I covered the messy breakdown of the Carousel/Destiny USA project in Syracuse last week.

In short, the Destiny USA project was selected as a green "demonstration" project under the 2004 Green Bonds program. Some $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:

1. Reduce energy consumption by more that 150 megawatts annually compared to conventional generation;
2. Reduce daily sulfur dioxide emissions by at least 10 tons compared to coal generated power;
3. Expand by 75 percent 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);
4. 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: 

1. At least 75 percent of the square footage had to be LEED certified;
2. The wood had to be certified under the Sustainable Forestry Initiative or the American Farm Tree System;
3. Reclaim a brownfield site.