A federal appeals court has agreed with some of Navistar’s major competitors that the Environmental Protection Agency should not have allowed Navistar to continue selling its MaxxForce advanced exhaust gas recirculation (EGR) diesel engines subject to non-conformance penalties (NCPs) even though they did not meet the agency’s standards for oxides of nitrogen (NOx). The U.S. Court of Appeals for the District of Columbia Circuit ruled Oct. 11 that EPA’s September 2012 final rule did not provide adequate notice of a significant change in the regulation governing the availability of NCPs.

Although the decision could affect EPA’s handling of future emissions regulations, it has little, if any, practical effect today because Navistar announced in July 2012 that it was switching to selective catalytic reduction (SCR) and, as of October of this year, has completed the transition to SCR for all of its Class 8 products. The appeals court said its decision rested in part on EPA’s statement in court arguments in October that due to Navistar’s changed circumstances vacating the NCP rule would not harm the company.

NCPs have been an option under EPA regulations for more than 25 years, but they had always applied to emission standards that had to be achieved in the future. The longstanding NCP rule required, among other things, an EPA finding that substantial work will be required to meet the standard.

This definition of “substantial work” would not have helped Navistar because the NOx emissions regulations had already taken effect. Also, Navistar’s competitors had already met the emissions standards by using SCR. EPA’s proposed rule issued in January 2012 intended to resolve this conflict by stating that NCPs would be allowed if substantial work “was required” to meet the standard and if all heavy heavy-duty diesel engines certified without relying on emission credits were using new aftertreatment systems to meet the standard.

Competing truck and engine manufacturers – Daimler, Detroit Diesel, Volvo and Mack – argued in comments on the proposed rule that while substantial work was required when the emissions standard was introduced in 2001 that was no longer true in 2012 since some manufacturers had technology capable of meeting the standard.

In response, EPA’s final rule declared that the substantial work criterion “is to be evaluated based on the total amount of work needed to go from meeting the previous standard to meeting the current standard, regardless of the timing of such changes.” EPA also redefined “substantial work” from including the application of “technology not previously used in an engine or vehicle class or subclass” to including “technology that was not generally used in an engine or vehicle class or subclass to meet standards prior to the implementation of the new or revised standard.” And EPA got around the “will be” versus “was” problem by stating that substantial work “is required.”

In their lawsuit over the rule, Navistar’s competitors argued that EPA’s changes in the definition of “substantial work” from the proposed rule to the final rule were so large that the agency violated its duty to provide adequate notice and opportunity for comment. The appeals court agreed.

“If EPA wanted to revise its ‘substantial work’ regulation, then it had to provide adequate notice and opportunity for comment…rather than making an unannounced change,” the appeals court said. The court added that a factor in its ruling was EPA’s statement that Navistar’s engines will comply with the emissions standards by the beginning of 2014.

The court’s decision appears to end litigation that began nearly five years ago over EPA’s 2010 diesel engine emissions regulations. Navistar started the legal wrangling in March 2009 when it sued EPA, claiming that agency’s guidance documents for SCR implementation were invalid because they were adopted without a public process and with input only from the SCR engine makers.

Navistar and EPA settled that lawsuit about a year later, but after Navistar alerted EPA in late 2011 that it was running out of emissions credits, EPA in January 2012 adopted an interim final rule in January 2012 that allowed Navistar to continue selling the engines subject to NCPs. Several Navistar competitors sued, and in June 2012 the same appeals court ruled that EPA’s interim rule was invalid because it did not give the public notice and an opportunity for comment. Navistar had already announced plans to adopt SCR when EPA adopted the final rule struck down Dec. 11.