Commonwealth Releases Second Draft of National Environmental Standards, Shifting Discretionary Should to Mandatory Must

Changes in the Second Draft of the National Environmental Standards

The Commonwealth Government released the second draft of its National Environmental Standards for Matters of National Environmental Significance (MNES) and Environmental Offsets in late May 2026, marking a significant shift in how federal environmental approvals will be assessed across Australia. The most consequential change in this second iteration is not a new policy direction but a deliberate drafting decision: the replacement of aspirational “should” language with mandatory “must” language throughout both standards. That single word change transforms what were previously discretionary guidelines into legally binding statutory instruments, enforceable with the full weight of Commonwealth law under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act), as amended by the Environment Protection Reform Act 2025.

The significance of this shift cannot be overstated. Under the previous framework, decision-makers and proponents operated in a regime where discretion was built into the system. Conditions could be negotiated, deficiencies could be addressed through project commitments, and approvals could be salvaged even where compliance with the underlying guidelines was imperfect. The second draft eliminates that flexibility entirely. If a proposed action does not satisfy the mandatory statutory tests set out in the MNES Standard, the decision-maker has no legal avenue to issue an approval. The system shifts from one of negotiated outcomes to one of binary pass-or-fail assessments.

For Australian environmental consultants, developers, infrastructure proponents, land-use lawyers, and local councils, this reform demands immediate attention. The statutory consultation window for the Environmental Offsets Standard closes on Tuesday, 9 June 2026, leaving a narrow window to engage with the draft and influence definitions that will govern offset obligations for years to come. Projects currently in the pipeline, undergoing assessment, or in early feasibility must be re-evaluated against these draft standards before they are finalised and commence operation.

Key details of the second draft National Environmental Standards

The legal foundation for the National Environmental Standards sits in Part 19B of the EPBC Act, inserted by the Environment Protection Reform Act 2025. Part 19B establishes the statutory framework under which the Commonwealth Minister may make National Environmental Standards as legislative instruments. Once finalised, these standards carry the same legal force as the Act itself, and any approval decision that is inconsistent with them is invalid. The second draft progresses both the MNES Standard and the Offsets Standard toward that status.

Under the revised MNES Standard, any proposed action must satisfy three distinct statutory tests before an approval can be granted. First, the approval must not be inconsistent with any applicable National Environmental Standard. Second, the action must not have an “unacceptable impact” on any protected matter of national environmental significance. Third, any residual significant impacts on protected matters must be fully and demonstrably addressed. These three tests operate cumulatively, meaning a project that satisfies two but fails the third cannot be approved. The introduction of “unacceptable impact” as a defined statutory threshold, rather than a factor to be weighed in a broader discretionary assessment, is a fundamental departure from the existing EPBC Act approval framework, which has historically involved a merit-based balancing of costs and benefits.

The revised Offsets Standard introduces equally significant changes. The mitigation hierarchy, which requires proponents to demonstrate that all practicable measures to avoid and mitigate harm have been exhausted before offsets are considered, is now legally locked in rather than a recommended sequence. Proponents can no longer present offsets as the primary response to predicted impacts. Beyond the hierarchy, the standard introduces a strict net gain requirement, meaning offsets must demonstrably improve the conservation status of the affected protected matter. This is a higher bar than the previous net loss avoidance approach, and it has direct implications for how offset ratios, offset site selection, and long-term management obligations are designed and costed. The standard also introduces “restoration contributions” as an alternative mechanism to direct offsets in some circumstances, a concept that will require careful definitional scrutiny during the consultation period given its potential to dilute the rigour of site-based ecological offsetting.

The consultation window specifically for the Environmental Offsets Standard closes on 9 June 2026. Practitioners and proponents who have concerns about the practical operation of the “net gain” definition, the thresholds for restoration contributions, or the methodology for demonstrating compliance with the mitigation hierarchy have a limited and time-sensitive opportunity to lodge formal submissions. Once these standards are registered as legislative instruments, the definitions and thresholds they contain will be fixed, and future legal challenges to approval decisions will turn on whether proponents and decision-makers applied them correctly.

Australian context: how the EPBC Act reforms interact with state and territory environmental frameworks

Australia’s environmental approval landscape operates across overlapping Commonwealth and state or territory jurisdictions. The EPBC Act triggers apply federally where a proposed action is likely to have a significant impact on a listed matter of national environmental significance, including listed threatened species and ecological communities, Ramsar wetlands, World Heritage properties, and Commonwealth marine areas. These triggers operate alongside, not instead of, state and territory approval requirements. A project may require both a Commonwealth approval under the EPBC Act and a separate state or territory approval under the relevant jurisdiction’s planning or environmental legislation. The introduction of mandatory National Environmental Standards at the Commonwealth level does not alter this dual-approval architecture, but it does raise the compliance bar on the federal side of the equation. Proponents accustomed to managing state and Commonwealth approvals in parallel must now account for the fact that Commonwealth approval pathways carry stricter, non-discretionary requirements. Where state approval conditions have historically been negotiated with some flexibility, the Commonwealth standard will now impose a fixed floor that cannot be bargained away regardless of economic or strategic considerations. This interaction is particularly consequential for major infrastructure projects, resources developments, and urban expansion proposals where both jurisdictions are engaged and where the cost of offset obligations is a material project variable.

References and related sources

• Primary source: www.claytonutz.com
• claytonutz.com
• claytonutz.com
• gtlaw.com.au
• dcceew.gov.au

How iEnvi can help

iEnvi provides specialist consulting services relevant to this topic. Our team includes CEnvP Site Contamination Specialists with experience across contaminated land, groundwater, remediation, ecology, and regulatory compliance.

• iEnvi contaminated land investigation services
• iEnvi remediation and validation services
• iEnvi expert services and independent review services

This is an iEnvi Machete news summary. Prepared by iEnvi to summarise the source article for contaminated land, groundwater, remediation, approvals and site risk professionals.

Published: 02 Jun 2026

Need advice on this topic? Speak to an iEnvi expert at info@ienvi.com.au or 1300 043 684, or contact us online.