Gary Wells, Chief Executive Officer PRESENTATION

TO THE GLOBAL CONFERENCE ON ENVIRONMENTAL TAX

September 2015

The Nature Conservation Trust of New South Wales

• Established by the Nature Conservation Trust Act 2001 (NSW)

• A not for profit entity

• Primary purpose to protect biodiversity in NSW via in perpetuity Trust Agreements on property titles

100 private reserves protecting ~50,000ha

NCT Trust Agreement

• A conservation covenant registered on the certificate of title and binding on successors in title

• Can apply to whole or part of the land

• Prevents activities that will have negative impacts on biodiversity

Management

• A Plan of Management is prepared for each Trust Agreement

• Identifies management strategies to protect biodiversity values

• Some landholders provided funding to implement identified management actions

Why private land?

• 89% of NSW is in private management

• Less than 8.5% of NSW is in conservation reserves

• Australian Government is committed to establishing a comprehensive, adequate and representative National Reserve System

Rockview

Stanley

<<insert map of CA>>

• Private landholders conserve some of the most endangered ecosystems and species

• In 2014, ~5,000 private protected areas covering 8.9 million hectares across Australia

• In 2011, NGO’s were identified as fastest growing sector building the National Reserve System

Private Land Conservation

Private conservation landholders provide important public services often at a considerable cost to themselves

The importance of incentivising landholders to increase private land conservation is recognised in Australia’s Biodiversity Conservation Strategy 2010-2030

Private land – public benefit

To ensure that biodiversity’s importance as a public good is fully valued, we need to ensure that there are financial incentives for actions that protect or enhance biodiversity..

Australia’s Biodiversity Conservation Strategy 2010-2030

• Exclusion of stock

• Weed control and facilitated regeneration

• Pest animal control

• Tree planting and maintenance

• Fence and track maintenance

Typical environmental management activities

Taxation treatment

• NCT has DGR status, a Commonwealth approved covenant program and perpetual conservation agreements

• When landowners enter into a conservation covenant a capital gains tax event occurs

• Landowners who enter into conservation agreements with NCT may be entitled to tax concessions

• Landowners who received capital proceeds for entering into conservation agreement may qualify for concessional CGT treatment

• Landowners who do not receive capital proceeds for entering into conservation agreement may be eligible for an income tax deduction and concessional CGT treatment

• Important to distinguish between different funding types

Taxation concessions

• If no capital proceeds received may be eligible for a tax deduction equal to the difference in the market value of the land.

• If capital gain they may be eligible for

- capital gains discounts

- pre-CGT exemption if land acquired before 20/9/1985

- small business CGT concessions if land is an active business asset

‘Landcare Operation’ deductions • Deductions available for ‘Landcare operations’

• Deductions are only available to rural landholders using land as a business

• Deductions are for activities that combat land degradation rather than environmental management activities

• Many private conservation managers not eligible

Limitations and Opportunities

• Income tax provisions are complicated particularly for landholders not running a business on their land

• Tax deduction limited to where no consideration received

• Land care operations limited to landowners carrying out business on their land

• Timely to broaden Land care deductions to include other environmental activities

• Opportunity to consider broadening concession treatment such as ‘split receipting’

• Opportunity to develop stand alone tax treatment

Other opportunities • GST treatment on sale of in-perpetuity conservation

lands same as rural land

• Proportional land tax concessions for in-perpetuity conservation lands

• Stamp duty concessions for in-perpetuity conservation lands

• Rate concessions for in-perpetuity conservation lands

www.nct.org.au

Further information: Trust for Nature (2014) Land based Environmental Markets and the Law and Shining a Light on Law and Markets in Private Land Conservation www.trustfornature.org.au

Slow Farming In a Hurry David Lowe: CEO Lowe Wines, Mudgee

• A Land In Crisis

• A Plan to Reinvigorate

• Results and Operations

• Next Steps

A Land In Crisis

• Erosion

• Weed

Domination

• Cattle Chaos

A Plan To Reinvigorate

• Destock

• Land Audit

• Change Practices

• Remain Solvent

Results

• Soil and Salinity

741500.00 742000.00 742500.00 743000.00 743500.00 744000.00

6396500

6397000

6397500

6398000

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

11.00

12.00

13.00

14.00

15.00

16.00

17.00

18.00

19.00

Lithosol

Lithosol

Alluvial

Red Earth

Red Podzolic

Lithosol

Yellow Podzolic

Lithosol

Podzol

PodzolNon Calcic

Brown

Red Podzolic

Yellow Solodic

Yellow Podzolic

mS/cm

DISCLAIMERJEPS does not accept any liability for or in respect to

information & advice provided in this report. JEPS does not

accept any liability for any loss or damage incurred as a result of reliance upon the content

of this report.

