 4, scene 5

 

The Commonwealth Government is pushing ahead with its proposal to establish a market for what it terms ‘nature repair’. The Environment Department website has a page devoted to the Nature Repair Market Exposure Draft of proposed legislation (link here). The Department invited comment and submissions, but this process will close within a week on 24 February. It is not clear if they will publish the submissions they receive. I hope they will so as to transparently air the breadth of issues raised.

 

The Department states:

We are developing a nature repair market to encourage investment in biodiversity and drive environmental improvements across Australia.

Companies are looking at ways to achieve positive outcomes for nature through their investments but a national framework to facilitate that investment is not yet in place.

The market will be underpinned by legislation – the Nature Repair Market Bill (the Bill). This will enable landholders who protect, manage or restore local habitat and to receive biodiversity certificates which can then be sold to other parties. It will ensure the integrity of biodiversity certificates so the market can invest with confidence.

 

The Department’s web page includes links to the draft legislation, and to a series of fact sheets, including a Fact Sheet providing an overview of the proposal (link here) and a Fact Sheet titled Supporting the participation of First Nations people (link here). Key issues addressed (very briefly) include how Indigenous landowners can participate in the market, how they can be involved in market design, and how their rights and interests will be protected.

 

The Guardian recently reported on a number of concerns regarding the proposals from academics and others involved in conservation policy (link here).

 

Like any ambitious policy proposal, there are persuasive arguments in favour and against. This post does not attempt to lay out comprehensively the arguments for and against, and at this point in time, I do not feel qualified to express a definitive view on the merits of the proposal nor the draft legislation. Rather, what I am seeking to do here is provide a provisional introduction to the issue, aimed primarily at persuading readers that this is an issue that requires more attention than it has received to date.

 

It is clear however that this is a policy initiative with significant potential implications for Indigenous interests, and for the management of the Indigenous estate that encompasses around half the continental landmass, and will likely grow to above 60 percent as outstanding native title applications are determined. Whatever the merits of the scheme overall, its impact on Indigenous interests and lands will need close attention both by Indigenous advocates and government policymakers. Of course, the two issues are closely related. If the scheme is flawed or ineffective, and particularly if the regulatory arrangements are not robust enough to ensure that the market operates effectively, then the likelihood is that it will adversely and significantly impact Indigenous interests and landowners given the size of the Indigenous estate.

 

Underpinning the Government’s policy approach is an explicit assumption, laid out in a speech by Environment Minister Plibersek in July 2022 (link here) that the task of preventing landscape degradation (a subset of environmental repair and protection) is beyond the financial capacity of governments. The Minister stated there that ‘The scale of this challenge means that governments can’t do the job alone’.

 

This assumption is problematic on two grounds: the financial challenge is one of priorities, not quantum; and over time the quantum is shaped and determined by policies. I am sure that this is an issue that will be the focus of further research and debate as the proposed legislation progresses. The fundamental rationale for seeking to establish a market that essentially seeks to financialise the natural estate and the task of nature repair is in my view not yet beyond question.

 

There seem to me to be two high level general risks that will need careful management and proactive mitigation. Both of these risks could have a range of sui generis implications for Indigenous landowners.

 

The first risk is the issue raised in the Guardian article mentioned above, namely that the scheme might become a disguised offset scheme which facilitates biodiversity destruction by in effect paying landowners elsewhere to undertake projects aimed at biodiversity maintenance or repair. Without robust regulation, such an outcome might quickly lead to net reductions in biodiversity repair (particularly in sensitive contexts with competing commercial and biodiversity values).  

 

The second general risk is that the transactions costs (both tangible and intangible) associated with the proposed market effectively outweigh the substantive values of the biodiversity certificates at the core of the market. To take just one example, the administrative burdens of compliance for landowners, and of regulatory oversight for governments could be huge. Yet robust regulation is crucial to the schemes success. Excessive transactions costs will lead to market failure of various kinds and thus to counterproductive outcomes.

