Trump Administration Freezes Climate and Clean Energy Funds
Upon taking office in January 2025, President Donald Trump issued executive orders pausing federal funds allocated under the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA) for climate, clean energy, and environmental justice initiatives. The administration justified this pause as a necessary step to align spending with its priorities, which are to catalyze fossil fuel development by removing regulatory guardrails and dismantling climate funding. However, this decision disrupted numerous clean energy and climate projects nationwide, such as $400 million for expanding rooftop solar and battery storage in Harris County, Texas, $30.5 million for energy efficiency and heating upgrade in public housing in New Haven, Connecticut, and broader renewable energy and fuel switching initiatives for rural and underserved communities.
Clean Energy Tax Credits Face Uncertainty
While a full repeal of the IRA is unlikely due to the need for Congressional approval, certain adjustments to its provisions, such as clean energy tax credits, remain a possibility. Tax credits like 45Q for carbon sequestration, 45V for clean hydrogen, and 45Z for clean fuels primarily benefit producers, including manufacturers and farmers—many of whom are in red states. Therefore, these business-oriented incentives may be more resilient to potential changes compared to consumer-focused credits like those for electric vehicles or home improvements. For example, in August 2024, a group of House Republicans issued a letter to Speaker Mike Johnson expressing their support for the IRA's clean energy tax credits.
Whether final regulations for tax credits exist does not change the fact that Congress has already approved funding for these tax credits. Final regulations, however, inform how the tax credits are implemented. Therefore, while the administration could attempt to modify regulatory guidance for these credits to constrain eligibility, efforts to permanently halt IRA funding would likely face legal challenges, as existing law mandates that funds already appropriated by Congress be spent. Final regulations for 45Q and 45V were released in January 2021 and 2025 respectively, making it more time-consuming and administratively complex to modify the guidance. The 45Z is still pending final regulations, with interim guidance released in January 2025 and the commenting period open until 10 April 2025, providing more opportunity for the final regulation to deviate from the initial guidance.
Legal Challenges Over Federal Authority
Trump's executive authority allows him to order reviews and pauses of discretionary federal funding but does not grant the power to permanently withhold funds. This distinction led to immediate legal challenges from 22 states and the District of Columbia, arguing that the funding freeze overstepped executive authority and risked ongoing projects by withholding necessary and promised funding. For example, Pennsylvania Governor Josh Shapiro filed a lawsuit against federal agencies, challenging the freeze of over $3 billion in federal funds designated for the state's climate and environmental projects, such as abandoned mine reclamation, plugging orphaned wells, and enhancing energy efficiency in low-income households.
On 31 January 2025, U.S. District Judge John McConnell issued a temporary restraining order to block the freeze. The ruling emphasized that the president cannot indefinitely withhold funds that Congress has appropriated. While the administration rescinded the memo that outlined the funding freeze, many states indicated that some funds remain inaccessible due to delays in compliance with the court order, undermining development for key climate and clean energy projects. On 10 February, the administration was accused of violating the order, as funding had not yet been restored despite multiple requests. On 21 February, McConnell stated that he was considering a request to permanently block the funding freeze.
Environmental Lawsuits Challenge Drilling Expansion
Environmental advocacy groups have also initiated two lawsuits against the Trump administration, challenging its recent actions to expand oil and gas drilling in U.S. waters. The first lawsuit, filed by organizations including the Center for Biological Diversity, Greenpeace, and the Sierra Club, contests the removal of protections for 625 million acres of federal waters established during the Biden administration. The second lawsuit seeks to reinstate safeguards for approximately 130 million acres in the Arctic and Atlantic oceans, which were previously upheld by federal courts.
While the Trump administration's freeze on federal climate funds is not a permanent withdrawal, the uncertainty is disrupting projects nationwide and eroding investor confidence. Legal challenges are ongoing to resolve whether the executive branch can withhold congressionally appropriated funds, but the resulting delays are already stalling clean energy initiatives, environmental justice programs, and infrastructure upgrades. This tug-of-war over funding authority underscores the broader tension between federal priorities and state-level commitments to address climate challenges as the administration continues to roll back environmental protections in favor of fossil fuel development.
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