ABN 81 110 468 712P.O. Box 735

MUDGEE NSW 2850ph/fax 02 63727991mob 0428727991

TINJA EM 38 - Horizontal

Coordinate System : UTMDatum: AGD 66EM 38 Mode: Horizontal

Results

• Soil and Salinity

Results

• Paddock Design

Coordinated System: UTMProjection: AGD 66

TINJA Property Plan

400 0 400 800 1200 Meters

& iõ

i

ò$

Revegetation & Biodiversity Plan

741500

741500

742000

742000

742500

742500

743000

743000

743500

743500

744000

744000

6396500 6396500

6397000 6397000

6397500 6397500

6398000 6398000

Property Boundary

Ex ist ing Internal Fences

Ex ist ingTree Lines

Vineyards

Conservation Areas

Proposed Tree Plantings

Stage 1

Stage 2

LEGEND

P.O. Box 735

MUDGEE NSW 2850

ph: (02) 63727991

N

Results

• Biodiversity

Results

• Soil Health

Marketing Opportunities

• Farm Map

Marketing Opportunities

• Cellar Door Sales Results

0

20000

40000

60000

80000

100000

120000

Jan Feb Mar Apl May June July Aug Sept Oct Nov Dec

2010

2011

2012

2013

2014

2015

Next Steps

• Brand Development

• Allow Market Forces to Operate

• Encourage Changed Practices

• New Ways to Lend and Invest

John Seidel

Principal Project Officer, OEH

25 September 2015

Presentation at the

16th Global Conference on Environmental Taxation

University Technology Sydney

40

Presentation outline

NSW context for biodiversity offsets

Features of the BioBanking program

Implementation experiences and challenges

How the market has valued different types of biodiversity

41

NSW context of biodiversity

offsets

42

Biodiversity offsets

Used to counterbalance impacts of development on biodiversity

Follow efforts to avoid and minimise impacts

Often required as part of a planning approval

Can be required by planning authorities outside these formal processes and negotiated case by case

Majority occurs as part of the approval of state significant projects

43

Policy challenges

OEH involved in negotiating offsets since 1995

Negotiated approach can deliver good outcomes but

considerable variation in:

• scientific basis of assessments

• quantity and quality of offsets

• management, funding, responsibility for offsets

• legal security of offsets

• Location, monitoring/compliance of offsets

44

What is BioBanking?

Voluntary market-based offset

scheme (TSC Act)

Complements other regulated

impact assessment processes

Utilises metrics to assess

biodiversity value and quantify

offset requirements

45

Features of BioBanking

46

Credit system created to provide common measure of impact/gain

Comprehensive framework for offset land that includes:

• Accreditation of assessors

• Integration with NSW Planning framework

• Biobanking Trust Fund

• Compliance and monitoring framework

• Security of outcomes

Supports delivery of offsets/PLC

outcomes for a range of programs

Overview of BioBanking

47

Key concepts

ecosystems credits plant community types

species credits All other threatened species

Conservation/Supply Development/Demand

Landowner Proponent

Biobank site Development site

AGREEMENT (POM) Development consent

Create & sell credits Buy credits

Management actions Retire credits

48

Benefits for private land

conservation & government

BioBanking agreements provide:

• Assessment and recording

• Active management

• Annual payments to

landowners

• Secured on title

• Reporting/auditing

49

• Reduced negotiations on appropriateness of an

offset

• Upfront assessment and offset requirements

• Transparent decision making and rules

• Flexibility in achieving offset requirements

Benefits for industry &

government

50

Implementation experience

51

Overview of outcomes to

date

46 approved agreements (14

applications)

Concentrated in western Sydney

and lower Hunter valley

Over 9,650 hectares of land

Increasing diversification

Range in area from 10 ha to

1,500 ha

Average biobank size –

45 ha greater Sydney region

350 ha regional NSW

52

What biodiversity values are

represented on biobank sites?

