State Lands. The Department of Natural Resources (DNR) manages 5.6 million acres of state-owned public lands, which includes forestlands, aquatic lands, and state trust land that provides revenue to help pay for construction of public schools, universities, and other state institutions, and funds services in many counties.  The Commissioner of Public Lands (Commissioner) is a separately elected statewide official and the administrator for DNR. The Commissioner chairs the state's Board of Natural Resources (Board), which sets policy for the management of state lands and also the Forest Practices Board, which regulates forest operations.
 
Valuable materials that are derived on state forestlands and state-owned aquatic lands may be sold, and the funds from those sales must be used in specified ways. 

Cap and Invest Program. In 2021, the Legislature passed the Climate Commitment Act (CCA) and directed the Department of Ecology (Ecology) to implement a cap and invest program (Program) to reduce greenhouse gas (GHG) emissions consistent with the statewide statutory emissions limits.
 
Starting January 1, 2023, covered entities must either reduce their emissions or obtain allowances to cover any remaining emissions. The total number of allowances will decrease over time to meet statutory limits. The Program must track, verify, and enforce compliance through the use of compliance instruments. A compliance instrument is an allowance or offset credit issued by Ecology or a trading program that has linked with Washington's Program. One compliance instrument is equal to one metric ton of carbon dioxide equivalent. 

Ecosystem Service Projects. DNR is authorized to enter into contracts for ecosystem service projects (ES projects) on public lands, consistent with relevant laws, on terms and conditions acceptable to DNR, after approval by the Board, only for the purpose of generating additional revenue by providing ecosystem services.

Ecosystem services are the benefits that the public enjoys as a result of natural processes and biological diversity. ES projects include carbon sequestration and storage, air and water filtration, climate stabilization, and disturbance mitigation.   

Any ES project on public lands must: 

• be limited to afforestation, reforestation, and aquatic projects; 
• be consistent with the policies of the state to support the contributions of all working forests and the synergistic forest products sector to the state's climate response;  
• support statutory workforce development goals and investments; 
• be consistent with ongoing forest health planning efforts and investments; and
• result in an increase in revenue to beneficiaries as compared to expected revenue that may exist in absence of the ES project. 

Any ES project may not limit or impair the exercise of tribal treaty and reserved rights, existing tribal access to lands managed by DNR, or preexisting agreements between tribes and DNR. 

DNR's authority to enter into a contract that results in payment of ES projects is conditional on the project being consistent with DNR's management of the underlying public land for agriculture or commercial timber harvest and ensure DNR meets its fiduciary responsibility to the state's trust beneficiaries. An ES project, or the sum of all ES projects may not prevent DNR from managing state lands and forestlands for sustained yield as required by law. 

DNR may:

• directly offer ecosystem services credits for sale with established compliance or verifiable and established voluntary ecosystem services marketplaces;
• enter into contracts with ES project developers or brokers through public auction or by direct negotiation to bring ecosystem services credits to the market, subject to approval by, and rules adopted by, the Board; and
• enter into contracts or agreements with third-party ES project developers or brokers for purposes that include determining the feasibility of entering into an ES project contract, establishing a payment for an ES project with an ecosystem services marketplace, and marketing and selling credits on an established ecosystem services marketplace.

Contracts for ES projects may last up to 125 years.  Proceeds from contracts must be deposited into the appropriate account in the State Treasury and distributed in the same manner as money derived from the sale of valuable materials under current law.  

DNR must publish notice of intent to enter contract negotiations on its website within 90 days preceding the commencement of negotiations.  DNR may conduct additional advertising that it determines is in the best interest of the state.
 
Upon execution of a contract, DNR must report the term of the contract and projected revenues to the Board.  Before entering into a sale of ecosystem services credits, the Board must set a minimum payment and approve contract terms valid for at least 180 days.  The Board may reestablish the minimum payment at any time.  DNR may set the final payment, which must be based on current market prices.

Report. DNR must submit a report to the Legislature and the Office of Financial Management by December 1, 2024, that includes information on payment for ES projects entered into or committed to by DNR, including type of projects, the number of acres involved, and projected revenues; and any challenges or barriers encountered by DNR in the process of attempting to implement carbon offset or payment for ES projects and recommendations to address those challenges and barriers, including the operability of carbon offset rules adopted under the CCA.