 

There are also (at least) two risks that particularly relate to the Indigenous policy sector.

 

The first risk is the potential for governments to effectively hide behind the existence of this market to justify limiting both expected future and existing government funding for biodiversity repair. Indigenous landowners are much more reliant on government funding than mainstream landowners as they are less engaged in commercial activities on their lands, so this risk, if it emerges, will impact them more seriously than mainstream interests.

 

Second, I note that in the almost thirty years since the passage of the Native Title Act, no Federal Government has been prepared to establish a comprehensive and adequate funding scheme to support the operations of Prescribed Bodies Corporate (PBCs), the corporate bodies that are mandated by the Native Title Act to hold native title on behalf of native titleholders. These are the organisations, mandated by legislation, that will be key decisionmakers in the proposed biodiversity market. The second risk is that financially constrained Indigenous landowners will not have access to the requisite professional skills and advice to ensure that they obtain a commercial return on the biodiversity certificates they sell.

 

I have published posts raising the issue of inadequate PBC funding previously, including the two most recent at the following links (link here and link here).  The second of these links involved litigation where the Judge was critical of the lack of funding allocated to supporting native title holders. It is a longstanding issue, yet governments are stubbornly intransigent when it comes to addressing it.

 

There are around 250 PBCs in existence (link here). There is limited funding available for PBCs for ‘Basic Support’ which averages around $50k to $80k per PBC. If you do the math, this sums to less than $20m per annum nationally. There is also a capacity building program that totals around $12m per annum. See the National Indigenous Australians Agency (NIAA) webpage (link here) for more details. The bottom line is that Government funding for PBCs that are involved in land management for almost half the nation’s land mass totals $32m per annum. Given the present inadequate funding levels, there must be serious doubts regarding the financial and administrative capability of PBCs to undertake the administrative and policy decision-making workloads associated with the proposed new ‘nature repair’ market arrangements.

 

Finally, it would be remiss not to mention the Commonwealth’s ongoing support and commitment to funding a highly successful network of ranger groups across the Indigenous estate. The NIAA website (link here) indicates that current funding amounts to $746m over seven years to 2028, that is just under $110m per annum nationally to fund between 80 and 100 ranger groups. The NIAA also reports that there are 2100 full time, part time and casual jobs created by the ranger funding program. There is also a very useful map (link here) indicating the location of Indigenous Protected Areas and funded ranger activities nationally. In her speech last year delivering the 2021 State of the Environment Report (link here), Minister Plibersek committed to doubling the number of Indigenous rangers to 3800 by the end of the decade, and to increasing funding to Indigenous Protected Areas. Clearly, the existence of this funded network will facilitate the implementation of biodiversity projects into the future on Indigenous land.

 

What is not clear, at least to me, is whether this expanding national Indigenous Ranger workforce has the depth of experience and expertise to undertake new biodiversity projects funded by the market without being diverted away for existing projects. The concept of a new nature repair market builds upon an established and well entrenched institutional infrastructure of commercial businesses with access to professional advice, finance and technology. It is not clear that this level of institutional depth and intellectual capital exists yet across the 80 plus Indigenous ranger groups. As part of any implementation strategy for the proposed new nature repair scheme, there may well be a case for governments to fund a ten year institutional strengthening project across the existing (and future) ranger network aimed at reducing the risk that capability shortfalls will inhibit take-up or successful implementation of market funded additional biodiversity repair projects on the Indigenous estate.

 

To sum up, the Government’s proposed Nature Repair Market legislation has immense potential implications for Indigenous interests and landowners. These include undoubted financial benefits, but also the potential for serious risks and disadvantage to emerge affecting both the environment and the financial viability of Indigenous organisations. It is just one of the numerous issues currently competing for attention across the Indigenous policy domain. In my view, the policy implications and in particular the potential risks for Indigenous interests deserve greater attention than they appear to have received to date from policymakers.

 

I thank Professor Jon Altman for drawing my attention to the Government’s proposals.