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Offsets are usually applied as part of a broader set of environmental regulatory requirements for new developments to avoid and minimise environmental costs of developments. This is shown below.
Offsets with regulatory arrangements are used to compensate for residual environmental impacts from a development.
- An initial technical assessment of the environmental impacts of a development is undertaken against regulatory requirements (e.g. native vegetation regulation or water quality regulations).
- The first step for a development to meet regulatory requirements is to avoid environmental damage to the development site, where possible (using, for example, best management practice (BMP)). Damage can be avoided by actions such as reconfiguring the development to less sensitive areas of the development site. This will still leave residual environmental damage. The second step is to minimise or mitigate the environmental damage through actions on the development site such as rehabilitation of affected areas (developed + BMP).
- Where there is still a residual environmental impact, compensatory environmental offsets (highlighted in red) are required of an equivalent value. The net environmental impact of the project should therefore be nil.
The compensatory offset may include a suite of actions including establishing an area as a permanent offset under protection, restoring and rehabilitation, removing threatening processes and maintaining ongoing management obligations.
Ongoing protection of the offset activity is generally secured by purchasing the land on which the offset is established or attaching a covenant to the land. This reduces the risk of losing the offset benefits due to a change in land use on the offset site.
Active rehabilitation, restoration and management of the site occurs through enforceable common law contracts or performance requirements under development approvals, binding the responsible party for ongoing management of the offset. This reduces the risk of the offset failing. These contracts specify management requirements including the type, amount, timing and frequency of actions and reporting requirements. Where practicable, contracts specifying compliance of outcomes (e.g. specific levels of groundcover) are more efficient than those that specify inputs. Specifying inputs may discourage innovative ways to meet the outcomes of the offset.
Historically, offsets have tended to be one-off arrangements where a developer establishes arrangements with a third party to provide the offset to meet regulatory requirements. However, as the demand for offsets has increased, more formalised markets are developing where ‘exchanges’ are being established to link purchasers and providers of offsets. An example of this is BioBanking in New South Wales.
Regional natural resource management (NRM) groups and policy makers should be aware of a number of design and implementation issues. Key principles of using offsets include the following:
- offsets should only be considered after other reasonable actions to avoid or mitigate environmental damage on the site have been exhausted.
- offsets should ensure no net loss of environmental values result from using the offset. Where there is scientific uncertainty or risks associated with a proposed offset, a risk premium, multiplier or offset ratio may be appropriate.
- the concept of ‘environmental equivalence’ between the residual environmental impact of the development and the offset is fundamental to the appropriate and effective use of offsets as an NRM policy tool. As with most market-based instruments (MBIs), a transparent, consistent, repeatable and robust ‘metric’ that quantifies the environmental impact and cost of the development and the environmental benefits of the offset is necessary.
- offsets require ‘like-for-like’ to compensate for environmental values lost. For example, the cleared site and the offset site should be from the same category of vegetation community. This concept is often extended to requirements for the proximity of offsets to the development site (e.g. within the same sub-catchment).
- to ensure the environmental gain from the offset is real, the offset site should not already be allocated and accounted for by some other mechanism (e.g. future planning development zone).
- offsets should work within existing institutional arrangements and meet statutory requirements. They should be enduring and enforceable. Monitoring and evaluation is a key to achieving successful outcomes.
Adherence to these principles should reduce the risk of unintended outcomes from using environmental offsets as an NRM policy tool.
Like all MBIs offsets can be complex to develop and implement and must be specifically targeted to the NRM issue being addressed. The transaction costs associated with offsets can be significant, particularly for technical assessments and for the commercial and legal costs of securing protection and management obligations over sites and activities.
A strong scientific basis must underpin the rationale for using offsets to enable a transparent and robust assessment of the environmental impacts and to assess potential offsets to ensure environmental equivalence. Ongoing monitoring and evaluation of the performance of the offset also needs to be resourced.
Expert inputs are required from the biophysical and economic sciences, while other technical legal and regulatory skills are also required. Although regional NRM groups may have many of these skills within their organisations, expert advice is advised to assist where needed. Partnering government organisations should have the required legal and regulatory capacity for implementation and enforcement.
Offsets have been primarily used by governments. For many regional NRM groups, existing institutional arrangements constrain or prohibit the direct use of offsets as an NRM tool. However, there are a number of, as yet, under-utilised strategic opportunities for regional NRM groups to use offsets. These generally require regional bodies to partner with state and local governments.
- Regional NRM groups can act as a broker between purchasers and providers of offsets.
- Regional NRM groups can provide technical assessments (e.g. formal vegetation assessments) to underpin offsets run by other organisations such as local government.
- Regional NRM groups can actively participate in offset markets by using other programs, such as tenders, to establish supplies of offsets for sale to developers through either one-off arrangements or via more formalised markets. This could provide a way for NRM groups to recover funds invested under other programs, which could be reinvested in other NRM activities.
- Regional NRM groups can provide ongoing on-site management of offsets under commercial fee-for-service arrangements.
Given the resource and skills requirements, it may also be prudent for regional NRM groups within each jurisdiction to jointly consider options for using offsets as an NRM tool. |