Introduction

This was meant to be the second of two papers reviewing the use of environmental offsets (shortened to ‘offsets’ from hereon) in the Western Australian (WA) environmental impact assessment (EIA) process. Unfortunately, I never got around to finalising the paper. Below are there key findings of the research - carried out in 2010.

Research summary

The views of key EIA practitioners in WA were sought on the application of offsets through the WA EIA process. Six key themes and concerns emerged. First, each interviewee acknowledged that the current process of setting offsets could lead to a perception that an approval has been bought, particularly for those projects that have significant residual impacts. Second, concern was expressed that there is no legal framework in WA to support their use through EIA. Third, several interviewees expressed concern that it is not clear which agency has final responsibility for setting, implementing and monitoring offsets. Fourth, interviewees were divided as to which stage in the EIA process offsets should be first considered. Fifth, some interviewees challenged the adequacy of the existing offsets policy framework, whereas others were of the view that the framework was adequate but needed to be implemented. Finally, there was general agreement that a more strategic approach to implementing offsets was essential. Whilst these themes may at first be viewed as only relating specifically to the WA situation, three have broader implications beyond WA: the use of offsets has the potential to be seen by the broader community as buying an approval in situations where the impacts are so significant that it might otherwise not be granted approval; the need for a strategic approach for the use of offsets as part of EIA; and, at what stage during an EIA is it best to first start considering offsets.

How offsets were applied in WA in 2010

Offsets were not required for all residual impacts in EIA, only for those that have impacts on ‘critical’ assets. Generally, the EPA will not entertain consideration of an offset until much later in the EIA process. The EPA follows a process typical of many EIA processes worldwide, and recommended by the IAIA (International Association for Impact Assessment and UK Institute of Environmental Assessment 1999) requiring the proponent to:
•    Consider firstly avoiding the impact;
•    Where avoidance is not possible, then minimise and mitigate the impact; and
•    Then only when there is a residual impact, then propose an offset. 

Interestingly, the EPA hasn’t to-date included a consideration of the adequacy of an offset package when it considers the acceptability of the proposal: that is, the EPA assesses the significance of the residual impacts of the proposal in arriving at its conclusion of acceptability, and simply notes the offsets package. In some cases, where the residual impact on a critical asset is significant, it will recommend against the proposal and leave any consideration to the final steps of the EIA process (appeals and condition setting), where the EPA is usually only a minor player. In other cases, where the residual impact is less significant, it notes any offsets package but will leave consideration of the adequacy of the impacts to another agency, usually the Department of Environment and Conservation (DEC).

EIA in WA is controlled through Environmental Protection Act 1986 (the EP Act). The EP Act allows offsets where a permit is required for the clearing of native vegetation (Part V of the EP Act). However, the section of the Act that covers EIA (Part IV) does not have similar clauses: i.e. there is not legislative framework for the setting of offsets through EIA.

A previous study into the use of offsets in WA

The work reported here builds on previous research on offsets in WA carried by Hayes and Morrison-Saunders (2007). The aim of that work was to:

… gain an under- standing of how the relatively new concept of environmental offsets is working as a tool in EIA as perceived by Western Australian practitioners (Hayes and Morrison-Saunders 2007:209)

It had four specific aims, which were to determine:

• The degree of support for the use of environmental offsets;
• The extent to which some specific challenging principles were being achieved in practice;
• The workability and success of the like for like principle; and
• Any problems that the time lag for implementation of offsets posed for the effective use of offsets.

The study drew on interviews with 29 WA EIA practitioners, and the key conclusions can be summarised as follows:

• There was strong support for the use of environmental offsets in WA;
• Practitioners were split on whether offsets were being used to avoid the mitigation sequence (i.e. whether proponents used offsets in place of consideration of avoiding impacts);
• Practitioners were split on whether offsets have delivered net environmental gains;
• Practitioners were split on whether ‘like-for-like’ is workable in practice; and
• Practitioners were split on whether ‘like-for-like’ provides the best environmental outcome.

Hayes and Morrison-Saunders (2007:217) concluded that whilst offsets “should provide an effective tool to address the problem of residual environmental impacts in EIA” they expressed concerns that it could be used in some instances to facilitate an approval without actually delivering a net positive environmental benefit.
The research reported in this paper builds on this work.

