Qualified Energy Conservation Bonds
Qualified energy conservation bonds (QECBs) are tax credit bonds the proceeds of which are used for “qualified conservation purposes,” with a broad definition including capital expenditures, research grants, and demonstration projects that implement or develop “green” energy technology that reduces greenhouse gas emissions.
- The tax credit for QECBs is 70% of the amount deemed necessary to market the QECBs at par value.
- QECBs were initially created in 2008 with a one-time $800 million national limitation. The American Recovery and Reinvestment Act (ARRA) increased that amount to a total of $3.2 billion limitation, allocable among the states by the U.S. Department of the Treasury on the basis of population.
- Up to 30% of a state’s QECB allocation may be used for private activity bonds (PABs). ARRA states that QECBs will not be treated as PABs if the bond proceeds are used for capital expenditures to implement “green community programs” aimed at reducing energy consumption in private buildings. In other words, 100% of a QECB allocation may be used for green community programs, even if the beneficiaries of those programs are private parties.
- H.R. 2847, passed in March 2010, entitles the bond issuer to make an irrevocable election to receive a direct payment from the U.S. Treasury rather than allowing the tax credit to accrue to the bondholder. The direct payment comes in the form of a refundable tax credit to the issuer in lieu of a tax credit to the bondholder.
See also frequently asked questions about QECBs.
Application to Energy Financing Programs
QECBs may provide funding for projects to be owned by a public entity and, subject to the limits stated above, may also be used for similar projects owned by or for the direct benefit of private parties.