En Banc Ruling: EPA Cannot Claw Back $20B in Climate Grants, Supreme Court Next

For legal and compliance professionals, the en banc reversal provides a critical case study in the tension between the Tucker Act and the Administrative Procedure Act when challenging federal grant terminations. The court’s split on jurisdiction—coupled with a majority’s insistence that policy disagreement doesn’t justify clawback—offers immediate lessons for structuring and litigating government contract disputes.

The U.S. Court of Appeals for the D.C. Circuit issued an en banc ruling on August 4, 2026, preventing the EPA from blocking approximately $20 billion in clean energy grants that had been awarded to a group of nonprofit organizations under the Greenhouse Gas Reduction Fund. The decision reverses a September 2025 panel ruling that had sided with the EPA and reinstates an April 2025 injunction ordering the agency to disburse the funds. This marks a significant legal setback for the Trump administration’s effort to roll back Biden-era climate programs, but the battle is far from over, as the EPA may appeal to the Supreme Court, and the distribution remains stayed in the meantime.

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The $20 billion in grants was expected to mobilize an estimated $150 billion or more in total investment over the coming decade.

The core dispute centers on the scope of executive authority over funds already appropriated by Congress and committed via executed grant agreements. The Inflation Reduction Act of 2022 created the $27 billion Greenhouse Gas Reduction Fund to finance clean energy projects, with a focus on reaching underserved communities. By early 2025, the EPA had awarded roughly $20 billion to eight entities, including Climate United Fund and the Coalition for Green Capital, which then began deploying loans for renewable energy, efficiency, and other green initiatives. In March 2025, newly confirmed EPA Administrator Lee Zeldin froze the disbursements, asserting the grants conflicted with agency priorities and might be tainted by fraud, waste, and abuse. The nonprofits sued, and a district court issued an injunction in April 2025 requiring the EPA to release the money.

The government appealed, and in a 2-1 vote last September, a three-judge D.C. Circuit panel overturned the injunction, largely on jurisdictional grounds—it said the plaintiffs should have brought their claims in the U.S. Court of Federal Claims, which hears monetary disputes against the government. The nonprofits then sought en banc review, and the full court’s 10-judge panel on Tuesday delivered a mixed but decisive result. Six judges voted to uphold the injunction’s provision that the EPA could not terminate the grants based solely on policy disagreement, although the court was evenly divided on the broader jurisdictional question. The effect was to restore the district court’s order and send a clear message that the executive branch lacks unilateral authority to rescind congressionally appropriated grants absent a contractual breach or specific statutory authority. The ruling emphasized that a clawback based purely on a change in political leadership or policy priorities would violate the separation of powers.

The decision has immediate and far-reaching implications. For the recipient nonprofits and their network of community lenders, it preserves access to billions in committed capital, allowing them to resume underwriting loans for solar installations, energy-efficiency retrofits, and other projects in low-income and disadvantaged areas. Climate United, which alleged it was owed $7 billion, said the ruling confirmed that “no legal basis” exists for termination. The Coalition for Green Capital also welcomed the decision, signaling that it would support affordable energy investments. However, the court’s stay on fund distribution—meant to give the EPA time to seek Supreme Court review—creates a period of uncertainty. Were the EPA to file a cert petition, the money could remain frozen for months, potentially chilling new lending and project development.

The financial and policy stakes are enormous. The Greenhouse Gas Reduction Fund is a cornerstone of the Biden administration’s climate finance architecture, designed to leverage private capital by using federal dollars as catalytic first-loss or credit-enhancement capital. The $20 billion in grants was expected to mobilize an estimated $150 billion or more in total investment over the coming decade. A prolonged freeze or eventual clawback would disrupt supply chains, stall job creation in the green sector, and undercut U.S. climate goals. Conversely, a final judicial affirmation that these grants are irrevocable would strengthen investor confidence in federally backed clean energy programs and potentially insulate future climate appropriations from political reversal.

Looking ahead, the Supreme Court will likely be asked to weigh in. The D.C. Circuit’s en banc decision revealed deep judicial fractures—four judges would have denied the injunction outright—which often signals a cert-worthy question. The government may argue that the Court of Federal Claims is the exclusive forum and that the executive retains inherent flexibility to manage agency budgets. The nonprofits will counter that the grant agreements are binding contracts, and that the Administration’s allegations of fraud were pretextual. The high court’s conservative majority has shown skepticism toward broad agency discretion in other contexts, but it has also been receptive to arguments about executive control over spending. The outcome could set a precedent for dozens of other EPA programs and more broadly for the government’s ability to renege on financial commitments made under previous administrations.