The court decision Tuesday allowing the Trump administration to repossess billions of dollars in climate grants could shutter the single-biggest program in the Inflation Reduction Act, a green bank that Democrats have sought to create for decades.
The ruling found that EPA has the authority to unilaterally cancel all grants under the $20 billion Greenhouse Gas Reduction Fund, a sprawling Biden-era program that aimed to provide low-interest loans for renewable energy projects in poorer communities across the United States. EPA Administrator Lee Zeldin has derided it as a “green slush fund.”
The 2-1 decision by a panel of the U.S. Court of Appeals for the District of Columbia Circuit voided a district court’s injunction in April that would have allowed eight nonprofit awardees that are administering the program to access billions of dollars in grants, while their challenge to the agency’s termination of those grants wound its way through the courts.
The decision Tuesday takes EPA one step closer to recovering the balance of those awards — about $17 billion. Those dollars have been frozen in accounts at Citibank since March. The judges prevented the Trump administration from clawing back the money for one week, giving the nonprofits a window of time to ask the full appeals court to hear the case en banc.
EPA celebrated the panel’s decision, which concurred with the administration’s arguments that any challenge to EPA’s grant terminations was only a contracts dispute, rather than a much bigger fight to preserve the Biden-era green bank program. The ruling said that if EPA breached its contracts with the nonprofits when it canceled them, they can seek monetary damages from the Court of Federal Claims. But the program itself would cease to exist.
“It’s fantastic to see reason prevail in the court system,” EPA said in a statement.
The agency repeated Zeldin’s arguments that the climate grant program had been marked by “self-dealing and conflicts of interest, unqualified recipients, and intentionally reduced agency oversight.” Justice Department attorneys have not made most of those claims in recent court filings or at the appeals hearing in May, focusing instead on the administration’s authority to terminate grants that conflict with its policies.
The nonprofits, meanwhile, signaled that they plan to appeal the decision. The Biden administration selected eight nonprofits and nonprofit coalitions to run the Greenhouse Gas Reduction Fund program, which was intended to expand lending nationally for renewable energy, electric transportation and zero-emissions housing.
Amir Kirkwood, CEO of the Justice Climate Fund, an awardee that is party to the suit, said in a statement that his group is “committed to pursuing all options to restore its funding under the EPA-approved grant agreement, so that we can deliver on our promise to fund these projects in communities across the country.”
Tuesday’s ruling was the latest setback for federal grantees suing the Trump administration to stop their awards from being terminated for policy reasons. The Supreme Court last month permitted the National Institutes of Health to not pay — for now — 1,200 health research grants that the Trump administration deemed were related to diversity, equity and inclusion issues. A district court judge cited that ruling on Friday in a decision that threw out a case challenging EPA’s bid to cancel $2.8 billion in IRA environmental justice grants.
Those legal and political obstacles could have lasting impacts for for the private sector’s willingness to participate in federal programs of all stripes, said David Super, a law professor at Georgetown University Law Center.
“The courts are making it very, very difficult to enforce binding financial commitments the federal government has made,” he said. “That will make it very difficult in the future to enforce commitments by any administration — including the current one — in court. Which is going to make the private sector much more reluctant to deal with the federal government if its commitments are unenforceable.”
No fraud, no problem
Judges Neomi Rao and Gregory Katsas, who were both appointed to the D.C. Appeals Court in President Donald Trump’s first term, argued in their majority opinion in the Greenhouse Gas Reduction Fund case Tuesday that the grantees’ claims were “essentially contractual,” and thus fell under the jurisdiction of the federal claims court not the district court.
Both jurists rejected the nonprofits’ claims that EPA’s termination of the grants without notice violated federal grant regulations or the Administrative Procedures Act, which establishes governmental decision-making procedures.
The Greenhouse Gas Reduction Fund awardees argued in oral arguments that the government acted arbitrarily in terminating their awards, because it offered no facts or evidence of mismanagement or wrongdoing that would justify EPA retaking control of obligated funds and breaking the contracts. Judge Tanya Chutkan of the U.S. District Court for the District of Columbia wrote in April that the nonprofits’ argument would likely prevail when she issued the preliminary injunction granting them access to their funding.
But Rao and Katsas wrote Tuesday that “district courts have no jurisdiction to hear claims that the federal government terminated a grant agreement arbitrarily or with impunity.”
The nonprofits also argued that EPA was violating the Constitution by seeking to abolish a congressionally mandated program by canceling all of its grants. The Inflation Reduction Act that created the program in 2022 gave EPA until Sept. 30, 2024, to obligate the money, and the awardees argued that EPA had no intention of finding other grantees to facilitate lending for things like wind and solar installations and electric vehicle charging stations. The Trump administration, which has been hostile to those technologies, argued that it has the authority to cancel whole programs that are misaligned with its policy priorities.
Rao and Katsas wrote in their majority opinion that the nonprofits’ attorneys were conflating alleged violations of statute — in this case the IRA — with administrative actions that violated the separation of powers between the executive and legislative branches as laid out in the Constitution.
EPA hadn’t violated either in terminating the IRA awards, the judges said.
“The grantees have identified no statutory provision that barred the cancellation of the grants,” they wrote.
But Rao and Katsas noted in their opinion that EPA’s attorneys said repeatedly in filings and court appearances that their intention was to select new grantees and administer the program. EPA has since filed a notice with the court that it believes Trump’s tax and spending law, known as the One Big Beautiful Bill Act, bars the agency from administering the Greenhouse Gas Reduction Fund.
The judges wrote: “Even assuming the statute required EPA to obligate all $20 billion by the appropriation deadline, EPA did so. EPA later canceled the grants, but the Act does not limit the Administrator’s discretion to withhold or terminate grants. And EPA repeatedly represented that it planned to recommit the funds.”
In their opinion, Rao and Katsas referenced the Supreme Court’s August ruling that overturned a lower court’s decision that would have required the National Institutes of Health to pay out grants to health researchers.
“The Court’s reasoning requires respect and strongly supports our conclusion that the grantees’ arbitrary and capricious challenge to the grant terminations is a disguised contract claim that cannot be heard in district court,” they wrote.
But Super of Georgetown noted that one of the five Supreme Court Justices who sided with the majority in allowing NIH to avoid paying out the grants — Amy Coney Barrett — issued a concurring decision in the case clarifying that district courts could have a role in adjudicating whether agencies followed legal requirements in terminating grant awards.
“Justice Barrett, who provided the decisive vote, said that you can’t get your money in district court, but if they are using policies that you believe are illegal, you could challenge those under the Administrative Procedure Act in district court,” Super said.
Judge Nina Pillard, the third member of the appellate panel that issued Tuesday’s ruling, wrote in her dissenting opinion that by “characterizing this case as merely a contract dispute … the majority baselessly strips the district court of authority to decide these important claims.”
“Dismissal of this case presumably will enable the government to carry out its announced plan to immediately and irrevocably seize plaintiffs’ funds,” said Pillard, an Obama appointee.
Doing so would alter the separation of powers that requires federal agencies to respect the will of Congress, Pillard said.
