Nonconformance Penalties for HeavyDuty Diesel Engines Subject to the 2010 


NOx Emission Standard
 

Response to Comments 
EPA-420-R-12-015 

August 2012

Assessment and Standards Division 

Office of Transportation and Air Quality 

U.S. Environmental Protection Agency

Nonconformance Penalties for HeavyDuty Diesel Engines Subject to the 2010 

NOx Emission Standard 

Response to Comments

NOTICE 

This technical report does not necessarily represent final EPA decisions or 

positions. It is intended to present technical analysis of issues using data 

that are currently available. The purpose in the release of such reports is to 

facilitate the exchange of technical information and to inform the public of 

technical developments.

EPA-420-R-12-015 

August 2012 
List of Commenters
 

Commenter Abbreviation/Acronym Docket number of comment(s) 

EPA-HQ-OAR-2011-1000- . . . 

Anonymous public comment Anonymous public comment 0013 

Clean Air Task Force, et al. CATF 0021-0022 

Cummins, Inc Cummins 0015, 0025 & 0048 

Daimler Trucks North America 

LLC and Detroit Diesel Corp. 

Daimler 0028, 0043-0045 & 0049 

Environmental Defense Fund EDF 0026 

Ford Motor Company Ford 0029 

International Council on Clean 

Transportation 

ICCT 0030 

Jennifer V. Sinisi J. V. Sinisi 0020 

Jennifer Whittaker J. Whittaker 0023 

Mack Trucks, Inc. and Volvo 

Group North America, LLC 

Mack 0024, 0046, 0047 & 0051 

Manufacturers Of Emission 

Controls Association 

MECA 0017 & 0040 

Navistar, Inc. Navistar 0027, 0031-0039, 0042 & 

0050 

Northeast States for Coordinated 

Air Use Management 

NESCAUM 0018-0019 

New Jersey Department of 

Environmental Protection 

NJDEP 0016 

PACCAR, Inc PACCAR 0041 

i 
Table of Contents
 

1. Legal Issues............................................................................................................... 2
 

1.1. Statutory Basis for NCPs................................................................................... 2
 

1.1.1. Removing All Competitive Disadvantages for Complying Manufacturers... 3
 

1.1.2. Consideration of Environmental Impacts....................................................... 5
 

1.2. Regulatory Criteria for NCPs ............................................................................ 6
 

1.2.1.	 EPA Required to Follow Regulatory Criteria ................................................ 7
 

1.2.2.	 New or Revised Standard More Stringent than Previous Standard and for
 

Which Substantial Work is Required............................................................. 7
 

1.2.3.	 Technological Laggard................................................................................. 13
 

1.2.4.	 Other Criteria................................................................................................ 20
 

1.3. Interim Final Rule............................................................................................ 20
 

2. Penalty Level and Cost Analysis ............................................................................ 21
 

2.1. Appropriateness of Penalty Level.................................................................... 21
 

2.2. Differences from Cost Methodologies Used in Prior NCP Rulemakings ....... 28
 

2.3. Consideration of Manufacturer Costs.............................................................. 30
 

2.4. Upper Limit ..................................................................................................... 33
 

2.5. Basing Compliance Costs on the Upper Limit Engine.................................... 36
 

2.6. Baseline Engine for Cost Analysis .................................................................. 39
 

2.7. Hardware Costs................................................................................................ 44
 

2.8. Operating Costs ............................................................................................... 46
 

2.8.1. Cost Savings and Performance Improvements............................................. 46
 

2.8.2. DEF Usage and Fuel Consumption Rates.................................................... 51
 

2.8.3. DEF and Fuel Prices..................................................................................... 57
 

2.8.4. Discounting Operating Costs ....................................................................... 59
 

ii
2.9. Other Costs ...................................................................................................... 62
 

2.9.1.	 Warranty and Post-Warranty Repairs .......................................................... 62
 

2.9.2.	 Research and Development.......................................................................... 63
 

2.9.3.	 Costs not included ........................................................................................ 65
 

2.10.	 Comparison of Commenters’ and EPA’s Estimates of Total Compliance Costs
 

and Penalties.................................................................................................... 68
 

3. Regulatory Issues.................................................................................................... 72
 

3.1. Base Year for Calculating NCPs ..................................................................... 72
 

3.2. Retaining Emission Credit While Using NCPs ............................................... 75
 

3.3. Prohibition against generating emission credits from NCP engines ............... 75
 

3.4. NCP Formula................................................................................................... 76
 

3.5. Significant figures of the upper limit............................................................... 77
 

3.6. Dollar values.................................................................................................... 77
 

4. Other Issues............................................................................................................. 78
 

4.1. Sunsetting NCPs.............................................................................................. 78
 

4.2. Alternative Penalties........................................................................................ 78
 

4.3. Regional Impacts of NCPs .............................................................................. 80
 

4.4. Comments about SCR unrelated to costs ........................................................ 80
 

4.5.	 Timing of NCP Rulemaking............................................................................ 81
 

4.6. Late Comments................................................................................................ 82
 

APPENDIX: Section 206(g) of the Clean Air Act ........................................................... 83
 

iii
Introduction
 

On January 31, 2012 EPA proposed to establish nonconformance penalties (NCPs) for 

heavy-duty diesel engines. On that same day, we also promulgated an Interim Final Rule to 

establish interim NCPs for heavy heavy-duty diesel engines. We held a public hearing on March 

5, 2012, at which oral comments on the NPRM were received and recorded. Additionally, a 

written comment period remained open until April 4, 2012. A complete list of organizations, 

their abbreviations, and individuals that provided comments on the NPRM is contained in this 

document. 

This Response to Comments contains a summary of all comments we received on the 

NPRM as well as our responses to these comments. Note that quotation marks are not used in all 

cases in which comments are repeated verbatim; rather quotation marks are used only where we 

believe it to be worth noting that the commenter’s exact words are repeated. In some cases 

where several commenters raised the same point, we did not separately summarize the 

comments. Also, to the extent that commenters’ written comments repeated comments made 

during the public hearing, our response focuses on the written comments, which were generally 

more detailed. The comments and responses are organized by topic (see Table of Contents) to 

help the reader find comments and responses of interest. 

1
 
1. Legal Issues 

1.1. Statutory Basis for NCPs 

Section 206(g) of the Clean Air Act (the Act), 42 U.S.C. 7525(g), requires EPA to 

promulgate regulations permitting manufacturers of heavy-duty engines (HDEs) or heavy-duty 

vehicles (HDVs) to receive a certificate of conformity for HDEs or HDVs that exceed a federal 

emissions standard, but do not exceed an upper limit associated with that standard, if the 

manufacturer pays a nonconformance penalty (NCP) established by rulemaking. Congress 

adopted section 206(g) in the Clean Air Act Amendments of 1977 as a response to a concern 

with requiring technology-forcing emissions standards for heavy-duty engines. The concern was 

if strict technology-forcing standards were promulgated, then some manufacturers might be 

unable to comply initially and would be forced out of the marketplace. NCPs were intended to 

remedy this concern. With this provision, the nonconforming manufacturers would have a 

temporary alternative that would permit them to sell their engines or vehicles by payment of a 

penalty. At the same time, conforming manufacturers would not suffer a competitive 

disadvantage compared to nonconforming manufacturers, because the amount of the NCPs 

would be determined, in part, based on the money saved by the nonconforming manufacturer. 

Under section 206(g)(1), NCPs may be offered for HDVs or HDEs. The penalty may 

vary by pollutant and by class or category of vehicle or engine. Section 206(g)(3) requires that 

NCPs: 

 Account for the degree of emission nonconformity; 

 Increase periodically to provide incentive for nonconforming manufacturers to 

achieve the emission standards; and 

 Remove the competitive disadvantage to conforming manufacturers. 

Section 206(g) authorizes EPA to require testing of production vehicles or engines in 

order to determine the emission level upon which the penalty is based. If the emission level of a 

vehicle or engine exceeds an upper limit of nonconformity established by EPA through 

regulation, the vehicle or engine would not qualify for an NCP under section 206(g) and no 

certificate of conformity could be issued to the manufacturer. If the emission level is below the 

upper limit but above the standard, that emission level becomes the “compliance level,” which is 

also the benchmark for warranty and recall liability. The manufacturer who elects to pay the 

NCP is liable for vehicles or engines that exceed the compliance level in use. The manufacturer 

does not have in-use warranty or recall liability for emissions levels above the standard but 

below the compliance level. 

2
 
1.1.1. Removing All Competitive Disadvantages for Complying 

Manufacturers 

This section addresses general comments related to competitive advantages. More 

specific comments are addressed later in this document. 

Summary of Comments 

CATF EPA-HQ-OAR-2011-1000-0021-0022 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

EDF EPA-HQ-OAR-2011-1000-0026 

Ford EPA-HQ-OAR-2011-1000-0029 

ICCT EPA-HQ-OAR-2011-1000-0030 

Mack EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

MECA EPA-HQ-OAR-2011-1000-0017 & 0040 

NESCAUM EPA-HQ-OAR-2011-1000-0018 - 0019 

PACCAR EPA-HQ-OAR-2011-1000-0041 

Several manufacturers of SCR engines commented that the proposed NCPs do not meet 

the statutory requirement to remove the competitive disadvantage to complying manufacturers. 

These commenters believe that EPA proposed penalties that are too low to remove the 

competitive disadvantage. Some of these comments focused on the competitive advantage of 

engines that do not use SCR. Others addressed potential competitive advantages for SCR 

engines that could be reoptimized to have NOx emissions near 0.50 g/hp-hr. These commenters 

further stated that failing to fully remove all competitive advantages for noncomplying engines 

would create an incentive for noncompliance. 

Cummins emphasized that neither manufacturers of compliant engines, nor operators 

who purchase them should be penalized relative to noncompliant engines. 

Mack also commented that low NCP levels will encourage compliant manufacturers to 

develop engines that could take advantage of a 0.50 g/hp-hr upper limit and gain a market 

advantage. Mack cited the testimony from Cummins and its own market decisions to indicate 

this is not hypothetical. Mack also noted that the availability of NCPs affects the analysis of 

market share impacts. 

Mack commented that EPA’s analysis of market advantages is fundamentally flawed 

because it “fails to consider what the market share would have been if all manufacturers had to 

meet the same standard.” It also stated that “EPA apparently assumes that if this happened each 

manufacturer’s share of the market would not have changed, which is not true.” Mack 

considered two scenarios. Under the first, Navistar would have been forced to comply with the 

0.20 g/bhp-hr standard, which Mack argued would have reduced Navistar’s share of the heavyHDDE market to zero. Under the second scenario, all other manufacturers would have been 

given the opportunity to comply with a 0.50 g/bhp-hr standard and reaped a “dramatic shift in 

market share.” 

3
 
Mack also commented that EPA “must both demonstrate a true technological need for 

NCPs (which it has not) and, if able to do that, must ensure the NCP is high enough to 

discourage production of engines beyond those absolutely necessary (which it again has not).” 

EDF commented that NCPs must be large enough to discourage complying 

manufacturers from backsliding to the upper limit. Ford made similar comments. 

NESCAUM stated that quantifying the competitive advantage of an engine manufacturer 

is a potentially significant problem with respect to engines are not equipped with selective 

catalytic reduction (SCR) systems for controlling NOx emissions. It commented that consumers 

may disproportionately choose to purchase vehicles powered by this manufacturer’s engines (the 

nonconformance penalty notwithstanding) on the basis of a perceived convenience of not having 

to maintain appropriate levels of diesel exhaust fluid for proper functioning of the SCR system. 

There were also comments involving competitive impacts that are more directly related to 

the actual level of the penalty, but these are addressed in Chapter 2. 

Response 

The purpose of adopting NCPs is to allow a noncompliant manufacturer to continue 

selling its engines. However, the Clean Air Act directs EPA to set the NCPs at a level that will 

“remove any competitive disadvantage” to complying manufacturers. Thus, the statute 

effectively requires us to set the penalties at a level that we reasonably expect to protect the 

complying manufacturers, but not so high that it cripples any noncomplying manufacturers. The 

purpose of the NCP is not to punish noncomplying manufacturers, but to remove competitive 

advantages and to incentivize compliance. To the extent there is uncertainty about compliance 

costs and/or competitive impacts, we believe that the explicit statutory requirement to remove the 

competitive disadvantage for complying manufacturers means that complying manufacturers 

should generally be given the benefit of these uncertainties. Thus, we are somewhat 

conservative (i.e. high) in our estimate of costs, including looking at our estimate of the highest 

cost for complying manufacturers in developing the COC90 calculation. 

For the proposal and interim rule, EPA estimated compliance costs relative to an SCR 

baseline engine similar to today’s compliant engines, but also evaluated the NCPs in the context 

of competition between SCR engines with NOx emissions at or below 0.20 g/hp-hr and non-SCR 

engines with NOx emissions at or just below 0.50 g/hp-hr. This was appropriate because these 

two categories represented all heavy heavy-duty engines being sold currently. However, EPA 

agrees with commenters that the final NCPs should be high enough to also protect complying 

manufacturers from a competitive disadvantage relative to SCR engines that are more fully 

optimized for 0.50 g/hp-hr than were considered for the proposal and interim rule. The final rule 

should be, and is, more forward looking to also address potential competitive advantages that 

could arise in the future. The Clean Air Act’s requirements to “remove any competitive 

disadvantage” to complying manufacturers effectively requires EPA to consider not only existing 

engines with NOx emissions over the standard, but also engines that could reasonably be 

developed during the period in which NCPs are available. In this case, this requires EPA to also 

consider SCR engines that would be reoptimized for 0.50 g/hp-hr. With respect to Mack’s, 

Cummins’s, and EDF’s comments, we believe that the level of the final penalty, which was 

4
 
developed using a baseline engine emitting at 0.50 g/hp-hr that has been fully optimized, is high 

enough to discourage optional use of NCPs by compliant manufacturers. 

Mack is incorrect when it stated that we assumed that each manufacturer’s share of the 

market would not have changed if all manufacturers had to meet the same emission level. What 

would have happened if all manufacturers had to meet the same emission level because NCPs or 

credits were not available is not relevant. We believe that Congress intended us to consider 

competitive impacts based on the market conditions that existed before the new standard took 

effect, which is what we have done. 

It is unclear to us what Mack meant when it commented that EPA must ensure the NCP is 

high enough to “discourage production of engines beyond those absolutely necessary”. If it 

meant that we should calculate some number of engines that would be necessary for Navistar to 

stay in business and set the NCP at a level that made it unlikely that Navistar would sell more 

than that number, then we disagree with the comment. It is clear that Congress intended us to 

allow Navistar (or any other noncompliant manufacturer) to continue to sell its engines but also 

intended us to set the NCP at a level that ensures that Navistar (or any other noncompliant 

manufacturer) does not gain any competitive advantage over compliant manufacturers. We 

believe the final rule meets this intent. 

With respect to the NESCAUM comment, the commenter provides no evidence, nor have 

we seen any evidence, that there is a competitive disadvantage for SCR manufacturers beyond 

the difference in compliance costs. 

1.1.2. Consideration of Environmental Impacts 

Summary of Comments 

EDF EPA-HQ-OAR-2011-1000-0026 

Ford EPA-HQ-OAR-2011-1000-0029 

ICCT EPA-HQ-OAR-2011-1000-0030 

J. V. Sinisi EPA-HQ-OAR-2011-1000-0020 

Mack EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

MECA EPA-HQ-OAR-2011-1000-0017 & 0040 

NESCAUM EPA-HQ-OAR-2011-1000-0018 - 0019 

NJDEP EPA-HQ-OAR-2011-1000-0016 

Some commenters argued that EPA should consider environmental impacts when 

deciding whether to establish NCPs and/or when setting the penalty level. In particular, Mack 

commented that allowing Navistar to continue production of current engines using NCPs would 

result in more than 55,440 excess tons of NOx emissions for model year 2012 and more than 

110,000 tons for model year 2013. Its argues that “this is not in keeping with EPA’s central 

mission of protecting the environment and the air we breathe.” 

5
 
ICCT commented that it believe that the Agency should also consider taking into account 

the societal costs of increased air pollution resulting from noncompliance. Given the goals of the 

original rule and the Agency’s mission, ICCT believes that any accounting of costs is incomplete 

without estimating the damages to human health and the environment that would result from 

increased NOx emissions. ICCT suggested using the methodology developed in the regulatory 

impact assessment as the basis for evaluating damages from noncompliance. 

MECA stated that NCPs should not be based simply on costs of emission reduction 

technologies because such an approach doesn’t take into effect the societal costs of higher 

emissions. 

Response 

The Clean Air Act does not direct EPA to consider environmental impacts in setting 

NCPs. Congress was clear in its mandate in section 206(g) that EPA shall permit manufacturers 

to certify using NCPs. While Congress did require EPA to take certain factors into account 

when setting NCPs, evaluation of environmental impacts or “societal costs” is not set out as a 

criterion. The language and history of this provision indicate that Congress effectively 

determined that requiring EPA to issue standards for heavy-duty vehicles and engines that are 

technology forcing in nature, with NCPs acting in part as a safety valve preventing a 

manufacturer from being forced from the market, serves the public interest in the long term and 

outweighs any short-term harm to the environment caused by allowing NCPs. We note that we 

do escalate the amount of the NCP annually “in order to create incentives for the development of 

production vehicles which achieve the required degree of emission reduction.” 

1.2. Regulatory Criteria for NCPs 

Since the promulgation of the first NCP rule in 1985, subsequent NCP rules generally 

have been described as continuing “phases” of the initial NCP rule. The first NCP rule (Phase I), 

sometimes referred to as the “generic” NCP rule, established three basic criteria for determining 

the eligibility of emission standards for nonconformance penalties in any given model year (50 

FR 35374, August 30, 1985). (For regulatory language, see 40 CFR 86.1103-87.) The first 

criterion is that the emission standard in question must become more difficult to meet. This can 

occur in two ways, either by the emission standard itself becoming more stringent, or due to its 

interaction with another emission standard that has become more stringent. Second, substantial 

work must be required in order to meet the emission standard. EPA considers “substantial work” 

to mean the application of technology not previously used in that vehicle or engine 

class/subclass, or a significant modification of existing technology, in order to bring that 

vehicle/engine into compliance. EPA does not consider minor modifications or calibration 

changes to be classified as substantial work. Third, EPA must find that a manufacturer is likely 

to be noncomplying for technological reasons (referred to in earlier rules as a “technological 

laggard”). Prior NCP rules have considered such a technological laggard to be a manufacturer 

who cannot meet a particular emission standard due to technological (not economic) difficulties 

and who, in the absence of NCPs, might be forced from the marketplace. 

6
 
1.2.1. EPA Required to Follow Regulatory Criteria 

Summary of Comments 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

Mack EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

MECA EPA-HQ-OAR-2011-1000-0017 & 0040 

PACCAR EPA-HQ-OAR-2011-1000-0041 

Several commenters argued (implicitly or explicitly) that EPA cannot establish NCPs 

unless all of the regulatory criteria for NCPs (in 40 CFR 86.1103-87) are met. Mack also stated 

that EPA “must demonstrate” that the criteria are met. 

Response 

When adopted in 1985, EPA intended to use the criteria of 40 CFR 86.1103-87 in 

determining whether to establish NCPs. However, we note that actual regulatory text does not 

state that EPA may establish NCPs only if all criteria are met, but rather that EPA shall establish 

NCPs “provided that EPA finds” the criteria are met. These criteria were included in the 

regulations to clarify that manufacturers should not expect EPA to initiate a rulemaking to 

establish NCPs where these criteria were not met. Moreover, EPA may revise the criteria at any 

time through notice and comment rulemaking as long as the statutory criteria of section 206(g) 

are met. Nevertheless, as noted elsewhere, EPA has found that the criteria have been met. 

Regarding Mack’s comment that EPA must demonstrate that the criteria are met, the 

regulations clearly defer to EPA’s judgment for finding that the criteria are met. While we must 

explain the basis of our finding, the regulatory language does not require us to prove or 

demonstrate that the criteria are met. 

1.2.2. New or Revised Standard More Stringent than Previous 

Standard and for Which Substantial Work is Required 

Summary of Comments 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

EDF EPA-HQ-OAR-2011-1000-0026 

J. Whittaker EPA-HQ-OAR-2011-1000-0023 

Mack EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

Navistar EPA-HQ-OAR-2011-1000-0027, 0031-0039, 0042 & 0050 

PACCAR EPA-HQ-OAR-2011-1000-0041 

Several commenters opposed EPA’s determinations that the 2010 NOx standard qualifies 

as a new or revised standard that is more stringent than the previous standard and that substantial 

work is required to meet the standard. The commenters made arguments similar to one another. 

7
 
First, they argued that the 2010 NOx standard does not qualify as a new standard because it was 

promulgated in 2001. Second, they argued that nothing happen in 2012 to make the standard 

“more difficult to achieve”. Third, with regard to the “substantial work” criterion, these 

commenters stated that substantial work is no longer required to meet the standard.1 Most 

repeated EPA’s statement in the preamble to the proposal that: 

EPA considers “substantial work” to mean the application of technology not previously 

used in that vehicle or engine class/subclass, or a significant modification of existing 

technology, in order to bring that vehicle/engine into compliance. EPA does not consider 

minor modifications or calibration changes to be classified as substantial work. 

These commenters argued that viewed from 2012, this “substantial work” criterion has not been 

met because SCR is now an existing technology that has been used within the engine class. 

Finally, more than one commenter noted that Navistar cannot claim that it would need to do 

substantial work to use SCR because one of its subsidiaries uses SCR on trucks in Brazil. Other 

comments that we received are summarized below. 

Mack stated that “EPA’s ‘substantial work’ finding is at odds with its own use of a 

‘hypothetical’ 0.5 g/bhp-hr engine, and its assumption in setting the NCP level that all 

manufacturers save Navistar would have adopted SCR to meet a 0.5 g/bhp-hr standard” and that 

“EPA cannot, on one hand, declare that SCR did not previously exist for purposes of justifying 

its substantial work finding in the NCP rule, and, on the other, decide that it always existed and 

would only require minor modification for purposes of developing an NCP calculation.” Mack 

also commented that it is incorrect to presume that Navistar will need to innovate further and use 

“technology not previously used in an engine or vehicle class or subclass” to meet the 0.20 

g/bhp-hr standard. Cummins made a similar argument that it is inconsistent to find that 

substantial work is required to meet the 2010 NOx standard while proposing as its “baseline” 

engine an engine capable of emitting 0.20 g/hp-hr NOx that is de-tuned to meet the upper limit. 

Mack also stated that “Navistar’s public statements also confirm that it also does not 

believe substantial work is required for its current EGR engines to meet the 0.20 g/bhp-hr NOx 

standard.” It quoted Navistar’s Senior Vice President of North American Sales Operations as 

saying: 

“[d]rivers and owners ‘won’t see the difference’ in the point-2 engine’s performance ... 

because there are no equipment changes... The lower NOx emissions can be achieved 

with modified fuel pressures, altered introduction of inlet air, and recalibration of 

electronic controls.”2 

1 In particular, Cummins noted that verb tense is significant and determinative of the regulation’s meaning, stating 

that “the Supreme Court has recognized as much in the analogous task of interpreting statutes. Ingalls Shipbuilding 

v. Director, OWCP, 519 U.S. 248, 255 (1997) (tense of verb is an element of plain meaning); United States v.
 

Wilson, 503 U.S. 329, 333 (1992) (“Congress’s use of a verb tense is significant”); see also Carr v. United States,
 

130 S. Ct. 2229, 2236-37 (2010) (collecting cases).”

2 Mack cited: TruckingInfo.com, “Customers Wouldn’t Pay Extra for Any Non-Compliance Penalties Imposed on
 

Navistar, Hebe Says,”(Feb. 1, 2012)
 

8
 
Daimler stated that “the regulatory provisions cannot reasonably be read to allow for such 

a belated NCP determination” and that EPA's conclusion in the standard-setting rule that the 

standard is a technology forcing standard “has no bearing on whether there now exists a new or 

revised and more stringent emission standard applicable to the current model year for which EPA 

seeks to set NCPs.” It also stated that for EPA to find that substantial work is still required 

“would justify NCPs any time new technology is used to meet an emission standard - a result 

Congress surely did not intend under the Clean Air Act and a result EPA does not permit under 

its regulations.” 

Navistar agreed with EPA’s determination that the first two criteria for establishing NCPs 

were met, stating that “under the plain language set forth in EPA’s regulations as well as the 

agency’s longstanding application and interpretation of both CAA § 206(g) and the agency’s 

own regulations, this is clearly a case where Navistar is applying new and/or significantly 

modified technology—that it spent hundreds of millions of dollars developing—in order to 

comply with the new stringent NOx standard set at near-zero levels.” Finally, Navistar noted that 

“the 0.20 g NOx Standard did not become fully effective across all engine families in model year 

2007, or even in 2010” due to the availability of banked NOx emission credits. It argues that 

SCR engine manufacturers’ disregard of these regulatory flexibilities is “illogical” and “jettisons 

EPA’s well-established interpretation of the NCP statute and rules.” 

Response 

When EPA initially proposed the NCP criteria, we noted that the first two criteria 

addressed whether there was a possibility for a technological laggard to develop.3 We stated that 

when the first criterion is met, it “creates the possibility for a technological laggard to exist.” We 

also stated that “When manufacturers must perform substantial work, it is possible that at least 

one will be unsuccessful and will become a laggard. Thus, when evaluating these criteria, the 

purpose is to determine whether the standard created the possibility for a laggard to exist.” 

The first regulatory NCP criterion is met when “any new or revised emission standard is 

more stringent than the previous standard for the pollutant, or when an existing standard for that 

pollutant becomes more difficult to achieve because of a new or revised standard.” This is the 

case with the 2010 NOx standard. The previous emission standard for this category is a 

combined NMHC + NOx standard of 2.4 g/hp-hr, or optionally a 2.5 g/hp-hr NMHC + NOx with 

a limit of 0.5 g/hp-hr NMHC.4 (EPA has viewed this standard as being equivalent to a 2.3 g/hphr NOx-only standard.5

) The 2010 (i.e., current) standards are 0.20 g/hp-hr for NOx and 0.14 

g/hp-hr for NMHC. When promulgated, the Agency concluded that the 0.20 g/hp-hr NOx 

standard was a technology forcing standard. 

