"NEW SECTION.  Sec. 1   (1) The legislature finds that:
     (a) Farmers and small forest landowners should be encouraged through the use of incentives to conserve and restore natural areas on their farms and small tree farming operations in ways that improve the long-term viability of these operations by providing ongoing revenue to these operations without taking whole farms or significant amounts of farmland or small tree farming operations out of production;
     (b) Farmers and small forest landowners have the ability to produce restoration products as well as implement conservation practices on their productive agricultural lands and small tree farms in a way that is likely to be useful to fulfill the mitigation, compliance, and other environmental needs of public agencies such as the Washington state department of transportation, and to meet other market demands such as the availability of feed or conditions for overwintering of migratory waterfowl or for conserving and enhancing fish and wildlife habitat;
     (c) Family farmers and family-owned small tree farming operations currently produce environmental benefits that would cost millions of dollars to replace with man-made infrastructure. Among these benefits are water filtration, floodwater dispersal, fish and wildlife habitat, open spaces, and scenic views;
     (d) Other communities in the United States have established conservation markets in which landowners are paid to produce such restoration products; and
     (e) The use of such markets could provide much needed income to sustain the viability of Washington farmers and small forest landowners, meet mitigation and compliance needs, accelerate permitting of public infrastructure, and provide environmental benefits.
     (2) Therefore, the legislature finds that it is good public policy to evaluate the feasibility and potential effectiveness of conservation markets in Washington state that provide dual benefits of improving the viability of agriculture and providing environmental or fish and wildlife benefits.

NEW SECTION.  Sec. 2   (1) Subject to the availability of amounts appropriated for this purpose, the commission shall conduct a study to evaluate the feasibility and desirability of establishing farm-based or forest-based conservation markets in Washington. The commission may enter into a contract with an entity that has the knowledge and experience of agriculture and of conservation markets for this effort. The commission, entity, or both shall:
     (a) Evaluate other conservation markets in operation in the United States that provide ongoing revenue to improve the long-term viability of family farms and small forestry operations, including those focused on water quality trading, endangered species conservation banking, rental of environmental benefits, and wetland banking, to determine relevant lessons for Washington conservation markets;
     (b) Collaborate with Washington farm organizations, small forestry landowner organizations, key farm community leaders, agricultural special purpose districts, local governments, and relevant natural resource agencies to:
     (i) Determine interests, needs, and concerns about participating in a conservation market;
     (ii) Assess the market-ready environmental maintenance, restoration, and enhancement products that could profitably and dependably be produced on farms and small forestry operations, including endangered species habitat, wetlands, water quality treatment, carbon sequestration, biodiversity, and other fish and wildlife habitat; and
     (iii) Identify opportunities for conservation markets that could provide ongoing revenue to improve the long-term viability of family farming and small forestry operations and could supplement existing conservation programs currently used by landowners, such as the conservation reserve enhancement program, and increased use of the public benefit rating system;
     (c) Work with the Washington state department of transportation, utility districts, local road departments, and other public agencies to determine potential demand for restoration products produced on farms and small forestry operations to fulfill upcoming mitigation and compliance needs. The underlying analysis shall emphasize demand associated with construction of roads, utilities, and other public structures, as well as periodic repermitting of wastewater and other public utilities;
     (d) Forecast market activity, including the potential supply of restoration products, including those produced through existing restoration programs, and the potential demand for such products to address mitigation, compliance, and other environmental needs and other market demands. This analysis shall also identify services, materials, technical assistance, financing, and other support that would facilitate the use of conservation markets;
     (e) Consult with the Washington departments of ecology and fish and wildlife, the United States army corps of engineers, and local government permitting agencies to determine their willingness to use farm-produced restoration products to fulfill mitigation and compliance needs and also evaluate changes in rules and policy that would facilitate permitting of conservation market activities;
     (f) Consult with the Northwest Indian fisheries commission and individual Indian tribes to determine their interest in and potential support of conservation markets;
     (g) Coordinate with the department of agriculture regarding the "Future of Farming" project, the William D. Ruckelshaus Center on its activities relating to chapter 353, Laws of 2007, the office of farmland preservation and the office's efforts to retain farmland in agricultural production, the Washington biodiversity project, the department of ecology regarding its "Mitigation that Works" project, and the office of regulatory assistance on its integrated project review and mitigation project to ensure consistency with these efforts; and
     (h) Develop findings and recommendations on the feasibility and desirability of creating farm-based and forest-based conservation markets in Washington state.
