The Greenhouse Gas Reduction Fund: A slush fund for the EPA and favored nonprofits

President Joe Biden signed the so-called Inflation Reduction Act (IRA) into law on August 16, 2022. The bill, enacted on a purely partisan basis, is filled with wasteful spending, central planning, and attacks on freedom. One program in particular deserves special attention: the Greenhouse Gas Reduction Fund (section 60103 of the IRA).

Section 60103 amends the Clean Air Act and gives the Environmental Protection Agency (EPA) until September 30, 2024 to distribute $27 billion for “green” projects. This $27 billion is in effect a slush fund for the EPA given the wide discretion that Congress has afforded the agency in spending the money.

To their credit, the House Energy and Commerce Committee held an important oversight hearing last week on how the EPA is administering the Greenhouse Gas Reduction Fund.

The Fund itself is misguided policy, using taxpayer dollars to invest in unreliable energy sources and to centrally plan how electricity is generated. If the identified projects are worthy, then they would attract private investment. 

The Fund is a means to have nonprofits hand out taxpayer dollars to projects that would otherwise not get funding. In fact, Congress expressly required under Section 60103 that grant recipients using funds for direct investment in projects shall “prioritize investment in qualified projects that would otherwise lack access to financing.”

Beyond these policy problems, here are some other key problems with the Fund:

Slush fund for nonprofits: The slush fund problem is especially egregious because the IRA isn’t just giving the EPA broad discretion to ladle out taxpayer dollars. It also requires the EPA to distribute money to nonprofits that will make their own discretionary choices over how to spend billions of dollars. These nonprofits are even less accountable to Congress than the agency itself. The IRA has in effect given the EPA’s preferred nonprofits a slush fund.

The EPA has created three programs under the Fund: Solar for All ($7 billion), the National Clean Investment Fund ($14 billion), and the Clean Communities Investment Accelerator ($6 billion). The National Clean Investment Fund is going to provide grants to 2-3 nonprofits that will then distribute $14 billion to qualified projects. The Clean Communities Investment Accelerator will have  $6 billion going to 2-7 nonprofits that will then distribute the money to other entities.

Therefore, the Fund is in large part a slush fund for a small number of nonprofits to disseminate taxpayer dollars. Concentrating so much power in a small number of nonprofits only exacerbates the problems with slush funds, including the fact that they are rife for abuse, fraud, and cronyism.     

In her opening remarks during last week’s oversight hearing, Chair Cathy McMorris Rodgers (R-WA) stated the following regarding these two programs:

Even more concerning, two of the fund’s programs were designed so that the EPA can funnel billions of taxpayer dollars to non-profits who happen to be their political allies that can then fund green projects of their choosing. 

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This is the perfect scenario for cronyism to take hold.

Timing of the spending: Congress gave the EPA only until September 30, 2024 to hand out the $27 billion. The EPA has not even finalized which nonprofits will be receiving the money under the National Clean Investment Fund and Clean Communities Investment Accelerator programs. The rushed timeline will lead to poor decisions and waste, and makes problems of fraud and cronyism far more likely.

EPA’s creation of the three programs: Congress created three different areas in which the $27 billion must be spent. Yet, the EPA’s three programs don’t neatly match these three different areas in the IRA. For example, Section 60103 directs the agency to spend money on the following: Zero emission technologies ($7 billion), general assistance ($12 billion), and low-income and disadvantaged communities ($8 billion). The EPA programs don’t spend the money in those three distinct ways. 

The agency may have the discretion to create programs that meet the law’s requirements without the programs having to perfectly mirror these three distinct “buckets of money” in Section 60103. Yet, Congress needs to ensure that the EPA’s programs do in fact meet the law’s requirements when it comes to dividing up the spending. This muddling of the three different spending areas in Section 60103 makes it difficult to ascertain whether the agency is meeting the requirements of the law.