3 50 FR 9206, March 6, 1985.
 4 NMHC stands for non-methane hydrocarbons, which is a measure of total hydrocarbons with the methane
 

emissions subtracted out. For typical on-highway diesel fueled heavy-duty engines, methane emissions are on the
 

order of 10 percent of the total hydrocarbon emissions.

5 “Regulatory Impact Analysis: Control of Emissions of Air Pollution from Highway Heavy-Duty Engines,” page
 

109, EPA420-R-00-010, July 2000.
 

9
 
The second criterion requires that substantial work be need to meet the new standard. 

Since all heavy heavy-duty diesel engines currently certified to the 0.20 g/hp-hr standard 

(without using credits) are using new aftertreatment systems to meet this standard, it is 

appropriate to conclude that the standard qualifies as more difficult to meet and that substantial 

work was required to meet the emission standard. Thus, when we adopted the 2010 NOx 

standard, it created the possibility for a technological laggard to develop. 

We note that the commenters generally do not dispute that the first two criteria were met 

before 2010, and that we could have set NCPs at that time had we determined that a 

technological laggard was likely to develop. In fact, none of the manufacturers questioned 

EPA’s determination when we notified them in 2010 that we had found that the new NOx 

standard required substantial work.6 When making that determination, EPA noted that the 

reason that we were not establishing NCPs at that time was because we had not determined that a 

technological laggard was likely to develop. Had we known before 2010 that Navistar would run 

out of credits in 2012 and that it would have not yet brought its NOx levels down to 0.20 g/hp-hr, 

we would have established NCPs. We do not believe that these commenters would have 

opposed establishing NCPs at that time. 

Regarding the first criterion, some commenters now claim that EPA no longer has the 

authority to establish NCPs for the 2010 NOx standard because they claim it is no longer a new 

or revised standard. One commenter noted that the standard was promulgated in 2001. Yet it is 

often not apparent, and was not apparent in this case, that there would be a need for NCPs until 

close to, or in this case after, the implementation of a standard. In this case, EPA did not 

promulgate NCPs earlier than 2012 because no manufacturer needed them, as they all met the 

standard either directly or through credits. The 0.20 g/hp-hr NOx standard clearly is a revised 

standard, and a more stringent one, since the previous standard was approximately ten times 

higher than the 0.20 g/hp-hr standard. The fact that EPA did not promulgate NCPs prior to the 

standard being implemented does not forever preclude EPA from promulgating them when they 

are needed. 

Although we reject the commenters’ argument that we may not establish NCPs once a 

standard has been implemented, it is worthwhile to consider the logical result of this argument. 

Many of these commenters seem to believe that the NOx standard was new in 2010. However, 

strictly speaking this standard was not new in 2010. It was actually first applicable to model year 

2007 engines. The commenters provide no basis for treating the phase-in provisions that applied 

in model year 2007 through 2009 differently than the flexibility of the emission credit program 

that Navistar has used since then to certify engines near 0.50 g/hp-hr NOx. Thus, the logic of the 

commenters opposing our finding that the first criteria was met would lead to a result in which 

we could not have set NCPs after 2007. If we accepted this logic, it would severely hinder our 

ability to set NCPs for standards for which there is extensive phase-in flexibility. We do not 

believe that such a result would be consistent with the intent of the statute. 

6 “Nonconformance Penalties for Heavy-Duty Diesel Engines in 2010 Model Year”, Letter from Karl J. Simon, 

Director, EPA Compliance and Innovative Strategies Division, February 22, 2010. 

10
 
Regarding the substantial work criterion, there can be no argument that substantial work 

was necessary to meet the 2010 NOx standard. Every manufacturer other than Navistar has for 

the first time included NOx aftertreatment (selective catalytic reduction), on their engines to 

meet the standard, and Navistar has also greatly modified in exhaust gas recirculation (EGR) 

system to reduce its NOx emissions and has now stated that it will also use NOx aftertreatment 

to meet the standard. These are substantial changes to the emission control systems of these 

engines. While manufacturers may currently be using SCR systems, they were not doing so until 

they were required to meet the 2010 NOx standard. Therefore, it is clear that substantial work 

was needed to meet the standard. 

Commenters do not dispute that substantial work was required to meet the 2010 standard, 

and in fact, complying engine manufacturers generally emphasized in their comments how much 

work they had done to meet the standards. Nevertheless, some commenters claim that this 

criterion has not been met because they claim it is no longer true that substantial work is required 

because some manufacturers have met the standard. We disagree for two reasons. First, this is 

not how EPA interprets this criterion. This criterion is to be evaluated based on actual work 

needed to go from meeting the previous standard to meeting the current standard, regardless of 

the timing of such changes. EPA looks at whether “substantial work” is or was required to meet 

the revised standard at any time after the standard was issued – the important question is whether 

manufacturers who were using technology that met the previous standard would need to build 

upon that technology to meet the revised standard. Indeed, the commenters’ argument would 

seem to be directly contrary to the purpose of the statute, which is designed to allow 

technological laggards to be able to certify engines even if other manufacturers have met the 

standard. Commenters’ approach would prevent this by apparently preventing lagging 

manufacturers from certifying in exactly those circumstances. To avoid this confusion for future 

NCPs, we are clarifying in the regulatory text that this criterion is to be evaluated based on the 

need for new or modified technology or design to meet the new or revised standard regardless of 

the timing for such changes. 

Second, even under the current circumstances, we find that Navistar will need to do 

substantial work to meet the standard, whether it meets the standards through advanced EGR or 

through SCR. Mack cited public statements by a vice president of Navistar responsible for sales, 

but we do not believe these statements reflect the full extent of the challenge facing Navistar in 

its attempt to meet the standard through advanced EGR. Navistar has been working to bring all 

its engines into compliance with the 0.20 g/hp-hr NOx standard without credits, and is devoting a 

substantial fraction of its engineering resources to the task, but it has not yet been able to do so. 

Moreover, Navistar has subsequently withdrawn its application for a 0.20 g/hp-hr 

certificate for its non-SCR engines and announced that it has begun work to redesign its engines 

and vehicles to use SCR. While our analysis of this technological challenge is discussed in more 

11
 
 

 

 

 

 

 

 

 

 

 

detail in Section 1.2.3, we note here that Navistar must complete the work that other 

manufacturers have already done, including: 

• Selecting an SCR system design 

• Making arrangements with component suppliers 

• Validating components 

• Recalibrating its engine to work with the SCR system 

• Redesigning it trucks to fit the SCR hardware 

• Completing its emission testing and durability testing for certification 

• Obtaining EPA approval for the new engine-SCR system 

Thus, we also disagree with the views of the commenters who claim that Navistar could now add 

SCR to its engines without substantial work, simply because its competitors have already done 

so. Even if it Navistar could take full advantage of the research of its competitors, this would not 

eliminate the substantial work needed for such things as redesigning its vehicles and retooling its 

factories. Regarding the use of SCR by one of Navistar’s subsidiaries in Brazil, this does not 

mean that Navistar can apply SCR to its trucks for the U.S. market in the near future. Neither the 

trucks being built in Brazil nor the market served by those trucks, are the same as those being 

sold in the United States. Even though Navistar has announced that it will incorporate SCR 

technology in its U.S. engines and trucks, it will take substantial time and resources to 

accomplish this. More importantly, while these comments have some relevance in the context of 

determining whether Navistar is a technological laggard, they are not relevant to whether 

substantial work was required to meet the 2010 standard. Whether manufacturers have used 

SCR or advanced EGR to reduce emissions, it is clear that the changes to their engines have 

required considerable work. 

With respect to Mack’s assertion that “EPA cannot” declare that SCR required substantial 

work and “decide that it always existed”, we note that we never declared it always existed. 

Cummins made a similar comment, but both Cummins and Mack are mixing two separate 

provisions. First, our evaluation of the regulatory criteria for NCPs must necessarily be based on 

the factual differences between the prior standard and the new standard (as well as the 

technology required to meet them). This is clearly separate from issues related to the baseline 

engine that EPA used to estimate compliance costs relative to the upper limit because the upper 

limit is well below the prior standard. The engines being considered when evaluating whether a 

new standard requires substantial work are engines meeting the previous standard (i.e. model 

year 2006 or earlier engines), while the baseline engine represents engines that are currently 

practicable (i.e. current model year engines). 

We also disagree with Daimler’s comment that EPA’s logic “would justify NCPs any 

time new technology is used to meet an emission standard- a result Congress surely did not 

intend.” It is important to emphasize that this comment was made in the context of the first two 

criteria, which merely address the possibility for a laggard to develop. It ignores the third 

criterion that requires a likelihood of a technological laggard. We do not believe that using a 

new technology would justify NCPs if the manufacturer had already met the standard and was 

simply choosing to change its emission controls because we would not consider such a 

manufacturer to be a technological laggard. Additionally, it is clear that Congress indeed 

intended that manufacturers be permitted to use NCPs when new technology is used to meet an 

12
 
emission standard. Nothing in section 206(g) requires that a manufacturer whose technology is 

lagging be denied the ability to use NCPs because its technology is different than the technology 

of compliant manufacturers. 

Finally, the regulatory text states that we will establish NCPs when “EPA finds” that 

substantial work was needed. Thus, the regulations clearly leave the determination up to the 

Agency’s discretion, provided we have a reasonable basis for making such a finding. See 

Section 1.2.1 for additional discussion of the extent to which EPA the regulatory criteria 

constrain EPA. 

1.2.3. Technological Laggard 

Summary of Comments 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

EDF EPA-HQ-OAR-2011-1000-0026 

J. V. Sinisi EPA-HQ-OAR-2011-1000-0020 

J. Whittaker EPA-HQ-OAR-2011-1000-0023 

Mack EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

Navistar EPA-HQ-OAR-2011-1000-0027, 0031-0039, 0042 & 0050 

PACCAR EPA-HQ-OAR-2011-1000-0041 

Several commenters opposed our finding that there is a likely to be a technological 

laggard, arguing that the technology exists for all manufacturers to comply with the 2010 NOx 

standard. 

Mack 

Mack commented that EPA must demonstrate that a “true” technological laggard exists, 

arguing that EPA has identified nothing to date to suggest that Navistar is a technological 

laggard. It noted further Navistar has “never publicly expressed any inability to meet the 

standard” and has actually submitted two applications for certificates of conformity for engine 

families that purport to comply with the 0.20 g/bhp-hr 2010 NOX standard. Mack argued that 

EPA has failed to examine the relevant data and articulate a satisfactory explanation for its 

action, including a rational connection between the facts found and the choice made and that 

EPA must provide technical analysis to demonstrate that Navistar: 

1.	 Selected technology that cannot meet the 0.20 g/bhp-hr standard for purely 

technological reasons. 

2.	 Was incapable of using a proven, demonstrated, and available technology, such as 

SCR, to meet the standard. 

3.	 Actually submitted a formal request for NCPs or claimed that it was unable to 

meet the standard. 

13
 
On the other hand, Mack did acknowledge that “it was readily apparent as far back as (and 

indeed, even earlier than) 2009, when Navistar sued EPA seeking to overturn the 2010 standard 

based on allegations that it was not feasible, that Navistar would need NCPs.” 

Cummins 

Cummins stated that Navistar has chosen not to utilize SCR technology to comply with 

the 0.20 g/hp-hr NOx standard and instead pursued a different path, not based on a lack of 

technological ability to employ SCR, but because of a conscious business calculation. It quoted 

a Navistar official as saying: “There’s no question that SCR works. It’s just not the choice our 

management wanted to take. It’s just too easy.”7 It also noted that Navistar is currently using 

SCR technology in some of its engines in South America, and has submitted an application for a 

certificate of conformity that does not rely on the use of emissions credits to comply. Finally, 

Cummins noted that because “the factual predicate for the agency’s proposed action has 

completely changed” (i.e. after the proposal, Navistar submitted a request for certification of a 

0.20 g/hp-hr NOx engine family) EPA must reconsider its finding that NCPs are appropriate. 

Nevertheless, in its hearing testimony, Cummins did not seem to object to EPA finalizing the 

rule stating, “We urge the Agency to follow due process expeditiously and finalize a sound rule 

that ensures all manufacturers are treated fairly . . .” 

Daimler 

Daimler emphasized the distinction between “true technological laggards and economic 

laggards-particularly intentional economic laggards”, stating that “one federal court has held, 

"NCPs were intended to give a manufacturer that has made every effort to comply, but has been 

unable to achieve compliance, a chance to continue to participate in the market.” (United States 

v. Caterpillar, Inc., 227 F. Supp. 2d 73,88 (D.D.C. 2002)). Daimler argued that “Navistar has 

failed to demonstrate that it cannot use SCR” and noted that Navistar's wholly owned subsidiary 

is already using SCR in Brazil. It argues that this means “that Navistar purposefully chose not to 

use SCR in the United States, thinking it could gain some economic or competitive advantage.” 

Daimler further noted that Navistar stated in its annual reports that it "chose [ ] EGR, combined 

with other technologies, as our solution to meet the 2010 emissions standards [because] [w]e 

believe that our customer-friendly solution provides our products with a significant competitive 

advantage in North America" over all of its competitors, which "have chosen liquid-based urea 

SCR as the solution to meet 2010 emission standards.” Daimler also stated that “a critical 

factual predicate of the Agency's rulemakings has been proven incorrect” because a Navistar 

official stated that the company could meet the standard but did not want to produce the engine 

until it further improves fuel economy and noted that Navistar has submitted an application for a 

0.20 g/hp-hr engine. 

7 E. Ballam, 2010 Emission Standards Limit Apparatus Engine Choices, Fire Apparatus & Emergency Equipment, 

Mar. 2009, available at http://www.fireapparatusmagazine.com/ index/display/articledisplay/4258450219/articles/fire-apparatus/Volume-14/issue-03/features/2010-emissions-standards-limit-apparatusengine-choices.html. 

14
 
Ms. Whittaker 

Ms.Whittaker identified several emission control technologies that she believes could be 

used by Navistar to meet the emission standard and stated that a technological laggard does not 

exist because Navistar could have used other technologies to meet the standard. 

Ms. Sinisi 

Ms. Sinisi commented that EPA should not establish NCPs “every time a single engine 

manufacturer is in danger of becoming noncompliant.” 

EDF 

EDF stated that NCPs provide a narrow exception to other requirements for truly exigent 

circumstances where compliance is impossible for technological reasons 

Navistar 

Navistar acknowledged during the public hearing that it “needs” NCPs and agrees with 

EPA’s determination that there is a reasonable possibility that Navistar will be unable to comply 

for technological reasons because it will run out of credits in model year 2012. Navistar stated 

that without the interim NCPs, it would have already run out of HHDDE credits. 

It acknowledged that it submitted an application for a certificate at 0.20 g NOx, but stated 

that even were EPA to approve that application tomorrow, it would still take Navistar until June 

or July 2012 to produce road-ready engines covered by the application. It also noted that the 

submitted 0.20 g NOx application only covers one family of Navistar’s 13 liter MaxxForce 

heavy HDDEs. Navistar also has two other 13 liter families, one 11 liter family, and two 15 liter 

families in its heavy HDDE line. Navistar indicated that it expected there would be more than a 

year of lag time to prepare and have approved its certificates, including all other requirements 

needed for introduction into commerce, for its other HHDDEs. Navistar also provided evidence 

that it needs NCPs to ensure continued operations. 

Navistar agrees with EPA’s finding that its issues arise from technological as opposed to 

economic reasons (noting that it had invested $700 million to develop its emission controls). 

Navistar noted that long term economic interest influences all decisions of for-profit companies, 

but that the delay in compliance came because of the technological decision to use a 

technologically innovative path, rather than using “the more primitive SCR option.” Navistar 

stated that it needs NCPs as a temporary bridge to keep certain engine families in the 

marketplace. 

Navistar stated that NCPs are precisely intended to provide relief for manufacturers who 

have chosen a different technology path for compliance. Navistar noted that if it were required 

that a noncomplying manufacturer must adopt the technology of those who do comply, there 

could never be a finding of a likelihood of a technological laggard. Navistar stated that it did not 

“choose” not to comply, but chose a different technology. 

15
 
Navistar also stated that the fact that one of its international facilities manufacturers 

engines using SCRs is not relevant as those engines are designed to meet Europeans standards 

and requirements that are substantially different from EPA requirements and would require an 

entirely new development program, taking approximately 22 months. 

Finally, although Navistar does not expect a need for NCPs for its medium HDDE 

families during the 2012 model year, it stated that it may need NCPs for at least some of these 

families in the time period covered by the proposed rule. 

Navistar also submitted a late comment in which it responded to the claims of SCR 

engine manufacturers that Navistar does not need NCPs because it has submitted an application 

for certification for one of its engines. Navistar responded by stating: 

SCR engine makers arc blatantly wrong both legally and factually. As discussed in detail 

below, should EPA accept Navistar’s current certificate application for one rating of one 

of its 13 liter engines - and it should - that in no way changes Navistar's need for, or the 

appropriateness of issuing, NCPs for either the accepted 13 liter application (as a 

temporary bridge between certification and actual production and sale for that one 

configuration), or for Navistar’s many other HDDE families and ratings none of which 

have 0.20 g applications submitted. Moreover, the claims of SCR engine makers reflect 

either a complete disregard, or a complete misunderstanding, of not only the law and 

intent behind NCPs, but also EPA's application and interpretation of those rules. To 

contend, as they do, that Navistar does not qualify for NCPs because it consciously 

"chose" what unknowingly resulted in a late-complying technology path (when they say 

they made it on time with a separate inferior path and that Navistar could have too) is 

simply nonsensical. Their claims have no legal basis and, thus, should be summarily 

rejected. 

Navistar noted that its decision to embark alone on development of advanced EGR, rather 

than using “off-the-shelf technology” has slowed development and increased the costs of the 

necessary advancements. It argued this reinforces the appropriateness of NCPs in this instance. 

Response 

The Clean Air Act places no explicit restrictions on when EPA can set NCPs. In fact, it 

seems to create a presumption that NCPs will be available. The Act requires EPA to allow 

certification of engines that do not meet the standard (unless EPA determines the practicable 

upper limit to be equal to the new emission standard). The commenters arguing that either EPA 

or Navistar must prove the existence of a technological laggard are misreading both the statute 

and the regulations. In 40 CFR 86.1103-87(a)(2), EPA specifies that we will issue NCPs, 

provided we find “that there is likely to be a technological laggard.” The regulations do not 

require any explicit proof that a technological laggard currently exists, only a finding that one is 

likely. 

Nor do the regulations require any sort of formal request by a manufacturer that it needs 

NCPs. EPA’s decision is based on its own evaluation of the facts. In any case, commenters 

cannot now dispute the fact that Navistar has effectively requested in its comments on this rule 

16
 
that NCPs be available. Moreover, commenters can also not dispute the fact that Navistar 

certified heavy heavy-duty engines to use the interim NCPs, and therefore, can be considered to 

have formally requested NCPs. 

While the regulations do not define “technological laggard”, the commenters correctly 

noted that EPA has previously interpreted this as meaning a manufacturer who cannot meet the 

emission standard due to technological difficulties, not merely economic difficulties (67 Fed. 

Reg. 51,464-5, Aug. 8, 2002). The regulations do not require EPA to be certain that one or more 

manufacturers will actually be unable to meet the standard for technological reasons. Rather, the 

regulations specify that it is sufficient for EPA to find this will likely be the case. Moreover, the 

regulatory text states that we will establish NCPs when “EPA finds” that there is likely to be a 

technological laggard. Thus, just as with the finding that substantial work is needed, the 

determination of the likelihood of a technological laggard developing is one that is made at 

EPA’s discretion, provided we have a reasonable basis for making such a finding. 

EPA proposed NCPs for heavy-duty diesel engines because we found that there was a 

significant likelihood that they would be needed by Navistar and that Navistar had not met the 

requirements for technological reasons. Navistar was then using NOx credits to certify all of its 

heavy heavy-duty diesel engines at nearly the FEL cap level of 0.50 g/hp-hr and did not have 

sufficient credits to cover its entire model year 2012 production. The comments opposing this 

determination can be summarized as the following three reasons: 

1.	 Navistar should have used SCR to meet the standard. 

2.	 Navistar could still use SCR (or other advanced emission controls) to meet the 

standard. 

3.	 Navistar could meet the standard without SCR, but is choosing to not meet the 

standard for economic reasons. 

With respect to the first reason, we agree that Navistar could have decided over two years 

ago to apply SCR to its engines (as the rest of the industry did) and that it would likely be able to 

meet the standard if it had. However, it made a decision to attempt to meet the emission standard 

without SCR. The emission standard adopted by EPA is a performance standard, and does not 

require that all manufacturers use the same technology to meet the standards. Congress, 

understanding that manufacturers may not all be in the same place regarding compliance with 

technology-forcing standards, specifically permitted manufacturers to emit higher levels of 

pollutants using NCPs. EPA believes commenters are incorrect in interpreting the NCP 

provisions to effectively discourage technological innovation by requiring all manufacturers to 

use the same technology once one manufacturer has met the standard using that technology. As 

Navistar noted, such an interpretation would seem to negate the entire purpose of NCPs, which 

presume that at least one manufacturer has met the standard. Having made its decision to use a 

different technology to meet the standards, Navistar has not yet developed and produced engines 

that have been certified to meet the 0.020 standard. This is similar to the circumstances in 2002 

17
 
when Caterpillar developed its “ACERT” technology rather than use cooled exhaust gas 

recirculation (EGR) technology and needed to use NCPs while developing ACERT.8, 9 

As Navistar noted, all for-profit companies look at economics in making long-term 

decisions. However, this does not refute the clear evidence that Navistar made a decision to use 

a different technological solution to meet the 0.20 g/hp-hr standard than other manufacturers, and 

that this technological solution has delayed Navistar’s ability to meet the standard. It is for this 

technological reason that Navistar cannot meet the standard, not because it has made an 

economic decision not to try. 

With respect to Daimler’s comment that a federal court has held that "NCPs were intended to 

give a manufacturer that has made every effort to comply, but has been unable to achieve 

compliance, a chance to continue to participate in the market”, we believe that this was quoted 

out of context. The broader context for the court’s statement is: 10 

EPA also refutes Caterpillar's suggestion that the purpose of the NCPs was to allow a 

manufacturer to weigh the costs of compliance against the costs of paying NCPs. If that 

were the case, EPA points out, engine manufacturers would be able to calibrate the 

intensity of their compliance efforts to the NCP for each new standard, allowing them to 

opt for noncompliance when compliance becomes more expensive than the NCP. This 

kind of second-guessing, however, was clearly not Congress' intent in providing for 

NCPs: 

The principal purpose of the Clean Air Act is to protect public health. The mere 

payment of an economic penalty required by the delayed compliance penalty 

provision should not be insulation against achieving requirements related to 

protection of public health.... [T]he delayed compliance penalty ... is not intended 

to provide an opportunity for continued non-compliance. 

Instead, NCPs were intended to give a manufacturer that has made every effort to 

comply, but has been unable to achieve compliance, a chance to continue to participate 

in the market (emphasis added). Thus, NCPs serve their purpose even if promulgated 

after a company has made its engine design decisions, since those decisions should be 

based on whether compliance can be achieved, not on whether compliance is less 

expensive than paying NCPs. 

8 See “Caterpillar Announces Plans to Phase Out Bridge Engines,” Transport Topics, Sept. 9, 2003. 

9 Final Technical Support Document: Nonconformance Penalties for 2004 Highway Heavy Duty Diesel Engines, 

EPA420-R-02-021 August 2002, at 11-12 (“Engine manufacturers generally agree with us that cooled EGR is one of 

the principal technologies capable of achieving the 2004 emission standards. In the past several months, a number 

of engine manufacturers have announced they are pursuing cooled EGR technology as their principle means of 

complying with the 2004 standards. In addition, at least one engine manufacturer [identified as Caterpillar] has 

announced they are pursuing an alternative technology for complying with the 2004 HDDE standards which does 

not include the use of cooled EGR.”)

10 United States v. Caterpillar, Inc., 227 F. Supp. 2d 73, 88 (D.D.C. 2002). 

18
 
When considered in its broader context, it becomes clear that this statement had nothing to do 

with evaluating in retrospect whether a manufacturer had made every effort to comply, but rather 

addresses the possibility of a manufacturer choosing which technology to pursue based on the 

availability of NCPs. This is not the case for Navistar. Clearly, Navistar chose to pursue a nonSCR solution long before NCPs were available. Navistar has made considerable efforts to meet 

the standard, and has not simply weighed the costs of compliance with the cost of NCPs. 

Navistar’s choice of innovative in-cylinder control has led to a delay in its full compliance 

should not be confused with a manufacturer that has failed to meet standards based on a 

weighing of costs. 

With respect to the second reason, we agree it is reasonable to conclude that Navistar can 

meet the 0.20 g/hp-hr NOx standard by adding SCR to its engines. In fact, Navistar has recently 

announced that it will do just that. However, this does not mean that it is not currently a 

technological laggard. Even before Navistar’s announcement, our technological laggard 

determination considered Navistar’s ability to add SCR to its engines, but found this to be an 

unrealistic near-term strategy (i.e., for 2012) due to the amount of time it would take to redesign 

engines and vehicles for an alternate compliance path that would use SCR. The same would be 

true for other advanced technologies. These limitations are technological rather than economic 

in nature, and no amount of money could be spent by Navistar to bring its engines into 

compliance during the current model year. We continue to believe that there is no viable 

technological path available to Navistar that would allow it to produce engines that fully comply 

with 0.20 g/hp-hr NOx emission standard for model year 2012, or to use compliant engines made 

by another engine manufacturer in its vehicles. 

With respect to the third reason, commenters are correct that prior to the end of the 

comment period, Navistar submitted an application for certification of engines to the 0.20 g/hphr standard without using credits. However, after EPA’s review of the initial application, there 

were substantial issues regarding the extent to which Navistar’s engines truly meet the standards 

and other regulations, and that request was withdrawn. Subsequently, Navistar submitted a new 

application for certification for one of its 13 liter engines. This application would have covered a 

single engine configuration and would not cover Navistar’s other 13 liter engines or any of its 11 

liter or 15 liter engines. Navistar noted that even if its application were approved, it would take 

more than a year to incorporate appropriate revisions for all of its engines. Our initial review of 

this revised application did not convince us that Navistar’s newer engine design met the 

standards and other regulations. Navistar has since withdrawn this application. 

