@Hollie6
Your suspicions are entirely justified. Airbnb is underhandedly and unnecessarily routing guest cancellations and refund requests back to Hosts, under the pretext that they don't qualify for a full refund under COVID/EC - even when they absolutely do.
These requests invariably have one form or another of the "Issue Full Refund" button. Do NOT press this button, otherwise Airbnb will classify this as a "mutual cancellation, and this will disqualify you from receiving the promised 12.5% payout on that booking (while typically allowing Airbnb to collect their service charges also)
Simply tell the guest that they do qualify for a refund under the COVID policy, but you don't have their money to refund it, and send them right back to Airbnb and let them do their one job properly.