Environmental markets
Environmental markets allow landholders to realise returns from investing in natural capital. These markets form when people buy, sell and trade natural assets (like carbon credits or biodiversity) for monetary value.
Environmental markets are developing, which creates opportunities for landowners. New markets will emerge as more consumers, investors, banks and insurers take environmental outcomes into account when making decisions.
A range of environmental market-based opportunities. Source: Introduction to Environmental Markets Course (2023).
Environmental markets in Australia
There are several existing environmental markets in Australia.
Biodiversity markets
You can create biodiversity credits by managing, restoring or protecting species or ecosystems on your land. You can sell these credits to governments, businesses and individuals in markets like the NSW Biodiversity Offsets Scheme.
Carbon markets
You can generate carbon credits by reducing your emissions or increasing carbon sequestration (capturing and storing carbon). You can then sell those credits to governments, businesses or individuals who will use them to offset their emissions. The Australian Carbon Credit Unit Scheme is an example of a carbon market.
Carbon credit projects can have further positive outcomes for the environment or First Nations communities. You can be rewarded for these extra outcomes by selling your carbon credits into premium or co-benefit markets.
Sustainable and green finance
The Australian finance sector is finding ways to value natural capital. This includes the creation of financial products like green loans, bonds and investments. These products manage risk, improve returns from positive environmental actions and encourage investment in agriculture.
‘Environmental credentials’ or ‘values’ exchange
If you take part in certification schemes you may be able to charge premium prices for your produce. Examples include the Carbon Neutral Certification Scheme, Climate Active and the ZQ Merino Grower Standard.
Emerging market opportunities
More environmental markets are likely to emerge due to the demand to manage, restore or protect natural capital. These markets will offer new opportunities for landholders. If managed well, these markets will benefit the environment, encourage sustainable land management practices and lead to new sources of income for landholders.
Our Natural Capital Service Finder can help you find opportunities and environmental market programs through trusted service providers.
Engaging in environmental markets
Decisions about natural capital and environmental markets can be difficult. While there can be business, financial and environmental benefits, there is also risk.
Benefits of engaging in environmental markets
Business and marketing strategies
Showing your good natural capital management practices could allow you to sell goods at a premium price. It may also protect your existing market access or let you expand into new markets.
Cost saving strategies
Investing in natural capital could reduce your business costs. For example, improved pest control and nutrient cycling may reduce your need for pesticides and fertilisers.
Asset value
Investing in your natural capital may increase the value of your land, business, share price or other assets.
Sustainable finance
By improving natural assets on your property, you may be able to access sustainable and green loans and other financial products that provide discounts or other benefits.
Environmental credit trading
You could trade environmental goods and services through environmental market trading schemes, such as:
- credit schemes (like the Australian Carbon Credit Unit Scheme)
- tradeable permit schemes
- auctions
- competitive tenders.
Tax management
You may get deductions, concessions or offsets on existing and future environmental taxes, levies and charges.
Incentive payments
You may be able to access subsidies, rebates, funding, grants and compensation schemes.
Risks of engaging in environmental markets
Like any investment there are risks when engaging in environmental markets. If you are unsure, seek advice from experts. Keep in mind that even experts are still learning in this rapidly evolving field.
Market and business risks
New and emerging markets may be unstable, leading to price variations and changes in buyer demand. In the future, farm businesses may be required to show that they are minimising impacts on nature. This may be needed to access to some markets in the future.
Political and regulatory risks
Changes in government policies and regulations can impact environmental market requirements, subsidies or tax structures. Keep up to date with any potential changes.
Financial risks
You could lose money due to unexpected costs, a lack of funding, project delays, unreliable resources, underperformance or other issues.
Legal risks
Legal issues may arise from contracts, ownership agreements or planning approvals. Failure to meet market or contractual obligations can result in penalties.
Performance and compliance risks
You could face fines or other negative outcomes if you don’t meet your performance requirements or timeframes.
Management and technical risks
You might struggle with a lack of technical expertise and need external help. It is important to make sure you have enough legal, administrative and business support. Make sure you are dealing with trusted brokers and service providers.
Stages of environmental market engagement
You will need to make many decisions when considering whether to engage in environmental markets. There are typically 4 stages involved:
- Know what you’ve got – identify existing and potential natural assets, ecosystem services and environmental services. Assess the amount you have and their condition.
- Know what’s possible – consider your options from business, trading and production perspectives. Understand what’s possible and look at potential opportunities.
- Know what to do – get advice and support and create a plan. Understand what steps to take and how to maximise your return.
- Take action – put your plan in place and realise the benefits.
Your local Natural Capital Advisor can help you identify and learn more about the natural capital and environmental market opportunities available.
The information provided is of a general nature and does not take your specific needs or circumstances into consideration. Please ensure that you review your own situation, objectives and requirements and seek professional advice before making any business or financial decisions.