Biodiversity Offsets Scheme for developers in NSW

If you are engaged in development that will have an impact on the environment, offsetting that impact can play a key role in (or not) the success of the project.

The Biodiversity Conservation Act 2016 (BC Act) and the accompanying Regulations establishing the Biodiversity Offsets Scheme (BOS) represent a major revision of the conservation legislation in the NSW.

Depending on your site, you will often have four options to compensate for environmental impacts:

  1. find and buy suitable biodiversity credits (credits);
  2. Pay the amount directly to the Fund;
  3. undertake other biodiversity actions that qualify as biodiversity conservation measures; or
  4. Any combination of the foregoing.

How is the new Biodiversity Offsets Scheme working?

The new BOS is replacing the biobanking scheme. The BOS sets out a new process for assessing and compensating impacts on biodiversity values in the context of the proposed development.

In a nutshell, the BOS is designed to create a system for the creation and sale of biodiversity credits by landowners to those impacting the environment.

One of the main objectives of the BOS is to establish and promote an open market between those impacting biodiversity values (usually developers) and those managing and protecting biodiversity values in nearby areas (usually landowners).

Does the Biodiversity Offset Scheme apply to your development?

The following developments are subject to the BOS and applications for development consent must include a Biodiversity Development Assessment Report (BDAR):

  1. Development of consent required under Part 4 of the Environmental Planning and Assessment Act 1979 (EP&A Act) (excluding development of compliance);
  2. Activities under Part 5 of the EP&A Act;
  3. Significant state development and significant state infrastructure.

If your proposed development impacts biodiversity above a certain threshold (BOS Threshold), you will need to engage an accredited assessor to prepare a BDAR.

The BOS Threshold shall take into account the impact of:

  1. clearing of native vegetation and the loss of habitat;
  2. development on the following habitat of threatened species or ecological communities:
  • Karst, caves, crevices, cliffs and other important geological features
  • rocks
  • human made structures
  • Non-domestic vegetation
  1. development on the connectivity of different areas of habitat of threatened species;
  2. Development of the movement of endangered species that maintain their life cycle;
  3. Development of water quality , water bodies and hydrological processes that support endangered species and endangered ecological communities;
  4. wind turbine strikes or vehicle strikes on protected animals.

Further, if your proposed development is “likely to significantly affect threatened species”, you will need to submit a BDAR. Whether development is “likely to significantly affect threatened species ” is determined by:

  1. the test in section 7.3 of the BC Act, and
  2. whether the development is in a declared area of “outstanding biodiversity value”.

The BDAR will determine the impact of your proposed development on biodiversity values and the biodiversity conservation measures (including the retirement of credits) needed to avoid or minimise that impact. This is a key document in the process and will govern the actions you need to take to proceed with your development. The involvement of a professional and experienced accredited assessor in the preparation of the BDAR at this stage is critical.

A consent authority must consider the BDAR when determining whether to grant development consent for the proposed development and if consent is granted, the consent authority must impose a requirement to retire credits by conditions of consent.

Serious and irreversible impacts on biodiversity values

The determination of “serious and irreversible impacts on biodiversity values” varies but generally means an impact that is likely to contribute significantly to the risk that endangered species or the ecological community will become extinct. For example, reducing the population size of a species that has a very small population size or impacting the habitat of a species that only occurs within a very limited geographic distribution.

This determination in your BDAR may relate only to certain areas or sometimes to the whole area of the proposed development , which means that these areas can not be cleared or affected, irrespective of any proposed compensation or conservation measures. If your development will have serious and irreversible impacts on biodiversity values, the consent authority can not consent to your development in its current form.

Offsetting the impact of your development

Depending on the requirements set out in the BDAR and determined by the consent authority, any measure to compensate for your developmental impact is one or a combination of the following:

  1. Retirement of the required number and class of like-for-like credits (“like for like” means the same endangered ecological community or vegetation class located in the same sub-region as the affected site or within 100 km of the site);
  2. payment of the value of the credits (determined by the Biodiversity Conservation Trust (Trust) calculated using the offsets payment calculator (Calculator)) directly into the Biodiversity Conservation Fund (Fund) to satisfy the requirement to retire credits;
  3. the retirement of the required credits in accordance with the variation rules; and
  4. the funding of a biodiversity conservation action that would benefit the relevant threatened species or ecological community, and that is equivalent to the cost of acquiring the required like-for-like credits.

