I covered the messy breakdown of the Carousel/Destiny USA project in Syracuse earlier this week. In short, the Destiny USA project was selected as a green "demonstration" project under the 2004 Green Bonds program. $255 million in tax exempt bonds were issued on behalf of the project, the revenue of which was supposed to be used to implement the green features of the project. As of now, none of the green features have been implemented, and the developer has intimated that even if the project is fully built out, the green features will not be included. The IRS will have to decide whether to rescind the tax exempt status of the bonds for failing to meet the green requirements.
I have written at length about creating effective green incentives and regulations (see my Regulating Green Series here). For me, the most interesting part of this debacle is what it reveals about a major green incentive program. The Green Bonds program was developed as a part of the America Jobs Creation Act of 2004. In theory, the program was intended to:
finance environmentally friendly development. The objective is to reclaim contaminated industrial and commercial land (brown fields), and encourage energy conservation and the use of renewable energy sources.
Although the goals of the Green Bonds program were clearly noble, as I see it the program was doomed from the start. No market rate project in 2005 could have met all of these requirements. Thus, the proponents of the projects had reason to overstate the green components of their projects to access $2 billion in tax free capital for the projects.
According to the IRS Guidance (available here) $2 billion in AAA tax exempt bonds were authorized by the Federal government to be awarded to four demonstration projects. To qualify for the bonds, the four projects in aggregate had to:
- Reduce energy consumption by more that 150 megawatts annually compared to conventional generation;
- Reduce daily sulfur dioxide emissions by at least 10 tons compared to coal generated power;
- Expand by 75% the domestic solar PV market in the United States as compared to the expansion of that market from 2001-2002, which was 14.424 megawatts (which means an aggregate increase of approximately 11 megawatts, or an average of almost 4 megawatts of PV power per projects);
- Use at least 25 megawatts of fuel cell energy generation.
In addition, each project had to be at least 1,000,000 square feet or 20 acres and:
- At least 75% of the square footage had to be LEED certified;
- The wood had to be certified under the Sustainable Forestry Initiative or the American Farm Tree System;
- Reclaim a brownfield site
Beyond the green features, the projects also had to create at least 1000 construction jobs and 1,500 full time equivalent jobs.
- Using green building design, construction and operation principles to obtain the highest levels of certification from the U.S. Green Building Council’s Leadership in Energy and Environmental Design
- Retrofitting more than 100 construction vehicles with diesel particulate filters and using clean fuel, which will reduce emissions by nearly 85 percent;
- Implementing techniques to reduce idling of vehicles during construction
- Becoming partners in EPA’s Energy Star and WaterSense programs,
which require the use of energy- and water-efficient appliances;
- Using over 3,000 tons of coal ash in place of using newly-manufactured Portland Cement, which will reduce greenhouse gases by over 3,000 tons.
As a policy measure, the green bonds were destined to be ineffective. For a green incentive to be truly beneficial, it needs to set out goals that stretch its recipients to higher levels of sustainability, but not so pie-in-the-sky that they create an incentive to greenwash their projects. This is a tough balance to strike. Doing so requires that the regulatory bodies have a good understanding of the state of the green market that they are looking to incentivize. It is not enough to throw public money at any project claiming to be green. The result is projects like Destiny USA, which give a bad name to green building and public financing of green projects.
By contrast, good investment in green projects can bring real benefits. I analyzed the investment of ARRA funds in green projects. Per public dollar, these investments were among the most efficient ways of creating jobs of all of the ARRA money spent. (See my analysis here). As Congress debates the value of continuing public investment in green projects and renewable energy, the debate must not only be about whether, but how, the support will be crafted and implemented. The road to green is paved with good intentions.