When considered in totality, we continue to believe that there is a significant likelihood 

that Navistar is a technological laggard with respect to a significant number of engines. We also 

note that if we are incorrect and Navistar is able to comply with the standard for all its engines in 

the very near future, the final NCP is high enough that it would discourage Navistar from using 

NCPs in those circumstances. 

With respect to the comment from Ms. Sinisi, we note that the Clean Air Act does not 

require more than one manufacturer to be at risk of noncompliance in order for EPA to set NCPs. 

19
 
1.2.4. Other Criteria 

Summary of Comments 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

Daimler commented that NCPs are only appropriate where EPA finds that the regulatory 

lead time it has provided is insufficient to enable manufacturers to develop the technology 

necessary to meet the standards. 

Response 

We disagree with this comment. EPA would not set standards such that the regulatory 

lead time is not sufficient to meet the standard – see section 202(a)(3). In any case, while it is 

true that allowing certification through NCPs might be appropriate where the regulatory lead 

time has proved insufficient for manufacturers to meet the standards, NCPs are generally 

intended for circumstances like the current circumstances, where only a portion of the industry 

has met the standards. Navistar needs NCPs not because we did not provide sufficient lead time, 

but rather because it chose to pursue an emission control technology path that has not yet 

achieved 0.20 g/hp-hr NOx. 

1.3. Interim Final Rule 

On January 31, 2012 EPA simultaneously published an Interim Final Rule establishing 

interim NCPs for heavy heavy-duty engines and a parallel Notice of Proposed Rulemaking 

(NPRM). Several engine manufacturers petitioned EPA to rescind that Interim Final Rule. 

These petitions and EPA’s responses to them have been placed into the Docket for this rule. 

Summary of Comments 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

Mack EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

Mack, Daimler and Cummins reiterated in their comments objections that they made to 

the Interim Final Rule in their petitions. Navistar commented in support of the Interim Final 

Rule. 

Response 

EPA has placed into the docket for this rule responses to the issues raised by the 

commenters in their petitions. The procedural issues raised in the petitions with regard to the 

interim final rule are not relevant to this final rule that was issued after notice and comments. 

The substantive comments regarding the provisions of the Interim Final Rule are moot as the 

final rule has superseded that rule, and are generally answered in responses to comments 

regarding the notice of proposed rulemaking. 

20
 
2.	 Penalty Level and Cost Analysis 

This chapter responds to comments addressing our cost analysis. Note that additional 

discussion of the basis of our cost analysis can be found in the Final Technical Support 

Document for this rulemaking. 

2.1. Appropriateness of Penalty Level 

Section 206(g)(3)(B) of the CAA instructs EPA to set NCPs at a level that “remove[s] 

any competitive disadvantage to manufacturers whose engines or vehicles achieve the required 

degree of emission reduction.” This section discusses general comments about the level of the 

penalty. Later sections in this chapter discuss more specific comments related to the penalty 

level, such as those related to the methodology or data used to support our analysis. 

Summary of Comments 

CATF EPA-HQ-OAR-2011-1000-0021-0022 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

Ford EPA-HQ-OAR-2011-1000-0029 

ICCT EPA-HQ-OAR-2011-1000-0030 

J. V. Sinisi EPA-HQ-OAR-2011-1000-0020 

Mack EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

MECA EPA-HQ-OAR-2011-1000-0017 & 0040 

Navistar EPA-HQ-OAR-2011-1000-0027, 0031-0039, 0042 & 0050 

NESCAUM EPA-HQ-OAR-2011-1000-0018-0019 

NJDEP EPA-HQ-OAR-2011-1000-0016 

PACCAR EPA-HQ-OAR-2011-1000-0041 

Navistar 

Navistar commented that EPA set the NCP penalties too high in the proposal and Interim 

Final Rule. Navistar believes that EPA overestimated DEF costs and underestimated investment. 

It commissioned Compass Lexecon (“Lexecon”) to analyze the economics of EPA’s Proposed 

NCP Rule and Interim Final NCP Rule. Navistar reports that Lexecon concludes that: 

	 EPA’s method is an “economically appropriate approach” in balancing the CAA’s twin 

goals of not forcing a manufacturer out of the market and of not placing a complying 

manufacturer at a competitive disadvantage. 

	 If Navistar were eliminated from or significantly restricted in the market, there would 

likely be a substantial competitive effect and consumer harm. 

Navistar noted that the purpose of a NCP “is not to penalize nonconforming manufacturers” but 

to ensure that there is no competitive advantage received from the failure to comply. 

21
 
Ford 

Ford commented that if it is cheaper and easier simply to pay the NCPs rather than install 

the aftertreatment equipment necessary to meet the standards, many if not all manufacturers will 

elect to pay the NCPs. Such an outcome would be contrary to the CAA goals of improving air 

quality. Ford also commented that the proposed NCP levels for medium heavy duty diesel 

engines (MHDDEs) are substantially lower than necessary to achieve the goal of removing the 

competitive advantages of certifying to a less stringent Oxides of Nitrogen (NOx) standard. Ford 

stated that the COC 50 value of $462 and COC 90 value of $682 are as much as an order of 

magnitude less than would be suggested by comparisons of retail or wholesale prices of fully 

compliant engines to engines that will require NCPs. 

NJDEP and CATF 

NJDEP and CATF commented that the proposed NCP values were too low to meet the 

applicable NCP statutory and regulatory provisions. NJDEP stated that “the NCP does not 

appear to be large enough to incentivize the one non-conforming manufacturer to spend the 

required money and resources to develop a compliant emission control system quickly.” It also 

stated that “the amount of the NCP should act as a deterrent to prevent manufacturers from 

failing to invest the necessary resources to develop a compliant system” and should be greater 

than the costs of a compliant system. CATF submitted a memorandum that evaluates potential 

NCP values that would potentially derive from a “high engine-out” nonconformance path, using 

best available recent projections of the future relationship between DEF and diesel fuel prices. 

That analysis indicates that a year 1 NCP value in the range of $4,000-$5,000 might be 

warranted to preclude backsliding by current conforming engine manufacturers. 

J. Sinisi 

Ms. Sinisi commented that noncompliance penalties really only offer engine 

manufacturers an incentive to remain noncompliant with applicable emissions standards. She 

stated that though noncompliance penalties are designed to increase over time in order to 

encourage more efficient compliance; in reality it may actually be cheaper for some engine 

manufacturers to produce noncompliant engines for a very long time. She further stated that 

certain manufacturers may only bring their engines up to code on the very day that it becomes 

too expensive to pay the increased noncompliance penalty. She stated that engine manufacturers 

will continue to pump dangerous nitrogen oxides into the environment because they have an 

incentive to do so in the form of a noncompliance penalty. Ms. Sinisi commented that the 

penalty may only buy them time to increase their profits until they are either finally forced to 

comply or until the next noncompliance penalty is instituted. 

MECA 

MECA stated that a powertrain manufacturer may decide to take short term profits rather 

than investing millions of dollars and years of resources into R&D, manufacturing upgrades and 

other new product commercialization costs and in the end fall back on NCPs to buy their way 

into compliance. Incentivizing such an approach is a significant concern to MECA members and 

threatens the establishment of a fair market, based on a level playing field. MECA urges the 

22
 
agency to manage the NCP compliance option so as to not threaten the future development of 

advanced technologies that actually deliver the emission reductions used to justify the original 

rule. 

Cummins 

Cummins commented that EPA’s proposed NCPs would create a situation where paying 

NCPs to produce noncompliant engines is a lower cost option compared to compliance, stating: 

When Congress authorized NCPs, it foresaw this possibility and spoke directly to it: 

“The Committee does not intend to encourage noncompliance with the revised standards. 

For example, if a manufacturer opts to pay the penalty and to design or tune the vehicle 

or engine to higher emission levels, the nonconformance penalty would probably be 

inadequate and should be revised.” House Rep. No. 95-294 at 276 (95th Cong. 2d Sess. 

1977), 2 U.S.C.C.A.N. 1355 (1977). But that is just what EPA has done here. 

Cummins also commented that the too-low NCPs create a much greater issue with regard to 

compliance among SCR manufacturers than between EGR and SCR manufacturers. Cummins 

continued to say that since NCPs are available to all manufacturers once enacted, and since the 

cost of the proposed NCPs are much lower than the economic value that can be created by 

paying them and optimizing engines at higher, noncompliant NOx levels, SCR manufacturers 

that are otherwise capable of producing compliant engines will be driven by competitive market 

forces to pay NCPs as a license to produce higher emitting engines. Cummins also commented 

that a correct analysis would recognize the first cost and operating cost benefits of operating at 

higher NOx levels up to 0.50 g/hp-hr and would incorporate a more appropriate DEF/diesel price 

ratio which would result in a much higher NCP level of $8,100 for a heavy heavy-duty diesel 

engine and $2,600 for a medium heavy-duty diesel engine. 

Daimler 

Daimler stated that the penalty levels set forth in the Interim Final Rule and NPRM do 

not meet the paramount statutory obligation to remove any competitive disadvantage to 

manufacturers whose engines or vehicles achieve the required degree of emissions reduction.” 

Daimler also commented that EPA focuses in on an emissions reduction that is 1/8 the amount 

that has been achieved by manufacturers to meet the current standard, thereby ensuring that any 

calculation under this new method will always be grossly inadequate. Daimler stated that EPA 

explained in response to comments on its most recent prior NCP rulemaking: "The statute 

requires we remove any disadvantage which the complying manufacturer may encounter. . . . 

[T]he statute does not require that we establish an NCP which removes any disadvantage to the 

non-complying manufacturer.” 

PACCAR 

PACCAR stated that the proposed NCP level is so low that it creates an additional 

competitive disadvantage for manufacturers that have invested considerable time and resources 

in developing emission control technology that complies with the 2010 NOx standard. 

PACCAR commented that in order to eliminate the competitive advantage Navistar gains under 

23
 
the current NCP, EPA should add the value of Navistar's fuel economy advantage to the SCR 

hardware, R&D and warranty component costs, and increase the NCP for 2012 to a minimum of 

$14,378. 

Mack 

Mack stated that EPA’s NCP for the 2010 standard is a fraction of its previous NCPs. 

Mack commented that the maximum penalty, or penalty associated with meeting the upper 

limit of 6.0 g/bhp-hr established by the 1991 NCP, was $2,250. Adjusted for inflation to 2012 

dollars, the penalty is $3,744. In addition, it commented that this penalty was established for 

an upper limit that was only 17 percent higher than the applicable 5.0 g/bhp-hr standard. 

Mack stated that the maximum penalty associated with meeting the upper limit of 5.0 g/bhphr established by the 1998 NCP was $2,540. Adjusted for inflation to 2012 dollars, the 

penalty is $3,532. Mack further stated that the upper limit for this rulemaking, meanwhile, 

was set at about 20 percent higher than the applicable 4.0 g/bhp-hr standard. It said for 2004, 

the maximum penalty associated with meeting the upper limit of 6.0 g/bhp-hr was $12,210, or 

$14,651 in 2012 dollars. The upper limit for that rulemaking was 2.4 times the standard. 

Further, by comparison, the maximum penalty established for meeting the upper limit of 0.50 

g/bhp-hr in the NCP under the Proposed NCP Rule is $1,919, which is lower than all 

previously established NCPs for NOX emissions from heavy heavy-duty diesel engines, even 

if not adjusted for inflation. Mack concluded that this is despite the fact that the rule was the 

most expensive emissions mandate the industry had ever faced. 

Mack concluded that by setting an extraordinarily low NCP for MY 2010, EPA not 

only would remove any incentive by Navistar to develop a compliant engine, it also would 

create new incentives for conforming manufacturers to develop engines that can take 

advantage of a 0.50 g/bhp-hr upper limit through payment of a nominal penalty. 

Response 

NCPs must conform to the statute and the regulations. With respect to the statutory 

requirements, we note that while the purpose of adopting NCPs is to allow a noncompliant 

manufacturer to continue selling its engines, the Clean Air Act directs EPA to set the NCPs at a 

level that will “remove any competitive disadvantage” to complying manufacturers. We believe 

that the statute effectively requires us to set the penalties at a level that we reasonably expect to 

protect the complying manufacturers, but not so high that it effectively forces any noncomplying 

manufacturers from the market, (unless that is the only way to protect the complying 

manufacturers). In this context we agree with commenters that state EPA must consider 

competitive disadvantages for complying manufacturers relative to both noncomplying SCR and 

noncomplying non-SCR engines. We agree with commenters that setting NCPs too low could 

cause manufacturers who can now comply with the standard to instead make a decision to 

comply using NCPs, which would lead to more NOx emissions. We believe that the NCPs 

promulgated in this final rule, which are substantially larger than those proposed, are sufficient to 

protect complying manufacturers from competitive disadvantage, but not so high as to create a 

substantial competitive advantage for complying manufacturers. 

24
 
While commenters provided arguments why Navistar could have a competitive 

advantage over compliant engines, none provided any evidence of an actual competitive 

advantage. Commenters did not dispute EPA’s statement in the Interim and Proposed Technical 

Support Document that Navistar has not gained any market share since the 2010 standard has 

gone into effect, during a period when Navistar was not paying any penalties at all. Some 

commenters claim that Navistar has saved money by not developing SCR, but Navistar claims 

that it has actually spent more on R&D than its competitors. Thus, while we agree that 

producing engines with NOx emissions at 0.50 g/hp-hr provides Navistar some competitive 

advantage, we do not believe it is as high as some commenters claim. Moreover, we agree with 

Cummins that an optimized SCR engine with NOx emissions at 0.50 g/hp-hr would have an even 

greater competitive advantage than Navistar’s engine. 

It is also worth noting that Navistar has revealed in its quarterly reports that it has had 

higher than expected warranty claims for its 2010 and 2011 engines, which led to the company 

posting a net loss so far for 2012.11 We believe those commenters focused on costs of SCR 

hardware overestimate Navistar’s competitive advantage because they did not consider the high 

warranty costs for Navistar’s high-EGR engines. 

EPA has also set regulatory requirements for penalty levels. Most significantly, the 

regulations state that we must set penalties based on total incremental costs of compliance 

relative to engines at the upper limit. These requirements apply in addition to the statutory 

requirements. Unlike the statutory requirements, the regulatory requirements may be revised at 

any time through rulemaking. Thus, while EPA follows the regulatory requirements, this does 

not allow us to ignore the statutory requirements. In fact, should we find that conforming to the 

regulatory requirements would not conform to the statutory requirements, we would revise the 

regulatory requirements. Having said this, as noted elsewhere, we believe that the final NCPs 

being established conform to the regulatory requirements. 

As is described in the Final Technical Support Document, the final NCP levels meet both 

the statutory and regulatory criteria. They are also consistent with the legislative history cited by 

Cummins, which stated “if a manufacturer opts to pay the penalty and to design or tune the 

vehicle or engine to higher emission levels, the nonconformance penalty would probably be 

inadequate.” In summary, we have found that the final NCP parameters are set at a level that 

will: 

1.	 Remove any competitive advantage Navistar may have otherwise had by selling 

non-SCR engines. 

2.	 Allow Navistar to remain in the market. 

3.	 Eliminate the incentive for SCR engine manufacturers to reoptimize their engines 

for 0.50 g/hp-hr NOx. 

While many commenters addressed this first conclusion, none provided any evidence that the 

actual competitive advantage for Navistar is so large that it is not eliminated by our penalty, and 

11 “Navistar Announces Management Reorganization, Reports Second Quarter Results”, Navistar Press Release, 

June 7, 2012. 

25
 
none of the comments even suggest that the penalty level would not allow Navistar to remain in 

the market. However, several commenters provided information to support their belief that the 

proposed penalty was not large enough to eliminate the incentive for SCR engine manufacturers 

to reoptimize their engines for 0.50 g/hp-hr NOx. As is described in later sections, we have 

made changes to our analysis in response to these comments so that our final penalty now does 

eliminate this incentive. 

Neither the statute nor regulations state (or even imply) that NCPs should be evaluated 

based on prior NCPs. Thus, comments comparing the proposed NCPs to prior NCPs are not 

relevant without specific reference to differences in methodology and costs. Nevertheless, we 

have compared them to prior NCPs to show that, while the commenters are correct that the 

proposed maximum penalty was lower than those for recent NCPs, the reason for this is that the 

difference between the standard and upper limit is so much lower than for these recent NCP 

rules. As shown in the following table, when considered on a dollar per g/hp-hr basis, the 

proposed NCPs are actually higher than those of these recent NCP rules. 

2-1 Comparison of Proposed NCPs to Prior NCPs for Heavy Heavy-Duty Engines. 

Comparison of Proposed NCPs to Most Recent NCPs for Heavy Heavy-Duty Engines 

Standard Upper Limit COC90 

(in 2011 Dollars) Dollars per g/hp-hr 

4.0 g/hp-hr 1998 NOx 

Standard 5.0 g/hp-hr $3,855 $3,855 

2.4 g/hp-hr 2004 

NOx+NMHC 

Standard 

6.0 g/hp-hr $15,508 $4,308 

0.20 g/hp-hr 2010 

NOx Standard 0.50 g/hp-hr $1,919 $6,397 

Daimler’s comment about our focus on the costs of going from 0.50 g/hp-hr to 0.20 

g/hp-hr, rather than the previous standard (about 2.0-2.3 g/hp-hr) to 0.20 g/hp-hr, disregards the 

fact that, pursuant to section 206(g)(2), the upper limit should be set to the level we find to be 

practicable, which in this case is 0.50 g/hp-hr, which every manufacturer has met. Moreover, it 

is not true that looking at the smaller emissions difference will “ensure” lower NCPs. Whether 

or not we based our analysis on the smaller or larger difference, NCPs would still only be 

permitted to the upper limit (0.50 g/hp-hr). There is no reason to believe that an NCP for an 

engine emitted at 0.50 g/hp-hr will necessarily be higher under the existing regulatory structure 

because it is based on the calculation of going from the previous standard to 0.20 g/hp-hr, rather 

than going from 0.50 g/hp-hr to 0.20 g/hp. Indeed, in our analysis of alternatives in the Final 

26
 
Technical Support Document, we reviewed a possible NCP based on going from a baseline 

engine emitting NOx at 1.2 g/hp-hr (the effective interim standard from model year 2007 to 

2009) to 0.20 g/hp-hr, and we found that the NCPs at 0.50 g/hp-hr were actually lower in that 

scenario than in the scenario we used in the final rule. See Sections 2.4 and 2.5 for additional 

discussion of this comment. 

With respect to Ford’s comments regarding the appropriateness of the medium heavyduty NCP values, we have decided to seek additional comment before finalizing medium heavyduty engine NCPs. The Final Technical Support Document includes an analysis of three 

alternative methods that could be used to calculate medium heavy-duty NCP values. 

We did receive other relevant and more specific comments on the level of the penalty. 

These comments are addressed in separate sections of this document, as specified in the 

following table: 

2-2 Sections Addressing Details of NCP Level Derivation 

Comments related to . . . 

Are addressed in Section . . . 

Consideration of cost information from engine manufacturers 2.3 

Basing compliance costs on engines at the upper limit 2.5 

Baseline engines 2.6 

Hardware costs 2.7 

Operating costs 2.8 

Warranty and repair costs 2.9.1 

Research and development costs 2.9.2 

Other costs 2.9.3 

While we are responding separately to comments on specific aspects of our cost analysis, 

it is important to note that the costs must ultimately be evaluated as a whole. This is true in the 

context of the regulatory definition of COC90 as well as in the context of whether the resulting 

penalties meet the statutory requirements. The COC90 cost is defined as the 90th percentile cost 

of compliance, although it is often thought of as a worst case cost of compliance. This leads 

some commenters to argue that each individual cost should be set at the highest possible value. 

However, there is uncertainty associated with each cost component and we have attempted to 

address this uncertainty so that the resulting total COC90 cost represents the 90th percentile cost 

of compliance and removes the competitive disadvantage for complying manufacturers. 

Finally, we note that several commenters recommended specific values for COC90 (in 

some cases stated as the recommended penalty). These recommendations, which each differ 

from our final COC90 value, are summarized in Section 2.10. In those cases where it is possible 

to do so, we identify the primary reasons why the recommended value differs from our estimate. 

27
 
2.2.	 Differences from Cost Methodologies Used in Prior NCP 

Rulemakings 

This section addresses comments on the general topic of the extent to which EPA must 

follow the same cost methodologies used in prior NCP rules. Similar comments addressing 

specific differences between this rule and prior NCP rules are addressed elsewhere in this 

document. 

Summary of Comments 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

Mack EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

Navistar EPA-HQ-OAR-2011-1000-0027, 0031-0039, 0042 & 0050 

Daimler and Mack argued against EPA’s cost methodology because it differs from 

methodologies used in prior NCP rules. 

Daimler stated that EPA acknowledged that its methodology “differs from that used in all 

past NCP rules”, but added that “EPA never offers a rational explanation for the change and has 

failed to recognize the fact that this methodology inevitably leads to a gross underestimation of 

the true cost of compliance.” (Daimler’s other comments related to specific aspects of prior 

methodologies, as well as Mack’s, are discussed in later sections.) 

Navistar stated that EPA’s overall analysis and methodology is a rational and reasonable 

path for calculating the cost parameters and NCP penalty levels in the circumstances presented. 

It said that EPA applies the exact same methodology and NCP formula that the agency has 

applied for decades. Navistar continued to state that although the exact cost inputs for each NCP 

are dependent upon the specific circumstances that apply at the time, as with every other 

previous NCP, the Agency has based the NCP on incremental compliance costs, including 

engine and vehicle manufacturing costs (such as variable costs including hardware and assembly 

and fixed costs including tooling, research and development, and warranty costs) in addition to 

operating costs (such as fuel and DEF costs). Navistar also stated that the baseline engine 

selected by EPA is reasonable for calculating NCPs. 

Response 

This section addresses the general issue of whether EPA is obligated to follow past 

practices used in other NCP rules. See Sections 2.4, 2.6, and 2.8.1, for additional discussion of 

ways in which this current rule differs from prior NCP rules. 

As noted earlier, the Clean Air Act directs EPA to set the NCPs at the level necessary to 

“remove any competitive disadvantage” to complying manufacturers. However, since it is 

generally not possible to precisely quantify the competitive disadvantage to complying 

manufacturers, EPA’s original “generic rule” provides for the NCPs to be calculated from total 

28
 
incremental costs of compliance. In that rule, EPA noted that to evaluate the total incremental 

costs of compliance, it would “assess both manufacturers’ and users’ cost impacts.”12 The logic 

of this approach was that penalties based on total incremental costs of compliance would 

generally be the best surrogate for penalties based directly on competitive disadvantages. 

Nevertheless, this has never meant that we would knowingly ignore other factors related to 

competitive advantages. 

The commenters’ suggestion that EPA not deviate from prior precedents for calculating 

costs implies that EPA has always used the same methodology. However this is not true. EPA 

explained this in the Technical Support Document for the NPRM when we said: 

In each of our six previous NCP rulemakings, we estimated costs using a methodology 

appropriate for the specific circumstances that applied at the time. None were approached in 

exactly the same way. In each case we considered key factors such as differences in 

calibration, hardware, and operating costs, but there have been some NCP calculations where 

other potential individual cost or cost saving elements have been included or excluded for 

various reasons. 

Even if it were true that EPA had used the same methodology for all prior NCP rules, this would 

not obligate us to continue using the same methodology in perpetuity. By arguing that EPA may 

never change from approaches taken in prior NCP rules, the commenters are essentially saying 

that we should consider only certain compliance costs, and may never consider new costs or 

other competitive impacts that we have not considered previously. However, this would clearly 

not be consistent with the plain meaning of the statutory language. 

With respect to Daimler’s comment, we believe it was referring to following statement of 

page 7740 of the proposal: 

This approach differs slightly from that used in previous NCP rules, where EPA based 

the NCPs directly on an average of actual compliance costs for all manufacturers. 

If so, then Daimler’s statement that this represents an acknowledgement “that the methodology it 

adopted in the NPRM differs from that used in all past NCP rules” suggests that it is missing the 

intent of this sentence. This statement was intended to address the narrow issue of how to 

calculate costs when the upper limit is set at a level different than the previous standard. As we 

discussed in the proposal, the upper limit in this rule is lower than the previous standard, and 

therefore we had to determine the best way to approximate the cost of going from this upper 

limit to the new standard, even though no manufacturer had actually done this in reality. See 

Section 2.5 for additional discussion. 

12 50 FR 35382, August 30, 1985. 

29
 
2.3. Consideration of Manufacturer Costs 

Summary of Comments 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

Mack EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

Mack stated that “the statutory mandate to remove competitive harm effectively requires 

EPA to consult with and obtain actual cost data from complying manufacturers.” It also stated 

that “every manufacturer, save one, has information that can demonstrate, accurately and 

unequivocally, what it cost them to comply with a 0.20 g/bhp-hr NOX standard.” It stated that 

EPA solicited no input on actual compliance costs and “asked manufacturers to speculate what 

technology and approaches they would undertake to achieve compliance with a 0.2 g/bhp-hr 

engine when starting with a 0.5 g/bhp-hr engine.” It stated further that EPA dismissed this input 

citing our concern that manufacturers were aware that their estimated costs could be used to 

determine the amount of the NCP paid by a competitor, but that “there would have been no 

opportunity for such alleged strategic estimates” if EPA had it used actual compliance cost 

information. Mack cited the following EPA statements from the 2002 Response to Comments 

for the Phase VI NCP rulemaking: 

Our request for data from manufacturers was not for them to speculate on costs for a 

development program which they did not undertake. Rather, our request from 

manufacturers was for them to provide us with data that reflected the actual development 

programs they were performing (i.e., making a model year 2001 engine comply with the 

2004 emission standards). 

