i

National Vehicle and Fuel Emissions Laboratory

Office of Transportation and Air Quality

U.S. Environmental Protection Agency

EPA-420-R-12-014

AUGUST 2012

DRAFT

Nonconformance Penalties for On-highway Heavy-Duty Diesel Engines:

Technical Support Document

NCP Technical Support Document - Review Draft for EO12866_NCP 2060-AR51FRM FRN_201272.docx
ii

Table of Contents

CHAPTER 1: INTRODUCTION ............................................................................ 3

1.1 Background on Nonconformance Penalties..................................................................3

1.2 Previous NCP Rulemakings and Regulations ..............................................................4

1.3 Promulgation of 2007/2010 Emission Standards .........................................................6

1.4 The Onboard Diagnostics (OBD) System Requirements for 2010 and Later HeavyDuty On-highway Engines.......................................................................................................7

1.5 The Heavy-Duty Vehicle and Engine Greenhouse Gas Emissions Standards ..........8

1.6 Characterization of the Heavy-Duty Engine and Vehicle Industries.........................8

1.6.1 Vehicle Applications and Classes........................................................................8

1.6.2 Engine and Vehicle Manufacturers....................................................................9

1.7 Energy Paradox.............................................................................................................14

1.8 Relation of NCP Costs to Rulemaking Costs..............................................................15

CHAPTER 2: TECHNOLOGIES TO MEET THE 2010 NOX STANDARD 

STANDARDS ............................................................................................................. 17

2.1 Engine Service Classes..................................................................................................17

2.2 Emission Control Technologies for Diesel Engines....................................................17

2.2.1 Air Handling System and Turbocharging Technology...................................17

2.2.2 Advanced Fuel Injection Systems .....................................................................18

2.2.3 Diesel Particulate Filters and Oxidation Catalysts..........................................18

2.2.4 Selective Catalytic Reduction ............................................................................19

2.3 Optimization Strategies................................................................................................21

2.3.1 Engine-Out NOx Emission Reduction Strategies............................................21

2.3.2 Integrated Aftertreatment System....................................................................22

2.3.3 Integrated Engine and Aftertreatment Strategies...........................................23

2.3.4 Integrated Engine and Vehicle Strategies........................................................26

2.4 Summary of Strategies Used by Engine Manufacturers for 2010............................26

2.4.1 SCR Engines........................................................................................................26

2.4.2 Non-SCR Engines...............................................................................................26

2.4.3 Marketing Claims...............................................................................................27

CHAPTER 3: COMPLIANCE COSTS ................................................................... 28
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3.1 Methodology ..................................................................................................................28

3.1.1 General Methodology.........................................................................................28

3.1.2 Net Present Value of Costs.................................................................................30

3.1.3 Costs Analysis .....................................................................................................30

3.1.4 Upper Limit.........................................................................................................32

3.2 Manufacturer Cost Data ..............................................................................................33

3.3 EPA Analysis of Costs for Heavy Heavy-Duty Engines............................................34

3.3.1 Consideration of Manufacturer Cost Estimates..............................................34

3.3.2 Basis of EPA Cost Estimates .............................................................................35

3.3.3 NCP Compliance Costs: COC90 ........................................................................36

3.3.4 NCP Compliance Costs: COC50 ........................................................................46

3.3.5 MC50 and F..........................................................................................................47

3.4 EPA Analysis of Costs for Medium Heavy-Duty Engines.........................................47

CHAPTER 4: REGULATORY PARAMETERS AND FINAL PENALTIES..... 48

4.1 Heavy Heavy-Duty Engine NCP Equations and Parameters...................................48

4.1.1 Refund for Engineering and Development Costs............................................49

4.2 Factors Influencing Competition.................................................................................50

4.2.1 Market Prices......................................................................................................51

4.2.2 Market Share ......................................................................................................52

4.2.3 Sensitivity to Operating Costs...........................................................................52

Appendix A: Calculations......................................................................................................54

Appendix B: Alternative Heavy Heavy-Duty Compliance Costs.......................................59

Appendix C: Medium Heavy-Duty (MHD) Compliance Costs..........................................69
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List of Acronyms

AEO Annual Energy Outlook

CH4 methane

CL compliance level

CO carbon monoxide

CO2 carbon dioxide 

COC50 estimate of the average total incremental cost to comply with standard relative 

to complying with the upper limit

COC90 estimate of the 90th percentile total incremental cost to comply with standard 

relative to complying with the upper limit

CPI Consumer Price Index 

DEF diesel exhaust fluid

DOC diesel oxidation catalyst

DPF diesel particulate filter

EGR exhaust gas recirculation

EIA U.S. Energy Information Administration

EPA U.S. Environmental Protection Agency

F factor used to estimate the 90th percentile marginal cost based on the average 

marginal cost

FE&D engineering and development factor

FEL family emission limit

g/hp-hr gram per horsepower-hour

GHG greenhouse gas

GVWR gross vehicle weight rating

HC hydrocarbon

HD heavy-duty

HHD heavy heavy-duty

HDDE heavy-duty diesel engine

HDE heavy-duty engine

HDGE gasoline-fueled heavy-duty engine

HDOBD heavy-duty onboard diagnostics

HDV heavy-duty vehicle

HLDT heavy light-duty truck

ICM indirect cost multiplier

LDT2 Light-Duty Truck 2

LHDGE gasoline-fueled light heavy-duty engine

MC50 estimate of the average marginal cost of compliance with the standard

MC90 estimate of the 90th percentile marginal cost of compliance with the standard

MHD medium heavy-duty

MOVES Motor Vehicle Emissions Simulator

mpg miles per gallon

N2 nitrogen

N2O nitrous oxide
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NCP nonconformance penalty

NHTSA National Highway Traffic Safety Administration 

NOx oxides of nitrogen

NPV net present value

OBD onboard diagnostics

PM particulate matter 

S emission standard

SCR selective catalytic reduction 

TSD Technical Support Document 

UL upper limit

VMT vehicle miles travelled 

X compliance level above the standard at which NCP equals COC50
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Chapter 1: Introduction

The Technical Support Document (TSD) for this rulemaking presents analyses and 

supporting data for the provisions EPA used for establishing nonconformance penalties 

(NCPs) for model year 2012 and later on-highway heavy-duty diesel engines. This document 

updates and replaces the Interim Technical Support Document.1 That earlier document 

supported an Interim Final Rule and a Notice of Proposed Rulemaking (NPRM) that were 

promulgated on January 31, 2012 (77 FR 4678 and 77 FR 4736). However, the U.S. Court of 

Appeals for the District of Columbia Circuit has vacated the Interim Final Rule. This 

document supports the Final Rule that follows the NPRM.

This TSD addresses technical and analytical issues, rather than policy issues. See the 

preamble to this Final Rule and the Response to Comments document for discussions of 

policy matters and other more subjective discussions. For example, see the FRM preamble 

and the Response to Comments document for our explanation of why we believe that the NCP 

criteria have been met for the 2010 NOx emission standard for heavy heavy-duty diesel 

engines.

1.1 Background on Nonconformance Penalties

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

promulgate regulations permitting manufacturers of heavy-duty engines (HDEs) or heavyduty vehicles (HDVs) to receive a certificate of conformity for HDEs or HDVs that exceed 

the applicable emissions standard, provided that they pay an NCP and that their emissions do 

not exceed an appropriate upper limit. Congress adopted section 206(g) in the Clean Air Act 

Amendments of 1977 as a response to perceived potential for problems with technologyforcing heavy-duty emissions standards. If strict technology-forcing standards were 

promulgated, then some manufacturers, "technological laggards," might be unable to comply 

initially and would be forced out of the marketplace. NCPs were intended to remedy this 

potential problem - the laggards 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 an economic disadvantage compared to nonconforming 

manufacturers, because the NCP would be based, in part, on money saved by the 

technological laggard. The resulting provisions of the Act require that NCPs account for the 

degree of emission nonconformity; increase periodically to provide incentive for 

nonconforming manufacturers to achieve the emission standards; and, most importantly, 

remove any competitive disadvantage to conforming manufacturers. 
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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. HDVs are defined by section 

202(b)(3)(C) as vehicles in excess of 6,000 pounds gross vehicle weight rating (GVWR).A 

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

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

vehicle or engine exceeds the 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 in that engine family that exceed the compliance 

level in-use, unless, for the case of HLDTs, the compliance level is below the in-use standard. 

The manufacturer does not have in-use warranty or recall liability for emissions levels above 

the standard but below the compliance level. 

1.2 Previous NCP Rulemakings and Regulations

The generic NCP rule (Phase I) was promulgated August 30, 1985 (50 FR 35374). It 

established regulations for calculating NCPs in 40 CFR Part 86 Subpart L. It also established 

three basic criteria for determining the eligibility of emission standards for nonconformance 

penalties in any given model year. First, the emission standard in question is a new emission 

standard or that the standard is an existing standard and becomes 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, EPA must find that substantial work is 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. EPA 

considers that substantial work is required if such work is needed to bring emissions from the 

level of the previous standard to the level of the new or revised standard, even if at the time 

the NCP rulemaking is taking place, some manufacturers have already completed such work.

Third, EPA must find that a manufacturer is likely to be noncomplying for 

technological reasons (such a manufacturer have been referred to in earlier rules as a 

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

manufacturer who cannot meet a particular emission standard due to technological (not 

 

A Note that certain other provisions of the Clean Air Act and regulations also consider features other 

than GVWR when defining whether a motor vehicle is a heavy-duty vehicle.
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economic) difficulties and who, in the absence of NCPs, might be forced from the 

marketplace. 

The above criteria were used to determine eligibility for NCPs during Phase II of the 

NCP rulemaking process (50 FR 53454, December 31, 1985). NCPs were offered for the 

following 1987 and 1988 model year standards: the particulate matter (PM) standard for 1987 

diesel-fueled light-duty trucks with loaded vehicle weight in excess of 3,750 pounds 

(LDDT2s), the 1987 gasoline-fueled light HDE (LHDGE) HC and CO emission standards, 

the 1988 diesel-fueled HDE (HDDE) PM standard, and the 1988 HDDE NOx standard. As 

discussed in the Phase II rule, NCPs were considered, but not offered, for the 1987 HLDT 

NOx standard and the 1988 (later, the 1990) gasoline-fueled HDE (HDGE) NOx standard. 

The availability of NCPs for 1991 model year HDE standards was addressed during 

Phase III of the NCP rulemaking (55 FR 46622, November 5, 1990). NCPs were offered for 

the following: the 1991 HDDE PM standard for petroleum-fueled urban buses, the 1991 

HDDE PM standard for petroleum-fueled vehicles other than urban buses, the 1991 

petroleum-fueled HDDE NOx standard, and the PM emission standard for 1991 and later 

model year petroleum-fueled light-duty diesel trucks greater than 3,750 lbs loaded vehicle 

weight (LDDT2s). As discussed in the Phase III rule, NCPs were also considered, but not 

offered for the methanol-fueled heavy-duty diesel engine and heavy-duty gasoline engine 

standards as it was concluded that those standards did not meet the eligibility criteria 

established in the generic rule. In addition, Phase III of the NCP rulemaking described how 

NCPs would be integrated into the HDE NOx and PM averaging program. 

The availability of NCPs for HDVs and HDEs subject to the 1994 and later model 

year emission standards for particulate matter (PM) was addressed by Phase IV of the NCP 

rulemaking (58 FR 68532, December 28, 1993). NCPs were offered for the following: the 

1994 and later model year PM standard for heavy-duty diesel engines (HDDEs) used in urban 

buses and the 1994 and later model year PM standard for HDDEs used in vehicles other than 

urban buses. NCPs were also considered, but not offered, for the 1994 and later model year 

methanol-fueled HDE PM standard and the 1994 and later model year cold carbon monoxide 

(CO) standard for heavy light-duty gasoline fueled trucks. 

The availability of NCPs for HDVs and HDEs subject to the 1998 and later model 

year emission standards for NOx was addressed by Phase V of the NCP rulemaking (61 FR 

6949, February 23, 1996). NCPs were offered for the following: the 1998 and later model 

year NOx standard for heavy-duty diesel engines (HDDEs), the 1996 and later model year for 

Light-Duty Truck 3 (LDT3) NOx standard, and the 1996 and later urban bus PM standard. A 

concurrent but separate final rule (61 FR 6944, February 23, 1996) established NCPs for the 

1996 LDT3 PM standard and discussed other standards for which NCPs were considered. 

The availability of NCPs for 2004 model year HDE standards was addressed during 

Phase VI of the NCP rulemaking (67 FR 51464, August 8, 2002). NCPs were offered only 

for the NOx+NMHC standards. One notable aspect of that rule was that the upper limit for 

heavy heavy-duty diesel engines was set at a level above the previous standard. This was 
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done because a legal settlement of compliance violations (i.e. a consent decree) allowed 

certain manufacturers to exceed the otherwise applicable 4.0 g/hp-hr NOx standard for a brief 

period.B The upper limit for these engines was set at 6.0 g/hp-hr to allow manufacturers to 

continue producing engines allowed by the consent decree. 

1.3 Promulgation of 2007/2010 Emission Standards

The 0.20 g/hp-hr NOx standard currently applicable to heavy-duty engines was 

adopted January 18, 2001 (66 FR 5001) and first applied in the 2007 model year. However, 

because of phase-in provisions adopted in that rule and use of emission credits generated by 

manufacturers for early compliance, manufacturers were able to continue to produce engines 

with NOx emissions over 0.20 g/hp-hr until (and in some cases after) the 2010 model year. 

The phase-in provisions ended after model year 2009 so that the standards were fully phasedin for model year 2010. Equally important, the cap applicable to Family Emission Limits for 

credit-using engine families was lowered to 0.50 g/hp-hr beginning in model year 2010. 

Because of these changes that occurred in model year 2010, the 0.20 g/hp-hr NOx emission 

standard is often referred to as the 2010 NOx emission standard, even though it applied to 

engines as early as model year 2007. For this rulemaking, the fully phased-in NOx 

requirements are referred to as the 2010 NOx standards. (Note that the 2001 rulemaking also 

set new standards for pollutants other than NOx, but we are not setting NCPs for these other 

standards.)

While some manufacturers still retain NOx emission credits that currently allow them 

to produce engines with NOx emissions as high as 0.50 g/hp-hr, one manufacturer has been 

using the interim NCPs for some of their engine families in model year 2012. As seen in 

Figure 1-1, all manufacturers certified their model year 2012 medium and heavy-heavy duty 

engine families at NOx levels below 0.50 g/hp-hr. Note that these values are the final 

deteriorated emission results, not family emission limits.

 

B

 On October 22, 1998, the Department of Justice and the Environmental Protection Agency 

announced settlements with seven major manufacturers of diesel engines. The settlements resolved claims that 

manufacturers installed illegal computer software on heavy-duty diesel engines that turned off the engine 

emission control system during highway driving. The settlements were entered by the Court on July 1, 1999. 

The Consent Decrees allowed heavy-heavy service class diesel engines to continue to use emission control 

strategies which could result in NOx emission levels as high as 6 or even 7 g/hp-hr NOx.
7

 Figure 1-1: 2012 Model Year Medium and Heavy Heavy-Duty Engine NOx Emissions Certification 

Levels

1.4 The Onboard Diagnostics (OBD) System Requirements for 2010 and 

Later Heavy- Duty On-highway Engines 

For 2010 and later model year heavy-duty diesel and gasoline engines used in highway 

applications over 14,000 pounds gross vehicle weight rating, EPA requires that all major 

emissions control systems be monitored and malfunctions be detected prior to emissions 

exceeding a set of emissions thresholds. Most notably, we require that the aftertreatment 

devices—e.g., the diesel particulate filters and NOx reducing catalysts—that will be used on 

highway diesel engines to comply with the 2010 emissions standards will be monitored and 

their failure will be detected and noted to the driver. We also require that all emission-related 

electronic sensors and actuators be monitored for proper operation. 

For these highway applications over 14,000 pounds, we require that one engine family 

per manufacturer be certified to the OBD requirements in the 2010 through 2012 model 

years. Beginning in 2013, all highway engines for all manufacturers will have to be certified 

to the OBD requirements. This phase-in is designed to spread over a number of years the 

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 NOx Emissions (grams/horsepower-hour)

Engine Family

2012 Model Year Heavy-Duty Engine NOx Certification Levels

Heavy Heavy-Duty Engines Medium Heavy-Duty Engines
8

development effort required of industry and to provide industry with a learning period prior to 

implementing the complex OBD requirements on 100 percent of their highway product line.

