The New South Wales pricing watchdog has recommended an overhaul of the state’s biodiversity offsets scheme including phasing out a policy that allows developers to pay into a fund in order to meet their offset obligations.
The Independent Pricing and Regulatory Tribunal (IPART) conducts annual monitoring of the scheme, which allows developers to buy credits to compensate for habitat destruction caused by their projects.
In a report published on Monday, the tribunal said the scheme was “not operating well” in five key areas and that “fundamental obstacles” persisted that hindered its ability to function effectively.
“The key role of the biodiversity credits market is to connect biodiversity credit buyers and sellers to trade credits at a price that reflects the efficient cost of offsetting biodiversity,” tribunal member Sandra Gamble said.
“However, the annual report has found the biodiversity credits market is not performing well and requires several changes.”
Ipart is the latest body to highlight major concerns with the scheme.
An investigation of offsetting by Guardian Australia triggered multiple inquiries in 2021 after identifying offsets that had been promised and not delivered, so-called “double dipping” on offsets in areas that already had some form of protection and restoration activity, and concerns about conflicts of interest among consultants working in the scheme.
Almost every inquiry found major issues with a fund, managed by the state’s Biodiversity Conservation Trust (BCT), that developers can pay into rather than buying credits directly from the market. The trust must then buy offsets on developers’ behalf.
In 2022, the NSW auditor general found the offset obligations the trust took on were increasing every year. It found there was a risk the fund would fall short of what was needed to buy the necessary offsets to compensate for habitat destruction that had occurred in the state.
Ipart’s review finds that in 2022-23 only one in five developers secured offsets by direct purchase of credits through the market, while four in five chose to make payments into the fund.
The tribunal found developers were paying into the fund five times faster than the BCT was able to find the required offsets.
The tribunal has recommended the government phase out the option to pay into the fund and “establish interim measures to manage the change while the market develops”.
“IPART’s report has shown that six years in, the scheme is a complete failure,” the NSW Greens environment spokesperson Sue Higginson said.
“The government must now take immediate and drastic action to freeze all contributions into the fund and develop a new approach that centres biodiversity values above all else.”
The tribunal found other issues with the scheme’s operation, including high transaction costs and complexity, which it said was discouraging participation in the market, and a lack of confidence in the oversight and management of the market, which was also discouraging people from participating.
The report said a submission the tribunal received from the Independent Commission Against Corruption noted “inadequate governance arrangements undermine confidence and introduce the risk of corruption”.
It said ICAC’s submission raised issues with the scheme’s transparency, including that a lack of public information made it difficult to discern whether ecologists accredited to work in the scheme were “engaging in fair trading”.
The Minns government took a promise to the March state election to “fix” the biodiversity offsets scheme. It reiterated that commitment in August after a review of the state’s environment laws, conducted by Dr Ken Henry, found the scheme was “compromised by payments being made into the biodiversity conservation fund rather than credits being sourced directly”.
The climate change and environment minister, Penny Sharpe, said the tribunal’s review “points to the challenges of the biodiversity offsets scheme which we are working to reform”.
“The NSW government is committed to fixing the scheme, including the biodiversity credits market that underpins it,” she said.
She said the government would feed the tribunal’s recommendations into its broader response to the Henry review.
