IRA’s biggest climate program has ‘decimal dust’ for oversight

The Environmental Protection Agency is racing to deliver a fortune in taxpayer money through its largest-ever climate grant program.

The surge in spending aims to reshape impoverished areas of the U.S. by financing the installation of renewable energy and improving buildings’ energy efficiency. Congress commanded that the money go out quickly, setting a strict Sept. 30 deadline that would prevent a future Trump administration from clawing it back.

But the initiative has a shoestring operating budget, and the $27 billion program is now facing charges of empty oversight and potential waste — and the prospects of a Republican feeding frenzy over President Joe Biden’s climate law if the program stumbles.

Analysts say the quick pace of handing out such a staggering amount raises an overlooked risk: the possibility of mistakes. Out of all the programs authorized in the Inflation Reduction Act, this one has the smallest amount of money allotted to hire staff and track the spending.

“The concern is legitimate,” said Matthew Tejada, a former deputy assistant administrator at the agency who worked on the program before leaving in December. “EPA got more money than it could have ever imagined, and time lines — deadlines — that were as close to wildly unrealistic as you can get.”

Tejada, who’s now a senior vice president at the Natural Resources Defense Council, described the program’s oversight budget as “decimal dust.”

The program, named the Greenhouse Gas Reduction Fund, will steer the billions of dollars to state and local governments and nonprofit lending institutions , which then will filter the money to projects in low-income communities.

The Trump-proofed spending deadline is a contrast with much of the IRA’s $369 billion in authorized climate-related funding, which the administration is laboring to distribute amid a presidential race that features voter apathy over the legislative cornerstone of Biden’s environmental agenda.

But the greenhouse gas fund’s limits are already being tested.

EPA told POLITICO's E&E News that the program’s budget is the smallest amount of money allotted to any federal agency for running any IRA program, as a percentage of the initiative’s total funding.

So far, the agency has had enough money to design the greenhouse gas program from scratch and choose its recipients. But additional cash will be needed to ensure “proper financial management and robust oversight,” agency spokesperson Angela Hackel said in an email.

“Thus far, EPA has had the resources necessary to run a rigorous program design process, select highly capable grant partners, and conduct the complex award agreement negotiations that are now underway,” she said.

The agency’s administrator, Michael Regan, has raised concerns about the program’s tiny operating budget at several congressional hearings this spring. Biden included a $5 million request in his fiscal 2025 budget proposal, which Republicans declined to include in their spending bill.

Lawmakers have expressed alarm about the administration’s ability to keep tabs on a grant program that’s three times EPA’s annual budget.

“I am concerned about EPA’s ability to keep track of the money,” Rep. Morgan Griffith (R-Va.), chair of the Energy and Commerce Subcommittee on Oversight and Investigations, told E&E News. “I have not yet seen anything that suggests robust auditing” of the grant recipients by EPA.

The White House did not respond to requests for comment.

EPA officials contrasted the climate program with the expansion of the agency’s Clean Water State Revolving Fund and Drinking Water State Revolving Fund, which provides $43.4 billion in low-cost loans to communities for water projects under Biden’s 2021 infrastructure law. The climate program’s budget amounts to 0.11 percent of its total funding, while Congress gave the water initiative 3 percent in its first year, then 2 percent annually until it ends in fiscal 2026.

As a rule of thumb, EPA programs get roughly 1 percent of their total funding for administrative budgets, including oversight. But the agency rejected the idea that the program’s small budget would compromise oversight.

“EPA is confident it will maintain strong oversight of all programs under the Greenhouse Gas Reduction Fund,” said agency spokesperson Timothy Carroll. “We are putting robust controls in place to ensure all recipients manage grants consistent with the law and other federal requirements.”

The program is intended to bolster green lending, especially in low-income communities. It has three prongs:

• The $14 billion National Clean Investment Fund , or “green bank,” is intended to jump-start lending for projects such as rooftop solar, zero-carbon apartment buildings and electric vehicle charging infrastructure.

• Another $6 billion will flow through the Clean Communities Investment Accelerator to help nonprofit lenders that serve disadvantaged communities expand into clean energy finance.
  
• A $7 billion competitive grant program for states, cities and tribes is devoted to solar projects in low-income communities.

‘Walking around money’

EPA has chosen 68 entities — mostly states and nonprofits — to use the money to underwrite projects and help a broader ecosystem of lenders gain a foothold in green finance. The agency is negotiating contracts with those recipients and has promised that the money will be delivered to them before the IRA’s hard-and-fast deadline of Sept. 30.

That’s a headlong schedule for dispersing $27 billion — and one mandated by the IRA.

Congressional Democrats, who worry that Trump would kill the program if he’s reelected, included the deadline to prevent him from halting the flow of money.

But it also altered EPA’s routine policy of releasing funds in tranches, which might have allowed it to evaluate a grantee’s performance before giving it more money.

“Normally for huge grants, the money is dispersed in phases based on whether you're meeting the goals of the first phase and the second phase and so on,” said Reena Aggarwal, a finance professor at Georgetown University’s McDonough School of Business. She called it “concerning” that such a large grant would be transferred in one tranche.

EPA is already under fire from Republicans over how the program’s funds will be allocated and what its plans are for oversight. That’s likely to intensify as the November elections near.

Top Republicans on the Energy and Commerce Committee asked EPA in October how oversight would be handled after the funds were transferred to outside recipients. Neither the committee nor EPA has disclosed the response.

Meanwhile, green finance advocates, many of whom spent more than a decade calling for this kind of federal program, want EPA to optimize benefits for communities and the climate. The Natural Resources Defense Council and Harvard University’s Environmental & Energy Law Program urged the agency to “define clear impact standards and metrics” to direct funding to projects with genuine emissions-cutting and social justice potential, in comments to EPA in 2022.

