Funding Pauses and Uncertainty Under the IRA and IIJA: Practical Considerations for Recipients

On January 20, 2025, the Trump administration issued Executive Order (EO) 14154, “Unleashing American Energy.” Among its directives, the EO commands federal agencies to immediately pause the disbursement of funds appropriated through the Inflation Reduction Act of 2022 (IRA) and the Infrastructure Investment and Jobs Act (IIJA). Below, we discuss how the funding freeze will impact IRA and IIJA federal financial assistance for environmental and energy projects.

Overview

The IIJA and IRA established large pools of federal financial assistance for the benefit of domestic energy, infrastructure, and conservation. Notable programs funded by these acts span the entire federal government, including the Departments of Energy (e.g., the Civil Nuclear Credit, Low Emissions Vehicles, and Energy Efficient Loan Programs), Transportation (Carbon Reduction and Sustainable Aviation Fuels Programs), and Interior (Abandoned Mine Land and Orphaned Wells Programs), and the Environmental Protection Agency (the Greenhouse Gas Reduction Fund, Methane Emissions Reduction Program, and Low Emissions Electricity Program).

On January 27, 2025, the Office of Management and Budget (OMB) acted on EO 14154 in a memorandum requiring all agencies to “temporarily pause” any activities related to obligation or disbursement of federal financial assistance, including funds “related to … the green new deal.” The memorandum does not define “green new deal,” but, read in conjunction with the EO, it is plausible to assume OMB refers to awards under the IIJA and IRA.

Other agencies have likewise begun to implement the EO. The Department of the Interior has initiated a review of all “processes, policies, and programs for … disbursements” of funds under the IIJA and IRA, and the Department of Transportation has issued similar direction. Simultaneously, funding for IRA and IIJA projects has in fact slowed or stalled government-wide. Of note:

• On February 6, 2025, the Department of Transportation suspended new obligations under the National Electric Vehicle Infrastructure Formula Program.
• Internal Environmental Protection Agency emails indicate that agency funding for most, if not all, programs under the IRA and IIJA — including funding under the Greenhouse Gas Reduction Fund (GGRF) — was paused as of February 7, 2025, though subsequent reporting indicates that at least some such funding may now be unfrozen. The status of funding under the GGRF remains in flux and subject to scrutiny, including the use of a financial agent agreement to hold the funds.
• According to reporting, Department of Energy disbursements under the IRA or IJA require approvals from political appointees. And a January 23, 2025 memorandum directed employees to suspend any work “requiring, using, or enforcing Community Benefits Plans, and requiring, using, or enforcing Justice40 requirements, conditions, or principles,” both of which were required components of DOE’s IRA and IIJA funding opportunities.

These and similar agency actions have kickstarted a growing wave of litigation. The District Courts for the District of Columbia and for Rhode Island have each enjoined implementation of the OMB memorandum, notwithstanding the memorandum’s formal rescission on January 29, 2025. And on February 13, 2025, the governor of Pennsylvania sued several agencies for allegedly withholding IIJA and IRA funds. These cases are developing quickly, even by the standards of cases seeking emergency relief.

The upshot of action by OMB, cabinet-level agencies, and the courts is significant uncertainty regarding the state of play for awards under the IIJA and IRA.

Considerations for Recipients or Beneficiaries

As we have written in our Advisories for grantees across the federal government and for scientific research funding, recipients and beneficiaries of grants under the IIJA and IRA should carefully monitor the rapidly shifting landscape of federal financial assistance. Stakeholders should inventory their exposure to financial assistance under the IIJA and IRA, compile and organize all prior and ongoing correspondence with the awarding agency, closely study the terms of the financial assistance agreements and relevant regulations and policies, and — particularly important for significant infrastructure projects dependent on this funding — consider whether the terms of related state or federal permits (such as pollution control or wildlife-related permits) would be implicated by a lapse in funding. Maintaining open communications with the state agencies implementing federally funded programs is critical, as states have taken varying approaches to the continuation of such projects. And proactive engagement with stakeholders involved in project planning will help manage expectations and potentially avoid opposition when projects proceed.

Where funding is paused or terminated, recipients of or applicants for federal financial assurance may have several options for recourse against the federal government, depending on the terms and status of their award:

• Some funding agreements, but not all, contain termination provisions that permit termination when the award no longer effectuates program goals or agency priorities. Recipients should examine the terms of their agreement to determine whether and to what extent the government has reserved a right to terminate. If termination is not permitted, then termination may amount to a breach of contract, entitling the recipient to damages.
• Upon receipt of a stop work or termination notice, recipients should take steps to stop incurring costs under the portion of the agreement that is subject to the notice. Post-stop work and post-termination costs that cannot be stopped immediately may be recoverable.
• Broader attacks on terminations may also be possible when the case can be made that the agency’s action is arbitrary and capricious and violates the Administrative Procedure Act or the Impoundment Control Act, or is unconstitutional.
• Recipients should remain in communication with program and compliance contacts at the funding agency for updates regarding the status of their awards, and with appropriate congressional delegations.

Separately, nonprofits should develop contingency plans for changes in programs and maintaining financial stability, including cash flow analysis. Nonprofits should communicate with private (non-government) funders to update them about any risks to the organization and implementation of projects and discuss options to request changes to the terms of private funding, even if only temporarily to assist the organization in continuing its mission during uncertain times.

Conclusion

Arnold & Porter is keeping abreast of the recently issued Trump administration executive orders on all industry sectors, including those in the environmental and energy space, and will provide updates through the following portal: The Second Trump Administration: Insights on New Executive Actions.

If you have any questions about the content discussed here or would like more information, please reach out to one of the authors or any of your existing Arnold & Porter contacts.

© Arnold & Porter Kaye Scholer LLP 2025 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.