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

1,800

GrassyWoodlands

DrySclerophyll

(shrub/grass)

Drysclerophyll

forests(shrubby)

Grasslands WetSclerophyll

(grassy)

Wetsclerophyll

forest(shrubby)

Rainforests ForestedWetlands

Heathlands SalineWetlands

FreshwaterWetlands

Total area of each formation that is an EEC Total area of each formation that is not an EEC/CEEC

• 89 Plant Community Types across 11 formations/sub formations

• 19 different endangered or critically endangered ecological communities

• Almost 3,000 ha or 50% of approved sites contain an EEC/CEEC

• Habitat for a wide range of threatened native flora and fauna

53

Improving vegetation condition

0

5

10

15

20

25

30

35

40

0

500

1,000

1,500

2,000

2,500

3,000

0 - 10 >10 - 20 > 20 -30 > 30- 40 > 40 - 50 > 50 - 60 > 60 - 70 >70 - 80 > 80 - 90 > 90 - 100

Pre

dit

ed g

ain

in c

on

dit

ion

fro

m m

anag

emen

t

Are

of

vege

tati

on

in e

ach

co

nd

itio

n p

erce

nti

le

Vegetation condition (percentile scores)

Condition of vegetation on biobank sites (approved and submitted)

Ha vegetation per condition percentile Average gain Max gain in condition

54

The market value of improving

biodiversity

Total trade of over 12,500 credits

Total trade valued almost $67.5M

Credit prices range from $1,100 - $31,465

Capital value in the BTF is $43.5M

Annual stewardship payments to landholders = $6.3M

Buyer developer, government,

conservationist,

philanthropist

Biobank site owner commits

to

protect, manage and improve

biodiversity

BioBanking

Trust Fund

Annual payments for

management actions

Part B

Part A

55

Implementation challenges

• Clear purpose

• Stability

• Capacity building and

engagement

• Creating a credit

market

• Cost effective

• Quantifying

biodiversity values

56

How the market values

different types of biodiversity

57

Cumberland Plain Woodland

• Listed as critically

endangered

• Only known in one region

• Over 420 ha in agreements

• total trades of over $35M –

27% of volume/ 53% of

value

Examples of how the credit

market values biodiversity

58

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$0.00

$10,000.00

$20,000.00

$30,000.00

$40,000.00

$50,000.00

$60,000.00

$70,000.00

$80,000.00

$90,000.00

$100,000.00

Co

st o

f C

PW

cre

dit

s p

er

trad

e

Number of trades in CPW credits since May 2012

In-p

erp

etu

ity

con

serv

atio

n c

ost

of

CP

W p

er

he

ctar

e

Market value of Cumberland Plain Woodland credits

CPW - $87,188

Shale sandstone transition forest - $41,000

Average of all other PCTs (Greater Sydney) - $47,000

59

Examples of how the credit

market values biodiversity

Shale Sandstone Transition Forest

• Endangered on TSC Act &

EPBC Act

• Over 180 ha in agreements

• In perpetuity stewardship

conservation value of SSTF

per ha is about $41,000

Lower Hunter Valley

• Over 1050 ha in agreements

• Variety of ecosystems

• value of trades almost $9 M

• In perpetuity stewardship

conservation value almost

$15,000/ ha

60

Biobanking program:

www.environment.nsw.gov.au/biobanking/

NSW Offsets Policy for Major Projects

http://www.environment.nsw.gov.au/biodivoffsets/bioffsetspol.htm

Email:

biobanking@environment.nsw.gov.au

Discussion/further information

61

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The new world of biobanking

as a compulsory mechanism

for mining related offsets –

the good, the bad and the

ugly!

Samantha Daly

Partner

25 September 2015

[insert document number] 63

Biobanking – what is it?

■ ‘BioBanking enables 'biodiversity credits' to be generated by landowners who

commit to enhance and protect biodiversity values on their land through a

biobanking agreement. These credits can then be sold, generating funds for the

management of the site. Credits can be used to counterbalance (or offset) the

impacts on biodiversity values that are likely to occur as a result of

development. The credits can also be sold to those seeking to invest in

conservation outcomes, including philanthropic organisations and

government.’ [OEH website]

[insert document number] 64

Biobanking scheme

■ Commenced in 2008 as voluntary scheme

■ Provisions in the Threatened Species Conservation Act: Part 7A (Biodiversity Banking)

■ Biobank sites and Biobanking agreements

□ farmers

□ rural landholders

□ philanthropy/ environmental groups

■ Biobanking statements

□ developers

■ Biobanking assessment methodology – impact of development site and gain at biobank site

[insert document number] 65

Biobanking scheme

[insert document number] 66

Why biobanking?

