The government hopes private investors will help save nature. Here's how its scheme could fail

This week’s federal budget reiterated the government’s plan to establish a new scheme for encouraging private investment in conservation, called a biodiversity market (now, rebranded to a “nature repair” market).

A biodiversity market would see landholders granted certificates for restoring or managing local habitats. Landholders could then sell these certificates to, for instance, businesses.

But the effectiveness of such schemes overseas and in Australia can at best be described as mixed. Whether biodiversity markets can actually improve the dire trajectory of our native plants and animals depends heavily on two things:

1. whether they reward environmental stewardship, which delivers overall benefits for biodiversity or
2. whether they rely on the use of “offsets”, and the loss of biodiversity elsewhere, to generate market demand.

Unfortunately, the government is sending mixed messages on this critical issue. Federal Environment Minister Tanya Plibersek has said while the market “is not designed to be an offset scheme”, companies could still buy certificates to compensate for damage they cause to nature.

In submissions to the recent public consultation on the proposed market, we and other experts argued the scheme should explicitly rule out the use of certificates as compliance offsets for biodiversity damage. Here, we give three major reasons why this is important.

What sort of market?

The term “biodiversity market” refers to a range of approaches that can operate quite differently.

For example, “environmental stewardship schemes” reward land managers who benefit native ecosystems, such as by planting trees and restoring rivers.

“Biodiversity offset schemes” similarly offer financial incentives to land managers, but with a critical difference: on-ground work to benefit nature is used to offset, or compensate for, biodiversity losses elsewhere.

This means offsets don’t usually result in overall improvements to nature, but rather maintain existing declines.

The government hopes voluntary private sector demand will drive this biodiversity market. This is because the government says it cannot afford the A$1-2 billion a year needed to adequately protect Australia’s natural environments and reverse biodiversity decline.

This sounds like a lot, but let’s put $1 billion into perspective.

It’s about one-tenth of the public money spent every year subsiding fossil fuel extraction in this country. It’s about a fifth of the cost of cancelling the submarine contract with France.

And it’s about a 25th of the annual cost of the stage three tax cuts promised in this week’s federal budget.

Read more: We pay billions to subsidise Australia’s fossil fuel industry. This makes absolutely no economic sense

It is completely unknown, however, whether businesses will want to voluntarily purchase enough biodiversity certificates purely for corporate social responsibility to make the market work.

On the other hand, allowing businesses to use the certificates for legally-required offsets now – or sometime in the future – will certainly generate more immediate market demand. But this would open up the market to a host of problems, and ultimately undermine its very purpose: to improve biodiversity.

Three reasons to rule out offsets

First, almost all biodiversity offsets in Australia are legally required as conditions of approving new developments, under environmental policies and laws. These policies have strict requirements – and for good reason.

For example, offsets must be “like for like”. In other words, the compensation must be for the same type of biodiversity as the loss.

Such like-for-like requirements limit the number of possible trades in a market, but are crucial to protect Australia’s most threatened species. Otherwise, for instance, allowing replanted koala habitat to count as compensation for the loss of cassowary habitat simply means cassowaries are more likely to become extinct.

Read more: Can we really restore or protect natural habitats to 'offset' those we destroy?

The problem is that biodiversity certificates will certify activities (such as tree planting or fencing), rather than specific outcomes (such as increased population size) for particular species or ecosystems.

So it’s not clear how these certificates could be used to compensate for biodiversity losses in line with the national environmental law.