These OBD requirements are potentially relevant to this NCP rulemaking because,

when combined with lower emission standards, the OBD requirements can lead to increased 

repair costs because of lower emission thresholds. For example, a malfunctioning component 

that affected emissions to a small enough degree that it would not trigger an OBD response at 

a higher threshold could trigger an OBD response at a lower threshold. For most operators, 

this would lead to the malfunctioning component being repaired. While this would be good 

for the environment, it would be an additional cost to the operator.

1.5 The Heavy-Duty Vehicle and Engine Greenhouse Gas Emissions 

Standards

EPA and the Department of Transportation’s National Highway Traffic Safety 

Administration (NHTSA) issued the first-ever program to reduce greenhouse gas (GHG) 

emissions and improve fuel efficiency of heavy-duty trucks and buses in 2011.2The agencies 

adopted complementary standards under their respective authorities covering model years 

2014-2018 and beyond, which together form a comprehensive national program, referred to in 

this document as the Heavy-Duty GHG rule. While improvements in the whole vehicle will 

be required, these regulations will specifically require reductions in the engine’s brakespecific fuel consumption (BSFC) for most medium and heavy heavy-duty engines. The 

program regulates combination tractors and vocational vehicles separately from the engines 

installed in these vehicles. This approach ensures existing technologies readily available to 

improve fuel efficiency are applied to both engines and trucks resulting in the maximum 

improvement in overall vehicle efficiency possible. 

The Heavy-Duty GHG rule begins in model year 2014 and controls the CO2, N2O, and 

CH4 emissions (NHTSA regulations also explicitly regulate fuel consumption) from HD 

engines. The program drives approximately 3 to 5 percent improvements in CO2 emissions 

from engines in model year 2014 and an additional 2 to 4 percent improvement in model year 

2017. The program also allows manufacturers to generate greenhouse gas emission credits by 

meeting these greenhouse gas emission standards prior to model year 2014.

The greenhouse gas requirements are potentially relevant to this NCP rulemaking 

because they affect the types of emission controls that manufacturers would pursue. 

1.6 Characterization of the Heavy-Duty Engine and Vehicle Industries

1.6.1 Vehicle Applications and Classes

Heavy-duty engines are used in a wide variety of vehicle applications. Smaller 

engines are used in heavy-duty pickup trucks, vans and other vehicles using those same 

chassis. At the other extreme, the largest engines are used in cement mixers, garbage trucks, 

and line-haul tractors. In matching the engines to the vehicles, the minimum requirement is 
9

that the engine would be large enough to power a fully-loaded truck up a hill. More typically, 

especially for the larger trucks, the engine is selected to provide the best fuel consumption. In 

other cases, especially for light heavy-duty, larger engines are used to provide additional 

performance. 

In applying heavy-duty emission standards, EPA categorizes heavy-duty vehicles into 

three service classes: light heavy-duty; medium heavy-duty; and heavy heavy-duty. Light 

heavy-duty includes heavy-duty pickup trucks and vans. Medium heavy-duty includes 

delivery trucks and recreational vehicles. Heavy heavy-duty includes buses and line-haul 

tractors. Table 1-1 lists the gross vehicle weight rating of the vehicles by service class. 

Engines are classified by the primary vehicle service class for which the engine is intended.

Table 1-1: Gross Vehicle Weight Rating of Light, Medium, and Heavy Heavy-Duty Engines and 

Vehicles

Service Class DOT Weight Classes GVWR (lbs.)

Light Heavy 2b-5 8,501 - 19,500

Medium Heavy 6-7 19,501 - 33,000

Heavy Heavy 8 33,001 +

1.6.2 Engine and Vehicle Manufacturers

Table 1-2 shows the major heavy-duty engine and vehicle manufacturers for the U.S. 

What is not shown in the table is the degree to which vehicle manufacturers buy engines from 

different engine manufacturers. The industry operates such that the vehicle manufacturer 

decides during the design stage which engines it will make available in its vehicles, and the 

ultimate customer chooses its engine from among the available options. The result is that 

most of the vehicle manufacturers use engines from two or more engine suppliers for at least 

some of their vehicle models. This practice makes the industry a very competitive 

marketplace. This is particularly true for the medium heavy-duty and heavy heavy-duty 

marketplace, where the Navistar International CorporationCis currently the only engine and 

vehicle manufacturer that is not offering engines from another manufacturer in its U.S. 

vehicle models. 

The light heavy-duty diesel market is a mix of integrated manufacturers and exclusive 

relationships between vehicle manufacturers and diesel engine manufacturers. Specifically, 

General Motors and Ford currently supply their own diesel engines in the light heavy-duty

 

C Engines made by Navistar International Corporation are typically known by the brand name Navistar, 

while trucks are known by the brand name International.
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pick-up trucks for their respective companies. Chrysler exclusively uses Cummins-supplied 

diesel engines in their Ram light heavy-duty pickup trucks. 

However, in the medium heavy-duty and heavy heavy-duty vehicle market, there is a 

wider range of engines available to choose from for the same vehicle. For example, an enduser can purchase a Western Star vehicle with either a Cummins or a Detroit Diesel engine in 

it. Engines produced by Cummins tend to be offered by all of the major heavy duty truck 

manufacturers in at least some of their truck models. In this sense, it has been common 

practice in the medium and heavy heavy-duty marketplace to treat the engine almost as a 

commodity.

Table 1-2: Heavy-Duty Engine and Vehicle Manufacturers

Heavy-Duty Diesel Engine Manufacturers 

(Brands)

Cummins

Daimler (Detroit Diesel, Mercedes Benz)

Ford

General Motors

Hino

Navistar

PACCAR

Volvo Truck (Volvo, Mack)

Heavy-Duty Vehicle Manufacturers (Brands) Chrysler (Ram)

Daimler Trucks (Freightliner, Western Star)

Ford (Ford)

General Motors (Chevrolet, GMC)

Hino (Hino)

Isuzu (Isuzu)

Navistar (International)

Nissan (Nissan)

PACCAR (Kenworth, Peterbilt)

Volvo Truck (Volvo, Mack)
11

Figure 1-2 contains an estimate of the 2011 market share by sales volume of diesel 

engine manufacturers in the heavy-duty market for the major engine manufacturers in the U.S. 

This table indicates that Ford dominates the sales of diesel engines with nearly 60 percent, 

while Cummins follows at approximately 14 percent. The remaining quarter of the diesel 

engine sales are made up of General Motors, Navistar, Mack, Detroit Diesel, Volvo, 

PACCAR, Hino, and Mercedes Benz. It is important to note that when all service classes are 

considered together, the distribution is dominated by light heavy-duty pickups and vans, 

which are sold in much higher numbers than medium heavy-duty and heavy heavy-duty 

trucks. 

Figure 1-2: 2011 Diesel Engine Manufacturer Market Share. Source: Ward’s Automotive Group

2011 Diesel Engine Market Share

Ford

Cummins

General Motors

Navistar

Detroit Diesel

Mack

Volvo Truck

PACCAR

Hino

Mercedes-Benz
12

Figure 1-3 illustrates by sales volume that in a similar manner to the HD engine 

market, the HD truck market is a competitive marketplace with a number of players.

Figure 1-3: 2011 Diesel Truck Manufacturer Market Share. Source: Ward’s Automotive Group

We also separately evaluated the market share by sales volume of each of the largest 

Class 8 heavy-duty truck manufacturers in 2008 through 2011 (shown in Figure 1-4). These 

are the types of trucks for which the NCPs may be used. Although the market share of each 

varies from year to year, each manufacturer generally has had about 20 to 30 percent of the 

Class 8 market. These annual variations occur for a variety of reasons, such as introduction of 

a new model by one manufacturer or new purchases by large fleets (which represent a large 

fraction of new Class 8 purchases). When considering these data, it is important to note that 

economic conditions in 2009 and 2010 led to significantly reduced sales in the heavy-duty 

market relative to 2008, and market shares in these years may be especially variable. 

However, sales in 2011 have returned to 2008 levels or better. The 2011 market share of each 

manufacturer resembles the 2008 breakdown, although Navistar’s market share was slightly 

lower. Preliminary data shows that Navistar’s market share may be even lower for 2012. 

2011 Diesel Truck Manufacturer Market Share

Ford

International

General Motors

Daimler

PACCAR

Volvo/Mack

Hino
13

Since producing engines that comply with a 0.20 g/hp-hr NOx emission standard is

obviously more difficult than producing those with NOx emissions at 0.50 g/hp-hr, it can be 

presumed that allowing a manufacturer to produce engines with NOx emissions at 0.50 g/hphr without paying an NCP would bestow some competitive advantage. The two most likely 

ways in which such an advantage would be manifested would be either higher profit per 

engine or increased market share. Increased market share could result from offering engines 

at lower prices or by offering engines with superior performance. 

However, such advantage does not appear to have affected market share. In 2010 and 

2011, Navistar was selling engines with NOx emissions near 0.50 g/hp-hr by using banked 

NOx credits, without paying any penalty.D However, International’s share of the Class 8 

truck market was no higher in 2011 than it was in 2008. Only International is using nonSCRE

engines in its 2011 Class 8 trucks, and it is using them in all of its trucks.F So the small 

decrease in International’s market share between 2008 and 2011 indicates that, while selling 

non-SCR engines in its trucks may provide some competitive advantage, it has not allowed 

Navistar to increase in market share. 

 

D While interim NCPs were available in 2012, no NCPs were available in 2010 or 2011.

E

See Chapter 2 for a discussion of SCR and non-SCR emission control technologies.

F Note that while some other manufacturers have certified engines using emission credits, only Navistar 

is selling non-SCR engines for the U.S. market. So the market share for Navistar trucks is exactly the same as 

the market share for Navistar engines and the market share for non-SCR engines.
14

Figure 1-4: Class 8 Truck Market Share. Source: Ward’s Automotive Group

1.7 Energy Paradox

It is often asserted that there are cost-effective fuel-saving technologies that markets do 

not take advantage of. This is commonly known as the “energy gap” or “energy paradox.” 

Standard economic theory suggests that in normally functioning competitive markets, 

interactions between vehicle buyers and producers would lead producers to incorporate all 

cost-effective technology into the vehicles that they offer, without government intervention. 

Unlike in the light-duty vehicle market, the vast majority of vehicles in the medium- and 

heavy-duty truck market are purchased and operated by businesses with narrow profit 

margins, and for which fuel costs represent a substantial operating expense. 

Even in the presence of uncertainty and imperfect information – conditions that hold 

to some degree in every market – we generally expect firms to attempt to minimize their costs 

in an effort to survive in a competitive marketplace, and therefore to make decisions that are 

in the best interest of the company and its owners and/or shareholders. Nevertheless, it is 

0 %

5 %

10%

15%

20%

25%

30%

35%

40%

2008 2009 2010 2011

Class 8 Truck Market Share

Daimler

International

Paccar 

Volvo/Mack 
15

possible that truck buyers and operators may sometimes ignore opportunities to make 

investments in higher fuel efficiency that appear to offer significant cost savings.

The existence of an energy paradox is relevant to this NCP rule because EPA has 

historically used a lifetime cost analysis to set penalties that are required by the statute to be 

set at a level that would not provide a competitive advantage for manufacturers paying NCPs. 

To the extent an energy paradox exists, it would mean that the competitive advantage of 

reduced operating costs (or disadvantage of increased operating costs) would be less than the 

actual lifetime operating cost difference.

As discussed in the recent heavy-duty GHG rule,

3

there are several possible 

explanations in the economics literature for why trucking companies do not adopt 

technologies that would be expected to increase their profits: there could be a classic market 

failure in the trucking industry – market power, externalities, or asymmetric or incomplete 

(i.e., missing market) information; there could be institutional or behavioral rigidities in the 

industry (union rules, standard operating procedures, statutory requirements, loss aversion, 

etc.), whereby participants collectively do not minimize costs; or the engineering estimates of 

fuel savings and costs for these technologies might overstate their benefits or understate their 

costs in real-world applications.

To try to understand why trucking companies have not adopted these seemingly costeffective fuel-saving technologies, EPA surveyed published literature about the energy 

paradox, and held discussions with numerous truck market participants. The heavy-duty GHG 

rule discussed five categories of possible explanations derived from these sources. These 

hypotheses include imperfect information in the original and resale markets, split incentives, 

uncertainty about future fuel prices, and adjustment and transactions costs. As the discussion 

indicated, some of these explanations suggest failures in the private market for fuel-saving 

technology in addition to the externalities caused by producing and consuming fuel that are 

the primary motivation for the rules. Other explanations suggest market-based behaviors that 

may imply additional costs of regulating truck fuel efficiency that are not accounted for in this 

analysis. An additional explanation – adverse effects on other vehicle attributes – did not 

elicit supporting information in the public comments. Anecdotal evidence from various 

segments of the trucking industry suggests that many of the hypotheses discussed may play a 

role in explaining the puzzle of why truck purchasers appear to under-invest in fuel efficiency, 

although different explanations may apply to different segments, or even different companies. 

The published literature does not appear to include empirical analysis or data related to this 

question.

1.8 Relation of NCP Costs to Rulemaking Costs

Traditionally, NCP costs are different than compliance costs presented in the 

rulemaking analysis that supported the implementation of the standards. This occurs for 

several reasons. Most importantly, since the Clean Air Act requires that NCPs be set to 

protect the complying manufacturer, it is necessary to avoid underestimating reasonably 

projected actual costs. Standard-setting costs, on the other hand, should be EPA’s best 
16

estimate of the average costs of compliance. NCP costs also represent costs that apply during 

the first few years of a new standard. Thus, unlike standard-setting cost analyses, NCP 

analyses generally do not include the effects of manufacturing learning that occurs in reality, 

but do include the full amortized annual fixed costs which are eliminated after the first few 

years of production. For these reasons, even if the NCP and standard-setting analyses are 

based on the same factual information, the NCP estimates of compliance costs should be 

higher than standard-setting estimates. However, it is also usually true that the factual cost 

information available during the NCP rulemaking process reflects a more complete 

understanding of the optimum technology path for compliance and the operating costs and 

savings which occur over the life of the vehicle/engine as compared to the information that 

existed during the standard-setting rulemaking.

Moreover, in the cases of this current NCP rulemaking (and to some extent, the last 

NCP rulemaking), there are substantial differences in the emission characteristics of the 

baseline engine used in the analyses. The standard-setting analysis for the 2007/2010 

standards estimated compliance costs relative to engines emitting 2.0 g/hp-hr or more NOx 

(the amount allowed by the 2004 NMHC+NOx emission standard), while this NCP analysis is 

estimating compliance costs relative to engines with NOx emissions at 0.50 g/hp-hr (the upper 

limit).

Finally, it is also important to note that this NCP analysis is being conducted after 

manufacturers chose to add SCR hardware to achieve lower fuel consumption for operators. 

However, when first adopting the 0.20 g/hp-hr NOx standard, we projected that manufacturers 

would have used less expensive lean NOx traps (LNTs) to meet the standard, which would 

have not had much impact on fuel consumption rates.
17

Chapter 2: Technologies to Meet the 2010 NOx Standard 

All engines that currently meet the 2010 0.20 g/hp-hr NOx emission standard without 

using credits rely on selective catalytic reduction (SCR) aftertreatment systems that use diesel 

exhaust fluid (DEF) to reduce NOx emissions. They also include traditional emission control 

technologies such as cooled exhaust gas recirculation (EGR) and injection timing 

optimization to reduce engine-out NOx emissions. The one non-SCR manufacturer also uses 

these traditional emission controls, but to a greater degree. All of the manufacturers use 

integrated diesel oxidation catalysts (DOC) and diesel particulate filters (DPFs) to control 

particulate matter (PM). This chapter summarizes these technologies and explains the effect 

on costs for different strategies for optimizing them.

2.1 Engine Service Classes

Manufacturers design light heavy-duty, medium heavy-duty, and heavy heavy-duty 

engines differently. The lighter duty engines tend to have smaller displacements, operate at 

higher engine speeds, and are not as likely to be rebuilt. This impacts mixing, heat rejection, 

and engine life. These differences affect which emission controls are most appropriate for 

each service class. In general, it can be more difficult to reduce engine-out NOx emissions 

from the light and medium heavy-duty engines than it is from heavy heavy-duty engines. 

