Environmental Compensation

Friday July 1, 2011

This article was published in the September 2011 edition of Survey Quarterly, the official industry magazine for the New Zealand Institute of Surveyors.

Environmental compensation under the Resource Management Act 1991 and recent developments in the use of biodiversity offsets through national policy guidance


The Proposed National Policy Statement on Indigenous Biodiversity (Biodiversity NPS) aims to protect areas of significant indigenous vegetation and the habitat of indigenous wildlife in order to maintain indigenous biological diversity in New Zealand. The Biodiversity NPS introduces a framework for the use of biodiversity offsets as a tool for addressing the adverse effects of a development on a significant area. This article examines the development of environmental compensation under the Resource Management Act 1991 and considers the implications of the offsets model as is being promoted at a central government level in relation to biodiversity conservation on private land.


Environmental compensation is the offsetting of adverse effects of a development by the proffering of actions that have positive environmental effects. The use of environmental compensation has been developing in New Zealand under the Resource Management Act 1991 (RMA or Act) despite the lack a legislative definition. Nevertheless, environmental compensation is widely used throughout New Zealand, with tools such as protective covenants, replanting programmes, funding research and the like becoming increasingly common as methods to obtain resource consent in the face of adverse effects that might otherwise have derailed the proposal.

The Biodiversity NPS aims to protect significant indigenous vegetation and the habitat for indigenous wildlife on private land and will have significant implications for landowners and developers. This article examines the proposed use of biodiversity offsets in the Biodiversity NPS with particular reference to the wider concept of environmental compensation as it has been developed by the Courts and in light of its academic underpinnings.

Environmental compensation

Well-known for its comprehensive discussion on the matter in JF Investments Limited v Queenstown Lakes District Council C48/2006 (JF Investments) the Environment Court defined environmental compensation as:

... any action (work, services or restrictive covenants) to avoid, remedy or mitigate adverse effects of activities on the relevant area, landscape or environment as compensation for the unavoided and unmitigated adverse effects of the activity for which consent is being sought.

The term "biodiversity offset" is defined in the Biodiversity NPS as:

…measurable conservation outcomes resulting from actions which are designed to compensate for more than minor residual adverse effects on biodiversity, where those affects arise from an activity after appropriate prevention and mitigation measures have been taken. The goal of biodiversity offsets is to achieve no net loss and preferably a net gain of biodiversity on the ground with respect to species composition, habitat structure and ecosystem function.

As such, environmental compensation is a means of addressing those adverse effects that have not been avoided, remedied or mitigated in the usual way. The broader concept of environmental compensation is capable of addressing a wide range of adverse effects such as in relation to landscape and amenity values and may include a range of methods in doing so. By contrast, offsets are a specific and measurable trade-off, with the emphasis being on quantification and can be seen as a subset of environmental compensation. The Biodiversity NPS in turn only considers offsets that relate to protecting indigenous biodiversity.

Environmental compensation as recognised by the Courts

The concept of environmental compensation lacks specific recognition in the RMA. JF Investments acknowledged this but found that the sustainable management purpose of the Act as set out in section 5 was sufficiently broad to encompass environmental compensation as a legitimate RMA tool. It is worth setting out section 5(2):

(2) In this Act, sustainable management means managing the use, development, and protection of natural and physical resources in a way, or at a rate, which enables people and communities to provide for their social, economic, and cultural wellbeing and for their health and safety while—

(a) Sustaining the potential of natural and physical resources (excluding minerals) to meet the reasonably foreseeable needs of future generations; and

(b) Safeguarding the life-supporting capacity of air, water, soil, and ecosystems; and

(c) Avoiding, remedying, or mitigating any adverse effects of activities on the environment.

The component of sustainable management contained in section 5(2)(c) was broadly interpreted, with particular regard given to the RMA meanings given to the terms "effects" (which includes positive or adverse effects and past or future effects) and "environment" (which includes all natural and physical resources), and the dictionary definition of "remedy" (countering or removing something undesirable; redress or reparation). This suggested that a wide range of possible solutions to limit adverse effects are available. The Court opined that "[i]n every decision under the Act a choice or compromise is almost always made between limiting the economic and social conditions of people by avoiding the adverse effects of their activities or enabling individual's wellbeing by allowing some adverse environmental effects to occur, duly remedied or mitigated to the appropriate extent. Environmental compensation is one type of choice or compromise."