Methodology

The data used here are from interviews with key individuals who have an interest in the use of offsets in WA: notably key personnel from companies associated with each of the major resource proposals, consultants working in the field, representatives of conservation groups and officers from the key government agencies. 
All of the identified major proposals that have undergone EIA that have had offsets applied for approval are summarised in Table 1. These include all of the proposals considered in the first paper as well as some not located in the north of WA, which was the focus of the work in that first paper. All of the companies listed in Table 1 were approached for an interview, with 6 of the ten companies agreeing to be interviewed. As well, three other practitioners in the field also agreed to be interviewed.
Interviews were semi-structured seeking views on the topics listed above.

Table 1: Proposals that have undergone EIA in WA that were subject to the EPA’s Offset policy

Results and discussion

Overview

The interviews were analysed looking for common themes, issues or questions. Six key themes emerged:
1.    Perception of buying an approval;
2.    The legality of offsets;
3.    Which agency should regulate offsets;
4.    At which stage should offsets be raised;
5.    Adequacy of the EPA guidelines; and
6.    A strategic approach is needed to implement offsets.
Each of these key themes is described and discussed in detail below.

Perception of buying an Approval

Each interviewee acknowledged that the current process of setting offsets could lead to a perception that an approval has been bought, particularly for those projects that have significant residual impacts. Two reasons were put forward for this. 
First, offsets have normally been proposed later in the assessment process and only for those proposals where impacts on critical assets were significant. As noted above, the EPA doesn’t usually give full consideration to the offsets package in these circumstances. Instead, offsets are finalised after the EPA assessment either through appeals or as part of condition setting. These processes are generally more political than the EPA process as it involves the Minister for the Environment directly. All interviewees agreed these later processes are more subjective that the EPA’s assessments and any offsets package agreed to here could be seen as a political response rather than a more objective outcome of the assessment process. One interviewee provided an example where the issue of offsets (for the Commonwealth EIA process and not the WA EPA process) was first raised so late in the process that the proponent had to make a decision to either agree to the offsets package as first proposed so as to finalise the approval quickly, or to contest it and negotiate a different outcome. Had the proponent chose to contest the package it would have delayed the project approval, costing the company more time and money because of the delay. 

Second, as Table 1 shows, some indirect (contributory) offsets require the payment of money to fund further studies, research or management (for example the Pluto proposal). The requirement to provide funds (albeit for a legitimate purpose) could lead to the perception that the approval has been bought, particularly where the agency receiving the funds is also advising the Minister.

Several of the interviewees gave the Gorgon LNG proposal as an example of where the use of offsets led to a perception that an approval had been bought (see the first paper for more details). As part of the EIA of the Gorgon proposal, the EPA recommended against the proposal because of the likely impacts (in particular, that it was to be located within a Class “A” Nature Reserve), notwithstanding the substantial offset package originally proposed. The Minister for the Environment, however, following consideration of the EPA’s report on the proposal, the appeals against that report and the increased offset package offered by the proponent, decide to approve the proposal. In the opinion of some observers from the conservation movement, the provision of the offset package (which included a $40 million to a Net Conservation Benefit Fund) was seen as buying an approval.

Several interviewees went on to discuss ways that this perception could be avoided without substantially changing the outcome of the process (see below).

Legality of offsets 

Most of the interviewees raised concerns that, whilst they are generally happy with the use of offsets, there is no legal framework to support their use through EIA in WA. As noted above, the process to gain approval to clear native vegetation done under Part V of the EP Act does provide for offsets, whereas EIA, which is done Part IV of the EP Act, does not have similar clauses.