Thus, while the emission controls discussed in this chapter can be applied to engines of any 

service class, other constraints lead to differences in optimal technology packages for each 

service class.

2.2 Emission Control Technologies for Diesel Engines

This section describes the emission control technologies that were used to meet the 

2007 NOx and PM standards and are being used to meet the 2010 NOx standard. See Section 

2.4 for a discussion of how the different engine manufacturers are using these technologies.

2.2.1 Air Handling System and Turbocharging Technology

Cooled exhaust gas recirculation (EGR) lowers NOx emissions principally by 

replacing a portion of the fresh intake air oxygen with exhaust by-products and other inert 

gases, such as CO2, water vapor, and N2. The amount of exhaust that is recirculated varies 

with engine conditions. Thus, a cooled EGR system must be capable of routing different 

amounts of exhaust gas from the exhaust system to the intake system, as well as cooling the 

exhaust during that process. These inert gases dilute the in-cylinder mixture and reduce the 

peak cylinder temperatures during the combustion process and thus reduce NOx formation. 

The downside of EGR is that it tends to increase PM emissions and fuel consumption and can 

degrade engine oil. Manufacturers are continuing to make improvements to EGR systems, 

such as reducing pumping loss in the EGR piping system, which allows more EGR to flow 
18

without sacrificing engine performance. All engines that currently meet the 2010 0.20 g/hp-hr 

NOx emission standard use EGR as part of their emissions solution. 

Advancements in turbocharger technology can improve engine performance while 

meeting emissions standards. Variable geometry turbines with better control and higher 

efficiency allow optimal EGR control, thus better emission control. The degree to which an 

engine depends on EGR for NOx control impacts the performance requirements of the 

turbocharger and thus the costs of the turbocharger. While turbo-compound is mainly used to 

improve engine thermal efficiency, its integration with the engine air handling system 

provides the engine manufacturer more flexibility for combustion optimization, thus 

delivering optimal overall engine system performance. The DD15 and DD16 engines 

developed by Detroit Diesel are examples of this strategy.

2.2.2 Advanced Fuel Injection Systems

Modern fuel injection systems for HD diesel engines, such as the common-rail system 

or advanced electronically controlled injectors, provide engineers with the ability to perform 

pilot injection, ramped injections, and post injections (in some cases multiple pilot and/or post 

injections). They can also provide engineers with complete control over injection timing, 

pressure and duration. These systems provide important flexibilities for engineers, including 

the ability for improved engine-out NOx and PM emissions performance. They are especially 

significant with respect to minimizing a trade-off between NOx emissions and fuel 

consumption.

2.2.3 Diesel Particulate Filters and Oxidation Catalysts

A DPF is a device (typically ceramic) that collects PM in the exhaust stream. The 

high temperature of the exhaust heats the ceramic structure and allows the particles inside to 

break down (or oxidize) into less harmful components. All on-highway heavy-duty diesel 

engine manufacturers use DPFs to reduce PM. Periodic regeneration to oxidize and remove 

loaded soot is required for all DPFs. One method of regeneration, called active regeneration,

directly injects the fuel into the exhaust stream and a DOC or other device then oxidizes the 

fuel in the exhaust stream, providing the heat required for DPF regeneration. Active 

regeneration increases the fuel consumption of the vehicle, in some cases by more than one 

percent. The other regeneration method, called passive regeneration, uses NO2 to directly 

react with soot in the exhaust at much lower exhaust temperatures than active regeneration. 

This requires increasing the NO2 fraction of the NOx, which is usually low coming out of the 

engine. Both active and passive regeneration require some catalytic materials in the exhaust, 

especially for high soot conditions.

Advanced thermal management can be used in production engines to eliminate the 

need for active regeneration, thus significantly improving fuel efficiency. Volvo’s 2010 

DPF+SCR system has eliminated active regeneration for on-highway vehicles.4 All other 

manufacturers using SCR are working in the same direction, minimizing or eliminating active 

regeneration, thus improving fuel economy and providing efficiency improvements in the real 

world, although they are not directly reflected in the HD engine test procedure. Given its very 
19

low engine-out NOx levels, Navistar is more dependent on active regeneration than the SCR 

engine manufacturers.

2.2.4 Selective Catalytic Reduction

Selective Catalytic Reduction (SCR) is an exhaust aftertreatment system used to 

control NOx emissions from heavy-duty diesel engines by converting NOx into nitrogen (N2) 

and water (H2O). The technology depends on the use of a catalytic converter and a chemical 

reducing agent, which generally is in an aqueous urea solution, and is often referred to as 

DEF. DEF is injected into the exhaust upstream of the catalyst where it forms ammonia and 

carbon dioxide according to the following equation:

CO(NH2)2+H2O → 2NH3 + CO2

The ammonia then reacts with NO and NO2 molecules as summarized by the following 

equations:

4NO + 4NH3 + O2 → 4N2 + 6H2O 

2NO2 + 4NH3 + O2 → 3N2 + 6H2O

Thus, one molecule of urea can reduce two molecules of NO or one molecule of NO2. 

However, not all urea molecules will find NOx molecules with which to react. Manufacturers 

design their system to inject slightly more urea than this stoichiometric amount. This is called 

overdosing the system. The excess ammonia reacts with oxygen to form N2 and water. DEF 

dosing rates vary among engines and are roughly proportional to the amount of NOx being 

reduced. For 2010 model year engines, DEF rates typically range between two and four 

percent of fuel consumption. In other words, DEF consumption is approximately two to four 

gallons for every 100 gallons of fuel consumed. 

The ideal rate can be calculated relative to fuel consumption rates for a given brakespecific NOx reduction from the following equation:

For example, for the proposal, we calculated the ideal DEF rate needed to achieve a 

0.30 g/hp-hr NOx emission reduction (i.e., the difference between the upper limit and the 

standard) based on the assumptions shown below in Table 2-1. 
20

Table 2-1: DEF Calculation Assumptions

Assumptions for DEF Calculations

Brake-Specific Fuel Consumption 0.2173 liter/hp-hr5

Molar Percent of Total NOx that is NO at SCR Inlet 50%

Urea Concentration in DEF 32.5% by mass (5.904 mol/liter)

This means that under these conditions, the DEF rate would need to be increased by 0.38 

gallons for every 100 gallons of fuel consumed (beyond the amount need to get to 0.50 g/hphr NOx). 

The catalyst in the SCR systems used today in the HD engine industry generally 

contains either copper/zeolite or iron/zeolite formulations. Both formulations can achieve 

NOx conversion rates of over 90 percent. In general, iron/zeolite substrates have a greater 

acceptable maximum temperature for durability; whereas the copper/zeolite substrates have 

higher NOx efficiency rates at lower exhaust temperatures.6 

A robust SCR system can achieve more than 90 percent reduction in cycle-weighted 

NOx emissions. Improvements have been made over the last several years to improve the 

NOx conversion rate and reduce the impact of temperature on the conversion rate. Figure 2-1

shows the improvement over a three year period in both NOx conversion efficiency and 

maximizing conversion efficiency over a wider gas temperature range.7
21

Figure 2-1: SCR Efficiency Rate Improvement over Time.8 

2.3 Optimization Strategies

Manufacturers can design and calibrate the EGR, fuel injection, and aftertreatment 

systems in different ways to optimize engines with respect to hardware costs, performance, 

emissions, operating costs, and reliability. In the context of this rulemaking, one of the 

central trade-offs to be optimized is the one between engine-out NOx emissions and DEF 

consumption rates. 

There are two typical paths to reduce NOx emissions at the tailpipe – improving the 

NOx conversion efficiency of the aftertreatment or reducing the NOx emissions coming out of 

the engine. However, most manufacturers have found the most effective way to meet 2010 

emissions standards is the use of integrated engine and aftertreatment approach while 

continuously improving engine fuel economy. The next few sections will discuss each 

approach in more detail.

All on-highway heavy-duty diesel engine manufacturers except one have been relying

on SCR to reduce NOx emissions. SCR NOX conversion efficiency allows higher engine-out 

NOX emissions (while still meeting the tailpipe NOX standard due to the aftertreatment), and 

therefore, gives more room for engine system optimization. 

2.3.1 Engine-Out NOx Emission Reduction Strategies

Tailpipe NOx emissions reductions (i.e., downstream of all aftertreatment) can be 

achieved by reducing the NOx emissions from the engine (i.e., engine-out emissions) by 

different methods. First, engine-out NOx emissions can be reduced by optimization of 
22

combustion. This includes retarding injection timing and combustion chamber optimization in 

matching different fuel injection strategies depending on applications. Retarding injection 

timing tends to reduce the peak pressure and temperature inside the engine cylinder and 

therefore tends to reduce the amount of NOx created in the cylinder. However, this type of 

injection timing change can increase fuel consumption of the engine. By appropriately 

optimizing piston bowl geometry and matching it with the injection angle and pressure, NOx 

emissions can be reduced in some but not all operating modes. Over the full range of 

operating conditions such benefits are limited.

An increased EGR rate can also reduce the amount of NOx produced in the engine. 

EGR replaces a portion of the fresh intake air oxygen with exhaust by-products and other inert 

gases, such as CO2, water vapor, and N2. It leads to lower cylinder temperature and therefore 

less NOx emissions. EGR rates have a linear impact on NOx emissions. However, an 

increase in EGR rates may lead to a reduction in power and increase PM emissions. Although 

this approach is one of the ways to reduce overall NOx emissions, the challenges in balancing 

the benefits of emissions reduction and thermal efficiency are significant.

2.3.2 Integrated Aftertreatment System

An advanced integrated aftertreatment system can allow individual components to be 

optimized, such as DOC, DPF, and SCR, on a system level. In general, catalyst efficiency is 

dependent on catalyst volume, surface area, chemical composition of the substrate, and 

packaging configurations. An increase in catalyst volume can increase the amount of 

emissions that are converted. However, a larger catalyst would typically have a higher 

hardware cost. An increase in surface area of the catalyst increases the amount of exhaust gas 

which can be catalyzed. Surface area increases can be achieved through smaller pore sizes, 

however, this can lead to higher system backpressure which can reduce engine power and 

increase fuel consumption of the engine. Optimization of DOC and DPF precious metal 

loading can have profound impacts on NOx reduction of a downstream SCR catalyst, while 

reducing system cost. 

Depending on technologies as well as applications, different manufacturers use 

different system configurations to achieve optimal NOx reduction. An example of this 

approach is the one-box system that packages the DOC, DPF, and SCR together, such as the 

one being used by Detroit Diesel in its 2010 production engine.9This integrated system makes 

the vehicle packaging more compact and the engine more efficient in performance due to 

lower back pressure. Cummins’ 2010 SCR system utilizes a decomposition reactor that is 

integrated with the total aftertreatment system, which is different from other manufacturers’ 

aftertreatment systems.10 This decomposition reactor component converts DEF into ammonia 

through hydrolysis. A long pipe between DPF and SCR ensures DEF to be well mixed with 

exhaust gas, thus achieving optimal NOx conversion efficiency. 
23

2.3.3 Integrated Engine and Aftertreatment Strategies

An increase in aftertreatment efficiency allows an engine to maintain constant or even 

increasing engine-out NOx emissions while reducing tailpipe NOx emissions. A given 

aftertreatment system’s efficiency is impacted by changing DEF rates. An increase in DEF 

rate can increase the efficiency of the NOx conversion in the SCR system with proper engine 

control strategies. The ammonia produced from the DEF along with the catalyst converts 

NOx into nitrogen and water. Figure 2-2 shows an example of how one engine reacts to 

various engine-out NOx conditions at one operating condition. As shown, DEF consumption 

rates have a linear impact on NOx emissions over a broad range. However, the benefits of 

increasing DEF rates will decline at some point and the conversion efficiency will be limited 

more by the residence time and other catalyst characteristics. 

Figure 2-2: Fluid Consumption Impact on Engine NOx Emissions Rates.11 

There are some negative impacts of increased DEF dosing rates. First, the operating 

cost of the vehicle increases with dosing rates. As discussed in more detail in Chapter 3, DEF 

costs approximately $2.60 per gallon in 2012. As an example, an increase in DEF of 0.5 

gallon of DEF consumption for every 100 gallons of fuel consumed (which would generally 

be described as a one-half percent increase in DEF) may lead to an increase annual operating 

costs ranging from a few dollars to $220 per year depending on the number of miles travelled. 

Second, an increase in DEF consumption will require either an increase in DEF capacity on 

the vehicle or an increase in the frequency of DEF refills. Optimal calibrations balance the 

fuel and DEF consumptions and can be found as indicated in Figure 2-2.
24

More advanced and higher efficiency aftertreatment systems provide engine 

manufacturers more opportunities to improve engine fuel economy while meeting emissions 

standards. Figure 2-4 shows NOx trade-off on fuel economy and PM emissions with different 

engine technology road maps. Although some of the technologies noted in this figure may be 

beyond current production feasibilities and more in the area of research today, the figure does 

show the relation between SCR efficiency and engine technology requirements in order to 

meet 2010 emissions standards. This figure also qualitatively highlights the penalty of fuel 

economy for an engine that solely relies on non-SCR solution in order to meet 2010 emissions 

standards.

As indicated in Figure 2-3, the typical technologies to improve both engine emissions 

and fuel economy include, but not limited to, better air handling system, lower friction loss of 

EGR piping, optimal fuel injection strategies, optimized combustion system, and advanced 

engine and aftertreatment system control. It is important to emphasize that this figure 

represents a snapshot of technology for a developmental engine. Thus, while the general 

trends shown can be considered to broadly represent other engines, the absolute values 

cannot.

SCR manufacturers provided comments in response to the proposal’s treatment of fuel 

costs. For the proposal, we developed a baseline engine which maintained the same fuel 

consumption, at the expense of extra DEF costs. However, several commenters noted that 

fuel is a major cost for this sector and manufacturers have the ability to optimize their 

compliant engines relative to fuel and DEF consumption to achieve a fuel savings if they were 

to increase the tailpipe NOx emissions to the upper limit. The fuel consumption advantage 

would come from higher engine-out NOx emissions, lower engine-out soot emissions which 

would lead to fewer particulate filter regenerations, and the possibility for lower exhaust 

system backpressure.
25

Figure 2-3: Fuel economy, NOx, and PM emissions with different engine technology.

12

BSNOx (g/hp-hr)
26

2.3.4 Integrated Engine and Vehicle Strategies

Engine manufacturers develop engines to achieve the optimum balance of factors such 

as emissions, fuel consumption, horsepower, and costs. Vehicle manufacturers conduct 

similar optimizations of the vehicle and have an impact on the overall fuel consumption. The 

recent Heavy-Duty GHG rule noted the opportunities to reduce GHG emissions and fuel 

consumption through both engine technologies and vehicle improvements. Aerodynamics, 

rolling resistance, weight, and other vehicle attributes will impact the power required to move 

the vehicle down the road. For example, an improvement to a vehicle’s aerodynamics will 

reduce the amount of power required from the engine and thus reduce the fuel consumed. 

When considered together, improvement to the vehicle efficiency can be well over 10 percent, 

which would be enough to offset any increase in fuel consumption due to specific emission 

reduction strategies used to reduce NOx to meet the 2007 and 2010 NOx emission standards 

(such as EGR). This can make it difficult for purchasers to discern whether changes in fuel 

consumption are due to changes in the engine or vehicle.

2.4 Summary of Strategies Used by Engine Manufacturers for 2010

2.4.1 SCR Engines

Most engine manufacturers chose to comply with the 2010 NOx emission standard by 

adding SCR to the engine models they produced in 2007-2009. They also recalibrated the 

engines to reduce fuel consumption rates to levels lower than the 2007-2009 engines. In 

general, the approach with an SCR system appears to be a sound and cost effective pathway to 

achieve 2010 emissions standards while improving fuel economy and it is the primary path 

being used around the world. The reduction in operating costs due to improved fuel 

consumption may be more than enough to offset the cost of supplying the SCR system with 

DEF. So the incremental cost impact to the operator is the net effect of an upfront increase in 

hardware costs that can be offset significantly by reduced operating costs.

