EPA Says It Took Shortcut In Navistar Penalty Rule

WASHINGTON — If the Environmental Protection Agency had not taken a shortcut in writing a regulation allowing Navistar Inc. to pay penalties in order to sell engines that exceed 2010 emissions standards, the truck manufacturer would have had to stop selling the engines, a federal attorney said in court.

“EPA simply did not have time” to write a rule, publish a notice proposing it and gather comments, Michele Walter, an attorney with the Department of Justice, told the U.S. Court of Appeals for the District of Columbia last week.

“It wouldn’t have had time to go through that entire process” in January, after Navistar notified EPA in late 2011 that it expected to run out of the emissions credits it used to sell noncompliant engines in February 2012, Walter said.

Walter was testifying at a May 14 court session that heard arguments from a group of Navistar’s competitors that have sued to stop EPA from allowing the truck maker to sell engines while paying nonconformance penalties (NCPs).

David Sentelle, the court’s chief judge, had asked Walter why EPA did not go through the notice-and-comment rulemaking, instead publishing an immediate “interim final rule” setting the penalties.

The usual rulemaking process takes six to nine months, so Navistar would have had to shut down its heavy-duty diesel engine operations for a period of time, Walter said.

“It’s not EPA’s job to punish Navistar,” she said.

But the attorney representing Mack Trucks Inc., Volvo Trucks North America, Daimler Trucks North America, Detroit Diesel Corp. and Cummins Inc. argued that the Clean Air Act bars EPA from using the shortcut it took.

“Notice-and-comment is the only way to set” nonconformance penalties, Christopher Handman, an attorney with the Washington firm of Hogan Lovells, told the court.

The truck and engine makers filed suits in February against the rule (2-20, p. 49).

When Mack and Volvo filed, John Mies, a spokesman for the companies — both owned by Sweden-based Volvo Group — said Navistar “shouldn’t be able to sell engines until they’re compliant, like other suppliers.”

Handman did not go that far in his argument last week. Instead, he focused on his contention that the Clean Air Act requires notice-and-comment rulemaking any time EPA sets or changes penalties for not complying with emissions regulations. At the same time the agency issued its interim final rule, it also proposed a permanent rule for which it already has gathered public comments.

Walter argued that the “good cause” provision of the Administrative Procedures Act allows EPA to skip the usual process when publishing some interim rules.

She conceded that the Clean Air Act overrides the APA’s good-cause exception when it comes to writing the formula EPA uses to calculate penalties, so the agency used an existing NCP formula in its interim rule. But EPA is free to tweak the “upper limit” of emissions allowed under the NCP regulation while using the good-cause exception, she said.

“That’s the same formula in use in other NCP rulemakings,” Walter said.

Handman countered that, since the NCP formula uses the upper limit in its calculation, any change to the upper limit necessarily changes the formula.

Furthermore, EPA’s argument that it can bypass the normal rulemaking process sets a dangerous precedent in which the agency can take the shortcut at its whim, Handman said.

Handman also questioned whether the Clean Air Act even allows NCPs in this situation. Usually, NCPs are allowed only if a supplier is a “technological laggard” or the emissions standard requires a substantial amount of work.

“We don’t see any technological laggards,” Handman said.

Handman’s clients use selective catalytic reduction to comply with 2010 standards without emissions credits, while Navistar has chosen exhaust gas recirculation, which so far has required credits.

Navistar uses SCR in engines it sells in Brazil, Handman said, showing that the company has the necessary technology. Walter told the court that Brazil’s emissions regulations are very different, and it would be difficult to adapt that SCR technology to the North American market.

Besides, the 2010 emissions regulations were written with new technology in mind, technology that Navistar’s competitors have developed, Handman said.

“Every emissions standard necessarily will require substantial work,” he said.

Navistar spokeswoman Karen Denning declined to comment on the oral arguments, but defended the company’s decision to use EGR over SCR to meet EPA’s 2010 emissions standard.

“Since 2001, Navistar has devoted tens of thousands of hours and invested approximately $700 million in the development of its clean-burning, in-cylinder solution,” she said.

The court did not indicate when it would rule on the case.