Statutory Collision Course Emerges in Energy Department Review

The Department of Energy's sweeping review of $15 billion in Biden-era clean energy awards has created a high-stakes legal confrontation between the Trump administration's fossil fuel priorities and federal law. At the center of this brewing controversy is Cleveland Cliffs, a major U.S. steel producer that received a $500 million grant under the Industrial Demonstrations Program to replace coal-fired blast furnaces with hydrogen and natural gas technology. CEO Lourenco Goncalves revealed during a recent earnings call that the company is now working with DOE to "explore changes in scope to better align with the administration's energy priorities," abandoning hydrogen in favor of "readily available and more economical fossil fuels." This dramatic pivot would essentially use federal funds designated for emissions reduction to instead extend the operational life of existing coal-dependent infrastructure through a "relining" of the Middletown, Ohio blast furnace. The maneuver raises serious legal questions as the Inflation Reduction Act explicitly requires these funds to support "advanced industrial technology" that accelerates "greenhouse gas emissions reduction progress to net-zero." Legal experts warn this redirection could violate federal law, potentially triggering Antideficiency Act violations for DOE officials and forcing Cleveland Cliffs to return the funds regardless of any modified contract.

Steel Industry's Decarbonization Crossroads

Cleveland Cliffs' potential reversal represents a critical juncture for American steel manufacturing in the global transition toward cleaner production methods. The original project aimed to position the company as a leader in low-carbon steelmaking while preserving approximately 2,500 jobs and creating over 100 new permanent positions in JD Vance's hometown of Middletown. Industry experts express concern that maintaining traditional blast furnaces rather than transitioning to cleaner technologies could leave American steel producers at a competitive disadvantage. "If you're going to maintain blast furnaces, it means you have one foot in a technology that is now quickly becoming outdated that the rest of the global steel industry is transitioning away from," noted Yong Kwon, senior advisor for the Sierra Club's Industrial Transformation Campaign. The Industrial Demonstrations Program was specifically designed to address the "missing middle" in technology development, supporting projects beyond the experimental stage but not yet ready for mass deployment. By potentially redirecting these funds to extend the life of legacy fossil infrastructure rather than advancing new technologies, critics argue the administration risks undermining American industrial competitiveness while simultaneously increasing emissions in a sector responsible for approximately 7% of global carbon output.

Legal Quicksand Threatens Funding Reallocation

The attempt to repurpose Cleveland Cliffs' funding faces significant legal obstacles that could derail the entire effort. David Super, an administrative law expert at Georgetown University, highlighted two major statutory hurdles: the Inflation Reduction Act's clear requirement that funds support emissions reduction technologies and its mandate that awards be made "on a competitive basis." Since Cleveland Cliffs won its award specifically for a hydrogen-based project, allowing the company to use the money for an entirely different purpose "would thus violate the requirement of competitive awards and would allow the unsuccessful bidders to challenge this funding award," Super explained. The Antideficiency Act, which prohibits federal employees from obligating funds for unauthorized purposes, creates additional legal exposure for DOE officials involved in any non-compliant funding decisions. These statutory constraints severely limit the administration's flexibility to redirect funds toward fossil fuel infrastructure, regardless of political preferences. Neither Cleveland Cliffs nor the Department of Energy responded to requests for comment on these legal concerns, leaving significant uncertainty about how the department plans to navigate these statutory requirements while accommodating the administration's fossil fuel priorities.

Broader Pattern of Climate Funding Redirection

The Cleveland Cliffs situation appears to be part of a broader effort to redirect climate funding toward fossil fuel interests across multiple DOE programs. Leaks to media outlets suggest the department may be taking a similar approach with the hydrogen hubs program, potentially terminating contracts for renewable energy-based projects in Democratic-leaning states while allowing natural gas-based projects in Republican states to proceed. The fate of $3.5 billion in direct air capture hubs remains unclear, though oil and gas company Occidental recently announced that Abu Dhabi National Oil Company is considering a $500 million investment in its Texas-based DAC hub, with the press release noting the agreement was signed during President Trump's visit to the UAE. During recent congressional hearings, Senator Lisa Murkowski of Alaska stated that two carbon capture projects in her state were "in limbo" due to the agency's spending review, while Representative Debbie Wasserman Schultz accused Secretary Wright of freezing $67 billion in funds. Wright denied withholding funds, claiming the department has "paid every invoice we've had for work done," but acknowledged they are "engaging with" recipients to ensure taxpayer money is spent "in thoughtful, reasonable ways."