2.4.2 Non-SCR Engines

Navistar is the one engine manufacturer that chose instead to comply with the 2010 

NOx emission standard by using an in-cylinder EGR solution in combination with NOx 

emission credits earned prior to the 2010 model year. In this solution, a higher EGR rate is 

required in order to meet desired emission targets, compared to a typical engine system with 

the SCR solution. Therefore, requirements on air handling, EGR and charged air cooling are 

much higher than the 2007-2009 engines. Consequently, a two-stage turbocharger system 

with a relatively large intercooling system is used. In addition, the 2010 model year engines 

contained many other improvements in the fuel injection and combustion systems, as well as 

better integration between engine and aftertreatment systems relative to the engines they 

produced in 2007-2009. Electronic control of the total engine and aftertreatment system is 

also considerably enhanced. Many of these changes were made to partially offset the 

tendency of the increased EGR to increase fuel consumption. 
27

More recently, Navistar has announced that it plans to change its emission control 

strategy to include urea-based SCR.13 At the time of this FRM, Navistar expected that its new 

emission control strategy would be in production sometime in the 2013 model year, but that it 

would continue to produce non-SCR engines with NOx emissions at nearly 0.50 g/hp-hr NOx

until then. 

2.4.3 Marketing Claims

Each manufacturer claims in its marketing materials that its 2010 engines offer 

superior performance relative both to its earlier engines and to those of its competitors. 

Examples of these claims have been placed in the docket for this rulemaking.14, 15, 16, 17, 18 If 

the claims of the SCR engine manufacturers are true, then it would seem that non-SCR 

engines have no advantage over SCR engines. However, if the claims of the non-SCR engine 

manufacturer are true, then it would seem that non-SCR engines have a significant advantage 

over SCR engines.

In general, SCR engine manufacturers claim that fuel consumption for their 2010 

engines is several percent better than non-SCR engines, including both their own 2009 nonSCR engines, and their competitor’s 2010 non-SCR engines. They further claim that these 

fuel savings more than offset the cost of DEF. On the other hand, the one manufacturer of 

non-SCR 2010 engines claims that DEF costs are not offset by fuel savings with SCR.

To some extent, manufacturers’ comments on this rulemaking appear to contradict 

some of these marketing claims. Since the purpose of NCPs is to remove competitive 

advantages, SCR engine manufacturers arguing for higher penalties based on the costs of SCR 

are indicating (either explicitly or implicitly) that non-SCR engines have significant 

advantages over SCR engines. Similarly, manufacturers arguing for lower penalties are 

indicating that non-SCR engines do not have significant advantages over SCR engines.

It is beyond the scope of this rulemaking for us to evaluate the accuracy of these 

claims other than to state that there is significant uncertainty related to the precise difference 

in operating costs between SCR and non-SCR engines. While we do not believe that 

manufacturers are being dishonest in either their marketing claims or comments on the 

NPRM, it appears that they are being somewhat selective with respect to the information they 

present. Thus, while we have considered information provided by manufacturers, we are 

basing the NCPs on our own analysis of compliance costs and performance.
28

Chapter 3: Compliance Costs 

This chapter describes our analysis of the costs of compliance. The analysis is based 

on our projections of costs to engine and vehicle manufacturers and operating costs for 

vehicle owners. This chapter does not include detailed analysis of engine pricing or vehicle 

purchaser perceptions that could affect purchase decisions.

Note that the cost parameters being finalized are generally higher than the values 

proposed. These changes reflect new information received during the public comment period. 

Most significantly, this new information (that was not available at the time of the proposal) 

supports using higher fuel prices and lower DEF prices. The Energy Information 

Administration (EIA) now projects that fuel prices will be higher than the EIA estimates 

available at the time of the proposal. On the other hand, more recent data on DEF now 

indicates that DEF prices will be lower than the DEF price used for the proposal. Both of 

these changes lead directly to higher estimated compliance costs.

In addition, we received comments suggesting that the effectiveness of the NCPs in 

meeting the statutory requirement to remove competitive disadvantage for complying 

manufacturer needs to be evaluated relative to engines that could be developed in the near 

term (such as a reoptimized SCR engine), especially in light of the higher projected fuel 

prices. In response to these comments, EPA is revising the COC90 baseline engine used to 

estimate worst case compliance costs because we believe that the revised baseline engine 

better represents an engine optimized for higher fuel prices than the baseline engine used for 

the proposal.

G

3.1 Methodology

3.1.1 General Methodology

The costs of compliance for model year 2012 are the primary inputs for determining 

NCPs. 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. 

Prior to the proposal, and during the public comment period, we received cost of 

compliance information from several engine manufacturers and used that information to 

 

G Note that we assume that current compliant engines have generally been optimized for 0.20 g/hp-hr 

NOx.
29

inform our own analysis of compliance costs. In the most recent NCP rule (67 FR 51464, 

August 8, 2002), EPA based the NCPs directly on the average of actual compliance costs 

relative to its current model year engines for all manufacturers. This was possible because 

each of the manufacturers had actually produced engines at the upper limit. It was relatively 

simple for them to provide us with a confidential engineering analysis of the costs they 

actually incurred, the cost of the additional hardware, and differences in performance 

characteristics. It was also reasonable for EPA to assume a high degree of accuracy in these 

costs. In the case of this NCP rule, however, compliant manufacturers have generally not 

designed and optimized their in-production engines for the U.S. market at 0.50 g/hp-hr NOx 

(the upper limitH) and then reengineered their engines to meet the 0.20 g/hp-hr standard.I 

Thus, a compliance cost estimate based directly on actual experience for the full range of inproduction engines was not available for this NCP rule. 

The NCP penalty formulas are based primarily on the cost difference between an 

engine emitting at the upper limit (the baseline engine) and one emitting at the standard (the 

compliant engine). Thus, the assumption of what technologies are on the baseline engine is 

central to the calculation of the penalties. We are using one engine to represent the baseline 

for 90th percentile costs and a combination of engines to represent the average costs. 

However, it should be noted that since we are estimating the marginal costs of compliance to 

be constant (i.e., the cost to reduce emissions from 0.30 g/hp-hr to 0.20 g/hp-hr is not different 

from the cost to reduce emissions from 0.50 g/hp-hr to 0.40 g/hp-hr), we calculate a penalty 

curve that is a straight line. This in turn makes our estimate of the average cost of compliance 

irrelevant to the calculation of the penalty. So most of the discussion in this chapter focuses 

on estimation of the compliance costs for a near worst case engine which is the COC90 value. 

References to the baseline engine refer to the engine used for the baseline for COC90.

As described in Section 3.3.2, we are assuming the baseline heavy heavy-duty engine 

is already equipped with SCR. Specifically, EPA is assuming that the baseline heavy heavyduty (HHD) engine (or upper limit engine) is an optimized, SCR-equipped engine that 

complies with all other emission standards and requirements (but EPA is not necessarily 

assuming that such an engine exists in the current market). We estimated incremental costs 

both in terms of dollars per engine and dollars per g/hp-hr for the theoretical average and 

worst case manufacturers.

We also evaluated alternative baseline engine scenarios for heavy heavy-duty engines. 

Our analysis of these scenarios is summarized in Appendix B. These scenarios were 

evaluated to determine if they represented realistic scenarios in which the alternative baseline 

 

H

See Section 3.1.4 for a description of the upper limit. 

I Note that one SCR engine manufacturer is using emission credits to certify one medium heavy-duty 

engine family with a NOx FEL at 0.50 g/hp-hr.
30

engine would have a greater competitive advantage than the baseline engine used in this 

analysis. These scenarios generally represent alternatives recommended by commenters.

3.1.2 Net Present Value of Costs

All costs are presented in 2011 dollars. Because the NCP is paid by the manufacturer 

in the model year that the engine is produced, we need to account for cost differences at the 

point of sale. All costs were calculated or converted to net present value (NPV) for calendar 

year 2012. Costs that occur after production (e.g., DEF costs) are discounted by 7.0 percent 

per year. It is also important to remember that since all costs are presented in terms of 

constant 2011 dollars, the discount rate does not include an adjustment with respect to the rate 

of inflation. However, the regulations include inflation-related provisions to calculate NCPs 

for later years using these 2012 costs.

Costs expressed in terms of 2010 or earlier dollars were adjusted upwards based on the 

Consumer Price Index (CPI) to be equivalent to 2011 dollars. For example, the difference 

between a 2009 dollar and a 2011 dollar would be approximately five percent. We recognize 

that concerns have been raised about using the CPI to adjust costs for inflation (in previous 

rulemakings, though no issues were raised during the comment period for this rulemaking). 

We are not aware of a better method for adjusting general costs for inflation. Also, given the 

relatively small number of years involved in the inflation adjustments (generally three years 

or less), we believe that any errors introduced into the analysis by using the CPI would not be 

significant. 

3.1.3 Costs Analysis

This section describes the cost categories that we considered in our analysis. These 

costs include engine manufacturing costs, vehicle manufacturing costs, and operating costs. 

Engine manufacturer costs of emissions control include variable costs (for incremental 

hardware, assembly, and associated markups), fixed costs (for tooling, research and 

development, etc.), and warranty costs. We also evaluated whether vehicle manufacturers are 

expected to incur some variable hardware costs or some fixed costs. Owner costs can include 

fuel costs, diesel exhaust fluid costs, maintenance and repair costs, and costs associated with 

any time that the vehicle is down for repair.

To produce a unit of output, engine and truck manufacturers incur direct and indirect 

costs. Direct costs include cost of materials and labor costs. Indirect costs are all the costs 

associated with producing the unit of output that are not direct costs – for example, they may 

be related to production (such as research and development), corporate operations (such as 

salaries, pensions, and health care costs for corporate staff), or selling (such as transportation, 

dealer support, and marketing). Indirect costs are generally recovered by allocating a share of 

the costs to each engine or vehicle sold. 
31

For this cost analysis, EPA considered both the direct (or “piece”) costs and indirect 

costs of individual components of technologies. For the direct costs, we followed the bill of 

materials approach utilized in the Heavy-Duty GHG rule.

19 A bill of materials, in a general 

sense, is a list of components or sub-systems that make up a system— in this case, an item of 

technology which reduces NOx emissions. 

Indirect costs were accounted for using the Indirect Cost Multiplier (ICM) approach. 

The heavy-duty engine cost projections in this analysis used this same approach used in the 

Heavy-Duty GHG rule. For the GHG rule, EPA contracted with RTI International to update 

EPA’s methodology for accounting for indirect costs associated with changes in direct 

manufacturing costs for heavy-duty engine and truck manufacturers.20 These indirect cost 

multipliers are intended to be used, along with calculations of direct manufacturing costs, to 

provide improved estimates of the full additional costs associated with new technologies. As 

shown in Table 3-1 below, the ICM varies with the complexity of the technology and the 

maturity of the technology.

Table 3-1: Indirect Cost Multipliers Used in this Analysis21

CLASS COMPLEXITY NEAR 

TERM

LONG 

TERM

HD diesel engines Low 1.15 1.12

Medium 1.24 1.18

High1 1.28 1.19

High2 1.43 1.29

The NCP regulations contain provisions to refund manufacturers for their research and 

development costs. Thus, EPA notes that the near term, low complexity ICM value of 1.15 

includes an ICM for research and development of 0.02.22 We received comments that EPA 

should include a greater cost for research and development. However, we see no evidence 

that research and development costs for the noncomplying manufacturer are substantially 

lower than for complying manufacturers. Thus, we are continuing to use the ICM method to 

estimate the research and development cost element.

Any DEF or fuel cost impacts on the operator are dependent on the number of miles 

projected to be driven by the vehicle, along with estimates for the prices for fuel and DEF. 

For this analysis, we used the projected mileage accumulation rates generated by the Motor 

Vehicle Emissions Simulator, more commonly called MOVES, EPA’s official mobile source 

emission inventory model.23 The MOVES2010a version was used along with some postprocessing of the MOVES output to develop separate projections of vehicle miles travelled 

(VMT) for the medium and heavy heavy-duty engine classes. These annual VMT projections 

are shown in Appendix A and include a projection of vehicle survival fractions that are based 

on scrappage rates. (Note that the mileage estimates in this rule are slightly different from the 

estimates used in the final rulemaking that established the 2010 heavy-duty engine criteria 

pollutant standards). 
32

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.

24

 The annual fuel price values (dollars per gallon) used 

in this analysis were adjusted from 2010 dollars (as supplied in AEO2012) to 2011 dollars. 

The annual fuel price projections are included in Appendix A. 

We revised the source for current and future DEF prices in the Final Rule based on the 

comments we received on the Interim TSD. Instead of using a constant DEF price 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 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.25 Note that our 

analysis uses an annual average price, which does not consider seasonal variations in DEF 

prices or other short term fluctuations.

3.1.4 Upper Limit

The upper limit (UL in the NCP formula) 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. 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).

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 an upper limit at the previous 

standard should be reasonably achievable by all manufacturers with vehicles in the relevant 

class. Thus, the manufacturers can, if they choose, pay NCPs and 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. 

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 (family emission limit) cap. 

Thus, since NCPs were not intended to allow manufacturers to increase emissions, we are 
33

setting the upper limit at 0.50 g/hp-hr instead of the previous standard (or an equivalent NOx 

level such as 2.3 g/hp-hr NOx for model years 2004-2006 or 1.2 g/hp-hr for model years 

2007-2009). This will conform to the purpose of NCPs, which is to allow manufacturers to 

continue selling engines they are producing, but not to encourage backsliding. 

3.2 Manufacturer Cost Data

Some engine manufacturers submitted confidential cost estimates in their comments to 

the NPRM which identified the incremental costs they would expect to incur taking a model 

year 2012 engine from 0.50 g/hp-hr NOx to 0.20 g/hp-hr. Two of the manufacturers based 

their cost projections on the costs incurred to take an engine from 1.2 g/hp-hr NOx to 0.20 

g/hp-hr. We also received similar cost information before the proposal. 

We received responses (before and/or after the NPRM) from manufacturers 

representing virtually all of the current U.S. heavy heavy-duty diesel engine market. 

However, all of the data that we received were identified as confidential business information 

(CBI). Therefore, we are not including details of the information in this document. Instead 

we are presenting only a broad description of the information provided.

As discussed above in Chapter 2, there are a variety of means to reduce NOx. Each of 

the manufacturers who currently produce heavy heavy-duty diesel engines which emit less 

than 0.20 g/hp-hr NOx provided information about at least one pathway to reduce NOx from 

0.50 to 0.20 g/hp-hr. Each provided a combination of changes to hardware (and other 

associated costs such as warranty costs), DEF consumption rate, engine-out NOx emissions, 

and/or fuel consumption. In general, there were two distinct options presented to the Agency 

in public comments for baseline engine technology as shown in Table 3-2. 

Table 3-2: Manufacturer Baseline Engine Scenarios

SCR? EGR?

Baseline Engine Option #1 Yes Yes

Baseline Engine Option #2 No Yes

More than one manufacturer chose Option #1 and assumed the baseline 0.50 g/hp-hr 

engine would contain both SCR and EGR. One of these manufacturers stated that relatively 

small changes would have been needed to hardware, such as changes to the loading in the 

SCR catalyst, ammonia oxidation catalyst and DOC; the addition of a sensor to control DEF 

dosing for OBD; thermal management of the exhaust system; and re-optimization of engine-
34

out NOx emissions, fuel consumption, and DEF dosing to achieve 0.20 g/hp-hr NOx. 

Similarly, another manufacturer stated hardware changes may be required, but did not provide 

details in their public comments. Based on these manufacturers’ projections that fuel will be 

much more expensive than DEF, they assumed that 0.50 g/hp-hr engines would have been 

recalibrated to have much higher engine-out NOx emissions. This would reduce fuel costs 

but increase DEF costs. 

Other SCR engine manufacturers suggested the Option #2 pathway, which assumed a 

non-SCR baseline engine with high performance EGR system (representing their 2007-2009 

engines with 1.2 g/hp-hr NOx) and that they added SCR systems to achieve the 0.20 g/hp-hr 

NOx emissions level. They noted that there would be both an improvement to the fuel 

consumption due to the SCR system, a cost for the DEF consumption required for the SCR, 

and an increase in warranty/maintenance costs. 

The non-SCR manufacturer also projected the costs it would incur to achieve 0.20 

g/hp-hr without SCR. Its methodology is not summarized here because we cannot do so 

without disclosing its research plans. We merely note that it projected costs lower than EPA’s 

estimated COC50 and COC90 costs.

In summary, all of the SCR manufacturers stated that the compliance costs should 

include some cost for additional hardware (several hundred to a few thousand). Although not 

all of them estimated total incremental compliance costs to reduce NOx emissions from 0.50 

g/hp-hr to 0.20 g/hp-hr, those that did generally estimated the incremental costs to be in the 

$8,000 to $15,000 range. They recommended that EPA set the maximum penalty at a level at 

least as high as these cost estimates. See the Response to Comments document for an 

explanation why we believe these higher estimates are not appropriate.

