Biodiversity Conservation Fund Charge System

The NSW Biodiversity Conservation Trust applies one or more of the following four tools to determine a credit charge for each credit type.

1. Cost-structure tool for ecosystem credits

The cost-structure tool for ecosystem credits has three main drivers to determine the charge:

• Biodiversity Stewardship Agreement (BSA) management and entry costs.  
  These are estimated using a best available map to predict likely BSA size for an Offset Trading Group and applying typical management costs from existing similar sites.
• Land value  
  This is estimated using a best available map overlay of an Offset Trading Group with typical land values from current sales evidence. Return on land value is estimated against typical returns from sales of credits from existing similar sites.
• Credit yield  
  This is estimated from the typical credit yields from existing BSSAR (Biodiversity Stewardship Site Assessment Report) assessments for similar OTGs.

2. Cost-structure tool for species credits

The cost structure tool for species credits has three main drivers to determine the charge:

• Predicted survey, management and monitoring costs for the species.
• Difficulty of finding suitable offset sites for the species.
• Credit yield, or the typical number of credits generated at a site. This is based on the method for generating credits under the Biodiversity Assessment Method, such as count or area-based species for flora or whether habitat is widely available or is restricted to specific breeding habitat.

Individual species are categorised on relative scales against the first two categories, weighting is applied using the third value and a charge is estimated for each combination of categories.

3. Statistical (or econometric) model

The NSW Biodiversity Conservation Trust engaged Marsden Jacob and Associates (MJA) to develop a new statistical model to determine charges for offset trading groups with sufficient trades to develop a robust charge. MJA (MJA 2022) recommended dynamic time-series model to establishes a charge.

Initially, the statistical model will only be used for the two most traded offset trading groups (Cumberland Plains Woodland in the Sydney Basin Bioregion and River-Flat Eucalypt Forest on Coastal Floodplains on the NSW North Coast, Sydney Basin and South East Corner Bioregions). There is the potential to add more OTGs to the statistical model in the future once sufficient trades occur. 

The model works from the evolution of average annual price for credits for the OTG, taking into account market participation and averaging of credit types. A forward forecasting component considers expected market tightness in the coming period.

4. Market soundings

The NSW Biodiversity Conservation Trust may also apply market soundings in establishing a charge in certain circumstances. 

To achieve this the NSW Biodiversity Conservation Trust will seek information from market participants that is not otherwise available, such as: 

• Typical credit yield for an offset trading group when there is little or no relevant data from existing Biodiversity Stewardship Agreement sites 
• The distribution of offset trading groups when the NSW Biodiversity Conservation Trust considers the state-wide offset trading group layer has limitations 
• Forecast demand and supply over coming three years for a relevant offset trading group and geographic region

The NSW Biodiversity Conservation Trust will also use market pricing information obtained through our market activities where: 

• there is strong evidence of a market price and ongoing credit supply from relevant sites;
• a reverse auction process identifies a market price from multiple suppliers,
• NSW Biodiversity Conservation Trust has entered an agreement or option to purchase relevant credits.

The NSW Biodiversity Conservation Trust can use these market soundings to help develop a credit charge.

RULES

The Biodiversity Offsets Payment Calculator Order 2022 provides for the NSW Biodiversity Conservation Trust to publish four rules on its website, to be used when calculating a charge under the Biodiversity Conservation Fund Charge System. These are: 

• Rules for estimating typical Biodiversity Stewardship Agreement size for the Biodiversity Conservation Fund Charge System
• Rules for estimating ecosystem credit yield for the Biodiversity Conservation Fund Charge System
• Rules for allocating species to categories in the Biodiversity Conservation Fund Charge System
• Rules for application of market soundings in the Biodiversity Conservation Fund Charge System
• Transitional price cap rules for the calculation of charges for the Biodiversity Conservation Fund Charge System. The transitional price cap has expired in accordance with Rule 5 – after 16 October 2023 no credits are subject to a price cap.

INDEXATION

The NSW Biodiversity Conservation Trust applies indexation when determining a charge to forecast the likely cost of acquitting credits at a reasonable time of acquittal, being one year following the payment.

Quotes issued by the BCT are valid for a period of three years. These quotes can be activated by a proponent at any point in the three years, with indexation applied as outlined in the quote. 

RISK PREMIUM

The BCT will apply a risk premium of between 10-17% to the charge for most credit types. The risk premium aims to account for the risk to the BCT that we cannot deliver credits for the predicted charge. The econometric model calculates a specific risk premium for the few credit types priced with this tool.

DELIVERY FEE

The BCT applies a delivery fee of 5 per cent or $120 (whichever is higher) to help cover the BCT’s delivery costs.