A more obvious problem is the EPA’s Solar for All program. The program will spend $7 billion to provide solar panels on homes in low-income and disadvantaged communities. Yet, the underlying IRA provision appropriating the $7 billion doesn’t say all of the money should be used for solar panels. It says that the $7 billion should be spent on zero-emission technologies, “including distributed technologies on residential rooftops.” The language is clear that the money must be spent on technologies beyond solar.  

Maybe the EPA would argue that it is creating the Solar for All program using the other two areas of spending that Congress created under Section 60103 and not just the zero-emissions technologies provision, but this doesn’t appear to be the case. This is likely yet another example of the EPA muddling the three different spending areas in Section 60103.

Basic grant requirements: The Congressional Research Service has explained, “Section 60103 does not explicitly clarify which additional requirements apply to EPA or its grant recipients, such as general federal requirements for grants and agreements.” Congress needs to get clarity on what grant and agreement requirements the EPA is following and whether general federal requirements are being met.

Applicants and conflicts: There is little clarity on the applicants or the EPA’s protections against conflicts of interest. Have the nonprofit applicants existed before the creation of the Fund? If they haven’t existed, how could the EPA hand out billions of dollars to nonprofits that have no track record?

Regarding conflicts of interest, it is important for Congress to ensure that proper protections are in place. The House Energy and Commerce Committee released takeaways from the hearing that highlight some concerns regarding the nonprofit applicants, including former Biden administration officials serving on the board of one applicant.

EPA oversight: Once the money “goes out the door,” how will the EPA be able to ensure that the nonprofits that receive the billions of dollars are meeting the necessary requirements? The IRA says that money must go to “qualified projects.” What will the EPA do to ensure that the money is in fact going to “qualified projects?”

How Congress can end the Fund

Legislators should be doing everything they can to eliminate the Greenhouse Gas Reduction Fund. It’s not just bad policy but also a poorly designed program that effectively hands Congressional spending power to the EPA and its selected nonprofits.

Beyond stand-alone bills to get rid of the Fund, legislators should be using the appropriations process to block funding for the program or delay the agency from spending the money. The latter solution would address the rushed process and allow Congress to provide better oversight of the program. Further, it would give Congress more time to revisit the program through legislative action.    

Legislators should consider looking to the Congressional Review Act (CRA) to pass a resolution of disapproval. Under the CRA (and the Administrative Procedure Act), a “rule” is defined broadly and would almost certainly include the EPA’s actions to implement the Fund.

Documents, such as those related to the EPA’s final decisions on grant recipients, should serve as the necessary “rule” to disapprove. Legislators can make requests to the Government Accountability Office to determine whether a specific agency action meets the rule requirements under the CRA.   

In passing a resolution of disapproval, Congress would be prohibiting the agency from passing a substantially similar rule. If enacted into law, this might prevent the agency from implementing the Fund. Of course, President Biden would veto a resolution of disapproval. Even if this happened, the clear congressional message on the fund could still be helpful. 

In addition, depending on the timing of when (or if) the rule is submitted to Congress, it could fall under what is known as the lookback period of the CRA. This allows the next Congress to pass a resolution of disapproval on the rule and for any new president, if applicable, to sign the resolution into law.   

Unfortunately, since the Fund’s money would have “gone out” by September 30, 2024, this might make a resolution of disapproval for a future Congress and administration ineffective in blocking the spending of the $27 billion. This is yet another reason why Congress blocking or delaying the EPA’s spending under the Fund is vital.

Conclusion

Congress too often delegates so much power to agencies that it arguably is handing its lawmaking power to federal bureaucrats. This problem rightfully gets attention when it comes to regulations, but it needs to get far more attention when it comes to spending.

The Greenhouse Gas Reduction Fund is a prime example of Congress effectively delegating its spending power to an agency – in this case, the EPA. Policymakers should reassert Congress’s power of the purse.

Regardless of whether policymakers agree with the purpose of the Fund, they should want to eliminate the program because it is a slush fund that will likely lead to abuse, cronyism, and waste.