Shifting priorities: The impact of federal funding pause, budget reconciliation, and workforce cuts on clean energy programs

While there is an abundance of news on energy policy – from permitting reform, potential changes to tax regulation, and a cessation of offshore wind leasing – two issues stood out as particularly consequential for the business community:

1. Executive impoundment and Congressional budget reconciliation
2. Federal workforce reductions

The Bipartisan Infrastructure Law (BIL) and the Inflation Reduction Act (IRA) were cornerstones of the Biden administration’s clean energy agenda. However, their future remains uncertain under the new administration and Congress. While hundreds of billions of dollars have already been obligated under these laws, significant funds remain unspent. The funding broadly falls into two categories:

• Pre-award funds: Funds that have been appropriated by Congress but have not yet been programmed or awarded
• Post-award funds: Funds that have been allocated or obligated to specific projects

For pre-award funding opportunities announced before President Trump’s inauguration, such as the Department of Energy (DOE) funding for $1.3B in carbon capture, utilization, and storage (CCUS), $1.8B in direct air capture, and $100M in energy storage pilots funding, the notice of funding opportunities (NOFO) have not yet been rescinded but are likely to be. If reissued, these NOFOs will feature revised technical review criteria, excluding requirements for community benefits plans (CBP), environmental justice (EJ), and diversity, equity, inclusion, and accessibility (DEIA). Additionally, the administration is expected to shift its focus from clean energy initiatives toward energy security, independence, and dominance, emphasizing conventional energy sources such as natural gas power and nuclear.

For post-award contracts, agencies such as the DOE and Environmental Protection Agency (EPA) have halted invoicing for certain programs pending a 90-day review, following executive orders from the Trump administration. This pause on federal fund disbursement has been subject to legal challenges, with some federal courts ordering the administration to resume disbursements. However, reports indicate that the administration has, in some cases, disregarded these rulings, creating further uncertainty. Furthermore, awardees have received agency memos instructing them to cease activities related to CBP, EJ, and DEIA. Any costs incurred for these activities will be the sole responsibility of the awardee. With fund disbursements suspended, many developers and investors are left uncertain about the future of their projects.

Although the withholding of funds is officially temporary, it closely resembles executive impoundment. The legality of such actions remains questionable under the Impoundment Control Act of 1974, which affirms Congressional authority over federal spending. In other words, the executive branch cannot legally withhold funds Congress has mandated to be spent. However, the Trump administration’s 90-day review will likely overlap with the March Congressional budget reconciliation, which could significantly alter the BIL and IRA. Potential changes include reduced funding for financial assistance, tax incentives, and loans, or a rewrite of existing programs and eligibility criteria to align with new priorities. Legal challenges to executive impoundment are unlikely to be resolved before March or April. By that time, the law may be rewritten to better reflect the administration’s policy direction. The key question remains whether the direct economic benefits of these laws—particularly in Republican districts and states with significant clean energy investments—will take outweigh President Trump’s energy policy priorities to shift towards conventional energy sources.

Budget reconciliation, a legislative process requiring only a simple majority and immune to filibuster, provides a pathway for these changes, particularly for a unified government under one political party. Additionally, under the Byrd Rule, non-budgetary items cannot be included, limiting extraneous political debates. If Republicans can maintain party unity, these legislative changes can pass without Democratic support. However, Republicans have competing budget resolutions in the House and Senate and are split over whether to pursue a single comprehensive reconciliation bill or a phased two-bill approach. The House favors a single bill for efficiency and momentum, while Senate leaders advocate separating border security and defense from tax reforms, potentially delaying the finalization of Congress’ fiscal policy until late 2025.

As of this writing, probationary federal employees across at least nine agencies – including the DOE, Department of the Interior (DOI), and the EPA – have been laid off, impacting up to 220,000 federal employees. With the newly created Department of Government Efficiency (DOGE), federal workforce reductions have become a key priority, affecting both government employees and contractors. This is in addition to around an estimated 77,000 federal employees who accepted the buyout offered by DOGE, allowing them to collect paychecks through September while potentially ceasing work as early as February. The legality and execution of this buyout is uncertain, given that Congress has not yet approved funds for Fiscal Year 2025 (FY2025) to pay the workers who have accepted the buyout. While a federal judge in Boston recently allowed the Trump administration to move forward with its deferred resignation offer for employees, citing that the unions lack legal standing as plaintiffs, the decision did not address the underlying lawfulness of the program. This could mean further legal challenges under different lawsuits.

At the DOE specifically, approximately 2,000 probationary federal employees were laid off. Probationary employees include anyone who was hired within the last year, or was recently promoted, which is a significant fraction of the workforce at infrastructure offices who staffed up to implement the BIL and IRA programs. These layoffs follow a similar move the previous week, in which nearly all the contractors at the Office of Clean Energy Demonstrations (OCED) had their contracts suspended, and promptly had their system access revoked, making transition plans difficult to implement. This broad suspension of contractors reveals a staffing vulnerability for other infrastructure offices, such as the Manufacturing and Energy Supply Chains (MESC) Office, and the Loan Programs Office (LPO), which could be next in line for contractor cuts. A reduction in the federal workforce stands to significantly compromise the government’s ability to process applications and oversee large infrastructure projects that have already been awarded.

As the new administration and Congress reshape energy policies and federal workforce structures, businesses and stakeholders must remain proactive. Those with federally funded projects should seek legal guidance, explore lobbying efforts, and collaborate with other affected entities to advocate for their interests. While the coming months will bring significant shifts, strategic planning and collective action can help navigate these changes and mitigate potential disruptions.