■ Measurable – offset requirements known upfront

■ Consistent – rule-based approach

■ Secure – offset created by biobank site

■ Transparent – public register

■ Strategic – locate offsets on large parcels of land

[insert document number] 67

The old…

■ Voluntary scheme for major projects BUT

■ Part 3A EPA Act:

□ the Minister for Planning could require that biodiversity credits were purchased

and retired as a condition of project approvals to offset the impacts of the project.

They could also require compliance with a biobanking statement that had been

obtained voluntarily.

[insert document number] 68

Biobank sites

■ July 2014 – 10 biobanking statements

■ September 2014 - 31 biobank sites

■ Whitehaven

□ biobanking agreement

□ June 2012

□ 1495 hectares

[insert document number] 69

Biobanking review

■ Commenced 10 May 2012

■ Report - September 2014

■ No legislative changes – part of broader review of biodiversity legislation

■ Recommendations included:

□ adaptive management through monitoring and evaluation programs

□ increased emphasis on avoid, minimise, offset hierarchy

□ proposed biodiversity offsets fund – help overcome barriers to participation

[insert document number] 70

The new…

■ Biodiversity Offsets Policy for Major Projects, October 2014

■ Framework for Biodiversity Assessment

■ Conditions of consent – secure offsets by way of biobanking agreement

[insert document number] 71

Biodiversity offsets policy for Major Projects

■ Principles:

□ avoid, minimise, offset

□ offset requirements should be based on a reliable and transparent assessment of

losses and gains

□ Like-for-like or if not possible, similar or higher conservation priority

□ offsets to be additional to other legal requirements (however carbon credits ok)

□ offsets must be enduring, enforceable and auditable

□ supplementary measures may be used in place of offsets (eg biodiversity research

and survey programs)

■ Accepted by Cth for assessment purposes under the Bilateral Assessment

Agreement

[insert document number] 72

Options for fulfiling offset requirements

□ purchase credits and then retire credits (remove from market)

□ establish and manage own biobank site

□ rehabilitation of mine sites

– upfront credits

– further credits

□ supplementary measures

□ offsets fund

[insert document number] 73

How it works

[insert document number] 74

How it works

[insert document number] 75

Framework for Biodiversity Assessment

■ Closely aligned with the BioBanking Assessment Methodology 2014 (BBAM)

■ Species credits and ecosystem credits

■ Matters that require further consideration

□ severe enough to prevent project from going ahead (eg impacts on critically

endangered species and ecological communities)

□ further consideration by the consent authority warranted

□ thresholds in FBA – more work will be done of threshold impacts

[insert document number] 76

The good

■ Consistency and standardisation in offsetting practices

■ Greater certainty for developers/miners in offset requirements

■ Certainty in funding for biobank site owners

■ Landholders can sell credits in market to mining companies and developers

of major projects

■ The offsets fund – maybe?

[insert document number] 77

The bad

■ Red-flag decisions

■ Uncertainty in pricing of credits

■ Security of offsets

■ Complex, slow and costly scheme

■ Issues with retro-fitting scheme to biobank sites owned and managed by mining company – need for flexibility (e.g. Total Fund Deposit provisions)

■ Integration with planning approval requirements

■ Lack of sites/credits, no market!

■ Rates

[insert document number] 78

The ugly

■ FBA outcomes – > $80M in offset costs for one mining development

■ Underlying data

■ OEH resources

■ Disincentive to mine/invest

■ Transitional arrangements

■ Fund

□ not yet available

□ how will it work?

[insert document number] 79

Contact

Samantha Daly

Partner

T +61 9 270 8633

E sdaly@mccullough.com.au

Disclaimer: This presentation covers legal and technical issues in a general way. It is not designed to express opinions on

specific cases. This presentation is intended for information purposes only and should not be regarded as legal advice. Further

advice should be obtained before taking action on any issue dealt with in this presentation.

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