In an unexpected turn of events, the Federal Government’s Nature Repair Market legislation – which had stalled in the Senate and recently been deferred until at least April 2024 – has now passed after the Government struck a last-minute deal with the Greens.
We now have the framework for a world-first voluntary market designed to boost private investment in nature and complement the existing Australian carbon market. Courtesy of horse-trading that occurred to get the legislation over the line, we also now have an expanded ‘water trigger’ under Federal environmental legislation which is set to have significant implications for the gas industry moving forward.
In this alert, we explore how the legislation came to pass in the Senate, the trade-offs that occurred and what will happen next.
Background
What is the Nature Repair Market?
In line with the Government’s commitment to protecting 30% of Australia’s land and waters by 2030, and as discussed further in our previous alert, the Nature Repair Market will allow landholders to register and carry out certain nature restoration projects. Biodiversity certificates can be issued for these projects and subsequently traded, enabling businesses, governments and individuals to invest in nature repair projects without having to own an interest in the land or carry out the project.
What happened with the timing?
Just 3 weeks ago, we provided an update on the status of the Nature Repair Market and broader Federal environmental reforms (see here). Relevantly:
- The Nature Repair Market Bill 2023 (Cth) and Nature Repair Market (Consequential Amendments) Bill 2023 (Cth) (NRM Bills) were introduced into Federal Parliament in March 2023. The first Bill provided the framework for the market, while the second proposed minor amendments to the Clean Energy Regulator Act 2011 (Cth) and the National Greenhouse and Energy Reporting Act 2007 (Cth) to facilitate the establishment, operation and regulation of the market.
- The NRM Bills passed the House of Representatives in June 2023, before stalling in the Senate due to a lack of political support. Key concerns about the NRM Bills included that there was a lack of private sector demand for such a market, that the intent of the market would be undermined by allowing nature repair projects to offset the environmental impacts of other developments, and that ultimately the broader Federal environmental reforms should be progressed before the NRM Bills.
- In October 2023, the Senate Environment and Communications Legislation Committee’s (Senate Committee) already extended reporting deadline of 1 November 2023 for the NRM Bills was further extended until 18 April 2024, indicating the legislation wasn’t likely to progress until after this time.
Despite all of this, a flurry of activity has occurred in recent days as Federal Parliament entered its final sitting week for 2023.
- On 30 November 2023, the Government indicated it would seek to bring the Senate Committee’s reporting deadline for the NRM Bills forward to 4 December 2023.
- The Senate Committee published its report on 4 December 2023, recommending the NRM Bills be passed.
- Also on 4 December 2023, the Government announced a new advisory group (the Nature Finance Council) designed to encourage private sector collaboration and provide advice to the government to increase private investment in nature.
- On 5 December 2023, the Senate debated – and ultimately passed – amended versions of the NRM Bills, after the Government struck a deal with the Greens.
- On 7 December 2023, the amended NRM Bills returned to the House of Representatives (where the Government holds a majority of seats) for final agreement and passed, but not without a last-minute attempt by the Liberal National Party to make a further significant change.
So, what’s the ‘big deal’?
Two key trade-offs occurred to secure the passing of the NRM Bills in the Senate:
- the clarification that nature repair projects cannot be used to offset the environmental impacts of other developments; and
- the fast-tracking of the proposed expansion to the ‘water trigger’ under the existing Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act).
Interestingly, the Greens also secured the removal of the term ‘market’ from the legislation, notwithstanding it will operate as a ‘market’.
The Liberal National Party tried to expand the ‘water trigger’ even further when the legislation returned to the House of Representatives, but failed to gain the votes.
Offsetting prohibition
In line with the Greens’ position that nature repair projects should not facilitate nature destruction elsewhere, the version of the Nature Repair Market Bill 2023 (Cth) which passed contained an amendment prohibiting biodiversity certificates from being used for an environmental offsetting purpose, with this prohibition to have effect despite any other provision of any other Australian law.
The amendments broadly define ‘environmental offsetting purpose’ as: the purpose of meeting an environmental offsetting requirement (however described) under a law of the Commonwealth, a State or a Territory including through an environmental offsetting measure.
The definition of an ‘environmental offsetting measure’ includes, but is not limited to: a measure to offset or compensate for the impacts of an action or project (however described) on the environment that is:
- required as a condition of an approval, licence or permit (however described) under a law of the Commonwealth, a State or a Territory; or
- directly financed from a fund into which money is paid as a condition of an environmental approval, licence or permit (however described) under a law of the Commonwealth, a State or a Territory; or
- undertaken as required or agreed to under a penalty or enforceable undertaking imposed or accepted under a law of the Commonwealth, a State or a Territory.
Project proponents who may have hoped to gain another avenue for fulfilling offset obligations will have to return to the drawing board and see what comes of the general offset changes expected as part of the broader Federal environmental reforms.
While these amendments present a ‘win’ for the Greens and other stakeholders who viewed potential offsetting abilities as contrary to the intention of the Nature Repair Market, they beg the question: will there be enough private demand for the market where it will not be used for compliance purposes, or will government largely be required to drive and fund it?
Water trigger expansion
Under the current EPBC Act, water resources are a matter of national environmental significance in relation to coal seam gas and large coal mining development only. This means actions which involve a coal seam gas development or a large coal mining development may require referral (and potentially approval) under the EPBC Act if the action is likely to significantly impact on a water resource. This is known as the ‘water trigger’.