3.3 EPA Analysis of Costs for Heavy Heavy-Duty Engines

The NCP regulations are structured to calculate the penalty amounts based on certain 

cost parameters, primarily based on the total incremental costs (relative to the upper limit) and 

marginal costs for the average and highest cost manufacturer. EPA has independently 

estimated these costs.

3.3.1 Consideration of Manufacturer Cost Estimates

In the most recent previous NCP rule phase, EPA based the NCPs primarily on the 

average of actual compliance costs for all manufacturers. This was possible because each of 

the manufacturers had actually produced engines at the upper limit. It was relatively simple 

for them to provide us with a confidential engineering analysis of the costs they actually 

incurred, the cost of the additional hardware, and differences in performance characteristics. 

There was little opportunity for strategic estimates since manufacturers needed to reflect 

actual costs that EPA could largely confirm. Thus, it was reasonable for EPA to assume a 

high degree of accuracy in these costs. 
35

The same cannot be said for this NCP rule. In nearly all cases, manufacturers that 

have reached 0.20 g/hp-hr generally did not have equivalent production engines at 0.50 g/hphr (the upper limit). In some cases they had development engines, but this does not fully 

address the costs that would have been incurred for production engines. Only Cummins has 

equivalent engines at 0.20 and 0.50; and even then, only for medium heavy-duty engines. 

While manufacturers have a great deal of experience projecting production costs based on 

development engines, there is no way for us to verify the actual hardware, fuel, and DEF costs 

that would have occurred across the industry. Thus, we must consider the costs to be at least 

somewhat speculative. It also must be considered that each of the manufacturers was aware 

that their estimated costs could be used to determine the amount of the NCP paid by a 

competitor. We are concerned about this because we cannot independently verify the validity 

of the manufacturers’ costs. Thus, while we have used the technical and cost inputs from all 

of the manufacturers to inform our estimate, we believe under these circumstances it would be 

inappropriate to simply average these inputs.

Finally, it is important to emphasize that neither the Clean Air Act nor our regulations 

require us to give any special consideration to manufacturers’ estimates of compliance costs. 

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.”

3.3.2 Basis of EPA Cost Estimates

Based on our technical judgment and discussions with engine manufacturers, EPA is 

assuming the baseline engine meeting the 0.50 g/hp-hr NOx level is equipped with SCR (as 

well as a cooled EGR system) to control the tailpipe NOx emissions. See Appendix B for a 

discussion of other alternative baseline engines that we considered. As noted later in Chapter 

4 of this document, we believe this method leads to penalty parameters that will remove the 

competitive disadvantage for complying manufacturers.

For the Interim TSD, we selected a baseline engine that led us to cost out a technology 

package to reduce tailpipe NOx emissions from 0.50 g/hp-hr to 0.20 g/hp-hr which had

constant engine-out NOx emissions (and thus had no impact on fuel consumption), but 

included some hardware modifications and a higher DEF consumption rate. We have revised 

our technology packages and cost estimates for the new baseline engine, which was based on 

stakeholder comment and the updated fuel and DEF costs. 

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 substantially higher than that. For the proposal and interim 

rule, EPA 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 
36

0.50 g/hp-hr. This was appropriate because these two categories represented the vast majority 

of heavy heavy-duty engines being sold currently. However, EPA agrees with commenters 

that the final NCPs must 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/hphr than were considered for the proposal and interim rule. The final rule must be 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.

3.3.3 NCP Compliance Costs: COC90

This section provides details on the total compliance costs to reduce the tailpipe NOx 

emissions of a baseline engine at 0.50 g/hp-hr to 0.20 g/hp-hr. As mentioned above, our 

assumed baseline engine with 0.50 g/hp-hr NOx emissions contains an SCR aftertreatment 

system. As discussed in Chapter 2 above, there are many pathways that can be used to reduce 

tailpipe emissions, including changing the engine-out emissions, increasing the efficiency of 

the aftertreatment system, and hardware changes. For the Final Rule, we re-evaluated fuelDEF optimization based on the updated fuel price projections from AEO 2012 and from 

revised DEF prices based on Integer Research and the natural gas price trend projection from 

AEO 2012. The pathway we analyzed for the Final Rule includes both fuel and DEF 

operating costs. 

We first calculated COC90, which represents the total life-cycle costs for reducing the 

emissions to the standard level for an engine produced by the manufacturer with the highest 

production costs. Our estimated 90th percentile costs (COC90) are shown in Table 3-3. The 

derivation of these estimates is described in detail below. 

Table 3-3: Heavy Heavy-Duty COC90 Estimates (Net Present Value to 2012 in 2011$)

COC90

NPV of Hardware and Lifetime Operating 

Costs

$3,775

3.3.3.1 Operating Costs: Optimizing Fuel and DEF Consumption

For the proposal, we estimated that reducing NOx emission from 0.50 g/hp-hr to 0.20 

g/hp-hr would require an increase in DEF consumption of 0.40 gallons for every 100 gallons 

of fuel consumed, but would not change fuel consumption. This was consistent with our 

projection that there would be little price difference between DEF and fuel. However, we 

now have new information indicating that fuel prices will likely be significantly higher than 

DEF prices for the foreseeable future. We agree with commenters that engines manufacturers 
37

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 slightly higher engine-out NOx to 

improve fuel consumption and reduce the excess NOx by increasing DEF consumption. In 

essence, this strategy would save money for operators by trading an increase in DEF 

consumption for a similarly sized volume reduction of the more expensive diesel fuel.

As noted earlier, we first defined a baseline engine (at the upper limit) and a compliant 

engine (meeting the 0.20 g/hp-hr tailpipe NOx emissions standard), both equipped with SCR. 

We estimate that the baseline engine would have engine-out NOx emissions of approximately 

4.8 g/hp-hr. This value was derived from the assumption that the engine would have 0.50

g/hp-hr tailpipe NOx emissions and that its aftertreatment system is 90 percent efficient at 

reducing NOx (for a system at the end of the useful life). This efficiency level was based on 

discussions with manufacturers. Similarly, we derived the engine-out emissions of the 

compliant engine emitting 0.20 g/hp-hr at the tailpipe assuming that this engine’s 

aftertreatment system could achieve 94 percent end-of-useful life efficiency due to the 

additional hardware we discuss below. We estimate that complying engines have engine-out 

NOx emissions around 3.0 g/hp-hr. These values are largely consistent with confidential 

business information we received from some manufacturers.

To determine the DEF consumption for each engine, we considered test data showing 

how NOx emissions and DEF consumption were related for a SCR engine. We obtained test 

data from a heavy-duty engine equipped with SCR tested at the National Vehicle and Fuel 

Emissions Laboratory. Figure 3-1 shows the impact of DEF dosing rate on NOx emission 

reduction achieved in the SCR system follows a linear trend, as long as the SCR catalyst is 

large enough. We used the linear trend equation for each scenario to determine the DEF 

dosing rate based on the NOx emissions reduction required of the resized aftertreatment 

system. The baseline engine, which would require a 4.3 g/hp-hr NOx reduction (4.8 g/hp-hr 

engine-out minus 0.5 g/hp-hr tailpipe NOx emissions) would require a DEF dosing rate of 5.9

percent. Similarly, the compliant engine would require a 2.8 g/hp-hr NOx reduction (3.0 

g/hp-hr engine-out emissions minus 0.2 g/hp-hr tailpipe NOx emissions) in the aftertreatment 

system and therefore a DEF dosing rate of 3.8 percent.
38

Figure 3-1: Diesel Exhaust Fluid Dosing Rate Impact on NOX Reduction

y = -73.679x + 0.0149

R2 = 0.9959

-1 0

-8

-6

-4

-2

0

2

0.001 0.021 0.041 0.061 0.081 0.101 0.121 NOx Reduction (g/hp-hr)

DEF Dosing Rate (gal DEF/gal Fuel)

NOx Reduction Achieved from Diesel Exhaust Fluid Dosing Rates
39

We estimated the fuel consumption impact due to engine calibration changes, such as 

changes to injection timing and EGR rates, to achieve various engine-out NOx emissions. 

Figure 3-2 shows our estimate of the impact. This curve was developed from confidential 

business information provided by engine manufacturers, based on the following principles:

Manufacturer data should be roughly weighted based on each manufacturer’s 

approximate share of the heavy heavy-duty engine market.

Data provided in the 3.0 to 4.8 g/hp-hr range should be 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. Thus, this 

is in the range used to define the final penalty amount.

Data provided in more detail should be weighted more highly than data provided in 

lesser detail.

The line should be continuous, but curve slightly to reflect the known trend of 

flattening at higher NOx levels.

The projections for NOx levels below 3.0 g/hp-hr should represent fuel consumption 

changes observed and reported for 2010 engines relative to 2009 engines.

The curve should be somewhat conservative to protect complying manufacturers, but 

not unreasonably conservative. It should be conservative with respect to both the 

analysis used to set the penalty and the alternative scenarios.

We project that the fuel consumption of the compliant engine with engine-out 

emissions of 3.0 g/hp-hr would be approximately 1.9 percent worse than the baseline engine 

with engine-out emissions of 4.8 g/hp-hr. This net value is very similar to the net values 

recommended by several commenters. See the Response to Comments document for this 

Final Rule for a more complete discussion of how this value compares to the values 

recommended by commenters. 

It is important to emphasize that we do not believe that a 1.9 percent increase in fuel 

consumption is actually a worst case assumption. We are not using a truly worst case 

assumption because we believe that may very well overstate the market value of reduced fuel 

consumption. As is described in Section 1.7, there is reason to believe that many truck 

purchasers may undervalue future fuel savings (relative to our estimate of the net present 

value). Thus, including full lifetime costs of even the likely difference in fuel consumption 

rates is somewhat conservative. However, we believe that the 1.9 percent increase is 

somewhat higher than the likely difference for most engines, and it therefore even more 

conservative.
40

Figure 3-2: Engine-Out NOx Emissions Impact on Relative Fuel Consumption

Next we calculated the NPV of the DEF and fuel consumption changes. We estimated 

the NPV of the DEF impact using DEF prices discussed above in Section 3.1.3 and included 

in Appendix A. These DEF prices are lower in the near term, but higher in the long term than 

we assumed for our proposal. We estimated the NPV of the fuel impact using projected fuel 

prices from the Annual Energy Outlook 2012 which are significantly higher than the 2011 

prices used for the proposal. The baseline fuel economy of a typical heavy heavy-duty 

vehicle was based on the baseline fuel consumption rates generated for the Heavy-Duty GHG 

rule.26 The baseline fuel economy used in the analysis was 4.93 mpg for heavy heavy-duty 

vehicles. The stream of undiscounted DEF savings and fuel costs for the heavy heavy-duty 

engines going from 0.50 g/hp-hr to 0.20 g/hp-hr are included below in Table 3-4. The NPV 

of the total fluid costs shown in Table 3-4, using a seven percent discount rate, is $2,642 for 

heavy heavy-duty engines (in 2011 dollars). 

0.97

0.98

0.99

1.00

1.01

1.02

1.03

1.04

0.00 1.00 2.00 3.00 4.00 5.00 6.00 Relative Fuel Consumption

Engine-out NOx Emissions (g/hp-hr)

Engine-Out NOx Emissions Impact on Relative Fuel Consumption
41

Table 3-4: Undiscounted DEF and Fuel Costs for Heavy Heavy-Duty Engines (2011$)

Calendar Year Fuel Costs DEF Savings Total Fluid Cost

2012 $1,247 -$878 $369

2013 $1,132 -$850 $282

2014 $1,117 -$775 $342

2015 $1,064 -$724 $340

2016 $992 -$675 $317

2017 $924 -$628 $296

2018 $858 -$584 $274

2019 $791 -$543 $248

2020 $729 -$503 $226

2021 $667 -$462 $205

2022 $607 -$423 $184

2023 $555 -$389 $167

2024 $509 -$358 $151

2025 $469 -$329 $140

2026 $428 -$302 $126

2027 $387 -$277 $110

2028 $351 -$253 $98

2029 $321 -$232 $89

2030 $293 -$213 $80

2031 $270 -$194 $76

2032 $247 -$177 $70

2033 $220 -$163 $57

2034 $199 -$149 $50

2035 $182 -$137 $46

2036 $168 -$125 $42

2037 $154 -$114 $39

2038 $141 -$105 $36

2039 $130 -$96 $34

2040 $119 -$88 $31

2041 $110 -$81 $29

2042 $101 -$74 $27

3.3.3.2 Hardware, Warranty, and Research & Development Costs

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 and our own engineering analysis, 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 

An ammonia sensor for better control over the urea injection. 
42

Note that this list of hardware changes is consistent with the list of hardware changes 

provided by Cummins in its public comments. Nearly all these costs would actually be born 

directly by the engine manufacturer, but in some cases some small fraction may be born by 

the vehicle manufacturer. For simplicity, our analysis includes engine manufacturing and 

vehicle manufacturing costs together. 

The incremental SCR catalyst costs were estimated from the direct manufacturing 

costs of a SCR system projected for a light-duty pickup truck in the 2017-2025 Light-Duty 

Greenhouse Gas Emissions Notice of Proposed Rulemaking.

27

 We first converted the costs 

from 2009 dollars to 2011 dollars and then scaled the direct manufacturing cost of the SCR 

catalyst based on the ratio of a typical engine displacement in each engine class, as shown in 

Table 3-5 below.

Table 3-5: SCR Direct Manufacturer Cost (2011$)

Light-Duty (4.0L) HHD (13L)

Complete SCR 

Catalyst 

$427 $1,387

As proposed, we estimated the incremental cost of the catalyst to improve the NOx 

conversion efficiency through increased SCR catalyst volume and/or improved loading is 

estimated to be 20 percent of the total catalyst costJ, as shown below. The Agency then 

applied a 1.15 indirect cost multiplier (ICM) to convert the direct manufacturing costs to 

marked up costs. The 1.15 multiplier consists of two percent for research and development 

and 13 percent for warranty and other costs.28 The marked up costs are shown below in Table 

3-6.

Table 3-6: SCR Catalyst Incremental Cost

HHD

Incremental Direct Manufacturing Cost $277

Research and Development Cost (2%) $6

Warranty and Other Cost (13%) $36

Total Incremental SCR Catalyst Cost $319

The incremental DOC costs were estimated using the same cost process used for the 

SCR catalyst. The direct manufacturing costs of the DOC are estimated from a light-duty 

pickup truck DOC cost in the 2017-2025 Light-Duty Greenhouse Gas Emissions Notice of 

 

J This value can be calculated from the conversion efficiencies noted in Section 3.3.3.1. If you assume 

a uniform conversion rate throughout the catalyst, to achieve an overall conversion of 90 %, each fifth of the 

catalyst must reduce NOx emissions by 37%: (1-.37)^5 = 0.10. Reducing these NOx emissions by an additional 

37 percent results in a 94% conversion; (1-.37)^6 = 0.06.
43

Proposed Rulemaking.29 We first converted the DOC costs from 2009 dollars to 2011 dollars 

and then scaled the direct manufacturing cost of the DOC based on the ratio of a typical

engine displacement in each engine class, as shown in Table 3-7 below.

Table 3-7: DOC Direct Manufacturer Cost (2011$)

Light-Duty (4.0L) HHD (13L)

DOC $528 $1,717

We agree with commenters who stated that the DOC would require additional 

precious metals in the compliant engine because the lower total engine out NOx emissions 

would also lead to lower NO2 concentrations in the exhaust. Because NO2 is used to 

regenerate the DPF, manufacturers would need to actually produce additional nitrogen 

dioxide from the DOC in order to completely regenerate the DPF. Similar to our estimate of 

the required catalyst change, we estimate that the improved loading would cost approximately

20 percent of the total DOC cost, as shown below in Table 3-8. Also shown in the table 

below, we then applied a two percent mark up for research and development and 13 percent 

for warranty and other costs.30 This cost is similar to costs provided in confidential comments 

from engine manufacturers.