Biodiversity conservation measures requirements

The BDAR and Consent conditions will set out the biodiversity conservation measures required to offset the impact of your development. Where biodiversity conservation measures are required, developers can propose a combination of the four options above for approval, though these options are constrained and will involve further delay.

For example, before seeking approval from the consent authority or Native Vegetation Panel, applicants must seek written agreement from the Department of Planning, Industry and Environment (Department) to the proposed action being delivered through the NSW Government Saving our Species program. To use a biodiversity conservation action, it must be imposed as a condition of consent or approval. The cost of using a “biodiversity conservation action” to meet an offset obligation must also be financially equivalent to the cost of acquiring the required credits.

An example of a biodiversity conservation action:

Five-clawed worm-skinkAnomalopus mackayiIdentify key threats to the species’ viability at critical sites and associated relevant management actions.Research the species’ movement patterns, habitat use and response to management.

The Regulations state that the ancillary rules may set out reasonable steps an applicant must first take before the variation rules can be applied, such as:

  1. checking the public register of biodiversity credits; and
  2. Entry into the public register of persons seeking credits for biodiversity for a minimum period of time;
  3. Contacting landholders who are registered in the Biodiversity Stewardship Site Public Registry for expressions of interest.

Review of the ancillary rules show that they do not yet include these requirements though we expect this oversight will soon be remedied.

Buy credits privately from a credit holder or pay them to the Fund?

Landowners generate credit for biodiversity stewardship sites. They do this through setting aside and managing tracts of their land in return for classes of credits, which can be publicly traded through the Biodiversity Offsets Scheme Public Registers. Credit holders (usually landowners) seek to sell the credits to developers at a price negotiated privately between the parties.

In practice, paying an amount into the Fund will often be the most convenient (and often only) choice for a developer. The amount per credit you must pay into the Fund is determined by the Department according to the formula provided in the Calculator. It’s best to get the accredited assessor you hire for the BDAR to calculate this amount.

An example of the calculator:

PCT Common NameBaseline Price per CreditRisk PremiumAdministrative CostPrice per Credit
999 – Norton’s Box – Broad leaved peppermint…$137321%$20$1681

The Calculator uses a “base price” for each type of credit needed multiplied by a risk factor and an administration fee. The base price fluctuates and reflects the number of recent transactions and the price paid by credit under those transactions. The risk factor represents a risk loading the Department applies in the Calculator to cover the risk in undertaking biodiversity conservation measures later with the money you pay into the Fund now. Usually the price per credit charged by the holders of the credit would be less than the cost of paying directly to the Fund, as the holders of the credit would not charge the risk factor or the administration fee, and both parties would be able to negotiate a better deal.

In areas where many “trades” have already been made, the data used by the Department in the Calculator is robust and credits are publicly available for developers to purchase. This is not the case in most areas outside the metropolitan Sydney, the Hunter Valley and the Illawarra region, and the Department will indirectly fix market prices through the Calculator base price for some time to come.

Buying credits – that’s the end of the story?

In most cases, the credit will be transferred to the developer by the holder of the credit when the purchase is settled. The purchaser of the credit must submit a written request to the Department to withdraw the credit.

Buyer beware-the Department can refuse an application to retire a credit for a number of reasons. Most importantly, if the Department becomes aware that any payment required to be made to the Biodiversity Stewardship Payments Fund by the landowner in relation to the credit has not been made it will refuse to register the transfer of the Credit.

It is important for developers to ensure that appropriate controls are carried out and that the purchase of credits is carried out by a professional consultant with experience in this field.

This area of law is new and rapidly evolving. Compliance with your biodiversity conservation measures and the purchase of credits must be carefully managed.