In its December 2022 Nature Positive Plan, the Government announced its intention to expand the water trigger to all forms of unconventional gas, not just coal seam gas. While we expected this expansion may occur in 2024 as part of the broader Federal environmental reforms, the version of the Nature Repair Market (Consequential Amendments) Bill 2023 (Cth) which passed included amendments to the EPBC Act to fast-track the expansion.
References to ‘coal seam gas development’ in the EPBC Act have been replaced with references to ‘unconventional gas development’, which is defined as: any activity involving unconventional gas production that has, or is likely to have, a significant impact on water resources (including any impacts of associated salt production and/or salinity):
- in its own right; or
- when considered with other developments, whether past, present or reasonably foreseeable developments.
‘Unconventional gas production’ is defined as the: extraction, recovery, or intentional release, (whether by drilling, hydraulic fracturing or other means) of gas from:
- coal seams or beds; or
- layers of shale rock; or
- tight gas reservoirs; or
- any other sources prescribed by the regulations.
While these amendments are framed broadly (and intentionally so, to ensure changes in technology can be captured with time), a number of transitional provisions have been included to help provide clarity to industry about when the expanded water trigger will apply. These arrangements are discussed further below.
The Liberal National Party attempted to include carbon sequestration in the new definition of ‘unconventional gas development’ when the legislation returned to the House of Representatives on 7 December 2023, however this was voted down. That said, the Minister for Environment did express the intention to work with the Liberal National Party on the intent of their proposed amendment as part of the broader Federal environmental reforms in 2024.
What happens next?
Nature Repair Market
Timing
The amended NRM Bills have now passed both Houses of Parliament and are awaiting royal assent to become law. Notably, the NRM Bills merely serve as the underlying framework for the Nature Repair Market. A set of ‘rules’ still needs to be drafted which will provide the bulk of the operational detail, along with the methodology determinations that will govern each nature repair project.
Originally, the Government planned for the market to be operational by mid-2024. Whether this is still achievable depends on how long it takes to finalise operational details, although we expect there may be a desire to push the market through before Australia hosts the first Global Nature Positive Summit in Sydney in October 2024.
We encourage landholders and businesses who are interested in the Nature Repair Market to monitor the development of these additional instruments throughout 2024 and provide feedback if and when consultation occurs.
Relationship with carbon market
The framework for the Nature Repair Market is similar to, and intended to operate alongside, Australia’s carbon market established under the Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth). The Government is in the process of implementing reforms to the carbon market, following an independent review which recommended changes aimed at improving governance, integrity, transparency and effectiveness of the market.
It is unclear if the Government intends to make further amendments to the passed nature repair framework to maintain consistency with the carbon framework as those carbon reforms unfold. It is also unclear if the Clean Energy Regulator (who currently regulates the carbon market and is set to regulate the nature market) will remain the nature market regulator, amid concerns the market may have more integrity if regulated by the independent environmental protection agency that is proposed to be established as part of the broader Federal environmental reforms. We will continue to monitor these matters.
Water trigger expansion
Commencement
The water trigger amendments to the EPBC Act will commence on the day after the Nature Repair Market (Consequential Amendments) Bill 2023 (Cth) receives assent, which we describe as the ‘commencement date’.
Transitional provisions
The transitional provisions provide that the expanded water trigger will apply in relation to an action involving unconventional gas development that is taken on or after the commencement date, even if the action began before that time, unless certain exceptions apply. Broadly, these exceptions include where:
- immediately before the commencement date, an approval under the EPBC Act is in operation for the action or not required (e.g. because the action previously received a ‘not a controlled action’ or ‘particular manner’ decision);
- the action does not involve the extraction of coal seam gas and, before the commencement date, the action was:
- extracting or producing gas commercially and in accordance with the laws of the Commonwealth and of any State or Territory that apply in relation to the development; and
- authorised by (and continues to be authorised by) a ‘petroleum production authorisation’, being an approval granted under a law of the Commonwealth or a State or Territory that authorises the extraction of petroleum for commercial production (but not a lease or licence that is primarily for the purpose of reservation, retention or exploration); or
- the action does not involve the extraction of coal seam gas and, immediately before the commencement date, extraction and production of gas had permanently ceased and/or post-production had permanently ceased.
Where actions involving unconventional gas development have been referred under the EPBC Act and determined to be a controlled action prior to the commencement date, but an approval decision has not yet been made as of the commencement date, the Minister will have 90 business days to decide whether or not to apply the expanded water trigger amendments to the action. If an assessment method decision was made prior to the commencement date and the Minister decides during the 90 business day period to apply the expanded water trigger amendments to the action, the Minister may also decide that a different assessment method would be more appropriate to assess the impacts of the action.
Finally, the transitional provisions give the Minister broad powers to make further transitional rules about the water trigger amendments within 6 months of the commencement date (although the rules must not do certain things, including creating any offences or civil penalties).
Proponents of existing unconventional gas developments should carefully consider whether they can rely on any of the exceptions in the transitional provisions to avoid being impacted by the expanded water trigger. Proponents of future unconventional gas developments should familiarise themselves with the new amendments and build EPBC Act self-assessment, referral and approval considerations (including costs and timeframes) into project planning where appropriate.
Broader environmental reforms
As mentioned in our recent alert, the Government conducted closed consultation on its broader Federal environmental reforms in Canberra in late October 2023 and held public webinars in late November 2023. Documents shared during the closed consultation have now been made publicly available here. The public webinar transcripts and recordings are available here, while a public survey is open for comments until 30 March 2024.
A further closed consultation session is scheduled to occur in mid-December 2023, although it is unclear if the documents from that session will subsequently be released to the public.
We will continue to monitor the reforms as they progress over the coming months.
