En Banc D.C. Circuit: EPA’s $20B Climate Fund Termination Unlawful

In a rare en banc rehearing, the U.S. Court of Appeals for the D.C. Circuit has delivered a significant rebuke to the Trump administration’s aggressive interpretation of executive spending authority. The divided court held that the EPA’s cancellation of congressionally appropriated green bank grants was unlawful, setting up a likely high-stakes Supreme Court showdown over the Impoundment Control Act and the limits of agency discretion.

A divided en banc panel of the U.S. Court of Appeals for the D.C. Circuit ruled on August 4, 2026, that the Trump administration unlawfully terminated billions of dollars in grants intended for clean energy projects, dealing a significant blow to the administration’s early efforts to unwind climate policies from the Biden era. The ruling blocks the Environmental Protection Agency (EPA) from clawing back already-disbursed funds under the $20 billion Greenhouse Gas Reduction Fund, commonly known as the “green bank,” which Congress created to finance small-scale clean energy initiatives. However, the decision is stayed for several days to give the EPA an opportunity to seek intervention from the Supreme Court, leaving the fate of the program in limbo.

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The program was designed to leverage the $20 billion to mobilize private capital, so the delay itself has stalled billions in potential economic activity.

The legal dispute traces back to early 2025, when EPA Administrator Lee Zeldin froze and then terminated grants awarded to Climate United Fund and other nonprofits tasked with administering the green bank. Zeldin accused the recipients of mismanagement and potential fraud, allegations the groups strongly denied. The nonprofits sued, arguing that the termination violated the constitutional separation of powers and the Impoundment Control Act, which requires the executive branch to spend money appropriated by Congress. A lower federal court initially ruled in favor of the nonprofits, but a divided three-judge panel of the D.C. Circuit overturned that decision in September 2025, holding that the EPA had broad discretion to cancel the grants without facing charges of illegality in federal court. The full court’s decision to rehear the case en banc is a rare procedural step, signaling the importance of the issues at stake.

The en banc ruling, which was described as “closely divided,” directly repudiates the panel’s reasoning. By finding the termination improper, the majority likely concluded that the EPA’s actions exceeded its statutory authority or violated the nondiscretionary duty to disburse appropriated funds. The decision implicates fundamental questions about the scope of executive power over federal spending, an area where the Supreme Court has recently shown interest in enforcing the separation of powers more rigorously. For the nonprofits, the ruling validates their claim that there was “no legal basis” for terminating the awards and clawing back funds that had already been deposited in their accounts.

The court’s stay underscores the high stakes. The EPA is expected to petition the Supreme Court promptly, arguing that the president has inherent authority to control executive branch spending and that judicial review of grant cancellations is limited. If the justices take the case, it could set a landmark precedent on whether the executive can unilaterally withhold funds appropriated by Congress for policy reasons, an issue with implications far beyond the green bank. The decision also affects other Biden-era climate programs that the Trump administration has targeted, as it reinforces the principle that agencies must have a lawful basis to cancel congressionally authorized grants.