To overcome this legal problem, attempts have been made to have offsets packages included as part of the formal legal binding Ministerial approval. This approval takes the form of a written statement issued by the Minister and sets out the environmental conditions to apply to the project. Two interviewees made special reference to this practice and noted that the EPA had previously received legal advice that these conditions can only be set on the proponent and only apply to the project site as defined through the assessment process. These interviewees noted that this would create problems for at least two types of offsets. First, those offsets that are like-for-like replacement for loss of ecosystems, for example clearing of native vegetation, where that replacement is off-site. Such works (either rehabilitation of cleared land or purchase) is likely to involve agreement from a third party (the land owner) who is not party to the Ministerial Statement. This could be overcome if the purchase is made during the assessment process and included in the project definition, but proponents are likely to be reluctant to do so until the full extent of any offsets package has been agreed to, which is usually late in the assessment process. Proponents would be reluctant to delay the finalisation of their approvals subject to finalising the ownership issues.
Some of the interviewees noted that one of the ways to address this issue would be to have a ‘bio-banking’ process in place. Bio-banking is better known as either habitat banking (Briggs, Hill, and Gillespie 2009) or mitigation banking (Cuperus et al. 1999), and involves at least two different processes. In common to all these are the identification or creation of natural areas that are secured against future development. These areas form a bank of natural habitats that can be drawn on to compensate other habitats loss as part of development.  

The first process, which is probably the simplest, is where an individual developer or proponent sets up its own bank of natural habitats, usually by direct purchase, which are then proposed for conservation during an assessment of a particular development as compensation for potential habitat lost. As Morris et al (2006:107) define it, this type of habitat banking:

… involves the creation of new habitat by a particular developer at a specific location and drawn upon by that same developer to offset losses due to its own development projects.

The second process involves the creation of market mechanisms to allow for the creation of habitat banks and their subsequent trading, and has been most commonly applied in the US for compensating wetland loss. The key to this process is the establishment of what Hallwood (2007:447) call “commodity units” that are traded as a mitigation credits. The value of the credit is based on the size of the wetland and the quality of wetland its functions. A developer has to purchase sufficient commodity units to offset the value of habitat to be destroyed because of a development. 

This has subsequently led to the establishment of enterprises solely set up to create these commodity units (habitats) which are then sold to other companies seeking credits (Hallwood 2007; Robertson 2004). To enable a banking system to function properly, a supporting legal system needs to be in place as well as oversight and regulation by an appropriate government agency, including determining the number of credits to be lost and the number of credits for each banked natural asset (Robertson 2004).

Whilst several interviewees noted the value of having such a scheme in WA, the policy and legal framework for such an approach does not exist. This is not the case in some other States in Australia, where, for example, in New South Wales offsets are controlled under the Biodiversity Banking and Offsets Scheme and applied to developments under Parts 3, 4 and 5 of the Environmental Planning and Assessment Act 1979. 

In Victoria offsets are dealt with through a policy on native vegetation management (Department of Natual Resouces and Environment 2002), which incorporates the use of offsets as part of a broader scheme to manage and protect biodiversity. Queensland has a specific offsets policy (Environmental Protection Agency 2008), which applies where current legislation triggers State Government assessment of impacts on environmental values.

The Commonwealth Government in Australia has the power to set offsets in EIAs on proposed developments that could have impacts on matters of national environmental significance through the Environmental Protection and Biodiversity Conservation Act 1999 (EPBC Act). 

Most interviewees agreed that offsets in WA should be regulated under Part IV of the EP Act, with a supporting biodiversity banking system.

Which agency should regulate offsets

Several interviewees expressed concern that under the current arrangements, it is not clear which agency has final responsibility for setting, implementing and monitoring offsets. As already noted, in WA the setting of offsets is done by either the EPA, the Minister for the Environment or the DEC. in some cases all three have been involved.

Interviewees did not have a consistent view about which of these three should have the final responsibility. The EPA received more support than either the Minister or the DEC for having this role, mainly because it is seen as being independent and because it is the agency responsible for EIA. No interviewee objected to the EPA having the major role in offsets, although several preferred either the Minister or the DEC to have this role.

Whilst a few interviewees supported the Minister having this role, other raised concerns that on the occasions when the Minster had had a strong role in setting offsets, the process was seen as more political then when the EPA determined offsets. Further, the Ministerial process is not subject to the same broad appeal provisions as the EPA process, which means that any offsets set by the Minster would not be subject to this appeals process.