It has been observed by another division of the Environment Court in Haka International New Zealand Limited v Auckland Regional Council A097/07, that it is not necessary to strain to fit environmental compensation into section 5 of the RMA and it can validly be considered as an "other matter" under section 104(1)(c) when assessing resource consent applications.

IF Investments is also a helpful reference point in terms of providing guidance around the appropriate use of environmental compensation, that is:

  1. It should preferably be of the same kind and scale as work on-site or should remedy effects caused at least in part by activities on site.
  2. It should be as close as possible to the site (with a principle of diminishing distance) so that it is in the same area, landscape or environment as the proposed activity.
  3. It must be effective - usually there should be conditions to ensure that it is completed or supplied.
  4. There should have been public consultation or at least the opportunity for public participation in the process by which environmental compensation is set.
  5. It should be transparent in that it is assessed under a standard methodology, preferably one that is specified under a regional or district plan or other public document.

Academic and non-judicial consideration

Academic theory and international practice underlies much of the development of environmental compensation. Ali Memon and Peter Skelton in an influential paper (The Practice of Environmental Compensation under the Resource Management Act 1991, New Zealand Journal of Environmental Law, Vol. 8, 2004) sought to analyse the use of environmental compensation in New Zealand in light of international experience. They cite four modes of environmental compensation measures: on-site, off-site, in-kind and out-of kind and also set out that environmental compensation is ideally a three-step process of avoidance, mitigation and then compensation (that is environmental compensation should only be used to remedy residual impacts that could not reasonably be avoided or mitigated).

International practice has been influential in New Zealand in the development of biodiversity offsets, with a conscious effort made to use this as part of a wider government program aimed at "halting the decline" of indigenous biodiversity on private land. The wider context for the Biodiversity NPS is best understood in light of the Statement of National Priorities (for protecting rare and threatened native biodiversity on private land) published by the Ministry for the Environment and the Department of Conservation in April 2007. The use of biodiversity offsets in the Biodiversity NPS is based on international understandings of biodiversity offsets as established under the Business and Bio-diversity Offsets Programme (BBOP) (see www.biodiversity.govt.nz). This wider government programme informs the content of the Biodiversity NPS, as indicated in the supporting documentation released by the Ministry for the Environment and has also been reflected in the content of RMA planning instruments regarding biodiversity protection (refer, for example, to Chapters 7 and 12 of Manawatu-Wanganui Regional Council's Proposed One Plan which mirrors the Statement of National Priorities).

Indeed the Courts have been fully aware of the underlying currents on both biodiversity protection and the theory of environmental compensation. JF Investments refers to the Memon and Skelton article in its decision, while in a later decision, Royal Forest and Bird Protection Society of New Zealand Inc v Gisborne District Council W026/09, the Environment Court set out conditions for the use of biodiversity offsets that are very similar to the framework of the Biodiversity NPS.

The use of environmental compensation

So while the Courts have broadly encompassed environmental compensation within the Act, the concern is that the Biodiversity NPS, in reflecting international theory and government policy, offers much less flexibility than has been applied by the Courts. To illustrate this, and before looking at the Biodiversity NPS, some examples of the use of environmental compensation are set out next.

Of course, environmental compensation is not just a Court developed concept and there are a number of RMA planning documents nationwide that consider environmental compensation. A common form of environmental compensation in plans is the use of bonus development rights, such as is provided for in the Proposed Rodney District Plan, the Thames-Coromandel District Plan and the Operative and Proposed Western Bay of Plenty District Plans. In addition, planning documents have also considered the issue of biodiversity offsets specifically (for example, Greater Wellington Regional Council's Regional Freshwater Plan which allows for offsetting adverse effects on significant water bodies). A comparative analysis of these rules is outside the scope of this article, however some examples of the types of environmental compensation offered by applicants and the Courts consideration of these does provide a valuable context for considering the potential limitations of the relevant Biodiversity NPS provisions.

