This story is courtesy of Inside Climate News

The Environmental Protection Agency’s recent decision to terminate a series of multibillion-dollar climate grants and enlist the FBI to investigate agency employees and grant recipients has sparked widespread alarm and called into question the agency’s authority to withhold Congressionally approved federal funds.

In a letter dated March 11 that Inside Climate News reviewed, EPA formally revoked a $7 billion grant awarded to the Maryland-based Climate United Fund, citing “programmatic fraud, waste, and abuse” within the larger Greenhouse Gas Reduction Fund—an allegation the nonprofit denies.

The letter, signed by Acting Deputy Administrator W.C. McIntosh, said EPA identified deficiencies with the grant, such as circumventing key oversight measures, and said the agreement does not contain enough protections against potential violations of the Constitution. EPA ordered Climate United to “cease all further program expenditures immediately,” freezing funds meant to finance solar projects, electric vehicle infrastructure and energy-efficient housing in disadvantaged communities.

Prior to the termination of the grant, Climate United filed a federal lawsuit on March 8 against both EPA and Citibank, demanding access to the funds the Trump administration froze in February, which were awarded under the Biden administration’s landmark Inflation Reduction Act.

The lawsuit argues that EPA has no legal basis to claw back money that was already transferred and accuses the agency of acting under pressure from fossil fuel interests.

“This program was designed to save money for hard-working Americans who are struggling to pay for groceries and keep the lights on. We’re going to court for the communities we serve—not because we want to, but because we have to,” Beth Bafford, chief executive officer of Climate United, said in a March 8 statement.

Talking to Inside Climate News on March 12, Brooke Durham, a Climate United spokesperson, said: “The vast majority of our almost $7 billion loan is still at Citibank and frozen … I would estimate it’s probably under $30 million [that has been drawn]. When you look at $7 billion, that’s still like a fraction of a percentage.”

She said that the funds have been frozen since Feb. 18 and EPA and Citibank offered no explanation for why the funds were frozen prior to the grant termination. Durham added that Climate United filed suit against Citibank and EPA on March 8 in the hopes of unfreezing the funds. Instead, on Tuesday, the EPA terminated the grant agreements for all eight awardees under the National Clean Investment Fund and Clean Community Investment Accelerator programs.

In a video message announcing the termination, EPA Administrator Lee Zeldin said the grants were terminated in part due to “misalignment with the agency’s priorities.”

“We have local projects on the ground right now who have drawn a portion of their loans that are already closed. We have a legal obligation to provide access to those dollars. We are not able to, and so those projects are stalled, which means small businesses are not able to make payroll, they can’t pay contractors, they can’t fulfill orders for American-made equipment,” Durham said.

In its suit, Climate United asked the court to issue a temporary restraining order against the freeze. In a hearing on Wednesday, a federal judge sharply criticized the agency for canceling the grants without presenting any evidence of wrongdoing, calling the administration’s justification weak and unsubstantiated. The judge stopped short of issuing a ruling on reinstatement of the funds, leaving grant recipients in limbo. If they don’t regain access to the funds, recipients said they may face layoffs and financial defaults by the end of the week. The complainants are hopeful about a court relief as the hearings on the case continue.  

Separately, Sen. Sheldon Whitehouse (D-RI) has raised alarms over what he characterizes as a politically motivated attempt to disrupt the GGRF. In a letter to Attorney General Pam Bondi and FBI Director Kash Patel, he called the probe a pretext to interfere with lawfully allocated funds.

“The funding process followed a centuries-old framework set out transparently in a contract between Citibank and the Department of the Treasury,” Whitehouse wrote, arguing that there is no legitimate basis for the inquiry.

The FBI has questioned EPA employees and subpoenaed GGRF recipients at the request of the U.S. Attorney’s Office for the Southern District of Florida. Whitehouse warned that if DOJ and FBI are complicit in an “unlawful plot,” they are crossing serious legal and ethical lines. “That kind of misconduct is itself a violation of law,” he cautioned, demanding transparency into what he called an “ominous episode.”

Another nonprofit, The Coalition for Green Capital, which received $5 billion from the GGRF, sued Citibank separately on March 10, trying to unfreeze funds that were supposed to be deployed to community lenders financing renewable energy projects.

“The Coalition for Green Capital filed a breach of contract claim against Citibank due to Citi’s refusal to disburse federal grant funds awarded by EPA under the National Clean Investment Fund,” CGC said in a statement, adding: “Citi’s actions have blocked CGC from deploying funds appropriated by Congress for energy projects to lower electricity costs and provide clean air and water for all Americans. CGC is seeking a court order compelling Citi to release the funds and honor its contractual obligations.”

In a March 11 statement, CGC called EPA’s actions an “unauthorized and unlawful attempt to terminate our grant,” and added they’re “considering all available legal options.”

The mounting legal challenges are raising questions about the administration’s justification for freezing or terminating billions of dollars in clean energy financing at a time when many of these projects are already in motion.

The EPA’s funding freeze is part of a broader rollback of the Biden administration’s climate initiatives. Since taking over the agency in January, Zeldin has aggressively gone after environmental regulations and federal clean energy investments, and has specifically targeted the $20 billion GGRF.

The GGRF was designed to unlock more than $100 billion in private capital, enabling communities across the U.S. to transition away from fossil fuels. Advocates say that by freezing or terminating the funds, the Trump administration is actively strangling projects already in motion.

“The EPA is stealing hard-working Americans’ money that was allocated to them by Congress. These are benefits that communities, families and the private sector were going to reap from Congress’s work that the EPA is now taking away,” said David Cash, a former EPA regional administrator for New England.

He emphasized that cutting off funding will deprive communities of potential energy cost savings, green job opportunities and infrastructure improvements across hospitals, schools and public housing. “This is yet another unlawful activity to slow investment in clean energy that will save consumers money, create jobs, and [it will] ultimately benefit the fossil fuel industry.”

Questioning the EPA’s allegation of fraud and mismanagement, Cash said that the money was finally dispersed last fall after carefully instrumenting the grant distribution system with all the checks and balances.

“The claims the EPA made that these were rushed out in December is false,” he said. “It took a long time to design the program because we wanted to make sure all the ‘T’s were crossed and ‘I’s were dotted so taxpayers’ money was spent effectively.”

Zeldin, in a statement announcing the terminations, said “EPA will work to re-obligate lawfully appropriated funds in the GGRF with enhanced controls to ensure adequate governance, transparency and accountability, consistent with statutory requirements.”

Earlier this year, former EPA Director of Implementation Zealan Hoover told Inside Climate News that the Treasury Department, which has managed government funds through private banks since the 1800s, selected Citibank to oversee the Greenhouse Gas Reduction Fund due to its financial expertise and longstanding role as a federal financial agent. He said that Zeldin’s move was purely political, not about financial oversight.  

The EPA has yet to issue an official fraud notice to Citibank, which former officials say would be standard protocol if financial misconduct had occurred.