In a significant legal development, an appellate court has ruled in favor of the Environmental Protection Agency (EPA), supporting its decision to terminate grants awarded to nonprofit organizations under the Inflation Reduction Act (IRA). This decision marks a pivotal moment in the ongoing debate over the allocation and oversight of substantial climate-related funding authorized by Congress.
Background of the Case
The controversy began when EPA Administrator Lee Zeldin, appointed under the Trump administration, decided to cancel grants that had been distributed during the Biden era as part of the IRA. Zeldin justified the cancellations by stating that the grants did not align with the EPA’s current priorities and expressed concerns about potential fraud, though he did not provide specific evidence to support these claims.
Previously, a district court had ruled that Zeldin’s actions were arbitrary and capricious, suggesting that the cancellations lacked a reasonable basis. However, the recent appellate court decision overturns this ruling, granting the EPA the authority to rescind the grants.
Details of the Appellate Court’s Decision
The appellate court’s majority opinion, authored by two judges appointed during the Trump administration, concluded that Zeldin’s cancellation of the grants was lawful. The judges emphasized the government’s responsibility to ensure proper oversight and management of federal funds. In their decision, they referenced an undercover video produced by Project Veritas, a conservative activist group known for releasing selectively edited videos. The video purportedly raised questions about the administration of the grants, although its credibility has been a subject of debate.
Impact on Nonprofit Organizations
The termination of these grants has had a profound impact on several nonprofit organizations that had been awarded funding under the IRA. Notably, Climate United and Power Forward were among the recipients affected by the EPA’s decision.
Climate United had committed approximately $392 million to various projects, including $63 million for solar power developments in Oregon and Idaho, and an additional $31.8 million for solar initiatives in rural Arkansas. The sudden freeze of funds left these projects in jeopardy, disrupting plans and financial commitments.
Similarly, Power Forward had allocated $539 million towards its initiatives. The freezing of their accounts rendered them unable to pay outstanding invoices to contractors, causing significant operational challenges.
Legal and Financial Ramifications
The legal battle over these grants has been complex and multifaceted. In March, court filings revealed that the EPA, in conjunction with the FBI and the EPA’s Office of Inspector General, had instructed Citibank to freeze funds that had already been deposited into the nonprofits’ accounts. These funds were primarily intended for loans that would be repaid and recycled to support additional projects.
Zeldin’s concerns about potential fraud were a central point in the EPA’s justification for the grant cancellations. However, a thorough investigation conducted by the interim U.S. Attorney in Washington, D.C., did not uncover substantial evidence of fraudulent activity. This lack of concrete evidence has led to criticism of the EPA’s actions and raised questions about the motivations behind the grant terminations.
Broader Context and Implications
This appellate court ruling is part of a broader pattern of actions taken by the Trump administration to reassess and, in some cases, retract funding allocated under the IRA. In May 2025, the Department of Energy announced plans to claw back $3.7 billion in awards previously granted for clean energy and manufacturing projects. This move affected a range of companies, from large corporations like Exxon Mobil to startups in the clean technology sector.
Additionally, the administration has signaled intentions to dismantle programs like Energy Star, which has historically helped consumers save billions in energy costs. These actions reflect a significant shift in federal priorities concerning climate change and energy policy.
Future Prospects and Legal Considerations
The plaintiffs in this case, including the affected nonprofit organizations, are likely to appeal the appellate court’s decision to the U.S. Supreme Court. If the Supreme Court declines to hear the case or upholds the appellate court’s ruling, the EPA could still face potential liabilities amounting to billions of dollars, as suggested by legal analyses conducted by the agency’s own attorneys.
This case underscores the complexities involved in federal grant allocations, the importance of clear and consistent policy directives, and the potential consequences of abrupt shifts in administrative priorities. As the legal proceedings continue, stakeholders across the environmental and nonprofit sectors will be closely monitoring developments, recognizing the profound implications for future climate-related initiatives and funding structures.