Table 3-8: DOC Incremental Cost

HHD

Incremental Direct Manufacturing Cost $343

Research and Development Cost (2%) $7

Warranty and Other Cost (13%) $45

Total Incremental DOC Cost $395

We are adding the cost of an ammonia sensor which allows for better control of the 

urea injection to achieve lower tailpipe NOx emissions. The cost for an ammonia sensor was 

developed by converting a sensor’s retail price to a direct manufacturing cost and then to a 

marked up cost, similar to the procedure used above for the SCR catalyst cost. The direct 

manufacturing costs were calculated based on the Retail Price Equivalent (RPE). The RPE for 

heavy-duty engines is 1.35 as found in the study conducted by ICF International for the 

Heavy-Duty Greenhouse Gas Emissions rulemaking.31 The sensor costs are shown in Table 

3-9.

32

 
44

Table 3-9: Incremental Sensor Cost

HHD

Sensor Retail Price $221

Sensor Direct Manufacturing Cost $164

Sensor Research and Development Cost (2%) $3

Sensor Warranty and Other Cost (13%) $21

Total Incremental Sensor Cost $189

We calculated the costs of modifications required for the variable geometry 

turbocharger. Based on the Light-Duty GHG cost estimates, we estimated that the VGT 

would have a direct manufacturing cost of $218 (2011$) for a large pick-up truck. Using 

cylinder displacement volume to ratio the costs into the heavy heavy-duty class, we derived 

the VGT costs included in Table 3-10.

Table 3-10: VGT Direct Manufacturer Cost (2011$)

Light-Duty (4.0L) HHD (13L)

VGT $218 $709

We agree with commenters who stated that the turbomachinery may require additional 

costs in the compliant engine because the higher EGR rates required to achieve the lower 

engine-out NOx emissions would require additional thermal management and performance 

balancing. Our estimate is that the improved VGT would cost approximately 20 percent more 

than the total VGT cost for the 0.50 g/hp-hr baseline engine, as shown below in Table 3-11. 

This value is similar to costs provided in confidential comments from engine manufacturers.

Table 3-11: VGT Incremental Cost for COC90

HHD

Incremental Direct Manufacturing Cost $142

Research and Development Cost (2%) $3

Warranty and Other Cost (13%) $18

Total Incremental VGT Cost $163

3.3.3.3 Operating Costs: Post Warranty Repair and Demurrage

Manufacturers would generally be expected to incur additional warranty costs due to 

the addition of new components, as noted above in the hardware costs. Typically, this would 

cover the costs of repairs that are needed during the warranty period. There can also be 

additional unscheduled repairs to the new hardware after the warranty period ends. In 

addition, for both warranty repairs and post-warranty repairs, there are also real costs incurred 

by the vehicle owners for demurrage (i.e., the time during which the vehicle is out of service). 
45

Some manufacturers provided us with estimates with post-warranty repair costs with 

demurrage, while others did not. After reviewing these different estimates, it became clear 

that they were not consistent with our estimates of warranty repairs, and that we needed to 

estimate post-warranty repair and demurrage costs independently. 

For the Final Rule, we calculated the post-warranty repair and demurrage costs 

relative to the incremental warranty costs we calculated above. We used the ratio of postwarranty repair costs and demurrage costs relative to warranty costs developed in the 2004 

NCP Technical Support Document.33 Table 3-12 includes the costs developed for warranty, 

post-warranty repair, and demurrage for the 2004 NCP rule.

Table 3-12: 2004 Heavy Heavy-Duty Engine NCP Costs

2004 HHD Expressed as 

Percent of

Warranty Costs

Warranty Costs $380 -

Post-warranty repair Costs $370 97%

Demurrage Costs $220 58%

We utilized the ratio of the post-warranty repair and demurrage costs relative to the 

warranty costs from 2004 to calculate the 2012 post-warranty repair and demurrage costs, as 

shown in Table 3-13 below. 

Table 3-13: Final Rule Warranty, Post-Warranty repair, and Demurrage Costs for 2012 MY 

HHD Engines

COC90

Warranty Costs (see Section 3.3.3.2) $19

Post-warranty repair Costs $18

Demurrage Costs $11

In addition to the typical warranty and post-warranty repair costs, commenters stated 

that there may be an increase in repair costs for compliant engines compared to engines at the 

upper limit. Since 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 estimate that the warranty and post warranty costs of the 

OBD-related issues are $38 based on the assumption that a HHD engine costs approximately 

$30,000 and that all warranty costs are two percent of the direct manufacturing cost, per our 

Indirect Cost Multiplier approach that is being used throughout this analysis. We assumed 

that 50 percent of the warranty costs are emission-related, and of those, only five percent are 

related to OBD threshold levels. This leads to an OBD-caused warranty level of $15, and 

using the ratios in Table 3-12, the post warranty OBD costs would be $23. The OBD-related 

repair costs for HHD engines are included below in Table 3-14. It is important to emphasize 

that such costs are appropriate for NCP rulemakings that address competitive effects;
46

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.

Table 3-14: Final Rule OBD-Related Repair Costs for 2012 MY HHD Engines

OBD Related 

Warranty

OBD Related 

Post-warranty 

repair

OBD Threshold Related Costs $15 $23

3.3.3.4 Total Costs

The total estimated costs for COC90 for HHD engines are included below in Table 

3-15.

Table 3-15: HHD COC90 Costs

COC90

Fuel Operating Costs $8,833

DEF Operating Savings -$6,191

Hardware Costs $927

Research and Development Cost $19

Warranty and Other Manufacturer Costs $135

Post-warranty Repair Costs $41

Demurrage Costs $11

Total Cost $3,775

3.3.4 NCP Compliance Costs: COC50

This section describes our estimate of the typical compliance costs to reduce tailpipe 

NOx emissions 0.50 g/hp-hr to 0.20 g/hp-hr. This cost is COC50. Note that while this value 

does not affect the actual penalty curve, the regulations require that we determine a value for 

COC50. 

We calculated COC50 from two parallel estimates of compliance costs. The first was 

the COC90 cost, which was describe in the previous section and is intended to represent the 

total life-cycle costs for reducing the emissions from the upper limit to the standard level for 

an SCR engine. The second is an estimate of the total life-cycle costs for reducing the 

emissions to the standard level for a non-SCR engine. As described in Appendix B, we 

estimated this cost to be $994. We calculated COC50 as a weighted average of these two 

values, assuming the SCR costs represent 80 percent of the fleet and the non-SCR costs 
47

represent 20 percent of the fleet. The resulting weighted average of the estimated cost for 

EGR ($994) and the COC90 cost for SCR ($3,775) is $3,219.

3.3.5 MC50 and F

MC50 and F are two parameters used in the existing regulations in the calculation of 

the value X (see 40 CFR 86.1113-87 (a)(4)). X is the compliance level (g/hp-hr) above the 

standard where the penalty equals COC50. This section describes the derivation of MC50 and 

F for heavy heavy-duty engines. 

3.3.5.1 Estimated value of MC50

MC50 is the marginal cost of compliance for the average vehicle, expressed in terms of 

dollars per g/hp-hr of NOx emission controlled. In concept, it would be based on the 

difference in total compliance costs for an engine that had emissions equal to the standard 

(i.e., 0.20 g/hp-hr) and an engine that had emissions slightly above the standard. For example, 

if we had an estimate of the total cost of compliance for a typical engine with emissions equal 

to 0.30 g/hp-hr, then we would calculate MC50 as the difference between that cost and the 

average divided by the difference in emissions (0.10 g/hp-hr). However, in the case of this 

rulemaking, we do not have such detailed information. Moreover, the range of NOx 

emissions control is narrow, which means that marginal cost can reasonably be assumed to be 

constant over the range. Therefore, we have calculated MC50 as COC50 (the estimated costs 

of the average control strategies that we believe will be used by manufacturers to achieve 

NOx control in the 0.20 to 0.50 g/hp-hr range), divided by the difference between the upper 

limit and the standard (0.30 g/hp-hr). This is $10,729 per g/hp-hr for heavy heavy-duty.

3.3.5.2 Estimated value of F

The parameter F is defined in the existing regulations as a value from 1.1 to 1.3 that 

describes the ratio of the 90th percentile marginal cost (MC90) to MC50. We calculated F by 

first calculating an MC90 in the same way that we calculated MC50. We then calculated the 

value of F that would give these values of MC90, and then set F equal to MC90 divided by 

MC50. Using this approach we calculated MC90 to be $12,583 per g/hp-hr for heavy heavyduty. This led to F values of 1.173 for heavy heavy-duty. 

3.4 EPA Analysis of Costs for Medium Heavy-Duty Engines

The Interim TSD provided EPA’s proposed NCP values for both medium and heavy 

heavy-duty engines. We have decided to seek additional comment before finalizing medium 

heavy-duty engine NCPs. However, we performed an analysis of three alternative methods to 

calculate medium heavy-duty NCP values, which mirror the approaches evaluated for heavy 

heavy-duty engines. The description and analysis of these alternatives are included in 

Appendix C.
48

Chapter 4: Regulatory Parameters and Final Penalties

4.1 Heavy Heavy-Duty Engine NCP Equations and Parameters

EPA's existing regulations for calculating NCPs are contained in 40 CFR Part 86 

Subpart L. NCP schedules can be calculated from those same equations using the Upper 

Limit, COC50, COC90, MC50, and F values from the previous chapter, and a standard level (S) 

of 0.20 g/hp-hr NOx. The values for X are calculated using these values and the following 

equation from Subpart L:

X = (COC50 / F / MC50) + S 

The purpose of this equation is to achieve a penalty curve in which the slope for 

engines with compliance levels near the standard is equal to the 90th percentile marginal cost 

of compliance (MC90 equals MC50 times F).

Table 4-1: NCP Parameters

NCP Parameter Heavy Heavy-Duty Engines

COC50 $3,219

COC90 $3,775

MC50 ($ per g/hp-hr) $10,729

MC90 ($ per g/hp-hr) $12,583

F 1.173

UL (g/hp-hr) 0.50

S (g/hp-hr) 0.20

X (g/hp-hr) 0.456

When the factors listed in Table 4-1 are input into the existing NCP equations 

specified in 40 CFR 86.1113(a)(1) and (2), for year n=1 (that is, the first year the penalties are 

available, thus the annual adjustment factor is equal to 1), the resulting penalty versus 

compliance level for each service class are shown in Figure 4-1. 
49

Figure 4-1: Heavy Heavy-Duty Engine NCP

4.1.1 Refund for Engineering and Development Costs

Section 86.1113-87(h) of the existing regulations specify provisions under which a 

manufacturer that pays NCPs can recover some of the amount it has paid, provided it certifies 

a conforming replacement for the engines which used the NCPs. The maximum amount that 

can be recovered is limited to 90 percent of the portion of the penalty which EPA determines 

to be related to engineering and development. Thus, it is necessary for EPA to establish in 

each NCP rule a factor for each service class (FE&D) which define the fractions of the NCP 

which is considered to be related to engineering and development. As discussed in Chapter 3, 

we determined that $19 of the NCP COC90 value is related to engineering and development. 

Thus, the FE&D value is equal to $19 divided by the COC90 value of $3,775, or 0.005.

Table 4-2: Engineering and Development Refund Factors

Service Class FE&D Factor

Heavy Heavy-Duty Engines 0.005

$-

$500 

$1,000 

$1,500 

$2,000 

$2,500 

$3,000 

$3,500 

$4,000 

0.20 0.25 0.30 0.35 0.40 0.45 0.50 NCP Value

NOx Emissions Level (g/hp-hr)

2012 Heavy Heavy-Duty Engine NCP
50

4.2 Factors Influencing Competition

The structure of the NCP regulations is intended to result in NCPs that will remove the 

competitive disadvantage to complying manufacturers. It does this by setting the maximum 

penalty based directly on the nominally worst case (90th percentile) cost that a complying 

manufacturer (and the operator) had to pay to reduce emissions from the upper limit to the 

standard. 

However, subjective factors can possibly make the monetary value of the competitive 

advantage higher or lower than the compliance costs incurred by the complying 

manufacturers and users. Possible factors include:

Perceived inconvenience of using DEF

Public relations benefits for a company using the cleanest engines

Fears of new technology

Uncertainty about future fuel and DEF prices

Operator preference for a particular vehicle manufacturer limiting engine choice

Marketing claims and unknown performance characteristics

For example, a purchaser unfamiliar with SCR technology may imagine that costs and 

convenience will be worse than they actually would be, and as a result may avoid purchasing 

an SCR-equipped truck unless the manufacturer discounts the price. This would exacerbate 

the disadvantage for SCR manufacturers beyond what would be calculated based on costs 

alone. On the other hand, 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. Similarly, a purchaser with a strong preference for a 

particular truck brand may be relatively unaffected by the price of the compliant engines if 

they are the only engines it can get in a truck of that brand. These factors would tend to make 

the disadvantage for compliant manufacturers less than what would be calculated based on 

costs alone.

In particular, it is worth noting that to the extent the energy paradox (discussed in 

Section 1.7) applies, purchasers would tend to discount future operating costs or savings 

relative to purchase prices. While we include the full net present value of lifetime operating 

costs/savings in our COC50 and COC90 values, we considered the possibility of an energy 

paradox when evaluating how conservative to make our assumptions about operating cost 

parameters. See Section 4.2.3 for a discussion of how sensitive the effectiveness of NCPs is 

to the assumed operating costs.

The analyses are presented here primarily for the comparison of engines equipped 

with SCR to those that are not equipped with SCR because we believe that NCPs will be used 

only for such engines. We note that the NCP must also prevent SCR engine manufacturers 

from gaining any competitive advantage by paying NCPs to increase NOx emissions. 

Because the NCPs being established are based on that specific scenario, we are confident that 
51

the NCPs are high enough to prevent this from happening. Nevertheless, we evaluate this 

scenario further in Section 4.2.3.

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 our conclusion that the NCPs 

are large enough to remove the competitive disadvantage to complying manufacturers. 

4.2.1 Market Prices

When heavy-duty truck manufacturers increase prices to recover costs associated with 

reducing emissions, they typically identify the cost as an emission surcharge. The surcharges 

are applied at the time the trucks are purchased and are intended to cover all additional costs 

to the engine and truck manufacturers, including R&D, tooling, hardware, warranty and other 

overhead. They are not intended to cover operating costs. In many cases, purchasers may 

negotiate a lower surcharge, especially when purchasing a large number of trucks at once.

We considered the surcharges that manufacturers publicly released as the additional 

cost for the 2010 emission controls. The surcharges ranged from $9,000 to $9,600 for SCR 

equipped heavy heavy-duty engines, and was $8,000 for the one non-SCR manufacturer.34 To 

the extent these surcharges are based on the actual costs, it suggests that the cost advantage 

for non-SCR engines is about $1,000 to $1,600 dollars. Of course, different manufacturers 

may be applying different discounts to their surcharges, or use different factors to mark up 

their actual costs. As discussed in Appendix B, we believe that the actual cost difference 

could be significantly more than this.

Note that these costs are relative to the manufacturers’ 2009 engines which generally 

had NOx emissions near 1.2 g/hp-hr; this level is significantly above the upper limit for the 

NCPs. So these costs do not reflect the costs upon which the NCP are based. For complying 

manufacturers, the surcharges include the costs that would be associated with reducing NOx 

emissions to 0.50 g/hp-hr as well as the cost associated with further reducing NOx emissions 

to 0.20 g/hp-hr. 

These surcharges are not fundamentally inconsistent with our understanding of the 

differences in hardware costs between the two technology paths. SCR manufacturers need to 

recover the costs of the SCR catalyst itself, as well as the costs of the urea supply and delivery 

systems. The non-SCR manufacturer needs to recover the costs of the additional 

turbochargers and EGR coolers, along with changes to the loading of the DPF. We believe 

the hardware costs of SCR systems to be up to $4,000 more than the hardware costs of the 

non-SCR system. Of course, each manufacturer also needs to recover its R&D, warranty and 

other overhead costs. As discussed in Appendix B, we believe that much of the additional 

hardware cost will be recovered by operators due to reduced fuel consumption for SCR 

engines.
52

4.2.2 Market Share

As noted in Chapter 1, we also evaluated the market share of each of the largest Class 

8 heavy-duty truck manufacturers in 2008 through 2011 (shown in Figure 1-4). Although the 

market share of each manufacturer normally varies from year to year (for a variety of reasons, 

such as introduction of a new model by one manufacturer or new purchases by large fleets),

observing longer term trends can be instructive. The most significant trend observed is that 

the one non-SCR manufacturer has actually lost market share since 2008, even though it 

appears to be offering its engines with a lower emissions surcharge. Preliminary data shows 

that its market share may be even lower for 2012.