Again, EPA’s request prior to the proposal was for the cost estimate for the development 

programs that the manufacturer was actually undertaking keyed to costs for the 2004 

model year, not for a theoretical development program, or a prior model year. 

Daimler commented that EPA must gather cost data from manufacturers in order to 

determine the costs of compliance with the emission standard and use these data to derive 

various factors and inputs necessary to calculate the appropriate penalty amount, so that any 

competitive disadvantage to complying manufacturers is removed. Daimler continued to note 

that in the past, EPA has requested information in writing from engine manufacturers, proposed 

the values for a new NCP for a given emission standard with proper public notice, accepted 

comments from the manufacturers and other members of the public, revised its proposal 

accordingly, and then issued its final rule. Daimler also said that “EPA contacted various engine 

manufacturers by telephone in late 2011 requesting preliminary information for a proposed NCP 

rulemaking but did not take written submissions and refused requests for additional meetings 

with individual manufacturers.” 

Navistar commented that it previously provided cost data to EPA for meeting 0.20 g NOx 

using only Advanced EGR, but noted that the data is protected as confidential business 

information. Navistar’s estimates that the projected costs provided by Navistar (using an 

alternative “baseline”) would result in a significantly lower NCP level than EPA proposed. 

30
 
Response 

Neither the Clean Air Act nor our regulations require us to give any special consideration 

to manufacturers’ estimates of compliance costs. In fact, for some prior NCP rules EPA did not 

explicitly solicit any cost information from manufacturers other than the general solicitation of 

public comments on a proposal. In the end, the compliance costs must be those that EPA 

determines to most appropriately conform to the intent of the Clean Air Act. As EPA noted in 

the generic Phase I NCP rule, NCP costs are to be based on “the best cost and emission 

performance data available to EPA during the specific NCP rulemaking.” The basis for our final 

cost estimates is described in detail in the Final Technical Support Document. 

Moreover, we did seek input from heavy heavy-duty engine manufacturers before the 

proposal and did consider that input. However, as we noted in the Interim Technical Support 

Document, each manufacturer was aware that its estimated costs could be used to determine the 

amount of the NCP paid by a competitor, or by itself. We stated that we were “concerned about 

this because we cannot independently verify the validity of the manufacturers’ costs.” We relied 

on our own experience in determining compliance costs from all information available to us, 

including information provided by manufacturers. We believe that, especially in this context, 

this is appropriate because we do not have the same incentive to skew our results as competing 

manufacturers do. For example, as we note in the Final Technical Support Document, 

information about operating costs provided by both SCR and non-SCR manufacturers is not 

necessarily consistent with information provided to customers in marketing materials and press 

statements. 

Our cost estimates are neither arbitrary nor speculative, but are based on our unbiased 

view of the collection of data provided by manufacturers (both publicly and confidentially) as 

well as other data collected by EPA. In particular, we note that our methodology for 

aftertreatment costs is an approach that we have used in several previous notice-and-comment 

rulemakings. This and other examples of independent sources of cost informations are 

summarized in Table 2-3. (See the Final Technical Support Document for additional discussion 

of the basis of our cost estimates.) 

31
 
2-3 Examples of Independent Data Sources. 

Cost Components Data Sources 

Aftertreatment Hardware Cost Independent EPA methodology used in prior 

rulemakings, which has been made available 

for public comment several times. 

Vehicle Miles Travelled EPA Motor Vehicle Emissions Simulator 

Fuel Price DOE Energy Information Administration’s 

Annual Energy Outlook 2012 

DEF Price Integer Research 

DEF Consumption Rates EPA test data 

With respect to Mack’s concern that EPA had requested speculative data, we note that we 

did specifically request cost data relative to engine emitting at the upper limit of 0.50 g/hp-hr, 

consistent with the regulatory provision specifying that compliance costs are to be estimated 

relative to the upper limit (see Section 2.5 for additional discussion). Since Mack has not 

manufactured engines at this upper limit, this necessarily required some speculation on its part. 

While it is true that Mack would not have needed to speculate about costs relative to its 2009 

engines, these costs do not supply the critical information needed to determine COC90 because 

the 2009 engines had NOx emissions well above the upper limit (Mack did not object to setting 

the upper limit at 0.50 g/hp-hr.) The prior EPA statements cited by Mack are taken out of 

context. Mack suggests that these statements are evidence that EPA has previously argued that 

manufacturers should not speculate on costs for NCPs. However, these statements were made in 

response to comments about what EPA actually did when requesting preproposal information for 

that Phase VI rule, rather than what we should do. Thus, these statements are not relevant to this 

rule. 

With respect to Daimler’s comments related to the process of soliciting cost information, 

we note that this seems to be a misunderstanding caused by the very short timeline of the 

proposal and Interim Final Rule. We did not solicit written comments because we wanted to 

gather the information quickly. While we did inform manufacturers that we needed to end the 

discussions so that we could get the rulemaking out as soon as possible, we did not actually 

refuse requests for meetings. 

It is import to note that we also received cost information from manufacturers during the 

public comment period and met with those manufacturers who wanted to discuss their cost 

information further. We considered this new information along with the preproposal information 

32
 
in our final analysis of compliance costs. In particular, we found the cost information provided 

by Cummins to be especially helpful because it provided detailed information about how an SCR 

engine could be optimized for 0.50 g/hp-hr NOx. While we did not agree with Cummins’ fuel 

and DEF prices (see Section 2.8.3), the rest of our cost analysis is similar to the analysis it 

provided. We should also note that information provided by manufacturers other than Cummins 

(those manufacturers who addressed costs relative to other baseline engines) was considered in 

our analysis of alternative scenarios as described in Appendix B of the Final Technical Support 

Document. 

Finally, there are two primary reasons why we are not basing our NCPs on the costs 

estimates provided by Navistar. First, just as with its competitors’ costs, we are concerned 

because we cannot verify Navistar’s costs. Second, even if we could verify these costs, they 

would clearly not represent the COC90 costs, which are supposed to represent the costs for the 

90th percentile manufacturer. While we cannot divulge Navistar’s exact estimate, we can say 

that it much lower than our final estimate of COC90. Because they are lower than our estimated 

COC90, we believe they would not be large enough to remove the competitive advantage of an 

optimized 0.50 g/hp-hr SCR engine. 

2.4. Upper Limit 

The upper limit used in the NCP derivation is the emission level established by regulation 

above which NCPs are not available, and a heavy-duty engine cannot be certified or introduced 

into commerce if its emissions are above the upper limit. CAA section 206(g)(2) refers to the 

upper limit as a level above the emission standard, set by regulation, that corresponds to an 

emission level EPA determines to be “practicable.” The upper limit is an important aspect of the 

NCP regulations not only because it establishes an emission level above which no engine can be 

certified, but it is also a critical component of the cost analysis used to develop the NCP factors. 

The regulations specify that the relevant NCP costs for determining the COC50 and the COC90 

factors are the cost difference between an engine emitting at the upper limit and one that meets 

the new standards (see 40 CFR 86.1113-87). In the proposal, we set the upper limit at 0.50 g/hphr based on the existing family emissions limit (FEL) cap and the fact that all manufacturers are 

producing products today at NOx levels at or below 0.50 g/hp-hr. 

Summary of Comments 

CATF EPA-HQ-OAR-2011-1000-0021-0022 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

EDF EPA-HQ-OAR-2011-1000-0026 

ICCT EPA-HQ-OAR-2011-1000-0030 

Several commenters noted their support for setting the upper limit at 0.50 g/hp-hr. No 

commenters opposed setting the upper limit at 0.50 g/hp-hr. 

The ICCT believes that the upper certification limit of 0.50 g/hp-hr outlined in the NPRM 

is justified and necessary to ensure a minimum level of emissions performance from engines. 

33
 
EDF supports EPA’s proposal to “revise the regulations in 40 C.F.R. § 86.1104–91 to clarify 

that EPA may set (during rulemaking) the upper limit at a level below the previous standard if we 

determine that the lower level is achievable by all engines.” EDF also agrees that the upper limit 

should be set at the tightest standard achievable by all manufacturers. EDF supports EPA’s proposal 

to set a limit of 0.50 g/hp-hr for this NCP rule, as all manufacturers are already meeting this standard. 

CATF supports EPA’s proposal to set the limit at 0.50 g/hp-hr NOx. 

Daimler supports setting the upper limit at the maximum technologically feasible by the 

laggard rather than the prior emissions standard, but stated that doing so “is no reason to 

understate the compliant manufacturers' full cost of compliance.” Daimler also stated that “if 

EPA changes the definition of upper limit, the Agency needs to implement a corresponding 

change to 40 C.F.R. § 86.1113-87(a)(4) to define COC50 and COC90 in relevant part as the total 

incremental cost to comply with the standard relative to complying with the previous emission 

standard." Daimler commented that failure to do this would render the NCP regulation and 

formula incapable of measuring compliant manufacturers' full cost of moving from one 

generation of emissions standards to the next. 

Response 

The Clean Air Act directs EPA to establish an upper limit for emissions that is equal to 

the level EPA determines “to be practicable.” The regulatory approach adopted under the prior 

NCP rules sets the default upper limit at the prior emission standard when a prior emission 

standard exists and that standard is changed and becomes more stringent. EPA concluded that 

the upper limit should be set at a level reasonably achievable by all manufacturers with vehicles 

in the relevant class. It should be within reach of all manufacturers of HDEs or HDVs that are 

currently allowed so that they can continue to sell their engines and vehicles while finishing their 

development of complying engines. A manufacturer of a previously certified engine or vehicle 

should not be forced to immediately remove an HDE or HDV from the market when an emission 

standard becomes more stringent. The prior emissions standard generally meets these goals, 

because manufactures have already certified their vehicles to that standard. However, in the 

prior NCP rule, we did set the upper limit for heavy heavy-duty engines at a level different than 

the prior standard. We set the upper limit above the prior standard because of a Consent Decree 

that allowed manufacturers to exceed the otherwise applicable standard. 

In the past, EPA has rejected suggestions that the upper limit should be more stringent 

than the prior emission standard because it would be very difficult to identify a limit that could 

be met by all manufacturers. For this rule, however, all manufacturers are currently certifying all 

of their engines at or below the 0.50 g/hp-hr FEL cap. Thus, since NCPs were not intended to 

allow manufacturers to increase emissions, we are setting the upper limit at 0.50 g/hp-hr. This 

will conform to the purpose of NCPs, which is to allow manufacturers to continue selling 

engines they are producing, but not to allow backsliding. No commenter opposed using 0.50 

g/hp-hr as the upper limit. 

34
 
Daimler supports setting the upper limit at 0.50 g/hp-hr, but stated that EPA must also 

redefine COC50 and COC90 as the compliance costs relative to the previous emission standard. 

We do not agree that this is an appropriate condition for setting the upper limit below the prior 

standard. Daimler’s comment is discussed in more detail in Section 2.5. 

Although no commenters support setting an upper limit above 0.50 g/hp-hr, it is worth 

considering a scenario in which the upper limit was set at 1.2 g/hp-hr (the level widely 

considered to be the effective standard during the 2007-2009 phase-in period). As shown in 

Figure 2-1, if we had set the upper limit at 1.2 g/hp-hr, the COC90 would have had to be set at 

$12,583 to result in the same penalty at 0.50 g/hp-hr as the penalty we are finalizing - $3,775. In 

fact, however, as described in Appendix B of the Final Technical Support Document, we 

estimated the actual net 90th percentile costs of reducing emissions from 1.2 g/hp-hr to 0.20 

g/hp-hr to be only $6,990. Thus, if we had set the upper limit at 1.2 g/hp-hr, we would have 

likely set COC90 equal to $6,990 which would have resulted in a $2,097 penalty for engines at 

0.50 g/hp-hr. 

$14,000 

$12,000 

$10,000 

$8,000 

$6,000 

$4,000 

$2,000 

$0 

NOx Emissions Level (g/hp-hr) 

Figure 2-1 - Example of NCPs with Upper Limit at 1.2 g/hp-hr 

COC90 = $12,583 

COC90 = $6,990 

0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 1.10 1.20 

NCP Value 

35
 
2.5. Basing Compliance Costs on the Upper Limit Engine 

We estimated compliance costs relative to a baseline engine with NOx emissions at 

the upper limit, as specified in §86.1113-87(a)(4) of the existing regulations, which states 

that: 

COC50 = Estimate of the average total incremental cost to comply with the 

standard relative to complying with the upper limit (emphasis added). 

COC90 = Estimate of the 90th percentile total incremental cost to comply with the 

standard relative to complying with the upper limit (emphasis added). 

Summary of Comments 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

Mack EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

Mack stated that the fact that the “starting point of compliance – the phase-in standard 

that manufacturers met between 2007 and 2009 – was different from EPA’s upper limit” is not a 

sufficient reason to not include the full cost of SCR hardware. It argued that the “NCP formula 

is designed to reflect actual compliance costs, which are then adjusted based on the degree a 

given compliance level exceeds the standard” and that “there is no reason to arbitrarily link the 

engine used to develop an NCP to the upper limit set by EPA.” Mack also commented that EPA 

needs to consider the full engineering and development costs related to meeting the 0.20 g/hp-hr 

engine. 

Daimler supports setting the upper limit at 0.50 g/hp-hr and acknowledged that §86.1113-

87(a)(4) defines COC50 and COC90 in relevant part as the “total incremental cost to comply with 

the standard relative to complying with the upper limit.” However, it nevertheless argues that 

compliance costs should be measured based on the emissions delta between the prior and current 

standards because EPA has historically set the upper limit at the previous pollutant emission 

standard. 

Daimler also commented that the “cost for a manufacturer that has already developed 

emissions control technology to meet the standard will always be significantly less than the cost 

for a manufacturer who has not yet developed the necessary enabling technology.” It further said 

that “establishing a penalty amount based on a small fraction of the compliant manufacturer's 

marginal cost of compliance does nothing to eliminate the competitive advantage that accrues to 

a noncompliant manufacturer when that manufacturer is allowed to sell engines that do not meet 

the emissions standards” and that “anything less would incentivize laggards to simply wait and 

let others make the investment necessary to develop required emissions control technology, and 

then piggy-back on that development by paying only the incremental cost of using the other 

manufacturers' technology.” 

36
 
Response 

The regulations specify that costs of compliance are to be determined relative to the 

upper limit. Thus, our linkage of the costs of compliance to the upper limit in our cost analysis is 

not arbitrary, but rather it is consistent with our long-standing regulations and all prior NCP 

rulemakings. For example, in the Phase VI rule, when we adopted an upper limit above the prior 

standard, we estimated compliance costs relative to the upper limit rather than the prior standard. 

Given the extent to which Mack argues in other areas that EPA must follow the regulations and 

be consistent with prior NCP rulemakings, it is unclear how it finds this to be an insufficient 

reason. 

We fundamentally disagree with Daimler that compliance costs used for the penalty can 

be disconnected from the upper limit. The regulations are based on analysis of costs related to 

emission differences between the current standard and the upper limit (i.e., the only emission 

levels allowed for NCP engines). We do not see how costs outside this range can determine the 

appropriate NCP within that range. The determining factors are the costs that reflect the 

competitive advantage for engines within this range. The flaw in Daimler’s argument can be 

readily seen by considering the counterfactual scenario in which the 2004 standard never existed 

and the prior NOx standard would have been 4.0 g/hp-hr. Clearly the compliance costs for going 

from 4.0 g/hp-hr to the current standard would have been greater than the cost to reach the 

standard from 2.3 g/hp-hr (the effective NOx level of the 2004 NOx standard) or 1.2 g/hp-hr (the 

effective intermediate standard during the 2007-2009 phase-in period). However, this would 

have had no impact on the actual competitive advantage of current engines with NOx emissions 

between 0.20 and 0.50 g/hp-hr. Since the competitive advantage of engines at the upper limit is 

independent of the level of the prior standard, basing the penalty on the prior standard would be 

arbitrary. 

The NCP formula is intended to result in a penalty at any given compliance level equal to 

the cost for the worst case manufacturer (i.e., the manufacturer with the highest compliance 

costs) to reduce its emissions from that compliance level and meet the standard. For example, 

the penalty for compliance levels near the standard is set based on the worst case marginal 

compliance costs (MC90) so that the NCP associated with being 0.10 g/hp-hr above the standard 

is equal to the highest cost paid by any compliant manufacturer (more precisely, the 90th 

percentile costs) to achieve that last 0.10 g/hp-hr. Since the regulations set the penalty equal to 

COC90 for engines at the upper limit, and the Clean Air Act requires us to set the penalty at a 

level that removes the competitive disadvantage for complying manufacturers, Daimler’s 

argument that COC90 should be based on engines at the prior standard could only be valid if it 

were true that engines with emissions at the prior standard and engines with emissions at the 

upper limit have equivalent competitive advantages over compliant engines. This is clearly not 

true. No manufacturer has claimed that the cost of reducing emissions from 1.2 g/hp-hr to 0.50 

g/hp-hr is zero, and the comments all indicate, either directly or through implication, that there 

are considerable costs to do so. Daimler provides no basis to believe that the additional costs it 

wants to be included have any relation to competitive advantage for manufacturers producing 

engines at the upper limit. 

Daimler’s comment that we need to take into account the costs of going from the old 

standard to the new standard in developing NCPs, even though the NCPs would not allow any 

37
 
manufacturer to actually emit at the old standard, is not inherently more rational than EPA 

determining NCPs based on our view of what a 0.20 g/hp-hr engine would cost compared to an 

optimized 0.50 g/hp-hr engine. We did not ignore the costs that manufacturers had to pay to 

move from the previous standard to 0.50 g/hp-hr, whether they did so using SCR or advanced 

EGR. (Mack and other manufacturers who use SCR seem never to acknowledge that Navistar 

also experienced costs in moving from the old standard to 0.50 g/hp-hr, and that such costs 

would also be relevant if we were to use such an approach.) Our analysis simply begins with the 

understanding that whatever costs manufacturers incurred to reduce emissions, those emissions 

will never be permitted to be above 0.50 g/hp-hr and it is not necessary to determine NCPs for 

values above 0.50 g/hp-hr. Moreover, as noted above, we actually did analyze the costs for 

manufacturers of reducing emissions from the previous effective standard (1.2 g/hp-hr), and 

determined the NCPs for a 0.50 g/hp-hr engine based on that analysis, and the resulting NCPs 

were actually lower than when EPA used the optimized 0.50 g/hp-hr engine as the baseline. 

It is unclear how Daimler reconciles its comment that the “cost for a manufacturer that 

has already developed emissions control technology to meet the standard will always be 

significantly less than the cost for a manufacturer who has not yet developed the necessary 

enabling technology” with its comment that a competitor could save money if it would “let 

others make the investment necessary to develop required emissions control technology, and 

then piggy-back on that development by paying only the incremental cost of using the other 

manufacturers' technology.” It seems that they cannot both be correct. 

Mack’s comment that EPA must consider full compliance costs relative to 2009 engines 

appear to ignore the fact that, like all manufacturers, Navistar has expended capital to reduce 

emissions from their engines from the previous standard to 0.50 g/hp-hr, or lower. It also 

appears to ignore the fact that all new engine designs have some effect on operating costs. 

Whatever those capital and operating costs may have been, all manufacturers have had to face 

such costs to reduce their emissions. What is more relevant is the cost associated with reducing 

engine emissions from the upper limit to the standard. With the upper limit set at 0.50 g/hp-hr, 

the only purpose for evaluating the costs to get to 0.50 g/hp-hr would be to allow an indirect 

calculation of the costs to get from 0.50 to 0.20.13 Moreover, as noted above, EPA did review an 

alternative approach that included a baseline engine of 1.2 g/hp-hr, not using SCR, and found 

that the NCP calculated for an engine emitting at 0.50 g/hp-hr using that baseline engine was 

actually lower than the final NCP. 

Finally, we note that while both Mack and Daimler provided information to support their 

beliefs that the total costs associated with SCR are higher than the proposed COC90, as well as 

arguments why the penalty should be based on these costs, neither one provided any evidence 

that Navistar has a competitive advantage over their engines that is equivalent to these costs. 

One of the reasons Navistar’s advantage is less than the total SCR costs is that it invested 

considerable money to achieve its 0.50 emissions level, which effectively offsets much of the 

13 For example, if we knew the cost associated with reducing NOx emissions from 1.2 g/hp-hr to 0.50 g/hp-hr was 

$7,000, and the cost associated with reducing NOx emissions from 1.2 g/hp-hr to 0.20 g/hp-hr was $10,000, we 

could indirectly calculate the cost associated with reducing NOx emissions from 0.50 g/hp-hr to 0.20 g/hp-hr as the 

difference between the two ($3,000). 

38
 
savings associated with not using SCR. Navistar has also recently acknowledged that its 

warranty costs for its EGR engines are higher than expected. Neither Mack nor Daimler 

considered these costs. Basing the NCP on the total costs of SCR without accounting for 

Navistar’s costs would actually give a substantial competitive advantage to complying 

manufacturers – a result clearly not consistent with the intent of the statute. 

2.6. Baseline Engine for Cost Analysis 

To calculate the 90th percentile costs of compliance relative to the upper limit, we have 

to define a baseline engine with NOx emissions at the upper limit. For the proposal, we assumed 

a baseline engine with engine-out NOx emissions equivalent to the compliant engines (and thus 

having no impact on fuel consumption), but that included less expensive hardware and a lower 

DEF consumption rate. We calculated compliance costs relative to such an engine. 

Note that comments related to the numerical value of the upper limit are discussed in 

Section 2.4 and comments related to whether compliance costs should be calculated based on the 

upper limit are discussed in Section 2.5. Also, many comments about the baseline engine that 

relate to specific cost categories (such as specific hardware elements or fuel consumption rates) 

are addressed in other sections of this document. 

Summary of Comments 

CATF EPA-HQ-OAR-2011-1000-0021-0022 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

ICCT EPA-HQ-OAR-2011-1000-0030 

Mack EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

Navistar EPA-HQ-OAR-2011-1000-0027, 0031-0039, 0042 & 0050 

Mack commented that the only way to avoid what it calls the arbitrary, speculative and 

unreliable results associated with EPA’s 0.50 g/bhp-hr hypothetical engine would be to engage in 

extensive engineering work to determine what engine configuration would be appropriate to 

meet a 0.50 g/bhp-hr NOx level and then determine the full set of hardware, operating, 

maintenance, and research and development costs associated with such an engine. It stated that it 

is unreasonable for EPA to expect manufacturers to engage in such a burdensome, resourceintensive and time-consuming exercise for purposes of developing an NCP. Mack commented 

that absent such an undertaking, however, EPA’s proposed approach does not yield reliable 

results. It continued to say that given that EPA is not an engine manufacturer itself, its 

hypothetical engine cost analysis cannot substitute for actual cost data from manufacturers. 

Mack concluded that in light of the ample amount of actual cost information available to EPA, 

there simply is no need to invent entirely new, hypothetical engines. 

Mack also commented that though every other manufacturer opted to use SCR 

technology, it did so for purposes of complying with a 0.20 g/bhp-hr standard, not a 0.50 g/bhphr standard. It commented that it is inappropriate for EPA to “conclude that SCR manufacturers 

39
 
would have relied on SCR technology to comply with a 0.50 g/bhp-hr limit without considering 

and analyzing a host of additional costs potentially associated with the use of this technology.” 

Mack stated that these “include additional warranty costs associated with SCR systems; costs 

associated with designing and adapting vehicles to accommodate SCR technology; and operating 

and maintenance costs associated with SCR systems” and that ”these costs must be considered in 

developing an NCP, and cannot be conveniently ignored based on unsubstantiated speculation 

that all manufacturers would have incurred them equally under a 0.5 g/bhp-hr standard as under a 

0.2 g/bhp-hr standard.” Mack stated that EPA needs to consider the full engineering and 

development costs related to meeting the 0.20 g/hp-hr engine. 

Mack also argues that EPA speculated that “manufacturers would have pursued SCR 

technology to meet the fuel-economy demands of their customers and the Agency’s own 

greenhouse gas standards for heavy-duty diesel engines” but that “there is no reason why 

manufacturers could not have achieved substantially improved fuel economy using technologies 

other than SCR, if given the opportunity to design to a less stringent standard.” It also stated 

“EPA’s conclusion that new fuel economy mandates under the GHG rule would have driven 

manufacturers to use SCR makes no sense, given that the GHG rule was not even proposed until 

November 30, 2010, after the MY 2010 standards took effect, and years after manufacturers had 

made their decisions regarding the technologies they would use to meet the 2010 standard.” 

CATF agreed with the proposed baseline engine approach, but recommended changes in 

other areas, particularly regarding its view that manufacturers would attempt to optimize fuel 

economy. Responses to these comments are included in Section 2.8.2. 

ICCT stated that the definition of the baseline is a significant flaw that led to undervalued 

non-compliance penalties because it does not consider reoptimization of an SCR engine for fuel 

efficiency and because it “does not account fully” for different levels of investment in 

technology. It supports using two different baseline engines to produce two different penalty 

curves. (See Section 3.4 for our response to this last comment.) 

Daimler commented that SCR engine manufacturers have invested hundreds of millions 

of dollars to develop SCR and that “any NCP cost methodology which assumes, contrary to 

reality, that the noncompliant manufacturer has already spent money to develop and install SCR 

on each truck, radically understates actual costs.” It also stated during the hearing that “EPA 

should not predicate its rule on a nonexistent hypothetical baseline engine with SCR simply to 

address an operating cost disparity that does not exist, according to the company seeking NCPs.” 

Navistar commented that EPA’s baseline selection is reasonable for calculating NCPs 

and it supports the agency’s determination, but that costs estimated using Navistar’s alternative 

baseline would result in a significantly lower NCP level than EPA selected. 

Navistar also responded to comments made about fuel consumption by SCR engine 

manufacturers at the public hearing. Those manufacturers objected to EPA’s assumption that 

there would be no difference in fuel consumption between the baseline and compliant engines. 

Navistar stated that their objections miss the point. It said that while there are other paths to 

reduce NOx emissions from 0.50 g to 0.20 g, EPA should not (and legally cannot) select a 

particular path because it is the most expensive. Rather, in Navistar’s view, EPA reasonably 

40
 
selected the path that was available and would have been selected by the manufacturers (who are 

the “competitors” that should not be disadvantaged). 

