Appeals court blocks EPA’s immediate clawback of $20 billion in climate grants

A divided federal appeals court is preventing the Environmental Protection Agency, for now, from carrying out its March 11, 2025, termination notice against nonprofit groups awarded $20 billion through the Greenhouse Gas Reduction Fund.

The U.S. Court of Appeals for the D.C. Circuit filed its judgment on August 4, 2026, affirming paragraph two of a preliminary injunction that bars EPA from effectuating the notice. The ruling protects the grants from the specific termination action and an immediate clawback of already-disbursed funds while the litigation continues. It does not order new distributions, restore ordinary program operations or decide the final contractual status of every award.

What the court decided

Six judges voted to affirm paragraph two of the preliminary injunction. They concluded that EPA, in attempting to terminate the grants and claw back funds already disbursed into the nonprofits’ bank accounts based solely on a policy disagreement with Section 60103 of the Inflation Reduction Act, likely contravened the law’s mandatory appropriation. The judges also noted that EPA had not shown it would refrain from taking those steps if the injunction were lifted.

The remaining portions of the preliminary injunction were affirmed by an equally divided court. That split leaves unresolved important questions about whether the 2025 repeal affects EPA’s ability to suspend or terminate the grants in the future and whether other grounds for preliminary relief remain available.

Four judges would have vacated paragraph two. They reasoned that, after the repeal, EPA likely could terminate the grants without violating the original Inflation Reduction Act provision. The judgment therefore preserves temporary protection without resolving the ultimate merits or contractual disposition of the awards.

What is at stake

Congress appropriated $27 billion for the Greenhouse Gas Reduction Fund through the 2022 Inflation Reduction Act. In August 2024, EPA awarded $20 billion to eight nonprofits through the National Clean Investment Fund and the Clean Communities Investment Accelerator.

The five nonprofit plaintiffs identified in the earlier appellate opinion include Climate United Fund, which received about $6.97 billion; the Coalition for Green Capital, $5 billion; Power Forward Communities, $2 billion; Inclusiv, $1.87 billion; and Justice Climate Fund, $940 million.

The grants were structured through Citibank, which held funds as a financial agent for the federal government. The program was intended to support projects involving clean energy, housing, energy costs and environmental justice. The litigation and related court orders have restricted the recipients’ ability to rely on the funds while the dispute proceeds.

Why EPA terminated the grants

EPA says it acted after raising concerns about conflicts of interest, the qualifications of recipients, oversight and possible waste, fraud or abuse. The agency referred concerns about financial management, conflicts and oversight to the EPA inspector general. Those are EPA’s stated grounds and allegations; they are not established findings in the August 4 judgment.

EPA’s program page says President Donald Trump signed legislation on July 4, 2025, that repealed the program authority and rescinded funding for the Greenhouse Gas Reduction Fund. The court’s earlier opinion described the law as repealing Section 60103 of the Inflation Reduction Act and rescinding unobligated balances. That action creates a separate legal issue from whether EPA may automatically terminate grants that had already been obligated or disbursed.

What the ruling does not mean

The decision is not a final victory for the nonprofit plaintiffs. It does not say that all $20 billion must ultimately be spent, require EPA or Citibank to make new distributions, or guarantee that projects will resume at full speed.

Climate United said it will pursue further legal steps to unfreeze funds, arguing that EPA lacked a legal basis to terminate the grant and claw back money already disbursed. That is the recipient’s interpretation of the ruling, and the court left major questions for further proceedings.

What happens next

The next consequential steps are likely to come in the D.C. District Court and through the grant agreements’ contractual closeout process. The appellate judgment specifically identified questions about whether EPA intends to terminate the primary grantees’ agreements, how closeout should determine the disposition of funds and how the repeal affects subgrantee funds when those subgrantees do not have direct agreements with EPA.

For communities and organizations expecting climate, housing, energy-cost or environmental-justice financing, the practical message is limited: the August 4 judgment prevents the specific March 11 termination notice from taking effect for now, but it does not make new funding available.

Sources

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