A federal appeals court has ruled in favor of the Environmental Protection Agency (EPA) in a high-stakes legal dispute over the cancellation of more than $20 billion in climate-related grants awarded under the Inflation Reduction Act—funding that had already been allocated to nonprofits working on clean energy and environmental projects across the country.

The case centers on EPA Administrator Lee Zeldin’s decision to terminate Biden-era grant contracts, citing vague concerns about alignment with current agency priorities and alleged fraud—claims that have not been substantiated. A previous ruling by a district court had called the EPA’s actions “arbitrary and capricious,” but the appellate court reversed that decision on Tuesday.

Court Sides with Zeldin Despite Lack of Evidence

The appeals court’s majority opinion, written by two Trump-appointed judges, upheld Zeldin’s authority to cancel the contracts. In their reasoning, the justices said the government must retain the ability to ensure “proper oversight and management” of federal grants. Notably, they cited an undercover video from Project Veritas—a conservative group known for releasing misleadingly edited footage—as part of the justification.

While Zeldin has maintained that fraud was a motivating concern, an investigation by the interim U.S. attorney in Washington, D.C., reportedly found no meaningful evidence of wrongdoing, according to The New York Times.

Grant Freeze Leaves Projects and Contractors in Limbo

At the heart of the dispute are grants awarded to groups like Climate United and Power Forward, which had committed nearly $1 billion to clean energy projects, many of which were already underway.

According to court documents:

Climate United had earmarked $392 million for projects, including $63 million for solar energy in Oregon and Idaho, and $31.8 million for rural solar projects in Arkansas.

Power Forward reported $539 million in committed projects and said the sudden funding freeze left it unable to pay outstanding invoices to contractors.

In March, it was revealed that the EPA, FBI, and the agency’s inspector general had coordinated with Citibank to freeze grant funds already sitting in nonprofit accounts. These funds were primarily intended to be distributed as loans—paid back over time and reinvested in new initiatives.

Although the appeals court sided with the EPA, the majority also determined that the case belongs in the U.S. Court of Federal Claims, which typically handles contract disputes, rather than in the broader federal judiciary.

In a sharp dissent, the lone Obama-appointed judge argued that the EPA has “no lawful basis” to interfere with funding that Congress had already allocated to the plaintiffs.

The nonprofits are expected to appeal the ruling to the U.S. Supreme Court. Even if they fail, internal legal analysis from the EPA reportedly suggests that the agency could still be liable for billions in damages, depending on how the Court of Federal Claims rules.