Cummins supports our proposal to base compliance costs on an optimized SCR engine. 

However, it emphasized that an SCR engine truly optimized for 0.50 g/hp-hr NOx would have 

lower hardware and operating costs than EPA’s baseline engine, and recommended specific 

changes to our estimates of such an engine’s hardware and performance characteristics (see 

Sections 2.7 and 2.8). Cummins noted that it is currently producing heavy-duty SCR-equipped 

engines with NOx emissions up to 0.50 g/hp-hr. 

Response 

We have determined that the appropriate upper limit is 0.50 g/hp-hr, and no manufacturer 

supported setting the upper limit above that level. As noted in Section 2.5, the regulations have 

always required compliance costs to be calculated relative to engines at the upper limit, and we 

are not revising this requirement. Since manufacturers cannot introduce engines that emit above 

the upper limit, it is appropriate to determine the competitive disadvantage to the complying 

manufacturer from this upper limit. 

Prior to the proposal, we considered other technology paths suggested by manufacturers 

in additional to our proposed baseline engine. Some manufacturers suggested baseline engines 

with EGR but not SCR, or baseline engines with SCR but not EGR. However, we believed (and 

continue to believe) it is likely that these baseline engines would have had high operating costs. 

In general, relying on EGR to reduce NOx emissions significantly increases fuel consumption. 

Although Daimler is correct that Navistar has stated in marketing material that SCR engines do 

not have an operating cost advantage over its engines, this does not change our assessment that 

increasing EGR increases fuel consumption. Similarly, relying on SCR to reduce NOx 

emissions without EGR requires a larger amount of DEF. In either case, over the life of a truck, 

the increased operating costs could be greater than the original hardware cost. We stated that we 

did not have the information required to calculate these operating costs with the accuracy needed 

to use these scenarios as the basis of our NCPs. However, the only comments we received on the 

technology of the baseline engine during the comment period supported using an optimized SCR 

baseline engine that included EGR, or a non-SCR engine. 

We agree with commenters that our proposed baseline SCR engine does not represent 

how an engine manufacturer would optimize an SCR engine to meet 0.50 g/hp-hr based on the 

latest price projections for fuel and DEF. We have revised our baseline engine significantly so 

that it now is very similar to the baseline engine recommended by Cummins. Mack objected to 

our use of any hypothetical baseline engine for compliance costs. However, since the baseline 

engine must reflect the upper limit (see Section 2.5) and Navistar is the only manufacturer 

41
 
producing heavy heavy-duty engines at the 0.50 g/hp-hr upper limit14, there are essentially only 

three options: 

1.	 Setting the upper limit at 1.2 g/hp-hr (or higher) and using a pre 2010 engine as the 

baseline engine. 

2.	 Using the Navistar engine (or a similar engine) as the baseline engine. 

3.	 Using a hypothetical optimized SCR engine as the baseline engine. 

Setting the upper limit at 0.50 g/hp-hr means that, at least for heavy heavy-duty engines, 

the only alternative to using a hypothetical engine would have been to use Navistar’s engine. To 

address this comment, we evaluated using a baseline engine equivalent to Navistar’s engine. 

However, contrary to the view of many commenters, we found that basing our NCPs on costs of 

compliance relative to a reoptimized SCR engine was the best approach to removing the 

competitive advantage for both SCR and non-SCR manufacturers that could potentially use 

NCPs. This is because we calculated the full lifetime cost savings of using an optimized SCR 

engine that emitted 0.50 g/hp-hr NOx, compared to an engine meeting the standard, to be greater 

than the cost savings of using an advanced EGR engine to that emitted 0.50 g/hp-hr NOx. See 

Appendix B of the Final Technical Support Document for additional details about this 

comparison. 

Contrary to Mack’s comment, our cost estimates are neither arbitrary nor speculative. They are 

based on our unbiased view of the collection of data provided by manufacturers (both publicly 

and confidentially) as well as other data collected by EPA. In particular, we note that our costs 

are based on many unbiased and publicly available sources of data, such as those discussed in 

Section 2.3. (See the Final Technical Support Document for additional discussion of the basis of 

our cost estimates.) While there is still some uncertainty associated our estimates, they are more 

reliable than relying solely on the word of specific manufacturers who have an interest in either 

maximizing (for complying manufacturers) or minimizing (for manufacturers using NCPs) the 

NCP level. Moreover, because much of the information manufacturers have provided was 

provided under protection as confidential business information, EPA must in part provide 

information other than information from specific manufacturers to justify its cost estimates in 

this final rule. 

With respect to Mack’s comment that it is inappropriate for EPA to “conclude that SCR 

manufacturers would have relied on SCR technology to comply with a 0.50 g/bhp-hr limit 

without considering and analyzing a host of additional costs potentially associated with the use 

of this technology”, we note that we are not concluding what manufacturers would have done. 

We also did not speculate or conclude that “manufacturers would have pursued SCR technology 

to meet the fuel-economy demands of their customers and the Agency’s own greenhouse gas 

standards for heavy-duty diesel engines.” This confusion seems to be caused by Mack’s 

misreading of the following text from the Interim Technical Support Document: 

14 Cummins is producing medium heavy-duty engines with NOx emission near 0.50 g/hp-hr and heavy heavy-duty 

engines with NOx emission near 0.35 g/hp-hr, but not heavy heavy-duty engines with NOx emission near 0.50 

g/hp-hr 

42
 
The greenhouse gas requirements are potentially relevant to this NCP rulemaking 

because they affect the types of emission controls manufactures would pursue. As noted 

later, we believe that it is appropriate to assume that even if the NOx standard was higher, 

manufacturers would not have chosen emission controls that would have increased fuel 

consumption rates because they must also meet the greenhouse gas emission standards. 

Note that this text does not mention SCR. We drew no conclusions about what manufacturers 

would have specifically done. Rather, we are basing our compliance costs on what we believe to 

be the greatest cost savings that a manufacturer could achieve by meeting a 0.50 g/hp-hr upper 

limit compared to the 0.20 g/hp-hr standard, considering what could be achieved currently or in 

the near future. Our calculation is that the greatest cost savings a manufacturer could obtain 

would be by reoptimizing SCR engines for 0.50 g/hp-hr in the near future. 

Similarly, we disagree with Daimler’s comment that implies that our baseline engine 

selection results in a “cost methodology which assumes, contrary to reality, that the 

noncompliant manufacturer has already spent money to develop and install SCR on each truck.” 

We made no such assumption. We estimated compliance costs for different noncompliant 

baseline engines (most notably, a hypothetical SCR engine and an engine equivalent to 

Navistar’s non-SCR engine), and selected the COC90 value that will result in penalties that 

protect compliant manufacturers from being at a competitive disadvantage with respect to any of 

them. The extent to which Daimler comments address which technologies should be included on 

the baseline engine representing engines at 0.50 g/hp-hr is unclear because Daimler conflates the 

issue of whether compliance costs should be estimated relative to the upper limit with the issue 

of which technologies should be included with the baseline engine. We included SCR-equipped 

engines in some of our baseline alternatives, and indeed used an SCR-equipped engine as our 

final baseline engine, because it is a completely reasonable choice for an engine manufacturer to 

use SCR technology to meet a 0.50 g/hp-hr emission level. Cummins already has done for some 

of its medium heavy duty engines. See Section 2.5 for our response to Daimler’s objections to 

calculating compliance costs relative to the upper limit and Appendix B of the Final Technical 

Support Document for our consideration of alternate baseline engine scenarios. 

While we are not basing our costs on the baseline engine recommended by Navistar, we 

did evaluate such a scenario (as described in Appendix B of the Final Technical Support 

Document). Consistent with Navistar’s comment, we found that such a scenario would probably 

have resulted in lower penalties. However, we also found this scenario to be inappropriate. First 

and foremost, the COC90 value we estimated was about one-quarter of the COC90 for optimized 

SCR engines. Thus, NCPs based on this scenario would not large enough to ensure that SCR 

engine manufacturers could not gain a competitive advantage by reoptimizing their engines for 

0.50 g/hp-hr and paying the lower NCP. In addition, the reason the COC90 for the non-SCR 

baseline scenario is so much lower than the SCR baseline scenario is that we estimate that 

compliant SCR engines actually have significantly lower operating costs than engines like 

Navistar’s 0.50 g/hp-hr engines, which largely offsets the higher hardware costs. However, 

Navistar does not agree that its engines have higher operating costs. Thus, we cannot be sure 

that NCPs based on the lower COC90 value would completely remove the competitive advantage 

for Navistar, let alone optimized SCR engines. 

43
 
Finally, while we appreciate Navistar’s support for our proposed baseline engine 

analysis, it is important to address Navistar’s statement that “EPA should not (and legally 

cannot) select a particular path because it is the most expensive.” The Clean Air Act directs 

EPA to set the NCPs at a level that will “remove any competitive disadvantage” to complying 

manufacturers. To do this, EPA determines the baseline engine using the most cost-effective 

way for a non-complying manufacture to, in this case, manufacture an engine meeting a 0.50 

g/hp-hr level, compared to a 0.20 g/hp-hr. Were we to determine the baseline engine using an 

engine that did not maximize cost-effectiveness, complying manufacturers would be potentially 

subject to a competitive disadvantage if a noncomplying manufacturer chooses a more costeffective 0.50 g/hp-hr than the one EPA used for its analysis. EPA would not characterize this as 

the most expensive path, but it is the path that maximizes the potential benefits that a 

manufacturer may achieve through noncompliance, and thus is appropriate for evaluating the 

proper NCP. 

2.7. Hardware Costs 

For the NPRM, we projected that the hardware costs to reduce NOx emissions from 0.50 

to 0.20 g/hp-hr would fall into two categories –an additional sensor to improve the dosing 

control, and improved SCR catalyst to increase the NOx conversion efficiency. We assumed the 

lower tailpipe NOx emissions levels would require the addition of a sensor for better control over 

the urea injection. This cost would apply for both the typical and worst case engines. In 

addition, for the worst case manufacturer, we projected a larger SCR catalyst would be required 

to increase the NOx conversion efficiency. We estimate that the size and loading of the catalyst 

would need to increase by about 20 percent. 

We did not estimate total costs for SCR for the NPRM. See Sections 2.3, 2.5, and 2.10 

for comments related to total SCR costs. 

Summary of Comments 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

Mack Undocketed Confidential Business Information 

Cummins was the only manufacturer that provided hardware cost information related to 

our proposed cost methodology. (As noted below, other manufacturers provided hardware cost 

information that was not directly related to our proposed cost methodology.) Cummins stated 

the following in comments: 

EPA did allow for precious metal reduction in the SCR catalyst; 

however, there are other hardware changes between compliant and 

noncompliant engines that were not taken into account. Precious metals used 

for the diesel oxidation catalyst (DOC) and ammonia oxidation catalyst could 

be reduced and reformulated with a greater substitution of cheaper precious 

metals for the optimized NCP baseline. The cost reduced DOC is possible 

44
 
because the optimized NCP baseline engine would experience more passive 

DPF regeneration due to the higher engine out NOx and would not need as 

much nitrogen dioxide (NO2) production from the DOC. This results in lower 

precious metal content required to produce the needed levels of NO2 used for 

the DPF regeneration process. The SCR catalyst performance over the 

lifetime of the vehicle is not diminished using the cost reduced DOC because 

the SCR catalyst will experience less high temperature exhaust due to lower 

temperature DPF regeneration (i.e., less thermal aging of the SCR catalyst). 

The NCP baseline engine will have a reduced need for aftertreatment and 

vehicle insulation to prevent excessive heat loss. Thermal management of the 

aftertreatment system and providing acceptable driving performance to the 

end user will be easier to achieve on the NCP baseline engine so cost reduced 

turbomachinery can be utilized. Additionally, improved emissions 

measurement devices for NOx-related, on-board diagnostics would be 

removed, because the NCP baseline engine will not have to measure the 

smaller amounts of NOx and a sensor with a higher level of accuracy will not 

be needed. These hardware differences are important to account for when 

going between a nonconforming and compliant engine. A customer 

purchasing a 0.50 g/hp-hr NOx engine would not be willing to pay the 

additional upfront costs of extra precious metal, insulation, turbomachinery, 

and OBD equipment that the engine does not require for regulatory or 

performance reasons. 

Daimler commented that even if there were some rational basis for using a hypothetical 

0.50 g/bhp-hr engine as the baseline engine for NCP cost calculations, the engine hypothesized 

by EPA bears no resemblance to the engine that DTNA would have developed for 0.50 g/bhp-hr 

NOx performance. Specifically, DTNA's 0.50 g/bhp-hr SCR engine would have had much better 

fuel economy and lower material costs than the 0.50 g/bhp-hr engine that EPA hypothesizes. 

Daimler also provided confidential information on total SCR costs, including hardware 

costs. The costs reflected the difference between a baseline 2008 engine and a compliant 2010 

engine. The baseline engine included turbocharging, aftercooling, electronically controlled 

common rail fuel injection, cooled EGR, oxidations catalyst, a catalyzed diesel particulate filter, 

and an open crankcase breather with separator. Daimler’s compliant 2010 engine had similar 

technology as their baseline engine, with the addition of a SCR system with urea injection, postSCR oxidation catalyst, and OBD diagnostics associated with the aftertreatment system. 

Mack also provided confidential information on total SCR costs, including hardware 

costs. 

45
 
Response 

For the final rulemaking, we determined that an SCR aftertreatment system originally 

designed for 0.50 g/hp-hr NOx would require hardware modifications to achieve tailpipe 

emissions levels of 0.20 g/hp-hr. Based on conversations with manufacturers, we believe that the 

lower NOx emissions levels would require: 

 The addition of SCR catalyst volume to gain NOx efficiency, 

 Improvements to the diesel oxidation catalyst (DOC) due to the lower engine-out 

NOx emissions and higher soot conditions, 

 An optimized turbocharger to cover a broader range of EGR flow, and 

 A sensor for better control over the urea injection. 

We note that these hardware elements are largely consistent with the information provided by 

Cummins in its comments. 

As noted in the previous response and included in detail in the Appendix B of the Final 

Technical Support Document, we considered and analyzed alternative baseline engines, 

including baseline engines with only EGR, in the final rulemaking. The comments from Daimler 

and Mack were helpful to EPA in developing our costs for those alternative baseline engines and 

in evaluating these alternative baseline engines. However, as discussed above, those alternative 

baseline engines were determined not to be appropriate in developing our final NCPs and they 

were not relevant to our estimates of compliance costs in our final methodology. 

2.8. Operating Costs 

We received comments on several aspects of our proposed analysis of operating costs. 

While the comments on these costs are addressed separately in the following subsections, we 

also considered the costs collectively to ensure that our final estimate of the COC90 operating 

costs accurately reflected the 90th percentile value for the potential market impact of lower 

operating costs for the baseline engine. 

2.8.1. Cost Savings and Performance Improvements 

Summary of Comments 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

Mack EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

PACCAR EPA-HQ-OAR-2011-1000-0041 

Cummins supports EPA’s use of total life cycle cost and the inclusion of operating costs 

for all future years in the NCP calculation because engines that use NCPs will have a cost 

advantage for the entire life of the engine. This cost advantage will include lower fuel 

consumption and better resale value based on this lower fuel consumption. It further stated 

46
 
engines that use NCPs will emit a higher level of NOx for the entire life of that engine, not just 

the first five years. Cummins also noted that if the entire life cycle cost is not included, this 

could result in a lower NCP which would be more enticing for manufacturers to use, resulting in 

a greater NOx impact on the environment. 

PACCAR stated that “EPA should include in the NCP calculation the fuel consumption 

advantages for engines that do not meet the 0.20 gram standard” because the “fuel economy 

advantage is extraordinarily important in today's engine market.” 

Daimler commented that customers' operating costs are arguably relevant to 

manufacturers' compliance costs only to the extent they impact the purchase price that customers 

are willing to pay for compliant manufacturers' trucks. Based on industry sales and marketing 

experience, DTNA's Product Planning Department generally estimates that truck customers are 

willing to pay for of net fluid superiority when making new truck purchase decisions. Daimler 

noted that SCR engines have a net fluid superiority but that it is less than the fixed and variable 

costs of SCR. Therefore it concluded the net fluid superiority of SCR is no reason not to use 

manufacturers' actual costs of compliance, even if EPA erroneously includes the fuel benefit in 

the calculation. 

Daimler also commented that EPA has never counted the fuel efficiency benefit of 

increased emissions controls against compliant manufacturers, and there is no reason to start 

now. Daimler stated that in the past, EPA included the fuel economy penalty associated with 

emissions compliance in the NCP because failing to do so would have effectively created a 

financial incentive to use the NCP rather than meet emissions standards. Daimler said that the 

“entire focus on fuel costs has always related to the need to disgorge any potential benefit of 

noncompliance from the laggard, thus ensuring no harm to compliant manufacturers.” The 

purpose was not to fully equalize the operating cost and net present value of compliant and 

noncompliant products. Daimler also stated that attempting to deduct all commercial benefits of 

environmental compliance would be contrary to the congressional intent behind NCPs and EPA's 

mission more generally. It stated that Congress provided NCPs as actual "penalties," and that 

attempting to extract all of the indirect benefits of environmental compliance would also 

eliminate the deterrence element that is critically important to the NCP program. 

Daimler and Mack’s comments stated that in the 1990 NCP rule, EPA explained that it 

did not account for any side benefits of the emissions reduction technologies that compliant 

manufacturers adopted and that it would be inappropriate to do so. Mack stated that “by factoring 

in the value of the side benefits of SCR emissions technology, the Agency is creating incentive 

for companies such as Navistar to claim an artificially high fuel economy penalty associated with 

the use of its technology (relative to the complying technologies) for purposes of setting an 

NCP.” Daimler and Mack both noted that EPA excluded side benefits from NCP calculations in 

1990 for the following three reasons: 

1.	 That it was difficult to place a dollar value on the side benefits, especially 

intangible benefits like increased power or improved driveability. 

2.	 That not all potential buyers will place the same value on these side benefits such 

as less intensive users placing a lower value on improved fuel consumption. 

47
 
3.	 That if a conforming manufacturer is forced for emissions control reasons to add a 

technology to an engine line whose users do not value the side benefits as much 

as EPA’s estimate assumes they do, that manufacturer will be at a disadvantage in 

comparison to a non-conforming manufacturer. 

Daimler cited our prior statement that "EPA has an overriding obligation to protect the 

conforming manufacturer.” Daimler and Mack commented that if customers do not value the 

side benefit as much as EPA has assumed they will, the compliant manufacturer who uses that 

emissions reduction technology will be at a disadvantage compared to noncompliant 

manufacturers. 

Mack also commented that it believes that “EPA has stated in its generic NCP 

rulemaking that user costs, such as fuel economy penalties, should be taken into account only to 

the extent they result in placing compliant engines at a disadvantage.” Mack’s comments stated 

that EPA noted: 

Users’ costs may include the present value of any fuel economy penalty, 

requirements for unleaded fuel, and changes in maintenance costs 

associated with operating a conforming engine or vehicle over its lifetime. 

To the extent that these cost impacts are known by potential buyers, a 

purchaser should be willing to pay more for an engine or vehicle with lower 

total user costs. Therefore, in order to remove a manufacturer’s economic 

incentive for nonconformance and to prevent manufacturers of conforming 

engines or vehicles from being placed at a competitive advantage, the NCP 

must also reflect user cost increase.15 

Mack also stated: 

This is in keeping with Congress’ intent that the calculation “would include 

such items as the actual cost of compliance for complying vehicles, the 

capital costs foregone as a result of non-compliance, the market value of 

any fuel economy gains made by noncomplying vehicles compared to 

complying vehicles and the competitive advantage that may arise because 

of the lesser warranty and recall obligations for noncomplying vehicles 

compared to complying vehicles.” H. Conf. Report No. 95-564, p. 163, 

reprinted at 77 U.S.C.A.A.N. 1544. It is clear from both the legislative 

history of the Clean Air Act and EPA’s generic NCP rule that fuel economy 

penalties are only to be considered to the extent they give a non complying 

manufacturer a competitive advantage over a complying manufacturer. 

15 50 FR 35383, August 30, 1985. 

48
 
Response 

We agree with Cummins that our cost analysis should consider full life cycle costs, which 

our analysis does. As discussed earlier, suggestions that EPA not deviate from prior precedents 

for calculating costs incorrectly imply that EPA has always used the same methodology. Even if 

it were true that EPA had used the same methodology for all prior NCP rules, this would not 

obligate us to continue using the same methodology in perpetuity. The methodology EPA uses 

to account for cost savings is dependent on the factual circumstances for each NCP rule. The 

methodology we used to develop operating costs is fully in compliance with the regulations and 

the statute, and is a completely reasonable method for accounting for operating costs in this rule. 

We do not agree with Mack’s assertion that EPA stated in the generic rule that “user 

costs, such as fuel economy penalties, should be taken into account only (emphasis added) to the 

extent they result in placing compliant engines at a disadvantage.” Mack inappropriately inserts 

the word “only” where it was not used. The text Mack cites to support its claim includes the 

recognition by EPA that “to the extent that these cost impacts are known by potential buyers, a 

purchaser should be willing to pay more for an engine or vehicle with lower total user costs.” 

Mack does not dispute that its fuel savings are known by potential buyers, or that buyers would 

be willing to pay more for an engine with lower total user costs. 

We do not believe the reasons previously given in the 1990 NCP rule for not considering 

side benefits apply for fuel consumption savings in this NCP rule – at least not to point of 

justifying ignoring the fuel savings associated with SCR. First and foremost, as PACCAR and 

Cummins noted in their comments, current purchasers of heavy heavy-duty diesel engines care 

very much about changes in fuel consumption. Thus, it is not possible to accurately reflect the 

competitive market if we ignore fuel savings. As noted in Section 1.1.1, while the statute 

requires us protect the competitive interests of complying manufacturers, we cannot knowingly 

set the first year NCP at a level that is much higher than the actual dollar value of the 

competitive disadvantage of the complying manufacturers. We believe that simply ignoring fuel 

savings could easily result in penalties that are several thousand dollars higher than needed or 

appropriate to remove the competitive disadvantage for complying manufacturers. Moreover, it 

is contrary to the clear evidence that fuel consumption of these vehicles is a key element in the 

purchasing decisions of customers, and thus the value of the engines. As noted in the excerpt 

from the legislative history included in Mack’s comment, Congress intended EPA to address the 

“market value” of differences in the engines. Nothing in the legislative history indicates that our 

evaluation of competitive disadvantage requires us to ignore any real tangible benefits that exist 

for complying engines and that would affect the competitive balance of manufacturers. 

It is also relevant that EPA noted in 1990 that its concerns about assigning dollar values 

for side benefits were more significant for “intangible benefits like increased power or improved 

driveability.” There was somewhat less concern in that rule about fuel economy benefits. As 

Daimler noted, historically compliance with NOx standards hurt fuel economy. This is in 

substantial contrast to the very tangible (if somewhat difficult to project) benefits of higher fuel 

efficiency, particularly for these vehicles. In fact, for this current rulemaking, we received 

comments from manufacturers insisting that we can and must include costs associated with 

changing fuel consumption. Indeed, Mack, in criticizing our decision in the proposal not to 

include potential fuel economy benefits associated with complying with a 0.50 g/hp-hr upper 

49
 
limit, rather than a 0.20 g/hp-hr standard, noted the importance of accounting for increased fuel 

efficiency. While we acknowledge that precisely quantifying the value that purchasers will place 

on fuel savings can be difficult, we believe that this issue is more appropriately addressed by 

choosing a cost methodology that takes this difficulty into account in estimating fuel savings. 

See the following sections for our discussions of how to best estimate the values of fuel savings. 

Even if we were to exclude operating cost savings from our COC90 calculations, we 

believe that it would be appropriate to determine whether such operating cost savings exist by 

analyzing the combined consumption of fuel and DEF, which is commonly described as “fluid 

consumption.” In other words, if we were to agree with Daimler and Mack that our cost analysis 

should ignore operating cost benefits, we should only ignore them to extent that a noncompliant 

engine’s cost savings with regard to reduced DEF use exceeds the increased fuel cost of such an 

engine. Our understanding of the market is that operators evaluating SCR equipped engines 

consider fluid consumption costs rather than the traditional consideration of fuel consumption. 

Our conversations with manufacturers, as well as Daimler’s comments, further support this 

concept. When considered this way, our methodology is consistent with the prior approaches 

because it counts the additional fluid consumption costs for compliant engines, relative to the 

upper limit engine. Neither Daimler nor Mack provides any basis for separating DEF 

consumption from fuel consumption when both manufacturers and operators consider them 

together as fluid consumption. Moreover, Daimler acknowledges that purchasers are willing to 

pay for net fluid savings. 

As described in the Final Technical Support Document, with the revised baseline engine 

used in the final analysis, we estimate that reducing emissions to 0.20 g/hp-hr would require 

recalibrating the engine to decrease engine-out NOx which would increase fuel consumption. 

These costs would be partially offset by lower DEF costs. Thus, while we are including the 

benefit of reduced DEF usage, it is only in the context of a net increase in fluid costs. We are 

doing this because it reflects how the market actually values these changes. 

Mack’s comment that “the Agency is creating incentive for companies such as Navistar 

to claim an artificially high fuel economy penalty associated with the use of its technology”, 

would be true only to the extent that EPA relies on Navistar’s claims. However, this issue is not 

relevant because EPA is independently estimating costs. Moreover, applying this logic would 

preclude EPA from considering any costs or savings. For example, according to this logic, EPA 

could not consider DEF costs because doing so would create an incentive for SCR manufacturers 

to claim artificially high DEF costs. Clearly this would be unworkable. 

It is also important to note that manufacturers could possibly have used compliance 

strategies that would have had lower upfront hardware costs. When first adopting the 0.20 g/hphr NOx standard, EPA projected that manufacturers would have used lean NOx traps (LNTs – 

also known as NOx adsorbers) to meet the standard. We still believe that manufacturers could 

have used LNTs and that they may have had less expensive hardware. Instead, manufacturers 

chose to add SCR hardware in part because it would result in lower fuel consumption for 

operators. Clearly, this implies that fuel savings would make engines more desirable for 

purchasers and have an impact on the competitive balance in the marketplace. 