Enhancement planting and bonus development rights in subdivision context

A subdivision proposal in the Rodney District sought to offset the adverse environmental effects of the subdivision by retiring parts of the property, revegetating streams and gullies and a number of other methods (refer Merton v Rodney District Council A008/07). Both the Operative and Proposed District Plans contained policies on the use of environmental compensation. For instance, Policy 7.4.10 allowed native habitat and enhancement planting to compensate and offset subdivision in certain circumstances. In addition, the proposed plan also had specific rules about bonus development rights that allowed an increase in the number of lots that could be subdivided depending on the amount of land protected and the type of protection offered. Here the number of lots proposed was well in excess of the number of bonus lots allowed under the rules. The Court assessed whether the activity overall, including the environmental compensation, was acceptable but considered that the positive effects of the proposal were not sufficient to outweigh its negative effects and declined consent.

Replacement habitat where mineral extraction unable to avoid loss

A coal mine development in the Buller District demonstrated the use of environmental compensation where the activity would damage an area of habitat for kiwi and a rare type of snail and the applicant sought to create a replacement habitat area elsewhere. A range of measures were proposed including the creation of a 17ha predator-proof reserve. The Environment Court approved the mining activity, considering the compensation offered as part of the broad overall judgement required under the Act (refer Solid Energy New Zealand Limited v West Coast Regional Council C074/05). On appeal, the High Court upheld the decision that adverse effects on the species could be compensated rather than avoided, remedied or mitigated (refer Royal Forest and Bird Protection Society of New Zealand Inc v Buller District Council [2006] NZRMA 193).

Enhancement of breeding grounds and native vegetation to off-set effects of wind farm

In the recent Board of Inquiry concerning Contact Energy's proposed scheme in the Waikato District, the proposal created a range of adverse effects on native flora and fauna, including the issue of rare birds striking the turbine blades (refer Hauāuru mā Raki Wind Farm and Infrastructure Connection to Grid, 13 May 2011 (HMR decision). Contact Energy proposed a number of solutions including enhancement of bush areas, riparian planting and protecting breeding grounds for a range of birds. The Board noted, "[a] comprehensive range of offset mitigation proposals [have] been offered to address the assessed ecological effects, which cannot be avoided. Contact Wind’s objective is to achieve an outcome from the remediation where the environment is enhanced, and the off-set mitigation exceeds the scale of effect".

The Board did not address the rationale of offsetting per se but it is evident from the decision that offsetting was seen as a form of mitigation under section 5. Consideration of the offsets was made after assessing measures to directly avoid, remedy or mitigate adverse effects. The Board said of its method, "[i]n a broad sense, the approach involves addressing effects within each consent in a cohesive and integrated way."

What these cases show is that the Courts consider environmental compensation as part of the broad, overall judgement required under section 5 of the Act, and it is this approach that may be jeopardised by the provisions of the Biodiversity NPS.

Biodiversity NPS

It should be noted that the Biodiversity NPS is not in final form and so there remains scope for the Minister for the Environment to amend its provisions. The likelihood of any changes, however, has to be assessed in light of the wider government program underlying the Biodiversity NPS which underpins the framework and it remains to be seen whether this will be altered in the face of widespread opposition from a great number of those who made submissions on the document.

As noted already, the Biodiversity NPS seeks to promote the maintenance of biodiversity by protecting areas of significant indigenous vegetation or areas of significant indigenous fauna on private land. National policy statements are influential in the RMA framework with regional policy statements and regional and district plans being required to "give effect" to them while resource consent applications will have to consider the provisions where relevant.

Policy 2

Policy 2 sets out the key areas that are to be protected, namely, the naturally uncommon ecosystem types listed in Schedule 1, indigenous vegetation or habitats associated with sand dunes and wetlands, land environments, defined by Land Environments of New Zealand (LENZ) at Level IV (2003), that have 20 per cent or less remaining in indigenous vegetation cover and habitats of threatened and at risk species.

The Schedule 1 matters are, as the name suggests, uncommon (for example, calcareous cliffs, scarps and tors). What will be of most concern to landowners will be the sites associated with wetlands and at risk species as well as, Level IV land environments which are widely present throughout the country. The LENZ project uses satellite imaging and GIS analysis taken at predetermined intervals to determine the coverage of vegetation. Areas that have dropped below the 20 per cent of the original indigenous cover are to be protected under the Biodiversity NPS. This comprises some 480,000ha of private land.