4.2.3 Sensitivity to Operating Costs

More than one-half of our estimated compliance costs for heavy heavy-duty engines 

are due to a projected difference in net operating costs between engines at 0.20 g/hp-hr and 

engines at 0.50 g/hp-hr. Thus, it is appropriate to evaluate the market impacts of potential 

errors in the analysis. In particular, we evaluated three alternative price scenarios. In the 

first, we estimate costs in the same way as for our COC90 analysis, except we assume that 

annual operating costs are higher than we assumed because DEF costs 60 percent less than 

fuel, as recommended by Cummins in its comments on the NPRM. This same scenario could 

result from fuel prices being higher than we assumed in our analysis. The second and third 

scenarios would be the same as the first, but we would discount future costs by three percent 

or zero percent instead of seven percent. We believe these scenarios significantly 

overestimate the annual operating costs associated with meeting the 0.20 g/hp-hr standard and 

represent worse than worst case scenarios. 

Error! Reference source not found. Figure 4-2 plots the streams of costs for all 

scenarios as a function of vehicle age for the first 10 years of a vehicle’s lifetime. This figure 

shows that even using very conservative price assumptions, it would take at least four years 

for an operator to save enough money to recover the cost of the first year NCP. Since the 

NCP will increase in each subsequent model year, recovery times will also increase. Thus, 

since manufacturers consistently tell us that they do not voluntarily pursue engines changes 

with payback periods this long, we can conclude that the NCPs being established are high 

enough to preclude any SCR engine manufacturer from backsliding.
53

Figure 4-2- NCP Recovery Time for Various Fluid Prices. 

We also considered a scenario based on late comments from PACCAR. In those 

comments, PACCAR claimed that an SCR engine optimized for 0.50 g/hp-hr NOx would 

have four percent better fuel consumption than a 0.20 g/hp-hr engine, but would consume two 

percent more DEF. It is important to note that this is a much larger impact than was claimed 

by any other engine manufacturer in comments on this rule. Nevertheless, while we cannot 

verify these claims, we did evaluate a scenario in which an SCR engine would reduce fuel 

consumption by four percent but increase DEF consumption by two percent. If one assumes 

that this engine would have the same hardware savings as our baseline engine but not incur 

significant additional development costs, it would take more than two years for operator 

savings to offset the net cost of the first year NCP (the NCP amount minus the hardware 

savings). To the extent that a manufacturer incurred additional development costs or was 

unable to achieve the same hardware savings, this payback period would be longer. Also, the 

annual escalation of the NCP amount would also make the payback period longer for later 

model years. We do not believe that this scenario justifies a higher penalty, especially 

considering the uncertainty associated with it.

$-

$500 

$1,000 

$1,500 

$2,000 

$2,500 

$3,000 

$3,500 

$4,000 

$4,500 

$5,000 

1 2 3 4 5 6 7 8 9 10 Net Savings, NCP Penalty

Operating Year

NCP Recovery Time Assuming Various Fluid Prices

(Manufacturer Savings plus Cummulative Operating Savings vs Vehicle Age)

MY 2012 NCP

EPA with 7% discount rate

Lower DEF Price with 7% 

discount rate

Lower DEF Price with 3% 

discount rate

Lower DEF Price undiscounted
54

Appendix A. Calculations

This appendix provides additional details for the calculations used to estimate the 

NCP costs. 

1. Calculation of Operating Costs

This section A.1 includes the values used in the fuel and DEF consumption cost 

calculations other than prices. Table A - 1 lists the inputs used for the analysis.35 Table A - 2

shows the fleet average annual vehicle miles travelled of all 2012 model year vehicles within 

a given class (e.g., medium heavy-duty diesel vehicles) after considering the survival fraction 

of each vehicle class. 

Table A - 1: Inputs Used for Operating Cost Analysis

Parameter Input

Medium HD Vehicle Typical Fuel Economy (mpg) 9.7

Heavy HD Vehicle Typical Fuel Economy (mpg) 4.9

Discount Rate 7.0%
55

Table A - 2: Annual Vehicle Miles Traveled by Calendar Year for Typical 2012 Model Year Vehicles

Calendar Year Medium HD Vehicle Heavy HD Vehicle

2012 34,698 82,130

2013 33,610 81,056

2014 30,664 75,406

2015 27,882 69,566

2016 25,349 64,019

2017 22,988 58,820

2018 20,822 54,014

2019 18,851 49,532

2020 17,074 45,303

2021 15,326 41,073

2022 13,784 37,113

2023 12,410 33,674

2024 11,212 30,606

2025 10,161 27,805

2026 9,180 25,162

2027 8,280 22,781

2028 7,460 20,553

2029 6,721 18,605

2030 6,109 16,822

2031 5,520 15,190

2032 4,934 13,679

2033 4,493 12,408

2034 4,054 11,206

2035 3,682 10,140

2036 3,321 9,172

2037 2,977 8,272

2038 2,683 7,484

2039 2,460 6,789

2040 2,185 6,133

2041 1,973 5,537

2042 1,821 5,043

2. Fuel Prices

The diesel fuel prices used in the Final Rule are based on the Annual Energy Outlook 

(AEO) 2012 fuel price projections adjusted to 2011 dollars. Below is the Consumer Price 

Index used in the fuel price conversion and a table with the annual diesel fuel price 

projections. The annual Consumer Price Index values used in this analysis are the 

following:36

2009 = 214.537

2010 = 218.056

2011 = 224.939
56

The AEO 2012 fuel price forecasts are provided by EIA in terms of 2010 dollars. 

Thus, for this analysis, we adjusted EIA’s diesel fuel price projections upward by a factor 

equal to 224.9 divided by 218.1 to convert them into 2011 dollars. The diesel fuel prices 

used in the analysis are included in Table A - 3 below. These prices represent retail pump 

prices including taxes.

Table A - 3: Post-Tax Diesel Fuel Price Projections (2011$)

Calendar Year Diesel Fuel Price per Gallon

2012 $ 3.86 

2013 $ 3.55 

2014 $ 3.77 

2015 $ 3.89 

2016 $ 3.94 

2017 $ 4.00 

2018 $ 4.04 

2019 $ 4.06 

2020 $ 4.10 

2021 $ 4.13 

2022 $ 4.16 

2023 $ 4.20 

2024 $ 4.23 

2025 $ 4.30 

2026 $ 4.33 

2027 $ 4.32 

2028 $ 4.35 

2029 $ 4.39 

2030 $ 4.43 

2031 $ 4.52 

2032 $ 4.60 

2033 $ 4.52 

2034 $ 4.51 

2035 $ 4.58 

2036 $ 4.65 

2037 $ 4.73 

2038 $ 4.80 

2039 $ 4.88 

2040 $ 4.96 

2041 $ 5.03 

2042 $ 5.12 
57

3. DEF Prices

The DEF prices used in the Final Rule are included below in Table A - 4. The 2012 

through 2014 DEF prices are based on Integer Research projections of retail DEF price. 

These prices are projected to decline due to economies of scale as DEF usage becomes more 

widespread. We are projecting the price of DEF will begin to increase after 2014 as natural 

gas prices increase. Thus, the 2015 and beyond DEF prices are based on the AEO 2012 

industrial natural gas price trend of 1.3 percent increase per year. For example, the 2015

price is estimated to be equal to 101.3 percent of the 2014 price, and the 2016 price is 

estimated to be equal to 101.3 percent of the 2015 price. See Chapter 3 for additional 

information about these prices. 

Table A - 4: Diesel Exhaust Fluid Price per Gallon (2011$)

Calendar Year Diesel Exhaust Fluid Price per Gallon

2012 $ 2.60 

2013 $ 2.55 

2014 $ 2.50 

2015 $ 2.53 

2016 $ 2.57 

2017 $ 2.60 

2018 $ 2.63 

2019 $ 2.67 

2020 $ 2.70 

2021 $ 2.74 

2022 $ 2.77 

2023 $ 2.81 

2024 $ 2.84 

2025 $ 2.88 

2026 $ 2.92 

2027 $ 2.96 

2028 $ 3.00 

2029 $ 3.03 

2030 $ 3.07 

2031 $ 3.11 

2032 $ 3.15 

2033 $ 3.20 

2034 $ 3.24 

2035 $ 3.28 

2036 $ 3.32 

2037 $ 3.36 

2038 $ 3.41 

2039 $ 3.45 

2040 $ 3.50 

2041 $ 3.54 

2042 $ 3.59 
58

4. Fuel and DEF Price Differences between FRM and NPRM

Figure A-1 shows the comparison between the fuel and DEF prices used in the FRM 

and in the NPRM.

Figure A-1: Fuel and DEF Price Differences between the NPRM and FRM.

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

0 0 0

FRM Fuel Price FRM DEF Price

NPRM Fuel Price NPRM DEF Price
59

Appendix B. Alternative Heavy Heavy-Duty Compliance Costs

As noted earlier, the goals of the NCP provisions are 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. To determine how to 

best meet these statutory goals, we considered the following methodologies for determining 

compliance costs:

1. 1.2 g/hp-hr NOx Baseline Engine - Scaled Cost of SCR Hardware

2. 0.50 g/hp-hr NOx Baseline Engine with EGR

3. 0.50 g/hp-hr Baseline Engine with Optimized SCR+EGR

4. 0.50 g/hp-hr Baseline Engine with Redesigned SCR+EGR

For heavy heavy-duty engines, we are using method #3 - basing our NCPs on costs of 

compliance relative to a reoptimized SCR engine. More specifically, we are basing our costs 

on an engine that could be produced in model year 2013 by making simple changes to SCR 

engines currently in production. As described below, we also considered the three other 

approaches. A summary of each approach is found in Section 4 of this Appendix B.

The purpose of analyzing these approaches is to determine if any of them would have 

been a more appropriate approach, because it uses a more optimal baseline engine, i.e., that a 

manufacturer would choose to build an engine to this design if it were to build an engine 

emitting at 0.50 g/hp-hr.

1. 1.2 g/hp-hr NOx Baseline Engine - Scaled Cost of SCR Hardware

Some commenters support basing the NCPs on the full cost of hardware needed to 

reduce NOx emissions from 1.2 g/hp-hr (the typical emission level of a 2009 engine) to 0.20 

g/hp-hr, rather than comparing a compliant 0.20 g/hp-hr engine to a 0.50 g/hp-hr engine. 

However, since the regulations clearly state that compliance costs are to be calculated relative 

to the upper limit, this approach could only be used if we set the upper limit at 1.2 g/hp-hr. 

As discussed elsewhere, this would be inappropriate because all manufacturers currently 

certify engines at no more than 0.50 g/hp-hr. Therefore, while we estimated the COC90 costs 

for a 0.20 g/hp-hr engine relative to a 1.2 g/hp-hr engine, we calculated the NCP cost for an 

engine with a compliance level at 0.50 g/hp-hr. This was done by scaling the total costs by 30 

percent to reflect the smaller NOx emission reduction from the upper limit - a 0.30 g/hp-hr 

NOx reduction instead a 1.0 g/hp-hr NOx reduction. Note that while we evaluated this 

approach with respect to costs and competitive advantage, we think that it would not be 

appropriate to set the upper limit at 1.2 g/hp-hr. In particular, NCPs should not be available 

for levels that are higher than the level that EPA determines is practicable, which in this case 

would be no higher than 0.50 g/hp-hr. 
60

For this scenario, going from the 1.2 g/hp-hr engine to the 0.20 g/hp-hr engine, the 

manufacturer would need to add an SCR system (catalyst, DEF tank, brackets, and dosing 

unit), an ammonia clean up catalyst, and a NOx sensor. Consistent with the cost methodology 

discussed in Chapter 3, the costs were estimated from the direct manufacturing costs of a SCR 

system and DOC projected for a light-duty pickup truck in the 2017-2025 Light-Duty 

Greenhouse Gas Emissions Notice of Proposed Rulemaking.37 We assumed that the ammonia 

clean up catalyst would cost approximately one-fourth of the cost of a DOC due to the 

catalyst volume difference between the two. We converted the light-duty costs from 2009 

dollars to 2011 dollars and then scaled the direct manufacturing cost of the SCR system and 

ammonia clean up catalyst based on the ratio of typical engine displacement in each engine

class, as shown in Table B - 1 below.

Table B - 1: Direct Manufacturer Cost (2011$)

Light-Duty (4.0L) HHD (13L)

Complete SCR System $1,295 $4,208

Ammonia Clean Up Catalyst $132 $429

The cost for a NOx sensor was developed by converting a sensor’s retail price to a 

direct manufacturing cost, just as in Chapter 3. The retail price of the sensor is unchanged 

from the proposal. The direct manufacturing costs were calculated based on the Retail Price 

Equivalent (RPE). The RPE for heavy-duty engines is 1.36 as found in the study conducted 

by ICF International for the Heavy-Duty Greenhouse Gas Emissions rulemaking.38 The 

sensor costs are shown in Table B - 2.

39

 

Table B - 2: Direct Manufacturer Sensor Cost

HHD

Sensor Retail Price $221

Sensor Direct Manufacturing Cost $164

The Agency then applied a 1.15 indirect cost multiplier (ICM) to convert the direct 

manufacturing costs to marked up costs. The 1.15 multiplier consists of a two percent mark

up for research and development and 13 percent mark up for warranty and other costs.40 The

marked up costs are shown below in Table B - 3.

Table B - 3: Total Hardware Cost

HHD

Incremental Direct Manufacturing Cost $4,801

Research and Development Cost (2%) $96

Warranty and Other Cost (13%) $624

Total Incremental Cost $5,522

We next calculated the costs for post-warranty repair and demurrage using the ratio of 

each of these costs to the warranty costs that was established in the 2004 NCP rule, similar to 
61

the process used in Section 3.3.3.3 above. The 2004 ratios are listed in Table 3-12. Table B -

4 below shows the post-warranty repair and demurrage costs based on a warranty cost of $96.

Table B - 4: Post-warranty repair and Demurrage Costs for 2012 MY HHD Engines

HHD

Post-warranty repair Costs $94

Demurrage Costs $56

In summary, the total hardware, post-warranty repair, and demurrage costs for a SCR 

system to achieve 0.20 g/hp-hr relative to a 1.2 g/hp-hr engine is $5,671. 

Next, we estimated the fuel and DEF operating cost differences between an engine 

meeting 1.2 g/hp-hr using EGR and a compliant engine (meeting the 0.20 g/hp-hr tailpipe 

NOx emissions standard) using SCR. We estimate that the baseline engine would have 

engine-out NOx emissions of 1.2 g/hp-hr. We used the same compliant engine that we 

defined in the final scenario described in Section 3.3.3 where the engine-out emissions were 

derived based on the assumption that this engine’s aftertreatment system could achieve 94

percent efficiency (at the end of the useful life) and thus have engine-out NOx emissions of 

3.0 g/hp-hr. As described in the Section 3.3.3 above, the compliant engine would require a 

2.8 g/hp-hr NOx reduction in the aftertreatment system and therefore a DEF dosing rate of 3.8 

percent. We also estimated that the compliant engine would have 2.25 percent better fuel 

consumption than the engine emitting at 1.2 g/hp-hr using the data in Figure 3-2 above.

The net present value (assuming a seven percent discount rate) of the fuel savings is

$10,035 and the DEF costs is $11,354. Lastly, the COC90 value was calculated based on the 

sum of the hardware costs, DEF costs, and fuel savings scaled to reflect the increment 

between a baseline engine of 0.50 g/hp-hr and 0.20 g/hp-hr per the equation below.

Scaling Factor = (0.50 – 0.20 g/hp-hr) ÷ (1.2 – 0.2 g/hp-hr) = 0.30

As shown in Table B - 5 below, the COC90 value using this method would be $2,097, 

which is less than the COC90 value calculated using an optimized SCR baseline engine (as 

described in Section 3.3.3). Since the COC90 described in Section 3.3.3 reflects the 

competitive advantage of an SCR engine optimized for 0.50 g/hp-hr over a compliant engine, 

setting the penalty based on this scaled SCR cost approach would not protect the compliant 

manufacturers from competitive disadvantage relative to a reoptimized SCR engine.