50
 
2.8.2. DEF Usage and Fuel Consumption Rates 

Summary of Comments 

CATF EPA-HQ-OAR-2011-1000-0021-0022 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

Ford EPA-HQ-OAR-2011-1000-0029 

ICCT EPA-HQ-OAR-2011-1000-0030 

Mack EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

Navistar EPA-HQ-OAR-2011-1000-0027, 0031-0039, 0042 & 0050 

PACCAR EPA-HQ-OAR-2011-1000-0041 

Ford estimates that, for a medium heavy-duty engine manufacturer who would otherwise 

fully comply with the NOx standard via a SCR aftertreatment system, relaxing the NOx standard 

from 0.20 g/hp-hr to 0.50 g/hp-hr would allow for a 2.7% improvement in fuel economy at 

constant DEF dosing. It stated that from a marketing perspective, the ability to provide such a 

fuel efficiency benefit to the customer offers a significant competitive advantage. Ford noted that 

from the perspective of compliance with the 2014+ MY EPA and NHTSA Heavy Duty 

Greenhouse Gas and Fuel Consumption Standards, it provides an additional competitive 

advantage by displacing the need to deploy other, more costly technologies that would 

potentially be required to achieve a 2.7% improvement in fuel economy. 

ICCT stated that the assumptions about fuel efficiency are significant flaws that lead to 

undervalued non-compliance penalties. ICCT commented that the assumption that an engine 

fully optimized at 0.50 g/hp-hr would have the same engine-out NOx as an engine design to meet 

0.20 g/hp-hr is likely unrealistic. It further stated that it would be reasonable to assume that 

manufacturers would likely look to maximize fuel efficiency in order to deliver savings to their 

customers and enhance their competitiveness (and that this would affect NOx emissions given 

the relationship between engine-out NOx and fuel consumption). The ICCT recommends that if 

non-compliance provides a fuel efficiency benefits and a competitive advantage, these benefits 

should be included in the assessment of NCPs. 

Cummins commented that its SCR system is delivering up to 6% better fuel economy 

than the engines it produced in 2009 and that fuel consumption is a major consideration when 

customers are purchasing a new heavy-duty vehicle. Cummins stated that an NCP engine at the 

upper limit would have a 2% fuel consumption advantage over a compliant engine when fuel and 

DEF consumption are optimized. It stated that rather than holding engine-out NOx as constant, a 

manufacturer could hold constant the percent reduction of NOx across the SCR catalyst, which is 

a more realistic optimized baseline. This leads to a fuel consumption advantage due to higher 

engine-out NOx, reduced exhaust backpressure, and reduced particulate filter regenerations for 

the NCP engine. Cummins provided fuel economy data based on a proprietary drive cycle 

which demonstrated a 2% fuel economy benefit. 

CATF commented that given the obvious advantages of reduced fuel consumption, it 

would be entirely reasonable for an engine manufacturer to meet a 0.50 g standard by allowing 

engine-out emissions to increase substantially above 2.0 g/hp-hr in order to take advantage of the 

51
 
high removal efficiencies of SCR. Thus, assuming a 90% SCR efficiency, engine-out emissions 

could approach or slightly exceed 4.0 g/hp-hr and still meet the 0.50 g upper limit at the tailpipe. 

CATF also submitted a memo from M.J. Bradley and Associates with their comments. M.J. 

Bradley conducted an analysis of the NCP values in response to comments made by engine 

manufacturers in the public hearing. It noted that Volvo indicated a 2 percent reduction in fuel 

use was possible for an engine meeting 0.50 g/hp-hr NOx tailpipe levels relative to an engine 

with 0.20 g/hp-hr NOx. M.J. Bradley agreed with this assessment and estimated that it could be 

achieved with a baseline engine emitting 4.0 g/hp-hr NOx engine-out, while the engine meeting 

the 2010 NOx standards would emit 2.0 g/hp-hr. M.J. Bradley also noted that Cummins has 

publicly stated that the brake thermal efficiency of their 1998 engines with 4.0 g/hp-hr engineout emissions was 3 percent higher than their 2002 engines with 2.5 g/hp-hr engine-out NOx 

emissions. 

Daimler commented that even if there were some rational basis for using a hypothetical 

0.50 g/bhp-hr engine as the baseline engine for NCP cost calculations, the engine hypothesized 

by EPA bears no resemblance to the engine that Daimler would have developed for 0.50 g/bhphr NOx performance. Specifically, Daimler's 0.50 g/bhp-hr SCR engine would have had much 

better fuel economy and lower material costs than the 0.50 g/bhp-hr engine that EPA 

hypothesizes. 

PACCAR commented that it “estimates that the fuel consumption advantage for the 0.50 

gram design is approximately 4% over a 0.20 gram design, which, allowing for a 2% increase in 

DEF usage, would result in a net cost reduction of $13,833.” (PACCAR cited its experience 

designing engines meeting emissions standards of EPA 2007, EPA 2010 with both EGR and 

EGR/SCR technologies, Euro V, and Euro IV). PACCAR commented that “this fuel economy 

advantage is extraordinarily important in today's engine market.” PACCAR noted that Cummins 

produces only one rating of its ISX15 engine that is certified at 0.20 g/bhp-hr NOx which is sold 

primarily to customers who must meet municipal bid requirements. PACCAR stated that the 

overwhelming majority of Cummins’ large block engines are sold at higher certification levels 

using credits because of the advantage for customers in engine performance and for Cummins in 

the market compared to other engine manufacturers. PACCAR concluded that this example 

highlights PACCAR's position that EPA should include in the NCP calculation the fuel 

consumption advantages for engines that do not meet the 0.20 gram standard. 

Navistar commented that EPA inappropriately overestimates the lifetime costs of DEF, 

which must be corrected in the final rule. EPA also assumes that DEF will always be used in 

the SCR-equipped truck during those 30 years. Navistar commented that later assumption has 

no basis in fact, as the SCR system is authorized to operate many thousands of miles (and, 

indeed, operates indefinitely) without using any DEF. It also stated that there is thus no record 

basis for such significant DEF costs, and EPA must recalculate its NCP using appropriate 

assumptions regarding DEF use. It based its concern in part on the Federal Motor Carrier 

Safety Administration roadside inspection statistics between 2008 and 2012, which it claimed 

show that “trucks” are in some type of violation over 60% of the time, including violations that 

result in an “out-of-service” order nearly 20% of the time. It stated that if 20% of the vehicles 

inspected contain violations serious enough to require them to be taken out of service, it seems 

completely reasonable to assume that at least 20% of the time DEF will not be used. Navistar 

concluded that for purposes of calculating the current NOx NCP, EPA cannot estimate the 

52
 
lifetime cost of DEF on the basis that DEF is always used—when it is not— because it grossly 

miscalculates the true SCR operating costs for end users and, as a result, goes well past 

removing any purported competitive disadvantage to complying manufacturers. Thus, Navistar 

is effectively arguing that we should assume a smaller change in the DEF consumption. 

Mack also stated that EPA’s position in the NCP NPRM is inconsistent with the 

Agency’s position in its Final Rule establishing GHG emissions standards for heavy-duty 

engines and vehicles. Mack commented that in the GHG regulation, EPA provides an exception 

for increased fuel consumption where NOx emissions are decreased from 0.50 g/bhp-hr to 0.20 

g/bhp-hr, thus verifying that the Agency recognizes a fuel efficiency benefit associated with 

complying with the 0.5 g/bhp-hr standard over the more stringent standard. 76 Fed. Reg. 57,205 

(Sept. 15, 2011). Mack also noted in the public hearing held on March 5, 2012, that it is possible 

to achieve a 2 percent fuel savings with a 0.50 g/hp-hr engine versus a 0.20 g/hp-hr engine. 

Response 

Based on new information and comments we received, we are revising our baseline 

engine for the heavy heavy-duty service class. Specifically, we are revising the COC90 baseline 

engine to be more optimized for lower fuel consumption at 0.50 g/hp-hr NOx than was assumed 

for the proposal. This change is consistent with the majority of the comments we received on the 

fuel consumption rate of the baseline engine. For the proposal, we estimated that reducing NOx 

emissions from 0.50 g/hp-hr to 0.20 g/hp-hr would require an increase in DEF consumption but 

would not change fuel consumption because we projected that there would be little price 

difference between DEF and fuel. For most engines, without a difference in fuel and DEF 

prices, there is little to be gained by reoptimizing for lower fuel consumption because much or 

all of the savings would be offset by higher DEF costs. However, as is described in Chapter 3 of 

the Final Technical Support Document, we now have new information (some of which came 

from comments) indicating that fuel prices will likely be significantly higher than DEF prices for 

the foreseeable future. We agree with commenters that heavy heavy-duty engine manufacturers 

designing engines for 0.50 g/hp-hr NOx would have responded (and could still respond) to this 

price difference by optimizing the engines to have higher engine-out NOx, which would reduce 

fuel consumption, and reduce the excess NOx by increasing DEF consumption. We now 

estimate that the difference in fuel consumption between the baseline engine and compliant 

engines would be 1.9 percent. 

53
 
Estimating the relationship between NOx emissions and fuel consumption is difficult for 

several reasons. In particular, we note the following: 

	 The relationship between tailpipe NOx emissions and fuel consumption is a 

function of both aftertreatment efficiency and the relationship between engine-out 

NOx emissions and fuel consumption. 

	 Manufacturers generally consider both aftertreatment efficiency and the 

relationship between engine-out NOx emissions and fuel consumption to be 

confidential business information. 

 Manufacturers providing test data for this rulemaking have an incentive to 

provide data selectively to support either a higher or lower penalty value. 

 Some manufacturers providing fuel consumption data did not provide the 

corresponding engine-out NOx emission data. 

	 The relationship between engine-out NOx emissions and fuel consumption varies 

by engine model and is highly dependent on how the vehicle is operated and 

factors such as injection pressure, aftertreatment heating control strategies, and 

EGR rates. 

Facing these challenges, we chose to estimate fuel consumption impacts by developing a curve 

to represent the relationship between engine-out NOx emissions and fuel consumption and using 

the curve in conjunction with our estimates of catalyst efficiencies. The fuel curve, which is 

shown in Figure 2-2, largely reflects the majority of the fuel consumption data provided by 

engine manufacturers. This relationship is based on the CBI data provided by manufacturers.16 

While most of the data on fuel consumption versus engine-out NOx that we received are CBI, 

CATF did include in its comments public data for increasing engine-out NOx emissions from a 

compliant engine that was provided by M.J. Bradley. These data are also shown in Figure 2-2. 

To the extent possible, manufacturer data was weighted based on the amount of detail provided 

by the manufacturer and each manufacturer’s approximate share of the heavy heavy-duty engine 

market, and data provided in the 3.0 to 4.8 g/hp-hr range was given a greater weight (because 

this is the range that represents the expected change in engine-out emissions and resulting fuel 

consumption from the baseline engine to a compliant engine). The goal was to derive a curve 

that is somewhat conservative to protect complying manufacturers, but not unreasonably 

conservative. 

16 “Consideration of Confidential Business Information on the Relationship between Engine-Out NOx Emissions 

and Fuel Consumption”, EPA Memorandum from Charles Moulis to Matt Spears, August 3, 2012. 

54
 
Engine-Out NOx Emissions Impact on Relative Fuel Consumption 

0.97 

0.98 

0.99 

1 

1.01 

1.02 

1.03 

1.04 

0 1 2 3 4 5 6 

Engine-out NOx Emissions (g/hp-hr) 

EPA FRM 

MJ Bradley 

Consumption 

1.9% Fuel 

Impact 

Relative Fuel Consumption 

Figure 2-2: Engine-Out NOx and Fuel Consumption Relationship 

With respect to whether 1.9 percent is the correct value for COC90, it is important to 

emphasize that we do not believe that a 1.9 percent increase in fuel consumption is necessarily 

the worst case possible. There is a significant amount of uncertainty related to fuel consumption 

impacts and some commenters claimed that the impact could be higher than 1.9 percent – either 

in public comments or in confidential business information. However, we cannot verify these 

claims. For example, PACCAR stated in its comments that an SCR engine reoptimized for 0.50 

g/hp-hr could achieve four percent lower fuel consumption than its current compliant engines. 

While we cannot verify this number and do not know if it broadly represents in-use operation, it 

does suggest that the actual fuel consumption impact for some vehicles could be somewhat 

higher than our 1.9 percent. It would be more conservative (in terms of protecting complying 

manufacturers) to assume the fuel impact is equal to the highest value within possible range of 

impacts (perhaps as high as the value suggested by PACCAR). Nevertheless, we note that our 

value is equivalent (when rounded to one significant figure) to the values recommended by 

CATF, Cummins, and Mack (as Summarized in Table 2-4). Thus, we believe that using 

PACCAR’s four percent would be unreasonably conservative, especially since this value is not 

supported by any other information available in the record for this rulemaking. 

55
 
2-4 Summary of Commenters Recommendations for the Fuel Consumption Difference between the baseline and 

compliant engines 

Commenter 

Percent Difference Between 

Baseline SCR engine and 

Compliant Engine 

Notes 

Cummins 2 percent Also provided CBI 

Mack 2 percent Public Hearing 

CATF 2 percent From MJ Bradley 

PACCAR 4 percent Also provided CBI 

Ford 2.7 percent Medium Heavy-Duty 

We also believe that a higher value may very well overstate the market value of reduced 

fuel consumption. As is described in the Final Technical Support Document, and as several 

commenters have noted, there is reason to believe that many truck purchasers may undervalue 

future fuel savings (relative to our estimate of the net present value). Therefore, by using the full 

lifetime impacts of our estimated increase in fuel economy, we are already using a conservative 

value for the market value of fuel savings benefit. We did not believe it was appropriate to make 

an even further conservative assumption by using a fuel consumption rate that was higher than 

the value we are using. For example, if customers typically discount fuel consumption impacts 

so much that they value them at one-quarter of the lifetime cost, then the actual competitive 

impact of a four percent increase in fuel consumption (the highest value recommended by 

commenters) would be equivalent to the full lifetime cost of a one percent increase. Compared 

to this value, 1.9 percent calculated for the full lifetime would be conservative (i.e. it would lead 

to higher presumed fuel impacts for complying engines, which would lead to higher NCPs). See 

Section 2.8.4 for additional discussion of comments on how to address discounting of future 

costs by operators. See the Final Technical Support Document for additional discussion of how 

we addressed uncertainty related to fuel consumption impacts. 

We disagree with Navistar’s assertion that we should not assume that DEF is always used 

in the NCP calculations. EPA has provided detailed guidance to manufacturers of engines using 

SCR technology regarding possible methods for safeguarding their engines against operation 

without proper DEF. EPA noted that a series of warnings that alert operators to potential 

operation without proper DEF, followed by engine operational controls that reduce the 

effectiveness of engine performance (e.g. derates of engine power, reductions in possible speed), 

would be particularly beneficial in reducing the likelihood that the vehicle will be used outside of 

manufacturer’s settings in use. EPA has certified many engine families that have incorporated 

such warnings and engines controls into their systems. EPA has received evidence that these 

engines, when in actual use, have operated almost exclusively with proper DEF.17,18 Navistar has 

produced no evidence that actual operators of these engines have been operating for any 

17 Greuel, Justin. Cummins Memo to Docket. Docket EPA-HQ-OAR-2010-0162. 

18 California Air Resources Board. Heavy-Duty Vehicle Selective Catalytic Reduction Technology Field 

Evaluation. May 2011. Docket EPA-HQ-OAR-2010-0162. Last viewed on July 29, 2011 at 

http://www.arb.ca.gov/msprog/cihd/resources/reports/scrreport.pdf 

56
 
significant amount of time with no SCR controls. Thus, the evidence leads us to believe that the 

warnings and engine controls put in place by manufacturers are having the intended effect of 

reducing the likelihood that engines equipped with SCR are operated without proper DEF. 

Finally, we also note that using the new baseline engine means that lowering DEF costs would 

actually increase penalties, which Navistar does not support. 

2.8.3. DEF and Fuel Prices 

For the NPRM, we used a DEF price of $2.99 per gallon for calendar years 2012 and 

beyond. That DEF price represented the national average retail pump price of on-highway 

DEF.19 

EPA did not include additional fuel operating costs as part of the NCP calculation for the 

proposal. However, we noted that if we did project an impact on fuel consumption, we would 

have used the Annual Energy Outlook (AEO) 2011 fuel price projections adjusted to 2011 

dollars. 

Summary of Comments 

CATF EPA-HQ-OAR-2011-1000-0021-0022 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

PACCAR EPA-HQ-OAR-2011-1000-0041 

CATF recommended that EPA conduct an assessment of projected fuel and DEF prices. 

It recommends using Integer Research as a source for DEF prices and that the fuel prices be 

updated to reflect the latest Annual Energy Outlook prices. 

Cummins stated the following in its comments: 

Since those initial conservative estimates, the view of the DEF market has 

changed significantly in that there has been a shift towards more bulk 

distribution thereby driving down the average price of DEF. This trend is 

expected to continue for several more years. Cummins has combined data 

from large fleets, truck stops, and Integer Research to show the relative 

use of each distribution method and price information. An extensive set of 

data has been gathered by Cummins Filtration which sells packaged and 

bulk DEF. These data have been compiled and are shown in the Cummins 

comments. The fact that more customers are continuing to convert their 

DEF purchases to bulk distribution is supported by the front page article in 

Transport Topics titled Truck Stops, Fleets Respond to DEF Demand By 

Installing More Bulk Filling Dispensers published April 2, 2012. As 

stated in the article, “All the major truck-stop chains have bulk DEF 

available, and many small and midsize operators are following suit.” An 

19 DieselExhuastFluid.com. Last accessed on November 14, 2011 at http://www.dieselexhaustfluid.com/. 

57
 
increasing number of customers are installing bulk DEF sites even if the
 

customers do not distribute their own fuel. This trend toward bulk
 

distribution of DEF is further supported by Integer Research’s DEF
 

Tracker monthly price reporting service. According to Figure 2, over
 

forty percent of the total volume of DEF distributed in North America will
 

be by bulk distribution channels by 2017. Customers site the ability to
 

transition to on-site bulk dispensing due to the safe and economical
 

solutions provided by an increasing number of companies that offer
 

equipment assistance programs. With the growing number of vehicles
 

utilizing SCR engines, customers are increasingly moving to bulk
 

dispensing. This market dynamic is driving the cost of bulk and retail
 

pump prices lower as shown in Attachment A. The retail pump operators
 

(truck stops) are challenging other DEF supply formats on cost (bulk and
 

totes) as a necessity to preserving diesel fuel sales.
 

Combining the information on DEF distribution method with diesel price
 

information from http://www.eia.gov/petroleum/gasdiesel and with the
 

DEF price data provided by Integer Research, which can be found in the
 

Cummins comments. This shows that a 0.4 DEF/diesel price ratio is a
 

good forward looking representative value. It incorporates the DEF price
 

variation associated with the distribution methods along with the
 

downward price pressure due to market competition. This type of price
 

projection is typical of a new market where the volume of DEF consumed
 

is increasing rapidly while the distribution channels mature.
 

Additionally, we expect that going forward the price of DEF will more 

closely track the price of natural gas. Urea, the active component in DEF, 

is manufactured from natural gas, and the price of natural gas has been and 

is projected to remain lower relative to the price of diesel. This likely 

results in the cost ratio of DEF to diesel decreasing even further. 

[Cummins comments at 11-13, figures and attachments not reprinted.] 

PACCAR commented that based on the European experience with AdBlue, the DEF 

equivalent for Europe, it is expected that the DEF price will continue to drop until an equilibrium 

price is reached. PACCAR further stated that the Integer presentation dated July 12, 2010, 

previously provided to EPA, outlines the downward pricing trend of AdBlue. 

Response 

For the final rule, we updated the fuel price projections and used the Energy Information 

Administration’s (EIA) Annual Energy Outlook 2012 (AEO2012) to project fuel prices through 

2035 and applied the annual projected price increase found in AEO2012 to project the fuel prices 

through 2042. 

We also revised the source for current and future DEF prices in the Final Technical 

Support Document based on the comments we received. Instead of using a constant DEF price 

58
 
through 2042, we are projecting that the long term DEF prices will trend with the prices of 

industrial natural gas, which is used in the production of the ammonia used in urea, at an annual 

increase of 1.3 percent based on AEO 2012. For the near term, we used the Integer Research 

retail DEF pricing projections for 2012 through 2014, which range between $2.60 and $2.50 per 

gallon. Note that our analysis uses an annual average DEF price, which does not consider 

seasonal variations in DEF prices, or other short term fluctuations. 

We are not using bulk DEF prices, as recommended by some commenters, because this 

would be inconsistent with our fuel price, which reflects the retail pump price. Bulk prices of 

both fuel and DEF are typically substantially lower than retail prices, although sometimes 

reported price differences can be overstated because the specified bulk price excludes any 

delivery charges.20 We believe that the majority of operators paying retail price for fuel are 

paying retail price for DEF, and the majority of operators paying bulk price for DEF are paying 

bulk price for fuel. Thus, using a DEF price based even in part on bulk DEF prices while using a 

retail price for fuel would significantly overestimate actual costs. 

2.8.4. Discounting Operating Costs 

In the NPRM, we evaluated the full lifetime operating costs based on a typical vehicle’s 

annual mileage over a 30 year period. The annual mileage took into consideration the impact of 

vehicle scrappage. We also discounted the operating costs by 7 percent, consistent with past 

NCP rulemakings. 

Summary of Comments 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

Ford EPA-HQ-OAR-2011-1000-0029 

Navistar EPA-HQ-OAR-2011-1000-0027, 0031-0039, 0042 & 0050 

Daimler stated that fuel efficiency is relevant only to the extent it impacts the purchase 

price that the manufacturer receives and that operating cost savings for the customer after the 

sale is irrelevant if there is no related impact on purchase price. It generally estimates that truck 

customers are willing to pay for [confidential business information redacted] months of reduced 

operating costs when making new truck purchase decisions. Ford stated that purchasers do not 

fully value the lifetime operating costs, and suggested that the direct market value of reduce 

operating costs is less than one-half of the total. 

Cummins supports using full lifetime costs to reflect both reduce operating costs for the 

first purchaser as well as better resale value. Cummins stated that engines that use NCPs will 

20 For example, if the delivery charge for 200 gallons of DEF was $200, then a bulk price without delivery charge 

would understate the actual price of DEF by $1.00 per gallon. 

59
 
have a cost advantage for the entire life of the engine and that not including the entire life cycle 

cost could be incentive to manufacturers to use NCPs. 

Navistar believes that EPA’s proposed 7% discount rate is too low and, thus, improperly 

overestimates the NCP cost parameters. Navistar uses a 15% standard rate for discounting future 

cash flows for any new product program. The reason is that making investments in differentiated 

engineered products is far from a risk-free proposition. Navistar continued to state that there are 

huge variables in product programs, including the investment required, the timing of the program 

launch, the length of life of the product, market acceptance (volumes and pricing), and product cost. 

Each of these factors has a high degree of variability and thus risk. 

Navistar also commented that EPA’s use of a 30-year truck life and the lifetime mileage 

over that 30 years for estimating owner operating costs is inappropriate because EPA’s emission 

standards are only applicable for the prescribed “useful life” of the engine, and that EPA has no 

basis for including DEF-maintenance costs that fall outside the prescribed regulatory life of the 

vehicle when the NOx emissions standards no longer apply. 

Navistar commented that truck purchasers only consider operating costs that occur in the 

first 5 years (or less) of the truck’s life. Navistar stated that the purpose of including owner costs 

in the NCP formula is to eliminate the impact on purchase decisions “not to penalize 

nonconforming manufacturers.” It stated that to the extent that operating costs do not impact a 

buyer’s purchasing decision—i.e., the costs are not considered by the buyer to be relevant and, 

thus, do not factor into creating a market disadvantage—those costs then do not serve any NCP 

purpose and cannot be included without unlawfully penalizing the nonconforming manufacturer. 

Navistar stated that operating costs beyond those five years should be excluded because they 

have no impact on a buyer’s purchasing decision and cannot create a competitive disadvantage 

for a complying manufacturer. 

Response 

We disagree with commenters arguing that the NCP analysis should not include the 

operating costs over the full lifetime of the vehicle. The difference in operating costs due to fuel 

consumption and DEF consumption exist throughout the life of a vehicle and are not limited to 

the vehicle’s regulatory useful life or any other arbitrary time period. Thus, we are considering 

the full lifetime operating costs in the final rule because it is essential to take into account the 

operating cost difference over the full life of the engine to properly incorporate this market factor 

into the NCP calculation. It is also worth noting in response to Navistar’s comment that, while 

manufacturers are liable for the emission performance throughout the engine’s regulatory useful 

life, we generally expect the emission controls to continue functioning beyond this period. We 

also continue to prohibit operators from tampering with emission controls including urea 

inducements. 

We agree with commenters that the full amount of future operating costs is discounted by 

consumers in purchasing new and used vehicles. Commenters provided a range of suggestions 

for discounting operating costs. We believe that a seven percent discount rate appropriately 

60
 
reflects the uncertainty of the lifetime vehicle mileage, fuel price, and DEF price. This value is 

consistent with OMB guidance on discounting future costs.21 Of note, the use of a seven percent 

discount rate is essentially the same as considering 57 percent of the total fuel cost, similar in 

magnitude to the discount rate comments provided by Ford.22 This is shown in 2-5 below, which 

compares different methods of discounting future fuel costs. 