Congressional Republicans Target Unobligated Funds

As the Energy Department reviews existing awards, House Republicans have introduced legislation that would rescind any unobligated money from the Industrial Demonstrations Program, creating additional pressure to quickly resolve the status of these grants. This two-pronged approach, reviewing existing awards while simultaneously threatening to claw back any funds that aren't firmly committed, creates a challenging environment for both the agency and grant recipients. According to efficiency department data, DOE has already "terminated" 39 contracts worth $60 million and five grants worth $3.4 million, including news subscriptions, technical support services, and a $22 million contract with consulting firm McKinsey for "rapid response deliverables" for the Office of Clean Energy Demonstrations. The department has also canceled three Advanced Research Projects Agency awards focused on using geologic stores of hydrogen and another aimed at reducing methane emissions from natural gas flares. This pattern of terminations suggests the department is scrutinizing a wide range of climate-related spending, from major industrial transformation projects to smaller research initiatives, as part of its broader realignment with the administration's energy priorities.

Middletown Project's Political Dimensions

The Cleveland Cliffs situation carries particular political significance given its location in Middletown, Ohio, the hometown of Senator JD Vance. When CNN reported in April that the project was on a list slated for termination, Energy Department spokesperson Ben Dietderich responded that "no final decisions have been made" and "multiple plans are still being considered." The subsequent pivot toward negotiating a fossil fuel-focused alternative rather than outright cancellation suggests political considerations may be influencing the department's approach. The original project promised significant economic benefits for the region, including securing 2,500 existing jobs and creating over 100 new permanent positions, outcomes that would presumably remain politically attractive regardless of the technology employed. However, the tension between maintaining these jobs through legacy fossil fuel technology versus transitioning to cleaner production methods highlights the complex interplay between economic, environmental, and political factors in industrial policy decisions. The administration appears to be seeking a compromise that preserves the economic benefits while aligning with its fossil fuel priorities, though the legal constraints of the Inflation Reduction Act may ultimately limit its flexibility to achieve this balance.

Energy Department's Selective Transparency

Secretary Wright's approach to the department's funding review has been characterized by limited transparency and seemingly contradictory statements. The memo announcing the review acknowledged "concerning" findings but provided no details about what was concerning or which specific awards were under scrutiny. When confronted by Representative Wasserman Schultz about allegedly freezing $67 billion in funds, Wright denied withholding any money while simultaneously confirming the department is "engaging with" recipients to ensure appropriate spending. This selective transparency creates significant uncertainty for grant recipients and the broader clean energy ecosystem that had been developing around these federal investments. Unlike some of his counterparts at other agencies who have been vocal about the Department of Government Efficiency's efforts to slash funding, Wright has maintained a relatively low public profile while apparently conducting extensive reviews behind the scenes. Documents obtained by Axios in March revealed that more than 60% of grants awarded under the Industrial Demonstrations Program were being targeted for potential termination or modification, suggesting a far more aggressive approach than Wright's public statements might indicate. This gap between public messaging and internal actions has left stakeholders struggling to anticipate the department's next moves or plan accordingly.

Key Takeaways:

• Cleveland Cliffs is attempting to redirect a $500 million federal grant originally intended for hydrogen-based steel production toward extending the life of coal-fired blast furnaces, potentially violating the Inflation Reduction Act's requirement that funds support greenhouse gas emissions reduction

• Legal experts warn that if the Department of Energy approves this redirection, officials could face Antideficiency Act violations and Cleveland Cliffs might be required to return the money, as the law specifically mandates competitive awards for technologies that accelerate progress toward net-zero emissions

• The Cleveland Cliffs situation appears to be part of a broader pattern across multiple DOE programs, with the department reportedly considering terminating renewable energy projects in Democratic-leaning states while allowing fossil fuel-based projects in Republican states to proceed, despite statutory requirements