Views about the involvement of the DEC were also mixed. On one hand, it was noted that the DEC has considerable expertise relevant to offsets, but the primary concern was that it would most often be the beneficiary of any conservation offset where high conservation land is to be reserved for conservation (the DEC manages most of the conservation estate in WA). There was a concern that this would cause a conflict of interest for the DEC and that its assessment of proposed offsets could be compromised. One interviewee provided an example where, as part of an offset that had to be approved by the DEC, the proponent was required to put a significant amount of money into one of DEC’s programs that had run out of funding. The interviewee saw this as an example for a a clear conflict of interest.

Two interviewees suggested that a separate agency should be set up to carry out all tasks relevant to offsetting: to provide advice on appropriate offsets during the EIA process; to ensure implementation; and, to monitor offsets that change over time (for example, rehabilitation with native vegetation of existing cleared areas).

There was general agreement that a more transparent and agreed process needs to be established for the setting of offsets, and that implementation and motoring of offsets should be included in that process.

Finally, concern was raised about the potential to have two sets of offsets applied when a proposal being assessed by the EPA also requires assessment by the Commonwealth Government under the EPBC Act. It is also possible that the two assessment processes could arrive at different conclusions about the need for offsets. Assessment under the EPBC Act usually has different triggers and could, therefore, require offsets for different impacts. One example was provided by one interviewee where, as part of the EPA assessment, the residual risk of impacts on an endangered species was deemed to be not significant by the EPA, but through the Commonwealth assessment, the risk was deemed to be significant and an offset was required. 

Most interviewees commented that it would be preferable that there be only one offset process where assessments are required by both the State and Commonwealth environmental agencies, and that one agency take responsibility for this.
At which stage should offsets be raised

This was the most contested issue amongst interviewees, with opinion split as to whether offsets discussions should occur early or later in the assessment process. 

The EPA has a clear view that offsets should only be considered late in the assessment process when it becomes clear that residual impacts on critical assets are unavoidable. Interviewees who supported the EPA position were of the view that introducing offset early on in the process would not give sufficient incentive for proponents to properly consider avoiding and reducing impacts. There was concern that proponents would weigh up the costs of avoiding and reducing impacts against the cost of an offsets package and chose the one that delivers the least cost to the proponent.

Those interviewees who supported early consideration of offsets expressed concerns that when offsets were considered late in the process it added further time to the overall process, thus adding extra costs to project. It was argued that having offsets introduced early on in the assessment means that the proposed package can be considered on its merits at the same time, but separate from, the consideration of the proposal itself. These interviewees did not support the view that early consideration of offsets would cause proponents to not give full consideration to avoidance and reduction of impacts. They argued that the EPA is responsible for the EIA process and it would require full consideration to avoidance and reduction of impacts even if the proponent tried to avoid it.

A majority of interviewees expressed concern about the inconsistent manner in which offset had been dealt with by the EPA. It was noted that, whilst for the most part, the EPA did not include consideration of the adequacy of the offsets package as part of the assessment of the process, and left consideration of its adequacy to either the appeals process or condition setting, there were a few occasions when consideration of the proponent’s offsets package was included as part of its assessment. Most interviewees expressed concern about these inconsistencies and were of the view that the EPA should adopt a consistent approach to consideration of offsets: i.e. always assess them or always leave them for the Minister or the appeals process.

Adequacy of the WA EPA Policy Guidelines

As with the previous issue, there were two diverging views about the adequacy of the EPA’s policy and guidelines on offsets. One view was the current policy framework simply needs to be better implemented, and that this would be helped if the EPA provided additional guidance during the process and there was improved environmental data made available during the assessment to enable better decision-making. The other view was that there was a need for a complete overall of the policy framework, which would involve a more prescriptive policy which sets clear rules about when an offset is required and also describe the range of measures that are considered appropriate as offsets. It should be noted that the EPA is currently working on a more detailed operational policy that would likely go some way to addressing these latter concerns. 

A strategic approach is needed to implement offsets

There was general agreement that because offsets in WA are set on a case-by-case basis, the environmental outcome achieved is unlikely to be optimal. Several interviewees provided examples to illustrate this point, many of which involved contributory offset where funds were provided for studies or to fund programs for agencies like DEC. Other involved identifying land to be included in the conservation estate as an offset to the clearing of significant vegetation. Case-by-case setting of offsets meant that a strategic view of how to best use the funds or which piece of land should be protected was not adopted. 