2-5 Comparison of Discounting Methods 

Method Percent of Total Undiscounted 

Lifetime Fuel Costs 

Include the first two years of fuel costs without 

calculating net present value 

25% 

Net present value (7%) of costs occurring within 

the first 5 years 

30% 

Net present value (15%) of lifetime fuel cost 36% 

Include the one-half of the undiscounted lifetime 

fuel cost 

50% 

Include the first five years of fuel costs without 

calculating net present value 

53% 

Net present value (7%) of lifetime fuel cost 

(EPA Method) 

57% 

Include total undiscounted lifetime fuel cost 100% 

We also recognize that not all purchasers will value lifetime operating costs to the same 

extent that we estimate. We considered this uncertainty in evaluating how to include operating 

costs in our analysis. For example, as noted in Section 2.8.2, we did not use the worst case fuel 

consumption rates that some commenters suggested should be incorporated into our cost 

analysis. One reason we did not use those suggested rates is because it would have substantially 

overestimated the competitive impact for customers who discount lifetime operating costs more 

than we do in our analysis. While we do not have sufficient information to precisely analyze the 

distribution of how much customers will value changes in fuel consumption, we believe that the 

inclusion of full lifetime costs for a 1.9 percent increase discounted by seven percent 

appropriately reflects the 90th percentile compliance costs. We note that this is about the same 

net result as would have been calculated if we had assumed a fuel consumption impact of four 

percent (as PACCAR recommended), but only considered the first two years of operating costs. 

Finally, while we disagree with Navistar’s comment that we should not include operating 

costs that occur after the first five years of an engine’s life, we note that using a seven percent 

discount rate means that about sixty percent of the NPV of the lifetime operating costs are due to 

the costs that occur in the first five years. In other words, excluding operating costs that occur 

21 OMB Circular A-4, September 17, 2003.
 22 The 57 percent value reflects the increases in fuel prices and decreases in annual mileage accumulation for future
 

years, as well as the discounting for future costs. For example, this value would mean that an actual 30-year fuel
 

cost of $10,000 would have a net present value of $5,700.
 

61
 
after this time would reduce the calculated NPV of operating costs by about 40 percent. As 

noted above, when estimating operating costs, we did consider the possibility that some operators 

may consider costs this way. 

2.9. Other Costs 

2.9.1. Warranty and Post-Warranty Repairs 

Summary of Comments 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

Ford EPA-HQ-OAR-2011-1000-0029 

Mack EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

Several commenters stated that EPA needs to consider costs for warranty in calculating 

the NCP value, though the only details on warranty costs were included in the confidential 

information submitted to the Agency. Much of this was related to total warranty costs for SCR 

systems rather than incremental warranty costs relative to the upper limit. Several commenters 

also commented that we needed to add costs for repairs that happen after the warranty period and 

demurrage costs for time that the trucks will be out of service. 

Cummins commented that an optimized NCP baseline engine will have higher warranty 

and down time cost advantages compared to a compliant engine. First, the addition of the more 

expensive hardware discussed by Cummins will be associated with warranty costs. Second, as 

the level of NOx is reduced, the NOx OBD requirements become more stringent, which will 

likely lead to more OBD-triggered warranty claims. Cummins further stated that it is important 

to consider the cost to the customer for the additional down time associated with this additional 

warranty, as well as the cost to the consumer for the additional down time associated with this 

additional warranty. 

Ford comments included the following: 

The final NCP amount should also account for onboard diagnostic implications of 

certifying to the higher standards. 2013 MY+ California Heavy Duty OBD requirements 

(to which most manufacturers certify nationwide) included additive NOx thresholds of 

0.2 g/bhphr for both NOx catalyst monitoring and NOx sensor monitoring. Manufacturers 

certifying to a 0.2 g/bhphr standard are required to detect malfunctions before emissions 

reach 0.4 g/bhphr. Manufacturers certifying to a 0.5 g/bhphr NOx FEL would only be 

required to detect malfunctions before emissions reach 0.7 g/bhphr. This is effectively the 

difference between a 2 x standard threshold and a 3.5 x standard threshold. The 

implications of this would vary depending upon the emissions control and monitoring 

strategies for the engine, with the most extreme case being the difference between a 

62
 
compliant engine with SCR aftertreatment and one or more NOx sensors, and an engine 

certifying via NCPs with no NOx aftertreatment and no NOx sensors. 

Response 

We proposed to include additional warranty costs related to incremental hardware costs 

and are not changing this analysis for the Final Rule. Commenters focused on the total warranty 

costs associated with SCR ignore the substantial warranty costs Navistar is incurring for its nonSCR engines. To be consistent with our baseline engine, we need to include only those warranty 

costs associated with the changes to the baseline engine necessary to reach 0.20 g/hp-hr NOx. 

However, based on the comments, we are adding costs for similar repairs that operators will incur 

after the warranty period and demurrage costs for time that the trucks will be out of service. 

These costs are discussed in more detail in the Final Technical Support Document. 

We also agreed with commenters who stated that because OBD systems must detect 

emission problems relative to thresholds specified as an addition to the family emission limit (or 

compliance level for NCP engines) and notify the operator of concerns, using NCPs to certify 

above the standard could result in fewer emission-related repairs. We estimated warranty and 

post warranty repair costs of the OBD-related costs for the final rulemaking. It is important to 

emphasize that such costs are appropriate for NCP rulemakings that address competitive effects; 

however, such costs were not included in our OBD rule because the OBD system is only catching 

failure modes for which manufacturers were already responsible. 

2.9.2. Research and Development 

Summary of Comments 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

ICCT EPA-HQ-OAR-2011-1000-0030 

Mack EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

Navistar EPA-HQ-OAR-2011-1000-0027, 0031-0039, 0042 & 0050 

ICCT commented that compliant manufacturers have made significant investments over 

the last decade, and as a result, are in a position to comply with the emission standards. ICCT 

further stated that the current definition of the baseline technology package does not account 

fully for these differences in investment in technology, which is critical if NCPs are to serve 

deterrents to noncompliance for both this regulation and future rulemakings. 

Cummins stated that it invested over $200 million dollars to comply, and that heavy-duty 

truck prices increased by $10,000 and medium-duty truck prices increased by $6,000 as the 

emissions surcharge for 2010-compliant equipment. 

Mack commented that through EPA’s invention of a hypothetical 0.5 g/bhp-hr baseline 

engine, EPA conveniently kept out of the NCP calculation the hundreds of millions of dollars 

spent by SCR manufacturers in researching, engineering, developing and implementing their 

SCR technology. 

63
 
Navistar provided a lengthy discussion of its technology path in developing advanced 

EGR. Navistar commented that their choice of Advanced EGR was not a gamble but a 

significant, capital intensive commitment in response to EPA’s 2001 Rule. Navistar stated that it 

has devoted tens of thousands of employee hours and has invested approximately $700 million in 

the development of its clean-burning, in-cylinder solution. Navistar stated that these costs 

include: 

$543 million – Engineering/Research & Development. These are costs to design, 

develop, test and validate the product and include both engine and vehicle costs. 

$32 million – Capital Expenditures. These are costs primarily for property, plant and 

equipment used in Navistar facilities required to test and manufacturer the new 

product. 

$81 million – Supplier Tooling. These costs include unique fixtures in suppliers’ 

facilities that physically touch Navistar parts in the supplier production process. 

$36 million – Other Costs. These include remaining costs associated with the project, 

including such costs as manufacturing start-up costs in Navistar’s plants as well as field 

testing of the product. 

Ford commented that investment costs for vehicle manufacturers associated with 

packaging SCR aftertreatment systems and the necessary sensors that go with them have been 

underestimated in the proposed analysis. 

Response 

Several commenters provided information about the total research expenditures 

associated with meeting the 0.20 g/hp-hr, but did not provide such information relative to 

engines at the upper limit. As explained in the Final Technical Support Document, we estimated 

R&D costs as a fraction of the total incremental hardware costs (relative to the upper limit) 

using the near term, low complexity indirect cost multiplier (ICM) value of 1.15 which includes 

a portion (0.02) for research and development costs. 

It is important to emphasize that we are not developing costs to reflect a specific 

manufacturer, but rather the general difference between compliant engines and those at the upper 

limit. We see no evidence that research and development costs for the noncomplying 

manufacturer are substantially lower than for complying manufacturers. For example, Navistar 

commented that it spent $700 million in the development of their current engines, while 

Cummins stated that it had spent $200 million to comply with the 2010 standards. Thus, while 

commenters may feel that we have underestimated compliance costs associated with R&D, there 

is no evidence that we have underestimated the competitive advantage or disadvantage 

associated with R&D costs. 

Finally, we note that §1113-87(h) of the NCP regulations contain provisions that allow a 

manufacturer that pays NCPs to recover up to 90 percent of the portion of the penalty which 

EPA determines to be related to research and development costs. Therefore, R&D costs only 

64
 
have a short term impact on a manufacturer using NCPs because the majority of these costs 

would be refunded. While this would not justify knowingly using the wrong R&D costs, it does 

provide context for how important this cost component is compared to other costs. 

2.9.3. Costs not included 

Summary of Comments 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

Ford EPA-HQ-OAR-2011-1000-0029 

Mack EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

Ford commented that the final NCP amount should also account for the additional 

marketing advantages that a manufacturer of non-SCR engines or vehicles has over 

manufacturers of comparable SCR equipped engines or vehicles. Ford further stated that these 

include the ability to market vehicles that do not entail the cost and inconvenience associated 

with having to regularly replace DEF over the life of the vehicle (likely offset in part by an 

increase in fuel consumption). Daimler had similar comments and noted that “so-called 

“convenience factors” have been the focus of Navistar marketing and publicity campaigns for 

years. It argued that EPA ignored this factor because we had not identified any substantial shift 

in market share in favor Navistar. It stated that this lack of market shift could be because 

customers may “choose to purchase [SCR engines] because of their superior environmental 

performance, and because they prefer the certainty afforded by manufacturers who do have the 

technology to meet emission standards over a company that has not developed technology to 

meet the standards. Finally, it argued that “if Navistar’s non-SCR engines were no longer on the 

market, then all trucks would have essentially equal NOx maintenance requirements, and this 

would no longer be negative cost factor for DTNA.” Neither Ford nor Daimler provided a dollar 

value estimate of this advantage. 

Daimler also stated that “Navistar's future costs are irrelevant”, and that EPA should not 

have taken these costs “into account”. It argued that “the only costs that are relevant to 

protecting the competitive position of compliant manufacturers are the compliant manufacturers' 

total costs of compliance.” 

Mack argued that the compliance costs need to reflect differences in deterioration rates. 

It said, a non-SCR engine certified at 0.5 g/bhp-hr, such as those Navistar would produce under 

the NCP as proposed, does not require as significant a compliance margin as evidenced by 

Navistar’s certification levels, which range from 0.423 – 0.473 g/bhp-hr to achieve a 0.5 g/bhphr FEL (i.e., a compliance margin of 5 – 15 percent). In addition Mack stated, Navistar applies a 

deterioration factor multiplier of 1.0 for its 0.5-gram engines (i.e., no deterioration at all), while 

Mack must use a multiplier of 1.25. Based on Mack’s calculations, when the additional 

compliance margin necessary to meet a 0.20 g/bhp-hr standard (versus a 0.50 g/bhp-hr standard) 

is accounted for, the cost differential between achieving a 0.50 g/bhp-hr standard and a 0.20 

g/bhp-hr standard is increased by approximately 53 percent. 

65
 
Response 

Our final COC90 costs do not include any amount to address “convenience factors” like 

those identified by Ford and Daimler. The regulations require that the NCP be based on 

estimated compliance costs rather than perceived value. This is intended to capture marketing 

advantage by setting the maximum penalty based on the worst case cost that a complying 

manufacturer has to pay to reduce emissions from the upper limit to the standard and the 

additional costs its customers pay to operate the compliant engine. Nevertheless, we 

acknowledged the commenters’ concern in our proposal, stating: 

In establishing prior NCP rules, we have frequently made it clear that satisfying the 

statutory objective of protecting the complying manufacturer was paramount. The 

generic NCP rule established an approach which attempts to remove any competitive 

disadvantage to complying manufacturers by assessing a cost to the manufacturer of a 

non-complying engine in the form of an NCP, with the expectation that this cost is at 

least equivalent to or exceeds the value of the competitive benefit gained by building a 

noncomplying engine. Imposing such a cost is a way to level the playing field without 

interfering in the actual marketing or pricing of the engines. However, since the issue of 

competitive advantage involves many subjective factors, the regulatory structure cannot 

by itself ensure that no competitive advantage remains. 

In both the Interim and Final Technical Support Documents, we evaluated the market impacts of 

the NCP to determine if our estimated costs, which do not include additional factors for 

subjective market impacts, were sufficiently large to cover the competitive impacts including the 

marketing differences. We concluded that they are. None of the commenters provided any 

evidence that they are not. More specifically, we determined that Navistar has not gained market 

share as a result of selling engines without SCR, even though it is selling its engines for a lower 

price. Thus, if these “convenience factors” are impacting operators purchase decisions at all, the 

impact must be small. 

With respect to Daimler’s assertion that we “ignored” this issue, we note that we 

addressed this issue in Section 4.2 of the Interim Technical Support Document, and even 

addresses one of Daimler’s specific points when we stated that “a trucking company that 

promotes itself as being an environmentally responsible company may be willing to pay a 

premium to ensure that its trucks have low-emitting engines.” On the broader issue, we stated: 

EPA recognizes that insufficient information is available to conclusively prove that the 

NCP removes all competitive disadvantages to all complying manufacturers. However, it 

is still helpful to consider market data to put the amount of the NCPs into context. To do 

this, EPA considered the available information about market prices and market share. As 

described below, both market prices and market shares support (emphasis added) our 

conclusion that the NCPs are large enough to remove the competitive disadvantage to 

complying manufacturers. The analyses are presented here for the comparison of engines 

equipped with SCR to those that are not equipped with SCR. 

Also, while we do not fully agree with other Daimler comment that Navistar’s future costs are 

irrelevant, we did not use Navistar’s future costs to calculate either the proposed or final NCPs. 

66
 
We disagree with Mack that costs need to be adjusted to reflect differences in 

deterioration factors. Neither the regulations nor past precedent support any additional 

adjustment for deterioration factors , beyond what is already taken into account in our cost 

analysis and we do not believe that Mack’s argument support such adjustments now. Mack 

stated that it recommends increasing costs to reflect differences in deterioration factors (DFs) 

because Navistar uses a lower deterioration factor near 0.50 g/hp-hr than Mack does at 0.20 

g/hp-hr. However, it is unclear why Mack believes this is relevant. Therefore, we are addressing 

this comment in the following three contexts: 

1. Impact on compliance costs relative to our baseline SCR engine. 

2. Impact on our analysis of alternative methodologies. 

3. Impact on Navistar’s compliance level and the penalty it would pay. 

In the first context, we note that since our final COC90 is not based on Navistar’s engine, 

the Navistar DF is not directly relevant. Mack could be arguing that Navistar’s lower 

deterioration factor is intrinsic to its higher emission level. However, the difference in DFs 

between Navistar and Mack is more likely to result from the fact that Navistar has not been using 

catalytic aftertreatment to control NOx emissions than anything intrinsic to the emission level. 

Even if it is not, our analysis bases costs on the end-of useful-life catalyst efficiencies of the 

baseline and compliant engines, and thus fully addresses deterioration. In other words, EPA’s 

cost analysis presumes that the expected technology will meet emission levels at the end of the 

useful life of the engine. Thus, cost analysis already includes assumptions regarding catalyst 

deterioration that would affect the cost of the compliant technology. Inclusion of an additional 

cost for deterioration would effectively double-count these costs. It is also worth noting that 

Cummins was the only manufacturer to comment specifically on the hardware costs associated 

with our cost scenario (i.e., optimizing engines for 0.50 versus 0.20 g/hp-hr NOx) and it did not 

support including any additional costs for deterioration. 

A second context to consider is how deterioration is addressed in our analysis of 

alternatives. For the first alternative, we looked at the costs associated with an upper limit of 1.2 

g/hp-hr NOx and our cost estimates were consistent with compliance costs provided by engine 

manufacturers of going from a 1.2 g/hp-hr engine that does not use SCR to a compliant engine 

that uses SCR. These manufacturers provided SCR hardware costs for the systems they are 

actually producing, which necessarily include any costs associated with deterioration. 

The only alternative scenario in which Mack’s comment could apply would be the second 

alternative, in which we estimated costs relative to an EGR engine similar to Navistar’s current 

engines. While, as discussed above, we believe we fully accounted for deterioration in this 

alternative, even if we did underestimate the costs associated with deterioration of engines like 

Navistar’s engines, it would not have changed our conclusion. We estimated that the COC90 

costs for this alternative would have been $994, which is $2,781 less than our final COC90 

($3,775). Thus, even if omitted a deterioration-cost of $2,000 per engine (which would be much 

more than any such error could reasonably be expected to be), we still would have concluded 

that the optimized SCR engine is the more appropriate baseline for our cost analysis. 

With respect to the third context, we note that the actual amount of the NCP paid by 

noncomplying manufacturers is calculated from the compliance level, which includes a 

67
 
deterioration factor (see §86.1102-87). NCP cost parameters are based on the levels of emission 

standards (or effective standards such as the 1.2 g/hp-hr phase-in NOx level or the 0.50 g/hp-hr 

FEL cap), which is consistent with the regulatory provisions that treat the compliance level as the 

in-use standard for NCP engines. Thus, Navistar would have to include an appropriate 

deterioration factor in its application for certification to insure that its engines meet its NCP 

compliance level at the end of their useful lives. Any question regarding the appropriateness of 

Navistar’s DF would be a certification issue that is not within the scope of this NCP rulemaking. 

2.10.	 Comparison of Commenters’ and EPA’s Estimates of Total 

Compliance Costs and Penalties 

Several commenters recommended specific values for COC90 (in some cases stated as the 

recommended penalty). These recommendations, which each differ from our final COC90 value, 

are summarized in this section. Note that in many cases we cannot respond to these comments 

in full detail because the underlying cost analyses shared with EPA are considered by the 

commenters to be confidential business information. 

Summary of Comments 

CATF EPA-HQ-OAR-2011-1000-0021-0022 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

Mack EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

Navistar EPA-HQ-OAR-2011-1000-0027, 0031-0039, 0042 & 0050 PACCAR 

EPA-HQ-OAR-2011-1000-0041 

CATF submitted a memorandum that evaluates potential NCP values that would 

potentially derive from a “high engine-out” nonconformance path, using best available recent 

projections of the future relationship between DEF and diesel fuel prices. CATF believes this 

analysis indicates that a year 1 NCP value in the range of $4,000-$5,000 might be warranted to 

preclude backsliding by current conforming engine manufacturers. 

Cummins also commented that NCPs that are too low create a much greater issue with 

regard to compliance among SCR manufacturers than between EGR and SCR manufacturers. 

Cummins continued to say that since NCPs are available to all manufacturers once enacted, and 

since the cost of the proposed NCPs are much lower than the economic value that can be created 

by paying them and optimizing engines at higher, noncompliant NOx levels, SCR manufacturers 

that are otherwise capable of producing compliant engines will be driven by competitive market 

forces to pay NCPs as a license to produce higher emitting engines. Cummins also commented 

that a correct analysis would recognize the first cost and operating cost benefits of operating at 

higher NOx levels up to 0.50 g/hp-hr and would incorporate a more appropriate DEF/diesel price 

ratio which would result in a much higher NCP level of $8,100 for a heavy heavy-duty diesel 

engine. 

68
 
PACCAR also stated that the proposed NCP level is so low that it creates an additional 

competitive disadvantage for manufacturers that have invested considerable time and resources 

in developing emission control technology that complies with the 2010 NOx standard. 

PACCAR commented that in order to eliminate the competitive advantage Navistar gains under 

the current NCP, EPA should add the value of “Navistar's fuel economy advantage” to the SCR 

hardware, R&D and warranty component costs, and increase the NCP for 2012 to a minimum of 

$14,378. 

Mack provided confidential business information summarizing its costs associated 

with developing, producing, operating and maintaining an engine that complies with a 0.20 

g/bhp-hr standard compared with an engine that complies with a 1.2 g/bhp-hr NOx limit (the 

effective standard during the 2007-2009 phase-in period). It stated the costs ranges from 

$14,520 to $21,390, depending on the DEF dosing level adopted. Mack’s cost estimates did 

not include any fuel savings associated with going from 1.2 to 0.20 g/hp-hr, because it 

believes EPA’s past practice was to neglect any side benefits associated with compliance. 

Mack stated that if the total cost represented 1.2 g/hp-hr NOx and was adjusted to represent 

the cost difference between meeting a 0.5 g/bhp-hr standard and a 0.20 g/bhp-hr standard, it 

would result in COC90 of $4,356 to $6,417 per engine (which is 30 percent of the total SCR 

cost). However, it argued that a higher value is needed to reflect differences in deterioration 

rates. It said, a non-SCR engine certified at 0.5 g/bhp-hr, such as those Navistar would 

produce under the NCP as proposed, does not require as significant a compliance margin as 

evidenced by Navistar’s certification levels, which range from 0.423 – 0.473 g/bhp-hr to 

achieve a 0.5 g/bhp-hr FEL (i.e., a compliance margin of 5 – 15 percent). In addition Mack 

stated, Navistar applies a deterioration factor multiplier of 1.0 for its 0.5-gram engines (i.e., 

no deterioration at all), while Mack must use a multiplier of 1.25. Based on Mack’s 

calculations, when the additional compliance margin necessary to meet a 0.20 g/bhp-hr 

standard (versus a 0.5 g/bhp-hr standard) is accounted for, the cost differential between 

achieving a 0.5 g/bhp-hr standard and a 0.20 g/bhp-hr standard is increased by approximately 

53 percent. Mack commented that the base range of costs of $4,356 to $6,417 per engine, 

therefore, must be adjusted to account for these factors. Once so adjusted, Mack’s estimated 

costs of compliance range from $6,655 to $9,804 per engine. Note: Mack also submitted 

comments more than three months after the close of the comment period that argued for a 

penalty of approximately $19,000 per engine based on fundamentally redesigned SCR 

engines. 

Daimler provided a similar analysis of the costs it incurred to meet the 2010 NOx 

standard. However, it entire analysis was identified as confidential business information. 

69
 
Response 

We considered each of the specific values for COC90 (or recommended penalty) 

presented by commenters. Where it is possible, we identify the primary reasons why the 

recommended value differs from our estimate. Note that this summary of reasons is not intended 

to be exhaustive, but rather is intended to identify the most significant difference between the 

commenters’ analyses and ours. We also identify other sections in this chapter where these 

differences are discussed in more detail. 

CATF recommended a COC90 of $4,000-$5,000 based on using an optimized 0.50 g/hphr SCR engine as the baseline (similar to EPA’s final baseline engine). This value is slightly 

higher than our final COC90 value. While it did not provide full details of its calculations, the 

difference appears to be due primarily to its use of a slightly lower DEF price (about 10 percent 

less than our DEF price) and a slightly larger fuel consumption impact. See Section 2.8.3 for a 

discussion of why our projected DEF price is more appropriate than the value assumed by 

CATF. 

The baseline engine for Cummins’ recommended COC90 value of $8,100 is very similar 

to our final baseline engine. While the details of Cummins calculations are considered to be 

confidential business information, we can say that the difference between our COC90 and 

Cummins’ COC90 is due primarily to Cummins’ assumption that the price of DEF ($/gal) will be 

only 40 percent of the cost of fuel, while we project that the DEF price will be 65 to 70 percent 

of the price of fuel. Its confidential estimates for other costs (such as hardware, warranty, and 

fuel consumption) also differ from our estimates, but these differences are less significant than 

the different DEF price. See Section 2.8.3 for a discussion of why our projected DEF price is 

more appropriate than the value assumed by Cummins. 

PACCAR’s baseline engine is also very similar to our baseline engine. However, 

PACCAR believes the fuel consumption cost should be $20,108. It calculated essentially the 

same DEF consumption as our final estimate, and assumed all other costs are the same as our 

proposed COC90. See Section 2.8.2 for a discussion of why we believe PACCAR overestimates 

the COC90 fuel consumption impact. PACCAR argued that the penalty should also include the 

value of “Navistar's fuel economy advantage”, but we see no evidence that Navistar has any fuel 

economy advantage over compliant engines. 

Mack did not use the same type of baseline engine for its analysis as we did. Its baseline 

engine is a 2009 non-SCR engine that has NOx emissions at 1.2 g/hp-hr, which is above the 

upper limit. It attempted to address this difference by scaling its costs to be proportional to the 

difference in emissions. As described in Appendix B of the Final Technical Support Document, 

we evaluated this methodology using our own independent cost inputs. Our analysis using this 

methodology results in a COC90 that is slightly less than our final COC90 based on our SCRbaseline methodology, which is much less than Mack’s estimate. The primary reasons for the 

difference are that: (1) we account for the fuel benefit associated with adding SCR, while Mack 

does not; and (2) we do not agree with Mack’s adjustment for deterioration factors. We estimate 

the NPV of the lifetime fuel benefit of adding SCR to about $10,000. When scaled by 30 percent 

to represent the upper limit, this benefit reduces Mack’s COC90 values by about $3,000. So our 

final COC90 value is consistent with the range recommended by Mack, as long as Mack’s 

70
 
estimates are corrected for the fuel benefit. Moreover, our final COC90 value is actually higher 

than the range recommended by Mack without its deterioration factor adjustment when those 

estimates are corrected for the fuel benefit. See Section 2.8.1 for our discussion of why it is not 

appropriate to neglect fuel savings in this NCP rule, and Section 2.9.3 for a discussion of why 

Mack’s deterioration adjustment is not appropriate. Regarding, Mack’s very late comments 

pertaining to fundamentally redesigned SCR engines, these comments came in too late for EPA 

to include in our cost analysis or for EPA to provide detailed analysis. However, see Section B.3 

of the Final Technical Support Document for a discussion of why we are not basing our costs on 

fundamentally redesigned SCR engines, such as those discussed in Mack’s late comments. 

While we cannot respond in detail to Daimler’s analysis because Daimler considers it to 

be confidential business information, we can note that Daimler’s costs were relative to a model 

year 2009 baseline engine with NOx emissions near 1.2 g/hp-hr rather than the a baseline engine 

at the upper limit. Daimler does not scale its estimate of costs or resulting COC90 to take into 

account the upper limit of 0.50 g/hp-hr. Its costs also excluded fuel savings associated with 

adding SCR to model year 2009 engine. See Sections 2.5 and 2.8.1 for our discussions of why 

these assumptions are not appropriate. 

2-6 Summary of Why EPA's Final COC90 Differs from Commenter Recommendations 

Commenter Recommended 

COC90/Penalty 

Primary Difference from EPA 

Analysis 

Related Sections 

CATF $4,000 to $5,000 Uses lower DEF price and larger 

increase in fuel consumption. 

