Court Voids Interim Engine Rule That Allows Navistar’s Sales

A federal appeals court overturned a stopgap Environmental Protection Agency regulation that allowed Navistar Inc. to pay fines to sell heavy-duty diesel engines that do not meet 2010 emissions standards.

The U.S. Court of Appeals for the District of Columbia Circuit faulted EPA for skipping a required public comment period when it developed the “interim final rule” in January that allowed Navistar to sell its engines while paying $1,919 nonconformance penalties for each unit (1-30, p. 1).

Agreeing with a group of Navistar’s competitors that brought lawsuit, the court wrote that “the only purpose” of the interim rule was “ ‘to rescue a lone manufacturer from the folly of its own choices.’ ”

All heavy-duty engine makers but Navistar use selective catalytic reduction to meet the 2010 emissions requirements; Navistar uses exhaust gas recirculation.

Navistar’s current 13-liter engine exceeds the limit for nitrogen oxide emissions, but Navistar is allowed to sell the engine by using credits accumulated through selling other engines with emissions better than required.

The company has submitted a new version of its engine that it said meets the emissions requirements and is awaiting EPA certification to produce and sell it without using credits.

The competitors, including Cummins Inc. and North American units of Volvo Group and Daimler AG, said in a lawsuit filed in February that EPA was not justified when it skipped over the normal federal regulation process, which includes proposing a regulation and gathering comments from the public.

Without the stopgap regulation, Navistar would have been unable to sell heavy-duty diesel engines without using emissions credits because EPA has not certified any of Navistar’s engines to comply with the 2010 standards for nitrogen oxide emissions. But following the ruling, the company said it was still making engines.

“Navistar continues to make and ship engines, and our customers will continue to receive the products they ordered with EPA-certified engines,” spokeswoman Karen Denning said in a statement. Denning did not detail what effect the ruling had on engine production, if any.

EPA issued the regulation in January after learning in October that Navistar would run out of emissions credits sometime in 2012. The company earned those credits during years when its engines exceeded the federal emissions rules; other manufacturers have earned and used credits in the past.

When the court heard arguments in the lawsuit in May, Michele Walter, a Department of Justice attorney representing EPA, said that the agency “wouldn’t have had the time to go through that entire process” of a normal rulemaking before Navistar ran out of credits.

Navistar would have had to close down much of its business if it weren’t for the penalty regulation, Walter argued.

So EPA invoked a “good cause” provision that sometimes allows regulations to be written without the agency giving notice and soliciting public comments. “Good cause” is usually re­served for emergency situations, the court said in rejecting EPA use of the provision.

EPA’s interim final rule “does not stave off any imminent threat to the environment or safety or national security,” the court said. “It does not remedy any real emergency at all, save for the ‘emergency’ facing Navistar’s bottom line.”

Representatives of EPA and DOJ declined to comment on the case, how it affects enforcement or whether the federal government will ask for a rehearing before the appeals court.

Denning said Navistar will ask for the court to hear the case again. “We disagree with the court’s ruling and will ask for a rehearing,” she said.

It is unclear whether the ruling takes effect immediately or what role petitions for rehearing would play. Representatives of the parties involved did not answer those questions.

The companies that brought the lawsuit praised the June 12 decision.

“Daimler Trucks North America applauds” the ruling, spokesman David Giroux said in a statement. Daimler subsidiary Detroit Diesel Corp. also was a party to the lawsuit.

“The judges’ ruling today did acknowledge our concerns,” Carol Lavengood, a Cummins spokeswoman, told Transport Topics.

John Mies, spokesman for Mack Trucks Inc. and its sister company Volvo Trucks North America, said the companies are pleased with the decision. “Our interest has always been ensuring that there’s a level playing field,” he said.

The ruling is of “limited practical impact,” the court said, because EPA is working on a final rule on penalties to replace the vacated one. On the same day EPA issued the interim rule, it proposed the permanent one.

Walter, the DOJ lawyer, told the court last month that EPA would issue that final rule by this fall. EPA went through the normal notice-and-comment rulemaking procedure for that.

Navistar submitted on Jan. 31 a 13-liter engine that it said met the nitrogen oxides limit in the 2010 standard (2-6, p. 3). But in May, the company resubmitted its application. CEO Dan Ustian did not elaborate on why the company resubmitted when he spoke to investors recently (6-11, p. 3).

The company expected to pay the penalties for much of 2012. It also planned to use its remaining credits so it could sell engines in California and the nine other states that follow its emissions regulations because those states do not allow selling noncompliant engines, even with penalty payments.

Navistar ranks No. 3 in U.S. heavy-duty truck sales according to WardsAuto.com. In addition to on-road heavy-duty trucks engines, the company sells severe- and medium-duty trucks and engines, military vehicles, buses and recreational vehicles.

All of Navistar’s new on-road trucks use the company’s engines, and it does not sell engines to other manufacturers, it told the court.

The company also plans to offer a 15-liter engine, but the 13-liter model is the only heavy-duty engine it has submitted to EPA for certification under the 2010 nitrogen oxide standard, Denning said.