A US federal appeals court says EPA likely acted unlawfully in trying to cancel Biden-era clean energy grants.

A United States federal appeals court has ruled that the Trump administration likely broke the law when it tried to cancel a multibillion-dollar clean energy programme, dealing a blow to the president’s broader push to dismantle Biden-era climate policies.

The full US Court of Appeals for the District of Columbia ruled on Tuesday that the Environmental Protection Agency (EPA) cannot freeze roughly $20bn in grants awarded to nonprofit groups for clean energy projects, reversing an earlier decision by the same court.

But the money will not be released immediately. The ruling has been temporarily put on hold to give the EPA time to ask the US Supreme Court to intervene.

At the centre of the dispute is the Greenhouse Gas Reduction Fund, a programme created by Congress through former US President Joe Biden’s 2022 Inflation Reduction Act.

The programme, often referred to as a “green bank”, was designed to give federal money to nonprofit organisations that would give out loans and invest in small energy projects, energy-efficient buildings and clean-energy infrastructure.

EPA Administrator Lee Zeldin has been trying to dismantle the programme, saying it doesn’t align with his agency’s priorities and accusing its recipients of fraud, waste and mismanagement.

In a video posted on social media last February, Zeldin described the fund as an example of government waste.

“Shockingly, roughly $20bn of your tax dollars were parked at an outside financial institution by the Biden EPA,” he said. “This pot of $20bn was awarded to just eight entities that were then responsible for doling out your money to NGOs and others at their discretion.”

“The days of irresponsibly shovelling boatloads of cash to far-left activist groups in the name of environmental justice and climate equity are over,” he added.

The following month, the EPA froze billions of dollars that were being held at Citibank to be distributed as grants.

The organisations, which included the Climate United Fund, Coalition for Green Capital and three others, denied any wrongdoing and sued, arguing the administration was illegally withholding money already approved by Congress and attempting to kill the programme because it opposed its climate goals, not because of evidence of fraud.

Tuesday’s decision overturns a ruling by a three-judge panel of the same appeals court last September that sided with the administration. The full appeals court agreed to revisit that decision, a rare move reserved for significant cases.

The majority of judges said the EPA’s attempt to terminate the grants and claw back the money “based solely on a policy disagreement” likely violated the Inflation Reduction Act. It also said the agency hadn’t provided assurance that it would leave the funds untouched if the injunction were lifted.

The ruling restores an order issued last year by US District Judge Tanya Chutkan, who found the EPA had failed to justify cancelling the grants and warned the administration was encroaching on Congress’s power to decide how federal money is spent.

The case is one of several legal challenges to US President Donald Trump’s efforts to reverse Biden’s climate agenda. Since returning to office, Trump has rolled back environmental regulations, expanded support for fossil fuel production and sought to unwind clean energy initiatives, arguing they impose unnecessary costs on businesses and consumers.