We have published our annual report on the performance of the NSW biodiversity credits market in 2022-23. The key role of the biodiversity credits market is to connect buyers and sellers of biodiversity credits and enable them to trade credits at a price that reflects the efficient cost of offsetting biodiversity.

Over time, credit availability and price provide crucial information for sellers and buyers about the value of conserving different types of biodiversity. This ensures landholders face appropriate economic incentives for developing or conserving land based on its location and characteristics.

Overview of findings

Our analysis of the NSW biodiversity credits market over 2022-23 revealed that it is not operating well in 5 key areas:

  1. The option for proponents to pay into the Biodiversity Conservation Fund (the Fund) is preventing the market from developing.
  2. High up-front costs and long credit generation times create a lag between credit demand and supply.
  3. Market participants lack accurate and timely information.
  4. High transaction costs and market complexity discourage participation.
  5. Stakeholders lack confidence in market oversight and governance, which hinders their participation.

These problems are interconnected and reflect the uniqueness and complexity of the market

Our recommendations

We have made recommendations to tackle these obstacles to the market functioning well, including the following priority actions:

  1. Government interventions should prioritise facilitating market participation, maintaining integrity and instilling confidence in the market over keeping the cost of offsetting biodiversity impacts low.
  2. The option for development proponents to pay into the Biodiversity Conservation Fund should be phased out.
  3. The Government should put interim measures in place to reduce development proponents’ reliance on the Biodiversity Conservation Fund.
  4. The Biodiversity Conservation Trust should develop an appropriate strategy for reducing the backlog of unacquitted credits in the Biodiversity Conservation Fund that considers the potential impact of its actions on competition and prices in the market

We have recommended several other actions to reduce barriers to entry, improve information, reduce trading complexity and instil confidence in the market. However, while these changes may improve the experiences of market participants, they won’t fix the fundamental problems inhibiting a well-functioning market unless the priority actions are taken first.