     (2) If the study determines that farm-based conservation markets are feasible and desirable, the commission, contracting entity, or both, shall conduct two demonstration projects in Washington farm communities. The commission, entity, or both shall:
     (a) Select demonstration project areas that have a combination of enthusiastic farmers, a substantial supply of potential restoration products from farms, potential for public and private cost-sharing of project costs, and upcoming development or permitting activity that is likely to trigger significant mitigation and compliance demands;
     (b) Identify and map areas of highly productive agricultural activity and work with the departments of ecology and fish and wildlife to identify locations of high-priority wetland and habitat restoration or water quality improvement to ensure that conservation market-driven restoration does not infringe on highly productive farmland;
     (c) Identify up to three potential credit transactions in each demonstration project area and work with relevant farmers, permittees, and permitting agencies to facilitate transactions in mitigation and compliance credits;
     (d) Work with the department of ecology and other relevant permitting agencies to develop standards for approval of conservation market transactions to fulfill mitigation and compliance requirements and to identify priority areas for focusing conservation market sites based on the highest ecological benefits for the watershed and the restoration of ecosystem processes that minimize impacts to high quality agricultural lands;
     (e) Work with conservation districts to determine district interest in participation in a conservation markets program, including a determination of district capacity and resources to participate in such a program;
     (f) Evaluate options for facilitating conservation market transactions, including the use of farmer cooperatives, brokerage services, and banks; and
     (g) Develop findings on the results of the demonstration projects and the implications for broader use of farm-based conservation markets in Washington state.
     (3) As used in this act:
     (a) "Commission" means the Washington state conservation commission.
     (b) "Conservation market" means a farm or forest-based market for selling credits for wetland or habitat restoration or water quality cleanup to agencies in need of such credits to fulfill environmental mitigation, compliance requirements, and other environmental needs. The term shall also be broadly interpreted to include any program that provides ongoing revenue to sustain the long-term viability of farms and small forestry operations as a result of maintaining or enhancing environmental benefits such as open space, fish and wildlife habitat, floodwater dispersal, water filtration, buffers from more intense development, or any other environmental benefit resulting from the ongoing operation of the farm.
     (c) "Small forest landowner" has the same meaning as in RCW 76.09.450.
     (4) The commission shall present findings and recommendations from the conservation markets study to the governor and appropriate committees of the legislature by December 1, 2008. The findings and recommendations shall include:
     (a) Findings regarding the match between the availability of farm-produced and forestry-produced restoration products and the demand for such products associated with mitigation and compliance for public agency projects and activities in the demonstration project area;
     (b) Findings regarding the interests and capabilities of farmers, small forest landowners, public development agencies, and permitting agencies to participate in the demonstration conservation market;
     (c) Findings regarding the likelihood that farm-based and forest-based conservation markets could provide a successful mechanism for addressing mitigation, compliance, and other environmental needs for public construction projects and permitting of public utilities; and
     (d) Recommendations on whether to proceed to the initiation of demonstration projects.
     (5) If the project proceeds into the demonstration project phase, the commission shall present findings and recommendations regarding the conservation markets' demonstration projects to the governor and appropriate committees of the legislature by December 1, 2009. The findings and recommendations shall include:
     (a) Findings on the ability to produce conservation market-ready restoration and clean-up projects without infringing on high-quality farmland;
     (b) Findings on standards for review and approval of conservation market transactions in permitting processes;
     (c) Findings on potential conservation market transactions in the demonstration project areas;
     (d) Recommendations on measures that the Washington state department of transportation and other state agencies can take to facilitate their use of conservation markets to fulfill mitigation and compliance needs and waterfowl or wildlife habitat enhancement goals;
     (e) Recommendations on support services that could be provided by state agencies to facilitate conservation markets throughout Washington, including but not limited to financing, permit assistance, technical assistance, materials, and other services.
     (6) This section expires December 31, 2009."