by Adam James and Bracken Hendricks
Yesterday, the Obama Administration’s Better Buildings Challenge announced almost 300 million square feet in new building energy upgrades, along with new public tax guidance streamlining the use of Qualified Energy Conservation Bonds.
A bit of background. The Better Buildings Initiative was launched by President Obama on February 3, 2011 with the aim of making commercial buildings 20 percent more efficient by 2020. This would reduce energy bills for these businesses by $40 billion per year and create 114,000 new jobs — particularly in the construction and manufacturing sector. The unique program builds public-private partnerships by challenging the private sector to act, and supporting them with tax and other incentives.
The Center for America Progress worked closely with President Obama and President Clinton in crafting this challenge for public and private partnerships, in developing the initial rounds of commitments, and in helping to launch the program. We’re gratified to see this innovative effort take hold and continue to scale as an enduring legacy of the Obama administration, as it undertakes the work of market transformation in earnest.
Last year at the Clinton Global Initiative, commercial partners announced commitments from 60 major private sector partners, totaling about 1.6 billion square feet of commercial and industrial space. It also included 300 manufacturing plants.
Additionally, nearly $2 billion in financial commitments were put forward to help structure innovative financial products to meet real estate retrofit needs. This included an unlikely coalition between the AFL-CIO and the U.S. Chamber of Commerce. In total, these commitments would generate $1.4 billion in savings and energy costs. To top it off, the President mandated $2 billion in federal building energy upgrades utilizing Energy Savings Performance Contracts to retrofit public buildings — promising improvements to tax incentives to streamline investment.
Yesterday, the Obama Administration delivered. The 300 million square feet in building upgrades will amount to about $300 million in estimated investments, and bring the number of public and private sector partners to more than 100. The Administration also kept their promise on tax incentives, with their guidance on Qualified Energy Conservation Bonds.
A Qualified Energy Conservation Bond is issued by a state or local government when 100 percent of the project proceeds are used for “qualified conservation purposes.” Qualified conservation includes capital expenditures that reduce energy consumption by 20 percent or that help green community programs. The American Recovery and Reinvestment Act raised the national bond volume cap from $800 million to $3.2 billion. These funds were then allocated based on population.
The guidance issued by the Treasury department yesterday makes a few important clarifications.
The first clarification was on what qualifies as a “capital expenditure for energy conservation purposes,” giving property managers more clarity on what kind of expenditures are tax-exempt. The second clarification was on how to measure the 20 percent reduction in energy consumption. The third was on what qualifies as a Green Community Program
This guidance creates certainty for investors and policymakers and sets the stage for a wave of new investments in commercial efficiency.
These clarifications are important because unclear guidelines left these bonds drastically under-utilized. As of May, only 20 percent of the bonds had been issued, with 33 states not touching their allocations. That leaves about $2.5 billion to be spent. While the $300 million in private sector commitments in building upgrades is a massive sum, the Treasury Department’s guidance may open the floodgates for that $2.5 billion in capital for local governments — thus reducing energy consumption, and creating jobs.
Adam James is a Special Assistant at the Center for American Progress; Bracken Hendricks is a Senior Fellow at the Center for American Progress