Posted on September 28, 2022 by Katie Mortimer and Stuart Simington 2

Auditor-General’s Report on the Effectiveness of the Biodiversity Offsets Scheme

On 30 August 2022, the New South Wales Auditor-General released a report on the Effectiveness on the Biodiversity Offsets Scheme (Audit) which has highlighted some important shortcomings in the implementation of the Biodiversity Offsets Scheme (BOS).

The purpose of the Audit was to examine whether the Department of Planning and Environment (DPE) and the Biodiversity Conservation Trust (BCT) have effectively designed and implemented the BOS to compensate for the loss of biodiversity caused by development.

The Audit’s key findings are extracted below:

• DPE has not clearly articulated goals and performance measures for the Scheme and how these are expected to contribute to biodiversity outcomes in line with the [Biodiversity Conservation Act 2016]
• The market is not well developed, most credit types have never been traded and credit supply has been slow in the context of growing demand
• There is potential for a substantial shortfall in the current supply of relevant credits, and a significant risk of future shortfalls including for vulnerable and threatened species
• DPE’s and the BCT’s information to the market does not present a reliable and holistic picture of supply, demand and price to facilitate market development
• The calculator used by developers to determine how much to pay to acquit their obligations is impacting credit price information and market development, and is yet to be replaced
• The BCT has inadequate safeguards to mitigate the conflict between its role in facilitating credit supply and its role as market intermediary and market participant
• DPE is developing a credit supply strategy but neither DPE nor the BCT have sufficiently reduced barriers to landholder participation
• DPE established a method for assessing biodiversity impacts, but lacks oversight of the quality of BSA site assessments and assessors’ conflict of interest declarations
• DPE does not publish a complete register of credits and their transaction history, a statutory requirement under the Act, which creates transparency and integrity risks
• DPE does not collate information on the discounting of offset obligations and lacks ready access to information to check that developers have correctly acquitted their obligations
• DPE introduced a Scheme-specific conflicts of interest protocol in late 2021 to address policy gaps
• The BCT has largely aligned its existing policy with DPE’s conflicts of interest protocol for the Scheme, but this could be strengthened
• DPE is yet to implement processes to ensure long-term funding for Biodiversity Stewardship Agreement (BSA) sites, and there is no plan with the BCT to improve the management of passive sites—these issues present risks to biodiversity gains
• DPE and the BCT are yet to take the necessary steps to ensure biodiversity outcomes at BSA sites are monitored and measured
• DPE is leading work to improve the Scheme’s operations and integrity, but this is not guided by a long-term strategy with clear goals or performance measures

The Audit contains a number of recommendations for both DPE and the BCT, fixed to timeframes at the end of this year and July 2023.

The recommendations are that:

By December 2022, DPE should:

1. Establish governance arrangements with separate reporting lines to better oversee and manage risks related to the BCT and/or other agencies with multiple roles in the Scheme (for example as market participants and intermediaries, and as administrators of BSA sites)

2. Collate and maintain centralised information about offset obligations and discounting for major projects (State Significant Development and Infrastructure), including documentation
related to ministerial decisions

3. Evaluate the overall quality of biodiversity assessment reports (for development and stewardship sites) and implement improvement strategies, including a quality assurance process, in collaboration with the BCT.

By July 2023, DPE should:

4. Implement a long-term strategic plan for the Scheme that defines biodiversity goals with respect to the BC Act. The strategic plan should include:

• • clearly allocated roles between DPE and the BCT and other relevant agencies, to ensure effective Scheme oversight, delivery, and market operations
  • guidance to the BCT on timeframes and priorities for acquitting its acquired offset obligations, including a method for moving through its acquittal options
  • performance indicators for the Scheme’s administration, including the BCT’s activities such as the ecological monitoring of BSA sites
  • an approach to measuring and publicly reporting on biodiversity outcomes from the Scheme, including its contribution to State and regional biodiversity goals

5. Enhance its public credit register to include unique credit identifiers, ownership and transaction history, and information about each offset obligation and rules against which each credit was retired

6. Implement a resourced plan to improve the operation of the biodiversity credit market, including by improving the transparency of market information and by supporting adequate
credit supply. The plan should allocate roles and timeframes for:

• • publishing enhanced information about current and expected credit supply and demand, and credit prices
  • proactively identifying potential BSA sites
  • reducing barriers to landholders establishing BSA sites, and accelerating timeframes for the establishment of BSA sites on private land.

By July 2023, the DPE and the Biodiversity Conservation Trust should:

7. Implement a decision-making and intervention framework to ensure adequate initial and ongoing funding for the long-term management of new and existing BSA sites

8. Review the status of passive BSA sites and implement a plan to support biodiversity on sites that are at risk of not entering active management

9. Establish protocols for supporting BSAs where biodiversity outcomes are not on-track due to events that cannot be reasonably controlled or planned for

10. Implement plans to ensure ecological monitoring occurs on all BSA sites.

By July 2023, the Biodiversity Conservation Trust should:

11. Report annually on the estimated number and type of offset obligations that can/cannot be met on a like-for-like basis, and the estimated costs for acquitting these within 12 months.

You can read the Audit in full here, or a summary here.

We will post about significant announcements or legislative changes DPE announce to give effect to any Audit recommendations.

If you wish to discuss this post, please contact Katie Mortimer on 8235 9716 or Stuart Simington on 8235 9704.