CONTINUOUS IMPROVEMENT

The NSW Biodiversity Conservation Trust regularly updates and reviews the BCF Charge System. Updates are guided by the Framework for updating the Biodiversity Offset Payment Calculator.

• Biodiversity Offsets Payment Calculator (BCF Charge System) Order 2022
• BCF Charge System Consultation report (BCT 2022)
• Landholder interview report (O'Connor 2021)
• Independent review report (O'Connor 2022)
• Econometric Model report (MJA 2022)

Biodiversity stewardship agreements (BSAs) are a key component of the New South Wales Biodiversity Offsets Scheme (BOS) and are administered by the NSW Biodiversity Conservation Trust (BCT). BSAs are in-perpetuity agreements registered on the land title. This means that current and future landholders are required to carry out management actions and other obligations in accordance with the BSA. Management of a BSA aims to achieve an improvement in biodiversity values of the land under the agreement. This improvement is the basis for generating biodiversity credits that can be sold and/or retired to offset the residual impacts of approved developments that trigger the BOS.

The amount that is set aside to manage the BSA in accordance with the management plan and in perpetuity, is called the total fund deposit (TFD). The TFD is calculated using the TFD calculator and is the total present value of all costs associated with managing the biodiversity stewardship site in-perpetuity. Each management action, the timing of the action and the cost of the action are to be outlined within the TFD calculator.

The TFD includes the costs for implementing required management actions and, if applicable, active restoration management actions as specified in the management plan. Proceeds of credit sales are used to fulfill the TFD. Once enough credits have been sold to fulfil 100% of the TFD (or in some cases, self-contributed in order to directly retire credits), the BCT will release annual payments as per the payment schedule in the BSA, to the landholder.
The annual payments are used by the landholder to fund the management actions and meet the relevant performance measures. Once the TFD is fulfilled, the proceeds of any future credit sales are retained by the credit owner.

Determining the amount of money associated with managing the BSA site in perpetuity is a critical step in planning the management of a biodiversity stewardship agreement. If the TFD does not adequately cover the cost of the management actions, current and future landholders are still required to implement all management actions and meet relevant performance measures.

The Total Fund Deposit amount at a BSA site is calculated for the management action required and planned at that particular site. TFDs between sites can vary substantially depending on a range of factors including the initial condition of vegetation at a site and the threats faced at the site. Analysis of existing data shows there is a strong relationship between TFD per hectare and BSA size, with smaller sites having much higher costs per hectare than larger sites. The analysis also shows that sites in Greater Sydney are, on average, more expensive per hectare to manage than sites outside of that area. This is not surprising as small sites, especially those close to the peri-urban interface often face substantially threats, have poor starting condition and require substantial actions to improve their condition.

Table 1 shows the average and typical range of TFDs for different size category BSAs in the Sydney and Non-Sydney regions. There is substantial variation around the average so it is important when assessing the suitability of a site to consider the site-specific factors when considering what an appropriate TFD amount might be.

Table 1. Average Total Fund Deposit per hectare and typical range for existing BSA sites in the Greater Sydney and Non-Sydney Regions. Values as of May 2023.

The values in Table 1 are calculated from 255 existing BSA sites established between 2010 and 2023. The TFD values at each site were adjusted to account for inflation, changes in the discount rate and the additional requirements of Ecological Monitoring that were introduced in 2021. These values reflect likely values for those sites under the current discount rate (3.2%) which applies from August 2022.

Credit yield per hectare at a stewardship site is quite variable and depends on the range of factors described above. Table 2 and 3 show typical credit yield per hectare from existing and proposed stewardship sites for different vegetation formations and vegetation classes that have had the yield identified from a BAM assessment at more than 10 vegetation zones.  The typical range is the standard deviation in credit yield across those vegetation zones.  In the first example in Table 2, the average yield is 5.5 credits per hectare and the typical range is 2.1 credits per hectare, this means most vegetation zones have between 3.4 and 7.6 credits per hectare. 

Table 2: Credit Yield per hectare by vegetation formation with more than 10 assessments.

Table 3: Credit Yield per hectare by vegetation class with more than 10 assessments.

Tables 2 and 3 show there is some differences in typical credit yield between different types of vegetation and regions at existing sites. Typical yield in some western vegetation communities is lower (on average) than those on the coast. Overall credit yield per hectare is typically between 4 and 8 credits per hectare, with average yield between 4.5 and 6.5 credits per hectare.

Development proponents who have completed a biodiversity development assessment report and submitted a development application or have already received approval for their project can seek a quote. Payment can only be made to the BCF once development approval has been granted, but the quote can be provided earlier to give proponents time to consider the best option to meet their obligations.

