Environmental offsets audit finds non-compliance with offset conditions for 1 in 7 EPBC approvals

Summary

The Federal Government’s Department of Climate Change, Energy, the Environment and Water (DCCEEW) has released a report on the findings of the audit of environmental offsets that was undertaken between June 2023 and March 2024. Of 222 EPBC Act approvals audited, the report has found 1 in 7 were non-compliant or potentially non-compliant with their approval conditions and of an additional 120 approvals with high environmental impacts audited by desktop assessment, 25% (or 1 in 4) were found to have not, or potentially not, secured the necessary offsets.

Environmental Offsets Audit

On 29 June 2023, Minister Plibersek announced an audit of environmental offsets under EPBC approvals to determine whether conditions concerning offset requirements had been complied with.

The audit followed findings of the statutory review of the EPBC Act by Professor Graeme Samuel which concluded that the framework regarding environmental offsets is not working and required fundamental change. Professor Samuel recommended urgent and significant changes to the environmental offsets policy and to how offsets are conditioned. In respect of conditions, the report concluded that:

• conditions were not adequately monitored to ensure appropriate management; and
• compliance efforts were weak.

The audit report states that a total of 342 approvals were audited by DCCEEW between June 2023 and March 2024. A two-pronged approach was used, being:

• “development and implementation of an Offsets Compliance Strategy prioritising the review of high-risk EPBC Act approvals with offset obligations, including approvals that are due to expire or for which the department has received an allegation of non-compliance, and
• a desktop audit prioritising audits of EPBC Act approvals based on their overall compliance and environmental risk profile to identify potential instances of non-compliance and to inform future audit priorities and action.”

Offsets Compliance Strategy

The Offsets Compliance Strategy was developed to provide a framework for the audit, and prioritised approvals:

• approaching expiration, which were granted prior to the EPBC Act Environmental Offsets Policy 2012 coming into force; or
• where an allegation of non-compliance has been received in respect of the approval and for which DCCEEW has detected non-compliance through audit or other programs.

222 approvals were selected for audit pursuant to this criteria. A desktop audit of each of these approvals has been undertaken by DCCEEW (but not all audits yet closed out).

At the time of writing, a copy of the Offsets Compliance Strategy is not publicly available and there is limited information on how the desktop review of the supplementary approvals was undertaken.

Compliance Action

The report states that in the first tranche of 104 approvals audited, 13 were found to be non-compliant with offset conditions and that as of 15 April 2024, 5 approval holders had been issued with a combined 6 infringement notices and 13 approvals were subject to a directed variation under section 143(1)(a) of the EPBC Act.

The report states that a second tranche of 118 approvals are subject to ongoing review, with 19 being considered for compliance action (being an infringement notice or a directed variation).

The report states that non-compliance has been due to, for example:

• failure to submit offset management plans for approval in accordance with the approval;
• failure to retire biodiversity credits in accordance with the approval;
• failure to adequately implement offset management plans; and
• unauthorised clearing in an offset site.

The media release from June 2023 stated that the audit would be broadened to investigate the compliance of over 1,000 offset sites. It is not clear whether this work is complete or is ongoing.

Next steps

The report identifies that DCCEEW has recently established a standalone environmental audit function and a dedicated offsets compliance capability which will continue the work.  The next priorities of the audit program are:

• audits of offsets and clearing conditions for projects in residential and commercial development, mining and energy sectors;
• audits of projects that impact both critically endangered species and critically endangered threatened ecological communities; and
• continued compliance engagement with approval holders who are not complying with offset conditions.

The findings of these audits are intended to also be published on DCCEEW’s website.

Key Takeaways

Compliance with offset conditions will remain a hot topic; with the proposed establishment of the new independent national Environment Protection Authority and the implementation of the DCCEEW’s standalone audit function and dedicated offsets compliance capability. With this regulatory landscape and what’s on the horizon in mind, we provide the following key takeaways:

• For approval holders:
  • Now is a good time to review the conditions of your approvals to ensure offset conditions are workable and achievable, including in respect of timing.
  • Offset projects can be notoriously difficult to implement, and as a consequence conditions then difficult to comply with - where there is non-compliance, even where DCCEEW is aware of the underlying issue, seek advice about how to manage achieving ‘technical compliance’ and seek to avoid compliance action while resolving the underlying issue.
• For current and future applicants:
  • Start thinking about practicalities for offsets early on in the piece. Questions around securing the required offset areas, timing for the submission of plans, monitoring requirements and alternative solutions should be worked out to the extent possible before the draft condition stage and through engagement with DCCEEW on the topic.
  • When reviewing draft conditions, pay particular attention to the timeframes for compliance with the offset conditions such as the preparation of offset management plans, and any elements of conditions that are reliant on the actions or agreement of a third party to achieve compliance. Conditions should also build in a corrective process if an offset area becomes unavailable or unsuitable.