2.8.2 

2.8.3 

Cummins $8,100 Uses lower DEF price. 2.8.3 

Daimler At least $19,000 Costs not calculated relative to the 

upper limit and fuel savings are 

neglected. 

2.5 

2.8.1 

Mack $6,655 to $9,804 Fuel savings are neglected, and 

costs are calculated using an 

alternative methodology. 

2.8.1 

2.9.3 

PACCAR At least $14,378 Assumes larger increase in fuel 

consumption. 

2.8.2 

71
 
3. Regulatory Issues
 

3.1. Base Year for Calculating NCPs 

As required by the Clean Air Act, the existing regulations include a formula that increases 

the penalty rates with each new model year. We proposed to apply this formula to the NCPs 

beginning with the 2013 model year by setting the 2012 model year as year number one. This 

would be consistent with the pre-existing regulatory text in §1113-87(a)(4) which states that 

“n=1 for the first year that the NCP is available” (emphasis added). 

Summary of Comments 

CATF EPA-HQ-OAR-2011-1000-0021-0022 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

Daimler EPA-HQ-OAR-2011-1000-0028, 0043-0045 & 0049 

EDF EPA-HQ-OAR-2011-1000-0026 

Mack EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

Navistar EPA-HQ-OAR-2011-1000-0027, 0031-0039, 0042 & 0050 

PACCAR EPA-HQ-OAR-2011-1000-0041 

Cummins, Daimler, Mack, and PACCAR each commented that EPA incorrectly selected 

2012 as the proposed “first year” for purposes of the NCP annual escalator adjustment factor. 

Cummins commented that EPA provided “scant justification for this proposal.” It argued that 

“setting the ’first year’ for purposes of penalty escalation based on the time that one particular 

manufacturer runs out of credits is wholly at odds with the purpose of the statutory provision 

requiring NCPs to escalate over time: to increase the incentive to come into compliance quickly. 

See 42 U.S.C. § 7525(g)(3)(D).” It also stated that “the availability of credits should not exempt 

any manufacturer from the escalation of NCPs required by Congress.” 

Mack commented that EPA’s “perception of when NCPs might be needed is wholly 

irrelevant to the separate question of when an escalation factor should be initiated.” It also stated 

that “since NCPs are designed to protect both the environment and the competitive interests of 

compliant manufacturers, the relevant point at which escalation factors must apply is the point at 

which the industry must comply (i.e., the year the standard takes effect). “ 

Daimler commented that the only reason that EPA finds itself setting NCPs in 2012 is 

because Navistar has used credits to sell its engines for the past two years, and that compliant 

manufacturers have been meeting the NOx standard since 2010, and it is the competitive 

disadvantage to compliant manufacturers that EPA must remove. It stated that where NCPs are 

made available beginning one or more model years after the effective date of the pertinent 

emission standard, either the "n" value or the initial cost level must be adjusted upward to reflect 

that fact and that failure to make such an adjustment would breach EPA's statutory obligation to 

ensure that penalties incentivize compliance and remove "any competitive disadvantage" to 

compliant manufacturers. 

72
 
EDF believes EPA was “misguided in choosing model year 2012 as the first year for 

NCPs,” noting that “every year the NCP does not escalate, there is less incentive for 

nonconforming manufacturers to conform.” EDF opposes rewarding the nonconforming 

manufacturer by allowing them two model years without an increase in penalties. It stated that 

“EPA should have established the NCP by 2010 so that the manufacturer would have had to 

choose then between using credits or paying the NCP,” but that using model year 2010 as the 

first year for the escalator would “prevent conforming manufacturers from suffering a 

competitive advantage (sic), to give the nonconforming manufacturer greater incentive to 

conform, and to disincentivize conforming manufacturers from backsliding.” 

CATF stated that EPA’s selection of 2012 as the first year of the NCP escalation clause is 

unreasonable and unlawful, rewards noncompliance, and is inconsistent with the Clean Air Act 

and EPA precedent. CATF noted that CAA section 206(g)(3)(D) provides that penalties “shall 

be increased periodically” and that EPA has traditionally structured NCPs as escalating 

beginning with the effective date of the new emission standard. CATF noted that the purpose of 

the escalator clause is to minimize the production of noncompliant engines. 

Navistar commented that choosing model year 2012 as the base year was correct. It 

argued that “selecting an earlier model year would run counter to EPA’s longstanding 

interpretation of when NCPs (and the corresponding annual adjustment) are appropriate.” To 

support this, it cited EPA’s statement in the proposal for the Phase I rule (50 Fed. Reg. at 9212) 

that “annual adjustment factors would be used to increase the amount of the nonconformance 

penalty from year to year, beginning with the second year that the NCP is available for a 

particular standard.” Navistar also stated that the SCR engine manufacturers’ argument is flawed 

because the 0.20 g NOx standard actually was in effect in model year 2007 and there was no 

standard change in 2010 but a lowering of a cap under the phase-in process. It also argued that 

selecting an earlier model year would run counter to Congressional intent and there could be no 

other purpose for moving “year one” earlier other than to unlawfully and unfairly penalize 

Navistar. Finally, Navistar commented that we “must make NCPs available retroactively” if we 

set 2010 as year one. 

73
 
Response 

Many of the commenters addressing the appropriate base year for NCP inferred what 

Congress’ intent was with respect to this issue. However, we believe that this is not appropriate. 

Congress did not specifically address circumstances in which the NCPs are established after a 

standard has already gone into effect. Nevertheless, Congress did establish two very clear 

requirements that are relevant here. First, Congress requires the NCP to always be high enough 

to protect the complying manufacturers. As is described elsewhere, the final NCPs (that are 

based on 2012 compliance costs) are high enough to meet this requirement without setting 2010 

as the base year. Second, Congress requires the NCP to increase periodically. The existing 

regulations fulfill this requirement without regard to which base year is used. However, since 

the purpose of this escalator is to provide an incentive for manufacturers who use NCPs for more 

than one model year to achieve compliance quickly rather than continuing to use NCPs for 

multiple model years, using 2012 as the base year is consistent with the requirements in the 

Clean Air Act. 

We also note that the existing regulatory text states that year one is the first year that NCPs 

are available, which in this case is 2012. Thus, using 2012 as the base year is also consistent 

with the existing regulations. 

Setting 2012 as the base year is consistent with both the Clean Air Act and the existing 

regulations, and we believe that there would need to be a significant policy reason to finalizing 

2010 as the base year. The commenters have not provided such a reason. On the contrary, using 

the first year of NCP availability as the first year for the escalator calculation, the NCPs for the 

first year of availability are sufficient to protect the complying manufacturers while allowing 

Navistar to continue making engines, as Congress intended. Adding an extra penalty equivalent 

to two years of escalation seems contrary to the intent for this escalation, which is to encourage 

manufacturers who are using NCPs to come into compliance. As no manufacturer has had 

access to NCPs prior to 2012, requiring an escalator for the two previous years is not consistent 

with the purpose of the escalator. Moreover, EPA disagrees with commenters who apparently 

believe that Navistar’s use of emission credits in model years 2010 and 2011 amounted to 

noncompliance. This is false. Emission credits are a completely valid and environmentally 

neutral (if not beneficial) method for manufacturers to reduce emissions early and use credits to 

have higher emissions later. Commenters who wish to penalize Navistar for using a credit 

program that has been part of the regulations since the NOx standard was promulgated, and that 

can be credited with achieving NOx reductions earlier than otherwise required, are mistaken. 

74
 
3.2. Retaining Emission Credit While Using NCPs
 

Summary of Comments 

Mack	 EPA-HQ-OAR-2011-1000-0024, 0046, 0047 & 0051 

Mack commented that since we justified our adoption of NCPs based on concerns that 

Navistar will exhaust emissions credits, we should require that Navistar exhaust all available 

emissions credits before it is allowed to utilize NCPs, noting that we have previously stated that 

“NCPs have always been intended for manufacturers that cannot meet an emission standard for 

technological reasons rather than manufacturers choosing not to comply.” Mack argues that this 

logic means that “EPA should not make NCPs available to any manufacturer until such time as 

the Agency has confirmed the manufacturer has exhausted all credits available for use in the 

United States.” 

Response 

We neither proposed nor requested comment on any requirement to exhaust emission 

credits before using NCPs. We are not adding such a restriction to the regulations in this Final 

Rule because we do not believe it is necessary as long as the penalty is high enough to remove 

all competitive disadvantages for complying manufacturers and as long as there is a 

technological laggard. We note that Navistar would have already exhausted its emission credits 

had interim NCPs not been available, and that Navistar has been using its remaining credits to 

certify its engines for use in California. There does not appear to be any environmental benefit 

to including the requirement to exhaust credits, since in either case the engines would be emitting 

above the level of the standard. 

3.3.	 Prohibition against generating emission credits from NCP 

engines 

Summary of Comments 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

Navistar EPA-HQ-OAR-2011-1000-0027, 0031-0039, 0042 & 0050 

Cummins commented that disallowing the ability to generate greenhouse gas credits for 

engines that use NCPs is not a sufficient deterrent to prevent otherwise compliant engine 

manufacturers from using NCPs to economic advantage. 

Navistar stated that it “EPA overstates the issue and thus proposes a limit that is too 

broad.” However Navistar “agrees that SCR engine makers should not be able to “game” the 

system to generate CO2 credits in the manner described by EPA.” It suggested that we “should 

clarify that engine manufacturers that implement approved methods for generating CO2 

75
 
credits—i.e., actions other than simply dialing up NOx and paying an NCP—are not precluded 

from generating CO2 credits for future use.” 

Response 

We are not relying on this prohibition to prevent compliant engine manufacturers from 

using NCPs to gain an economic advantage. We believe our final regulations set the penalties 

high enough to prevent this. 

With respect to Navistar’s comment, we note that the new 86.1105-87(j)(2) states only 

that: 

(j)(2) Manufacturers may not generate emission credits for any pollutant from engines for 

which the manufacturer pays an NCP for the NOx standard identified in paragraph (j)(1) of 

this section. 

Thus a manufacturer is precluded from generating credits only from those engines for which it 

pays the NCP. This rule does not preclude manufacturers from generating credits from any 

engines for which they do not pay the NCP. Nor does this rule preclude manufacturers from 

generating vehicle credits (i.e., non-engine credits) from any vehicles, even if the vehicles 

include engines for which NCPs are paid. 

3.4. NCP Formula 

Summary of Comments 

ICCT EPA-HQ-OAR-2011-1000-0030 

The ICCT believes that the proposed methodology rewards noncompliant manufacturers 

who have not made sufficient investments in technology. ICCT proposes an alternative 

methodology wherein two sets of NCPs are developed based on the particular technology 

pathway the manufacturer has chosen. Using this approach, the Agency would develop one set of 

NCPs for noncompliant manufacturers using only EGR and another set of NCPs for potential 

noncompliant manufacturers using SCR+EGR. Then, the appropriate penalties can be applied 

based on the manufacturer’s specific technology platform. This system avoids having to set 

penalty levels that do not reflect the technology choices of a given manufacturer. Under the 

current cost estimation methodology, choosing a baseline SCR+EGR engine to determine the 

NCPs for a manufacturer using EGR discounts the years of substantial research and development 

costs that the compliant manufacturers have devoted to achieving the current standard. 

76
 
Response 

The generic Phase I NCP rule established that a single NCP curve should apply for all 

engines, and that the curve should be based on the full distribution of compliance costs for all 

engines. We did not propose to revise this approach. While we understand the ICCT’s concern, 

we do not believe it would be appropriate to adopt such a significant change without full notice 

and opportunity for public comment. Moreover, we believe that this recommendation was made 

to address the ICCT’s broader goal of ensuring that there is no incentive for SCR engine 

manufacturers to reoptimize their engines for higher NOx emissions. We are confident that our 

final NCPs will achieve this broader goal. We believe the best approach is to have a single NCP 

level that reasonably represents the 90th percentile costs for manufacturers. 

3.5. Significant figures of the upper limit. 

Summary of Comments 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

Cummins noted that the preamble and proposed regulatory language for the upper limit 

vary by one significant digit, and that the regulatory upper limit should contain the extra 

significant digit. 

Response 

We agree and the final regulatory text has been corrected. 

3.6. Dollar values 

Summary of Comments 

Anonymous public commentEPA-HQ-OAR-2011-1000-0013 

We received an anonymous comment asking the reason some of the regulatory values are 

expressed in monetary amounts from another decade (e.g., "December 1991 dollars" or 

"December 1984 dollars"). 

Response 

These references in the regulations identify the basis of costs listed in the regulations for 

purposes of adjusting for inflation in later years. For example, the statement in the regulations 

that the new NCP parameters for the 2010 NOx standard are “expressed in December 2011 

dollars” means that these values are consistent with the Consumer Price Index (CPI) for the 

month of December in 2011. 

77
 
4. Other Issues
 

4.1. Sunsetting NCPs 

Summary of Comments 

NJDEP EPA-HQ-OAR-2011-1000-0016 

The State of New Jersey commented that there should be a definitive deadline to the 

length of time nonconformance penalties will be allowed as a substitute for a complying engine. 

Response 

Section 206(g)(1) of the Clean Air Act states “a certificate of conformity shall be issued 

... if such manufacturer pays a nonconformance penalty as provided under regulations ...” The 

statute does not refer to EPA setting end dates for NCPs and EPA’s has not included end dates 

in its previous generic or specific NCP regulations. However, we believe that the yearly increase 

in the penalty rates, which is authorized by the Act, will effectively accomplish the same goal by 

making the penalty much higher than the cost of compliance. Nevertheless, it is possible that we 

could determine in the future that NCPs are no longer needed and are being used inappropriately, 

in which case we could effectively end the NCPs by revising the upper limit to be equal to 0.20 

g/hp-hr through a new rulemaking. 

4.2. Alternative Penalties 

EPA requested comment on whether we could or should also include a non-monetary 

value as an option in the definition of the noncompliance penalty. Specifically, we asked if there 

should be an option where the penalty could be defined as the amount of NOx emission 

reductions that would not be achieved by the engine compared to the applicable standard. 

Summary of Comments 

Cummins EPA-HQ-OAR-2011-1000-0015, 0025 & 0048 

NESCAUM EPA-HQ-OAR-2011-1000-0018-0019 

NJDEP EPA-HQ-OAR-2011-1000-0016 

NESCAUM and NJDEP support the alternative penalty approach discussed in the 

NPRM. NESCAUM stated that this “would provide a means to recover the environmental loss, 

calculated as the total excess NOx emissions expected from the non-conformance engines over 

their lifetimes, through a specific offset plan developed by the engine manufacturer and at a cost 

equivalent to or greater than what the nonconformance penalty would be under the conventional 

approach outlined in the proposed rule.” NJDEP stated that due to “the uncertainty in 

determining actual tons of NOx that should be offset, the level of NOx to be mitigated should be 

78
 
set above the excess tons of expected NOx emissions that will occur from the engines certified 

using NCPs.” 

Navistar stated that EPA’s past practice shows that a non-monetary NCP is a desirable, 

equitable option and that an alternative penalty would ensure that excess NOx emitted by 

nonconforming engines are off-set. It also noted that because EPA would require that the cost of 

achieving these reductions would be at least as great as the dollar amount of the NCP, any 

purported competitive disadvantage to complying manufacturers would be eliminated to the 

same extent as simply paying a dollar amount. Navistar stated that “under EPA’s proposal, it 

makes most sense to continue to use the existing penalty formula, but then to offer an option that 

the penalty be paid in terms of money spent on a “green project” rather than money spent by 

writing a check” and that this approach “is well suited for ensuring that the CAA § 206(g)(3) 

requirement is met and that the penalty will remove any competitive disadvantage. “ Navistar 

recommends that NCPs continue to be defined in monetary terms, but that manufacturers 

choosing to pay penalties have the added option of instead spending the “penalty money” on 

green projects. Finally, Navistar stated that “EPA does not need to fully establish the alternative 

penalty/green project regulatory structure in the current rulemaking” but could promulgate 

regulations now that allow for/create the alternative penalty payment option later. 

Cummins stated that it would be inappropriate to allow for nonmonetary NCPs because 

“Section 206(g) calls for manufactures to “pay” a nonconformance “penalty” in “amounts” set 

by EPA.” It cited the legislative history of the NCP provision to support its belief that Congress 

intended the penalties to be monetary: 

“The provision requires that the nonconforming technology penalty to be set at a level 

which will eliminate the competitive advantage, if any, for the manufacturer of a 

nonconforming vehicle or engine. Thus, its calculation would include such items as the 

actual cost of compliance for complying vehicles, the capital costs foregone as a result of 

noncompliance, the market value of any fuel economy gains made by non-complying 

vehicles compared to complying vehicles....” House Conf. Rept. No. 95-564 at 163 

(95th Cong., 2d Sess. 1977), 2 U.S.C.C.A.N. 1544 (1977) (emphasis added). 

Response 

While we recognize the potential environmental benefits of allowing manufacturers to 

offset the emission impacts of NCP engines instead of paying a cash penalty, we are not 

finalizing such an approach at this time. We have concerns regarding the complexity of such a 

program and the enforceability (in terms of monitoring compliance) of this approach. Such an 

approach would be a substantial shift from the current NCP program and would need 

considerable review regarding its parameters and compliance mechanisms. EPA also notes the 

comments of Cummins, regarding the intent of Congress regarding NCPs and possible 

inconsistencies of such a program with Congressional intent, though we do not conclude that 

such a program would be necessarily inappropriate. 

79
 
4.3. Regional Impacts of NCPs 

Summary of Comments 

NESCAUM EPA-HQ-OAR-2011-1000-0018-0019 

NJDEP EPA-HQ-OAR-2011-1000-0016 

NESCAUM estimates as a result of the sale and use of these higher emitting engines that 

NOx emissions within our eight-state region will increase by as much as 2590 tons in 2012, and 

by 45,500 tons over the useful life of these model year 2012 engines as compared with the use of 

fully compliant engines. The NESCAUM states are concerned about the effect that this 

unanticipated increase in NOx emissions will have on attainment and maintenance of the ozone 

standard. 

NJDEP stated that operation of nonconforming engines could increase in NOx emissions 

throughout the northeast region because states upwind of New Jersey have a significant impact 

on New Jersey's ozone levels. It argued that the non-compliant engine manufacturer should also 

offset NOx emission increases in those upwind states. 

Response 

There is little question that the promulgation of NCPs could have a negative impact in 

terms of the emissions of new heavy heavy-duty diesel engines in the near future. However, 

Congress clearly intended that NCPs be made available. The language and history of this 

provision indicate that Congress effectively determined that requiring EPA to issue standards for 

heavy-duty vehicles and engines that are technology forcing in nature, with NCPs acting in part 

as a safety valve preventing a manufacturer from being forced from the market, serves the public 

interest in the long term and outweighs any short-term harm to the environment caused by 

allowing NCPs. 

4.4. Comments about SCR unrelated to costs 

Summary of Comments 

Navistar EPA-HQ-OAR-2011-1000-0027, 0031-0039, 0042 & 0050 

Navistar also included comments arguing against the use of SCR by its competitors. In 

particular, it stated that “EPA unlawfully eliminated the inconvenience and cost of DEFmaintenance, by authorizing SCR-equipped vehicles to run for thousands of miles (and, in 

practice, indefinitely) with the SCR system turned off.” 

Response 

These comments are not relevant to the current proceeding. We based our NCP rule on 

the statutory and regulatory provisions for developing NCPs and the reasonable cost estimates 

80
 
we developed for the rule. Other tangential issues regarding the heavy duty diesel engine 

manufacturing industry were not relevant to our actions during the proceeding. 

4.5. Timing of NCP Rulemaking 

Summary of Comments 

Daimler EPA-HQ-OAR-2011-1000-0043 & 0045 

EDF EPA-HQ-OAR-2011-1000-0026 

Mack EPA-HQ-OAR-2011-1000-0046 & 0047 

EDF commented that EPA’s failure to timely set NCPs before 2010 contradicts the 

agency’s regulatory mandate to set such penalties “when any new or revised emission standard is 

more stringent than the previous standard” and frustrates the Act’s directive mandating that 

NCPs “shall remove any competitive disadvantage to manufacturers whose engines or vehicles 

achieve the required degree of emission reduction.” 42 U.S.C. § 7525(g)(3)(E). 

Mack stated in it hearing testimony that if Navistar was in danger of running out of 

emission credits before achieving the standard, it should have requested NCPs soon enough to 

allow for a proper process. It added that the fact that Navistar did not “should not work to its 

advantage. 

Daimler commented that all previous NCP rules were “conducted before or at the same 

time that the emission standards were taking effect.” 

Response 

We notified manufacturers in 2010 that we had found that the new NOx standard required 

substantial work.23 When making that determination, EPA noted that the reason that we were 

not establishing NCPs at that time was because we had not determined that a technological 

laggard was likely to develop. Had we known before 2010 that Navistar would run out of credits 

in 2012 and that it would have not yet brought its NOx levels down to 0.20 g/hp-hr, we would 

have established NCPs. It was not apparent that there would be a need for NCPs until after, the 

implementation of a standard. Daimler is correct that the timing of this rule is different than for 

other NCP rules. However, the appropriateness of the NCP rule is determined by its compliance 

with the statute, not its timing. The fact that Navistar did not need NCPs until after the initial 

implementation of the standard does not change our obligation under the Clean Air Act. 

23 “Nonconformance Penalties for Heavy-Duty Diesel Engines in 2010 Model Year”, Letter from Karl J. Simon, 

Director, EPA Compliance and Innovative Strategies Division, February 22, 2010. 

81
 
It is also important to note that although many commenters seem to believe that the NOx 

standard was new in 2010, it was actually first applicable to model year 2007 engines. There is 

no basis for treating the phase-in provisions that applied in model year 2007 through 2009 

differently than the flexibility of the emission credit program that Navistar has used since then to 

certify engines near 0.50 g/hp-hr NOx. 

With respect to Mack’s comment, while it may have been better had Navistar notified us 

earlier of its need for NCPs, we do not agree that its failure to notify us sooner has worked to its 

benefit, particularly not in with regard to this final rule completed after notice and comment. 

Mack’s comment may have been addressing the Interim Final Rule, rather than the proposal. 

Indeed, given the events that have occurred since the publication of the proposal and interim 

final rule, it is likely that an earlier proposal and final rule promulgating NCPs would have been 

more advantageous to Navistar. It is also likely that, had we finalized an NCP rule last year, the 

final rule may have been based on the fuel and DEF prices similar to those used for the proposal, 

which were appropriate at that time, and would likely have resulted in lower penalties. 

4.6. Late Comments 

Daimler EPA-HQ-OAR-2011-1000-0043 & 0045 

Mack EPA-HQ-OAR-2011-1000-0046 & 0047 

Navistar EPA-HQ-OAR-2011-1000-0042 

PACCAR EPA-HQ-OAR-2011-1000-0041 

Daimler, Mack, Navistar, and PACCAR submitted these comments after the close of the 

comment period. In most cases, these were supplemental comments. We considered these late 

comments to the extent practicable and many details of these late comments are addressed in the 

respective other sections of this document. For example, PACCAR’s comments were received 

shortly after the close of the comment period and have been addressed in this document. 

Navistar submitted comments in May to rebut arguments raised by other commenters, and these 

comments are also addressed to some extent. On the other hand, comments from Daimler and 

Mack that were received in July (more than three months after the close of the comment period 

and after we had completed our analysis of costs) are generally not explicitly addressed in this 

document. Nevertheless, we did summarily review these very late comments and determined 

that they did not contain any new information that would have changed our conclusions or our 

final NCP level. 

82
 
APPENDIX: Section 206(g) of the Clean Air Act
 

(g) Nonconformance penalty 

(1) In the case of any class or category of heavy-duty vehicles or engines to which a standard 

promulgated under section 7521(a) of this title applies, except as provided in paragraph (2), a 

certificate of conformity shall be issued under subsection (a) of this section and shall not be 

suspended or revoked under subsection (b) of this section for such vehicles or engines 

manufactured by a manufacturer notwithstanding the failure of such vehicles or engines to meet 

such standard if such manufacturer pays a nonconformance penalty as provided under 

regulations promulgated by the Administrator after notice and opportunity for public hearing. In 

the case of motorcycles to which such a standard applies, such a certificate may be issued 

notwithstanding such failure if the manufacturer pays such a penalty. 

(2) No certificate of conformity may be issued under paragraph (1) with respect to any class or 

category of vehicle or engine if the degree by which the manufacturer fails to meet any standard 

promulgated under section 7521(a) of this title with respect to such class or category exceeds the 

percentage determined under regulations promulgated by the Administrator to be practicable. 

Such regulations shall require such testing of vehicles or engines being produced as may be 

necessary to determine the percentage of the classes or categories of vehicles or engines which 

are not in compliance with the regulations with respect to which a certificate of conformity was 

issued and shall be promulgated not later than one year after August 7, 1977. 

(3) The regulations promulgated under paragraph (1) shall, not later than one year after August 7, 

1977, provide for nonconformance penalties in amounts determined under a formula established 

by the Administrator. Such penalties under such formula— 

(A) may vary from pollutant-to-pollutant; 

(B) may vary by class or category or vehicle or engine; 

(C) shall take into account the extent to which actual emissions of any air pollutant 

exceed allowable emissions under the standards promulgated under section 7521 of this 

title; 

(D) shall be increased periodically in order to create incentives for the development of 

production vehicles or engines which achieve the required degree of emission reduction; 

and 

(E) shall remove any competitive disadvantage to manufacturers whose engines or 

vehicles achieve the required degree of emission reduction (including any such 

disadvantage arising from the application of paragraph (4)). 

(4) In any case in which a certificate of conformity has been issued under this subsection, any 

warranty required under section 7541(b)(2) of this title and any action under section 7541(c) of 

this title shall be required to be effective only for the emission levels which the Administrator 

determines that such certificate was issued and not for the emission levels required under the 

applicable standard. 

(5) The authorities of section 7542(a) of this title shall apply, subject to the conditions of section 

7542(b) 2 of this title, for purposes of this subsection. 

83