The new Inflation Reduction Act includes a $27 billion Greenhouse Gas Reduction Fund that will support competitive grants to national and local “green banks,” which will use the money to invest in projects and innovations intended to reduce or avoid greenhouse gas emissions and other forms of air pollution. While the fund will provide plenty of opportunity to those “green banks,” program applicants should be wary of potential pitfalls that could spark False Claims Act liability.
Much of the “green bank” fund is earmarked for renewable energy projects that will benefit low-income and disadvantaged communities. It will be administered by the US Environmental Protection Agency (EPA) through its authority under the Clean Air Act, which was amended to authorize this fund.
While details of the application process have yet to be released, prospective applicants can take note of a few key qualifications and restrictions on the use of funds.
The fund's money is divided into three pots. The first contains $7 billion that is earmarked for projects intended to help low-income and disadvantaged communities deploy or benefit from zero-emission technology or other greenhouse gas emission reduction activities. The EPA has the authority to further qualify use of funds awarded through that funding stream when it implements the fund and begins making grant awards.
The second pot is also earmarked to support low income and disadvantaged communities by funding direct or indirect investments in renewable energy projects that would otherwise lack access to financing.
Finally, a third pot contains almost $12 billion that can be used broadly to support eligible direct and indirect investments in renewable energy projects nationwide.
While both “eligible recipients” and “qualified projects” are broadly defined by the authorizing law, the lines they draw are firm.
State, local, and Tribal governments are all eligible to apply for green bank funds, but so are a defined group of non-government actors. Those non-governmental “eligible recipients” are limited to non-profit organizations that are designed to provide capital, leverage private capital, and provide other forms of financial assistance for rapid development of renewable energy projects. Those non-profits must be funded by public or charitable contributions and must not take deposits other than those from repayments and other revenue received from financial assistance provided using the grant funds received. They must invest in or finance projects alone or in conjunction with other investors.
Funding that is not earmarked for the narrower category of zero-emissions projects can be used to support one of two different kinds of projects:
When making representations about eligibility or project type, grant applicants should take care to ensure that all statements made are accurate and clear.
The EPA takes grant fraud seriously at every stage and has demonstrated that it is willing to pursue rigorous investigations based on any suspicion of fraudulent billing or misrepresentation of project progress. For example, the EPA participated in an investigation that resulted in the conviction of a businessman who created a non-profit entity that applied for and obtained $2 million in earmarked EPA grant funds to support purported development of an alternative fuel additive. The grant application contained material falsities, including false scientific test results that misrepresented the project’s success. In another instance, the EPA and the National Institutes of Health reached a $112.5 million settlement with a top research university that submitted progress reports containing false or fabricated data or statements about grant-funded research.
While the “green bank” fund creates a tremendous opportunity for non-profit green banks and private sector entities whose renewable energy projects receive investments, grant applicants should note that potential missteps—and misstatements—could lead to False Claims Act (FCA) and other forms of liability.
The green banks themselves may not be the only entities that need to navigate liability concerns. Depending on the terms of the grants the EPA awards, the entities that facilitate projects the green banks support—and other investors in or owners of those entities—may also face FCA liability. Exposure could flow from the representations those entities make in connection with any investments they request or receive that are supported by federal funds.
As the EPA rolls out this funding opportunity and releases more guidance, Morgan Lewis will continue to monitor the newest developments and the compliance obligations they create.
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Morgan Lewis has experience in all aspects of government contracting, white collar litigation, and government investigation matters. If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the authors, W. Barron A. Avery, Ryan P. McCarthy, and Sarah-Jane Lorenzo.
W. Barron A. Avery
Douglas W. Baruch
Giovanna M. Cinelli
Laura M. Gronauer
Scott A. Memmott
Kenneth J. Nunnenkamp
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Justin D. Weitz
Jennifer M. Wollenberg
Howard J. Young