But Dale Bryk, director of state and regional policies at Harvard, said the agency views itself as being limited by Congress’ lack of detailed direction in the IRA.

“I'm certain that EPA read those comments and are thinking, how can they do all this stuff with the limited resources that they have and also the authorization that they've been given, which is somewhat constraining,” he said.

While Regan has said the climate law had given his agency “ a little bit of walking around money ,” the operating budget for its flagship IRA program is historically slim. The “administrative set-aside” for the Greenhouse Gas Reduction Fund is $30 million — equivalent to 0.11 percent of the program’s funding through September 2031.

An EPA team of about 10 people built the program from the ground up after congressional Democrats moved the IRA through budget reconciliation in 2022 — a maneuver that allowed it to pass the Senate with just 51 votes but required lawmakers to distill years of green banking policy proposals into about 1 ½ pages of legislative text.

The Office of the Greenhouse Gas Reduction Fund is headed by David Widawsky, a longtime EPA career official who has led other grant programs and the agency’s Environmentally Preferable Purchasing Program, which certifies construction materials for their environmental performance and intersects with Biden’s ambitious climate procurement agenda .

Widawsky’s team now includes 35 career staff, EPA said, with expertise in fields like federal grants management, auditing, banking and green technology.

‘A lot of changes’

The IRA’s sparse legislative text is a culmination of 13 years of policy proposals by Democratic lawmakers.

Those still in Congress, such as Sens. Ed Markey of Massachusetts, Chris Van Hollen of Maryland and Rep. Debbie Dingell of Michigan, worked in 2022 to attach the climate finance program to the IRA. Now they’ve thrown their weight behind EPA’s request for more funds to implement it.

But the IRA program came with challenges that go beyond a tight timeline and budget.

To comply with strict parliamentary rules , Democrats had to leave a host of policy details from past green bank bills on the cutting room floor.

“The process of turning those bills into budget reconciliation-friendly provisions required a lot of changes,” said Adam Fischer, who helped craft the text as a House Energy and Commerce Committee staffer.

The first bills to create a national entity to finance the green energy transition were introduced in 2009, the year the House passed a climate bill sponsored by Markey and then-Rep. Henry Waxman, a California Democrat.

The purpose of those early drafts was to bolster renewable energy — an emerging sector that at the time produced minuscule amounts of power.

Van Hollen’s 2009 bill would have directed the Treasury Department to issue green bonds. Then-Rep. Jay Inslee (D-Wash.) and the late Rep. John Dingell (D-Mich.) teamed up on a bill to place a national green bank within the Department of Energy. Both bills would have made federal agencies responsible for administering the programs, with additional auditing and oversight functions performed by the Office of the Comptroller General and other federal entities.

Then the world forged the Paris Agreement, in 2015, and the idea of a “just transition” — a carbon-cutting strategy that also benefits the poor — was gaining steam.

Reed Hundt, co-founder of the Coalition for Green Capital and a veteran green bank advocate, told E&E News that the idea of giving a federal agency authority over the green bank had gone out of vogue by 2019.

“During the Trump administration, the senators who used to be the congressmen that had done this a decade earlier … decided, ‘you know, you can have a government that's not supportive of that transition,’” said Hundt, whose organization will be one of three nonprofits to administer the largest program within the Greenhouse Gas Reduction Fund.

Instead, Markey, Van Hollen and Debbie Dingell proposed using federal funds to capitalize an independent nonprofit that would be insulated from changing political winds and accountable to a board of directors. Its mission, Hundt said, would remain the same “regardless of political vicissitudes” in Washington.

“But they didn't want to give the money to for-profit [banks] because they wanted nonprofits that would have a social justice mission as well,” he added.

Those Trump-era bills still would have had layers of federal oversight, including by bank regulators, that were not included in the IRA. They also would have given the Office of the Comptroller of Currency a role in overseeing the so-called National Climate Bank.

The IRA didn’t retain that language.

Instead, EPA is the leading overseer of the program — but it lacks the kind of regulatory powers possessed by financial agencies included in past green bank proposals.

“EPA is not a prudential regulator supervising financial institutions, like you would think of a federal bank regulator,” said Satyam Khanna, a former senior adviser to the Greenhouse Gas Reduction Fund who left EPA earlier this year. “Under the statute, its role is to run the award competition, provide oversight of the grant program, and do so with the $30 million cost set-aside.”

EPA responded to inquiries about how outside participants would be regulated by saying nonprofit lenders are subject to oversight by the Federal Deposit Insurance Corp. and National Credit Union Administration.

The eight nonprofit groups that will administer $20 billion in grants under two programs within the Greenhouse Gas Reduction Fund will also be bound by the terms of the contracts they sign with EPA, which will require regular reports on their status. Any of the organizations that spend at least $750,000 in federal funds in one year must also be audited by a third party — something that is required of all non-federal grant recipients.

EPA and its awardees are expected to sign contracts in early July. EPA says any recipient that fails to comply with the terms of its contract could face a “suite of remedies pursuant to federal grant regulations.” The agency is also exploring whether to make details of the transactions public.

Khanna, who helped design the competitions but departed EPA before the recipients were selected, said the application process prioritized institutions with track records in green lending and in serving disadvantaged communities. EPA placed “a huge emphasis on transparency throughout each stage of the program,” he said.

But the sheer size of the program — and the speed with which the money is being released — amplifies the risk that some investments won’t support the program’s goals.

“Obviously, when you're building a federal program of this scale, one that is a first-of-its-kind, there's inherently some amount of risk,” Khanna said.