Policy 5 and Schedule 2

Policy 5 introduces the use of biodiversity offsets. The areas set out in Policy 2 are to be managed in regional or district plans to ensure "no net loss" of biodiversity, meaning no overall reduction in diversity, population, ecological health and area inhabited by species. This is to be achieved in Policy 5 by avoiding adverse effects, and where adverse effects cannot be avoided, ensuring remediation and where adverse effects cannot be remedied, ensuring mitigation, and where adverse effects cannot be adequately mitigated, ensuring any residual adverse effects that are more than minor, are offset in accordance with the principles set out in Schedule 2.

A mitigation hierarchy is therefore adopted in this framework whereby biodiversity offsets can only be employed after first attempting to avoid, remedy and mitigate adverse effects. The mitigation hierarchy is further explained, along with the use of biodiversity offsets, in Schedule 2. Some of the key points of Schedule 2 in relation to biodiversity offsets are:

  • Some offsetting will not be possible due to vulnerability and irreplaceability of the flora or fauna.
  • Any offset will need to be both successful and measurably.
  • Any biodiversity offset must be created in accordance with the mitigation hierarchy set out in Policy 5. It will therefore be necessary to demonstrate the avoidance measures, the minimisation measures and the on-site rehabilitation measures that will be used on the site.
  • The offset can only address those remaining residual effects of the activity.
  • Any biodiversity offset must be designed to be secure in the long term operation of the offset. This means that the area must be secured for at least as long as the effects of the development last but preferably in perpetuity.

Implications of the Biodiversity NPS

It is against these parameters that we can compare the use of biodiversity offsets under the Biodiversity NPS against the use of environmental compensation as understood and applied by the Courts. There is a concern around the costs of compliance when compared to its current use. While this is not to say that environmental compensation is easy to provide given the requirements in relevant plans, the matters in Schedule 2 of the Biodiversity NPS to measure the impact and prove success may well add significant costs to the use of a biodiversity offset. Demonstrating "no net loss" could be very difficult to both achieve and to prove effectiveness.

The major concern however is with the use of the mitigation hierarchy. The first point to note is the relative flexibility in the Court's approach to environmental compensation to date. As set out above, section 5 of the Act has been at the heart of environmental compensation for the Courts. This has been underpinned by the direction in the Act to avoid, remedy, or mitigate adverse effects, which has been held to be in no specific order of priority and should be "read conjunctively with equal importance, even if they appear to follow a continuum" (Winstone Aggregates Limited v Auckland Regional Council A49/2002).

By contrast, the mitigation hierarchy and biodiversity offsets in the Biodiversity NPS are much more restrictive. While the hierarchy will technically only apply to biodiversity issues, as the first central government guidance on environmental compensation, the Biodiversity NPS will undoubtedly influence future consideration of how to apply environmental compensation in a wider setting.

The effect of the mitigation hierarchy prescribed by Policy 5 is that a biodiversity offset can only be used after other measures have been attempted and cannot succeed. Thus for instance, if when laying a cable say, an area cannot be avoided the applicant must "ensure" remediation and if that cannot be achieved, "ensure" mitigation. Only then can a biodiversity offset be used, suggesting a much more rigid approach.

The way the Biodiversity NPS considers biodiversity offsets may lead to a re-think of the wider use of environmental compensation and reconsideration of how environmental compensation relates to section 5 of the Act. Placing environmental compensation outside and at the bottom of the avoid/remedy/mitigate rubric may also remove the ability to consider the positive aspects of any compensation.


The Biodiversity NPS will lead to a much greater identification and protection of sites of significant indigenous vegetation and habitats of indigenous wildlife on private land. The Biodiversity NPS is clearly conscious of the need to make reasonable use of land and biodiversity offsets are a seen as a means to achieve this goal. While the sheer amount of potentially significant areas will lead to greater opportunities to use biodiversity offsets, the controls in Schedule 2 and the mitigation hierarchy in Policy 5 may make the use of biodiversity offsets hard to achieve in practice.

The Biodiversity NPS and its reliance on international best practice in biodiversity protection, may however not only unreasonably limit the scope to apply biodiversity offsets but may also necessitate a re-examination by the Courts of the concept of environmental compensation and its relationship with section 5 of the Act.