The urgency involved in making decisions about offsets through EIA was the key reason put forward as to why a strategic approach was not adopted. A another reason was that the neither the EPA nor the DEC had a strategic plan to provide a suitable framework for offsetting. Several interviewees suggested that a scheme similar to bio-banking be set up to receive funds from proponents to enable a more strategic approach. Parallel to this, it was argued that the DEC should develop a list of priory areas containing valuable habitats worthy of protection not already in the conservation system. Funds derived from any offsets could then be used to purchase these assets. 

It was argued by some interviewees that such an approach would also reduce significantly the perception of buying and approval, as this list of priority areas would have been drawn up an independent and separate from project EIAs.

Discussion and conclusion

The use of offsets is now widespread throughout the developed world (Gibbons and Lindenmayer 2007:27), however, many jurisdictions have experienced problems in their implementation as the popularity of offsets grows. For example, in the UK, the offsetting process has resulted in “tiny habitat patches, and poorly coordinated projects, if it even occurs at all” (Briggs, Hill, and Gillespie 2009:113). A study of the use of offsets in the Canada (Harper and Quigley 2005) found that there were significant weaknesses in the monitoring  and compliance administrative processes, and that it was not possible to draw any conclusions about proponent compliance with prescribed offsets. They went on to conclude that this finding was important in itself as it

… demonstrates the need to improve the current system of record keeping in order to better track proponent requirements for compensation and monitoring. More importantly, greater emphasis should be placed on compliance monitoring and enforcement activities at an institutional level. (Harper and Quigley 2005:353)

Cowell (2000) expressed a different, more philosophical, concern. He was concerned that using vegetation loss compensation offsets will lead to a societal change in how we view nature where nature is viewed in economic terms rather than its natural and social values. Cowell (2000:690) argues that this type of offset helps “maintain environmental capital” thus providing “an important process by which environment can become capital”.

This paper adds significantly to this debate by identifying several issues of concern that relate specifically to the WA situation, but importantly, three of which have broader implications beyond WA. Most significantly, the use of offsets has the potential to be seen by the broader community as buying an approval in situations where the impacts are so significant that it might otherwise not be granted approval. This is particularly so where indirect offsets involving the payment of money are involved, or the decision is made late in the EIA process where the Minister becomes involved. This perception can be overcome if an independent agency is established to assessment the adequacy of an offsets package but to be part of the overall EIA process. This would also overcome potential conflicts of interest where the agency assessing an offset is also the agency that is the recipient of the offset. This independent process also needs to be transparent and accountable, both in the initial assessment of the offsets, and in the on going monitoring.

The second issue relates to the need for a strategic approach for the use of offsets as part of EIA. Case-by-case assessment can lead to less than optimal outcomes where, for example, sites chosen for inclusion in a conservation reserve to offset native vegetation cleared to facilitate a project are not the best available at the time from and conservation perspective. This can be overcome in a number of ways, for example where the agency responsible for conservation has a formal bio-banking system in place and it identified sites of highest conservation value well ahead of individual project EIAs. Strategic environmental assessment (SEA) could also be used to identify preferred sites for offsets and include consideration of these as part of the normal strategic land use planning processes.

The final broader issue is the question of at what stage during an EIA is it best to first start considering offsets? It is clear from the data presented here that a case can be made to introduce offset early on in and EIA, and a case can be made that the early introduction of offsets can create problems. Proponents clearly like the idea of introducing consideration of offsets early, as it facilitates a more timely resolution to any issues surrounding the offsets, and it also avoids the introduction of more subjective considerations that can occur very late in the process when the political process becomes more involved (in the WA case, the Minister for the Environment). The argument against early introduction is that proponents may chose, for economic reasons, to propose offsets in the place of a full consideration of avoiding and reducing impacts. Clearly, these issues will play out differently in different EIA jurisdictions, and case-by-case consideration is appropriate. In WA, where the final stages of the EIA process are relatively more political that the early stages, and the process is highly controlled by and independent EPA which can ensure adequate consideration of avoid and reduce impact options early on, a stronger case can be made for including consideration of offsets earlier on in the EIA process.

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