Qualified Energy Conservation Bonds or QECBs are tax credit bonds. They provide the bond purchaser a quarterly tax credit that can be applied against their federal tax liability. There are a number of qualifications and requirements for the issuance and use of QECBs.
The Energy Improvement and Extension Act of 2008 authorized the issuance of Qualified Energy Conservation Bonds (QECBs). They may be issued and used by state, local and tribal governments to fund certain types of energy projects. The enabling legislation in October 2008 set a limit of $800 million on the volume of energy tax credit bonds that may be issued by local and state government. The amount was later expanded to an allowable volume of $3.2 billion under the American Recovery and Reinvestment Act of 2009.
Each state (or tribe) receives an allocation based on population. Each state must come up with a mechanism for awarding allocations to individual projects.
In general, bondholders of tax credit bonds like QECBs receive federal tax credits in lieu of bond interest. The bond issuer pays back only the principal of the bond. The tax credit rate is set by the U.S. Treasury Department. In the case of energy conservation bonds, QECB bondholders will receive only 70% of the full rate set by the Treasury Department. Tax credits are given out quarterly to offset the tax liability of the bondholder. Credits in excess of the bondholder’s liability may be carried forward to the succeeding tax year. No refunds are given out.
Credits from energy conservation bonds are treated as taxable income for the bondholder.
In March 2010 the Qualified Energy Conservation Bond program was expanded, allowing these bonds to be issued as taxable direct-payment subsidy bonds.
QECBs vs. CREBs
As tax credit bonds, QECBs are similar to Clean Renewable Energy Bonds or CREBs. In contrast to
CREBs, however, QECBs are not subject to an application and approval process with the U.S. Department of Treasury.
Permitted Projects of QECBs
The American Recovery and Reinvestment Act authorizes local communities to use their QECB allocation to fund municipal energy-efficiency projects. This includes capital expenditures for energy efficiency in public-owned buildings, implementing green community programs, renewable energy production, mass commuting facilities that reduce energy consumption, research and development applications, public education campaigns for the promotion of energy efficiency, etc.
Qualified Energy Conservation Bonds need to be repaid; hence the source of bond repayment must be identified. Up to thirty percent of the QECB allocation can be allocated for private activities and must be used for capital expenditures only.