Other applicants can access the BCT’s price estimation service for landholders and developers on a modest fee-for-service basis. This was made available from early 2023.

Both the DPE and the BCT will publish market information.

The DPE has released a range of market information tools, including a revised market sales dashboard, credit pricing guidance, and associated guidance on how existing tools can be used.

The BCT will publish quotes six months after they are provided in the BCF Charge Report. This is to reduce the impact of the BCF Charge System price as a price signal in the market.

The BCT will expand our existing quarterly acquittals reports to include all credit obligations paid into the BCF, whether or not they are acquitted. For credits that are acquitted, the report will show the price the BCT paid to purchase those credits.

The BCT offers a price estimation service for landholders and developers on a modest fee for service basis.

The BCT will also publish key data underpinning the BCF Charge System. This includes relevant, aggregated market information including typical BSA management costs, credit yields and allocation of species against the species credit model classification.

The Order provides for the BCT to publish five rules:

1. Rules for Estimating Typical BSA Size
2. Rules for Estimating Ecosystem Credit Yield
3. Rules for Allocating Species to Categories
4. Rules for Application of Market Soundings
5. Transitional Price Cap Rules. The transitional price cap has expired in accordance with Rule 5 – after 16 October 2023 no credits are subject to a price cap.

These rules will be published on the BCT’s website and may be updated from time to time, e.g. to incorporate best available data.

No. There is no option to review a BCF Charge issued by the BCT. A proponent will still be able to pursue other options to satisfy credit requirements including generating their own credits or directly negotiating with landholders to purchase their credits.

The BCT publishes the following information:

• details of all BCF charge quotes issued (irrespective of whether the payment is made) after six months.
• type and number of credits for obligations transferred to the BCT through payment to the BCF (without the charge) at the time of payment.
• the BCT acquittals quarterly report, which shows the credits acquitted by the BCT, including the cost paid into the BCF and the cost paid by the BCT to purchase the credits. This will be expanded to include all credits paid into the BCF (not just those acquitted). For credits not yet acquitted where quotes were issued six months or more prior, the price of the credits paid into the BCF will be shown. 

The DPE will continue to publish the BCT’s credit transactions on the public registers. 

The BCT seeks credits to acquire in accordance with the offset rules set out in the Biodiversity Conservation Regulation.

The BCT identifies potential credit purchases through:

• publishing a wanted credit list that shows what credits it is seeking
• running periodic credit tenders (reverse auctions) and fixed price offers open to existing and prospective BSA holders
• actively seeking landholders to generate credits for hard to source credit obligations via mapping, field validation and directly approaching relevant landholders to invite participation.

Yes. The BCT publishes a wanted credits list and can provide advice on what land may be suitable to establish a BSA to generate credits the BCT is seeking.

Landholders can also seek advice from an accredited assessor (accredited ecological consultant) or the Credit Supply Taskforce.

The Department has developed an assurance program to give scheme participants and the broader public confidence that the BCT is applying the BCF charge system efficiently, effectively, consistently and transparently.

The assurance program will include:

1. An initial upfront check, undertaken by a third party within the first eight weeks of the BCF charge system commencing.
2. An ongoing annual assurance review, undertaken by a third party within three months of the end of the financial year.
3. Ongoing advice of Mr Mrdak AO, as independent monitor of the BOS Integrated Improvement and Assurance Program.

Assurance checks will be undertaken by third parties, external to both the BCT and the Department.

The Department intends to publish the outcomes of assurance checks. This will improve transparency and give stakeholders greater confidence in the charge system and the assurance program.

Biodiversity credits are generated when you establish a BSA. There are two types of biodiversity credits: species credits and ecosystem credits, with hundreds of different types within each category. Biodiversity credits represent the expected improvement (gain) in biodiversity values that will result from the protection and management of your biodiversity stewardship site. The number and type of biodiversity credits generated by a BSA varies depending on the type and condition of the vegetation, threatened species present, and how your land will be managed to improve the biodiversity. The relationship between the condition of your land and land management is demonstrated in Figure 1 below.

Figure 1: Biodiversity credits are generated for the avoidance of potential loss to biodiversity (that would likely occur in the absence of management) and the expected improvement in biodiversity values with increasing management.

Determining which type and how many biodiversity credits could be generated on your biodiversity stewardship site is achieved using the Biodiversity Assessment Method (BAM). Ecological consultants who successfully complete BAM accredited assessor training and meet the accreditation criteria are accredited to apply the BAM. These consultants are referred to as accredited assessors. Accredited assessors use the BAM to assess the biodiversity values on your land. The outcomes of the assessment are used to calculate the number and type of biodiversity credits that can be generated by establishing a BSA.