Table B - 5: Scaled 1.2 g/hp-hr EGR Baseline Engine Costs – Heavy Heavy-Duty Engines

1.2 to 0.20 g/hp-hr

COC90-equivalent

for 0.50 to 0.20 g/hp-hr

Hardware Costs $5,671 $1,701

DEF Costs $11,354 $3,406

Fuel Savings -$10,035 -$3,011

Total $2,097
62

Based on comments received, we also calculated the NCP value using the surcharges 

used by SCR manufacturers in 2010, instead of a bill of materials approach. The emission 

surcharges that manufacturers have released publicly are what they determined to be the price 

increase necessary to recover costs associated with reducing emissions, including R&D, 

tooling, hardware, warranty and other overhead. Since many purchasers negotiate a lower 

price, the official surcharge can be assumed to be somewhat higher than the actual cost 

increase paid by the customer. The surcharges for SCR equipped heavy heavy-duty engines 

ranged from $9,000 to $9,600. To be conservative in this alternate analysis, we used $9,600. 

Calculating a COC90 using a hardware cost of the highest emission surcharge ($9,600) would 

clearly be a worst case cost of compliance. Applying this value to a linear penalty curve with 

an upper limit of 1.2 g/hp-hr would result in the following scaling factor equation:

Scaling Factor = (0.50 – 0.20 g/hp-hr) ÷ (1.2 – 0.2 g/hp-hr) = 0.30

The hardware cost for a 0.50 g/hp-hr engine would be $2,880 based on the scaling 

factor. Because surcharges do not cover operating costs, we also need to evaluate the cost for 

DEF and the reduced costs for fuel. As shown in Table B - 6, combining the same additional 

DEF cost to take and engine from 1.2 to 0.20 g/hp-hr NOx and the same fuel savings to due to 

the SCR system would lead to a heavy heavy-duty COC90 value of $3, 276 which is slightly 

less than the final NCP COC90 value. This means setting NCPs based on this scenario would 

not protect the compliant manufacturers from competitive disadvantage relative to a 

reoptimized SCR engine.

Table B - 6: Scaled 1.2 g/hp-hr EGR Baseline Engine Costs Using a SCR Surcharge – Heavy 

Heavy-Duty Engines

1.2 to 0.20 g/hp-hr

COC90-equivalent

for 0.50 to 0.20 g/hp-hr

Hardware Costs $9,600 $2,880

DEF Costs $11,354 $3,406

Fuel Savings -$10,035 -$3,011

Total $3,276

We did not choose the 1.2 g/hp-hr baseline for several reasons. First, as discussed 

above, a 1.2 g/hp-hr engine is inappropriate for a baseline engine where the upper limit is 0.50 

g/hp-hr. While we have scaled the costs to do this calculation, it is impossible to determine 

how such an engine would have actually been changed to emit at 0.50 g/hp-hr. 

Further, the calculations indicate that the costs of a hypothetical engine emitting at 

0.50 g/hp-hr under this scenario would be greater than the costs of the optimized 0.50 g/hp-hr 

engine chosen in the final rule. This means it would be an unlikely choice of a manufacturer. 

Put another way, the cost savings of using this approach would be only $2,097 or 

$3,276, compared to a compliant engine. A manufacturer currently meeting the 0.20 g/hp-hr 
63

standard but contemplating paying NCPs to meet a 0.50 g/hp-hr level would be unlikely to 

use this approach, as it does not optimize the cost savings a manufacturer would achieve. 

Given that NCPs are intended to protect compliant manufacturers from competitive harm 

from other manufacturers paying NCPs, we need to set the NCPs at the level we would expect 

a noncompliant manufacturer would save using an optimal cost-saving strategy.

2. 0.50 g/hp-hr Baseline Engine with EGR

We also analyzed a scenario with a baseline engine that achieved 0.50 g/hp-hr NOx 

with EGR only. We calculated the net hardware cost of adding SCR, but removing some 

hardware that would no longer be required with an SCR equipped engine.

Adding SCR to a 0.50 g/hp-hr engines would affect operating costs in three ways: it 

would add a cost for DEF, reduce costs for fuel, and could either increase or decrease the 

frequency of repairs. 

For this scenario (like the scenario above), we added a SCR system (catalyst and 

dosing unit), an ammonia clean up catalyst, and a NOx sensor. The SCR costs were estimated 

the same as Scenario 1 above. The total hardware costs for the SCR system are shown in 

Table B - 7 below. In summary, the total hardware, post-warranty repair, and demurrage 

costs for a SCR system to achieve 0.20 g/hp-hr relative to a 1.2 g/hp-hr engine is $5,671.

Table B - 7: SCR Hardware Cost (2011$)

HHD

Incremental Direct Manufacturing Cost $4,801

Research and Development Cost (2%) $96

Warranty and Other Cost (13%) $624

Post-warranty repair Costs $94

Demurrage Costs $56

Total Hardware Cost $5,671

Unlike Scenario 1 above, we did not scale the SCR costs for this alternative. Instead, 

we took the entire cost of the SCR system and subtracted the costs for the hardware that could 

be removed from a 0.50 g/hp-hr NOx EGR only engine. In other words, this would be the net 

cost of hardware changes made to the 0.50 g/hp-hr engines. Adding SCR would affect EGR 

cooling, diesel particulate filter regeneration, and turbocharging. We project that one of the 

two EGR coolers used on the 0.50 g/hp-hr engine could be removed because of the lower 

EGR requirements. In addition, we believe that the diesel particulate filter precious metal 

loading could be reduced by approximately 20 percent because the 0.20 g/hp-hr engine would 

have higher engine-out NOx emissions and lower engine-out PM emissions. Lastly, we 

project that the twin turbochargers used on a 0.50 g/hp-hr engine could be replaced with a 

single variable geometry turbocharger. We did not include any additional warranty savings 

beyond those associated with the hardware savings. However, Navistar has publicly noted 

that it has had very high emission-related warranty claims for its 2010 engines. To the extent 
64

there are additional warranty costs for non-SCR engines, our estimate of SCR compliance 

costs relative to a 0.50 g/hp-hr EGR engine would overestimate these costs. Nevertheless, 

this would not change our conclusion that a non-SCR engine would not have been an 

appropriate baseline engine for our NCP costs.

We estimated the EGR cooler costs based on the average retail price of four 

replacement EGR coolers available for 2008-2010 heavy-duty pickup trucks.41 The retail 

prices for the HHD engines were scaled relative to the engine displacement. Then the retail 

prices were converted to direct manufacturing costs using the heavy-duty engine Retail Price 

Equivalent of 1.35 used throughout this analysis. The costs are included in Table B - 8 below.

Table B - 8: EGR Cooler Costs

HD Pickup Truck 

(6.4L)

HHD (13L)

Retail EGR Cooler Cost $477 $969

Direct Mfr. EGR Cooler Cost $718

We estimated the diesel particulate filter precious metal loading and washcoat costs 

based on the costs derived from the 2017-2025 Light-Duty GHG NPRM. We assumed 20 

percent of the loading could be saved based on the higher engine-out NOx emissions and 

lower soot emissions of the 0.20 g/hp-hr engine. The direct manufacturing costs were scaled 

relative to the engine displacements, as shown in Table B - 9 below.

Table B - 9: Diesel Particulate Filter Costs

Light-Duty 

Pickup Truck 

(4.0L)

HHD (13L)

Diesel Particulate Washcoat and 

Precious Metal Loading Direct Mfr. 

Cost $861

20% of Diesel Particulate Washcoat and 

Precious Metal Loading $172 $560

The retail turbocharger costs were derived from the cost report developed by ICF 

International for the Heavy-Duty Greenhouse Gas rule.

42

 The retail prices were converted to 

direct manufacturing costs using the heavy-duty engine Retail Price Equivalent of 1.35 used 

throughout this analysis. The costs are included in Table B - 10 below.

Table B - 10: Turbocharger Costs

Retail Price Direct Mfr. Cost

Twin Turbochargers $1,000 $741

Variable Geometry Turbocharger $935 $693

Net HHD Turbocharger Cost $48
65

The sum of the direct manufacturing costs for the components that could be removed 

from the 0.50 g/hp-hr EGR engine are included in Table B - 11, while the marked up 

hardware costs are included in Table B - 12.

Table B - 11: Net EGR Direct Manufacturer Hardware Costs

HHD

EGR Cooler $718

DPF Loading $560

Net Turbocharger Cost $48

EGR Direct Mfr. Hardware Cost $1,326

Table B - 12: Heavy Heavy-Duty Marked Up EGR Hardware Costs

HHD

Incremental EGR Direct Manufacturing Cost $1,326

Research and Development Cost (2%) $27

Warranty and Other Cost (13%) $172

EGR Marked Up Hardware Cost $1,524

We next calculated the costs for post-warranty repair and demurrage using the ratio of 

each of these costs to the warranty costs that was established in the 2004 NCP rule, similar to 

the process used in Section 3.3.3.3 above. The 2004 ratios are listed in Table 3-12. The 

resulting values are shown in Table B - 13 below.

Table B - 13: Heavy Heavy-Duty EGR Post-warranty repair and Demurrage Costs

HHD

EGR Hardware Cost $1,524

Post-warranty repair Cost $26

Demurrage Cost $15

EGR Incremental Cost $1,565

The net hardware costs, taking into account the SCR hardware that would be required 

to meet the 0.20 g/hp-hr NOx emissions and the components on the 0.50 g/hp-hr engine that 

would no longer be required, are $4,105 as shown in Table B - 14.

Table B - 14: Heavy Heavy-Duty Engine Net Hardware Costs

HHD

SCR Incremental Cost $5,671

EGR Incremental Cost -$1,565

Net Hardware Cost $4,105

Next, we estimated the fuel and DEF operating cost differences between an engine 

meeting 0.50 g/hp-hr using EGR and a compliant engine (meeting the 0.20 g/hp-hr tailpipe 
66

NOx emissions standard). We estimate that the baseline engine would have engine-out NOx 

emissions of 0.50 g/hp-hr. We used the same compliant engine that we defined in the final 

scenario in Section 3.3.3 where the engine-out emissions assumes that this engine’s 

aftertreatment system could achieve 94 percent efficiency (at the end of the useful life) and 

thus have engine-out NOx emissions of 3.0 g/hp-hr. As described in the final scenario above, 

the compliant engine would require a 2.8 g/hp-hr NOx reduction in the aftertreatment system 

and therefore a DEF dosing rate of 3.8 percent. We also estimated that the compliant engine 

with 3.0 g/hp-hr NOx engine-out emissions would have 3.25 percent better fuel consumption 

than the baseline engine with engine-out emissions of 0.50 g/hp-hr NOx using the data in 

Figure 3-2 above. 

The net present value of the fuel savings are $14,355 and the DEF costs are $11,244, 

using a seven percent discount rate. The COC90 value was calculated based on the sum of the 

hardware costs, DEF costs, and fuel savings. As shown in Table B - 15, the COC90 value 

using this method would be $994, which is substantially less than the COC90 value calculated 

using a SCR baseline engine, and therefore would not protect the compliant manufacturers 

relative to reoptimized SCR engines.

Table B - 15: 0.50 g/hp-hr EGR Baseline Engine COC90 – Heavy Heavy-Duty Engines

COC90 for 0.50 to 0.20 g/hp-hr

Hardware Costs $4,105

DEF Costs $11,244

Fuel Savings -$14,355

Total $994

As with the 1.2 g/hp-hr baseline engine discussed above, the calculations indicate that 

the costs associated with a hypothetical SCR engine emitting at 0.50 g/hp-hr under this 

scenario would be greater than the costs of the optimized 0.50 g/hp-hr engine chosen in the 

final rule, and the cost savings of using this approach, would be less than the savings from the 

optimized 0.50 g/hp-hr engine. In fact, even if the substantial savings in operating costs is 

completely ignored (which would not be appropriate), this scenario would not lead to a 

competitive advantage that is significantly higher than the NCPs being finalized. 

3. 0.50 g/hp-hr Baseline Engine with Completely Redesigned SCR+EGR

Some commenters supported (in CBI comments) basing the penalty on an SCR engine 

that was fundamentally redesigned to have NOx emissions at 0.50 g/hp-hr (rather than 

reoptimizing an existing design). For example, some manufacturers have suggested that it 

would be possible to redesign engines to meet 0.50 g/hp-hr without cooled EGR. This could 

result in significant saving for hardware and warranty costs.

We consider such redesigns to be speculative. Thus, we cannot accurately estimate 

costs for any of these options. Nevertheless, we have concluded that such redesigns are 

highly unlikely. While it may well be technologically possible to redesign current SCR 
67

engines to meet 0.50 g/hp-hr NOx with significantly lower hardware costs, we do not believe 

that there is a feasible business model in which such savings would justify paying an NCP. 

Fundamentally redesigning an engine would take a minimum of two years. So a 

manufacturer that began redesigning its engines today could not expect to have the new 

engine ready for production before model year 2015. At that point, the annual adjustments to 

the NCPs would have increased the penalty to $5,000 or more. Moreover, if the manufacturer 

elected to certify and produce such an engine, two things would happen. First, using NCPs in 

model year 2015 would result in a rapidly increasing penalty due to the annual adjustment 

factors, perhaps up to $8,000 by 2017. Second, if we determined that a manufacturer that was 

capable of complying was choosing to pay NCPs instead, we would revise the regulations to 

substantially increase the penalties to remove any cost advantage for such engines. Thus, a 

manufacturer would need to recover all of its investments within one or two model years.

4. Summary of Heavy Heavy-Duty Alternatives

We selected the cost methodology described in Chapter 3 because it best conforms to 

the statutory requirements to allow noncomplying manufacturers to continue selling engines 

without any competitive advantage. We considered two other options that would have been 

less protective for complying manufacturers and another option that we found to be 

unrealistic. These alternatives are summarized in the Table B - 16.
68

Table B - 16: Summary of the Alternatives Considered

Reoptimized SCR 

Baseline 0.50 g/hphr Engine

1.2 g/hp-hr SCR 

Baseline Engine 

with Scaled Costs

0.50 g/hp-hr EGR 

Baseline Engine

0.50 g/hp-hr 

Fundamentally 

Redesigned SCR 

Baseline Engine

Description of 

Alternative

Base NCPs on a 

baseline engine that 

achieves 0.50 g/hphr NOx using SCR 

that is reoptimized 

for fuel and DEF

consumption.

Base NCPs on the 

full cost of 

hardware needed to 

reduce NOx 

emissions from 1.2 

g/hp-hr (the typical 

emission level of a 

2009 engine) to 

0.20 g/hp-hr scaled 

to represent the 

costs for an engine 

with a compliance 

level at 0.50 g/hphr.

Base NCPs on a 

baseline engine that 

achieves 0.50 g/hphr NOx without 

SCR.

Base NCPs on a 

baseline engine that 

achieves 0.50 g/hphr NOx using SCR 

that is 

fundamentally 

redesigned (such as 

removing cooled 

EGR or removing 

the DPF).

First-Year Penalty 

at 0.50 g/hp-hr

$3,775 $2,097-$3,276 $994 Not determined

Comparison to 

Primary 

Methodology

Primary 

methodology

Less protective to 

complying 

manufacturers

Less protective to 

complying 

manufacturers

Unrealistic business 

model
69

Appendix C. Medium Heavy-Duty (MHD) Compliance Costs

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 effectively forces any noncomplying 

manufacturers from the market. 

To determine how to best meet these statutory goals, we considered the following 

methodologies for determining compliance costs:

1. 1.2 g/hp-hr NOx Baseline Engine with EGR - Scaled Cost of SCR Hardware

2. 0.50 g/hp-hr NOx Baseline Engine with EGR

3. 0.50 g/hp-hr Baseline Engine with Optimized SCR+EGR

1. 1.2 g/hp-hr NOx Baseline Engine - Scaled Cost of SCR Hardware

Some commenters support basing the NCPs on the full cost of hardware needed to 

reduce NOx emissions from 1.2 g/hp-hr (the typical emission level of a 2009 engine) to 0.20 

g/hp-hr, rather than comparing a compliant 0.20 g/hp-hr engine to a 0.50 g/hp-hr engine. 

However, since the regulations clearly state that compliance costs are to be calculated relative 

to the upper limit, this approach could only be used if we set the upper limit at 1.2 g/hp-hr. 

Therefore, we estimated the COC90 costs for a 0.20 g/hp-hr engine relative to a 1.2 g/hp-hr 

engine, but calculated the NCP cost for an engine with a compliance level at 0.50 g/hp-hr. 

This was done by scaling the total costs by 30 percent to reflect the smaller NOx emission 

reduction from the upper limit - a 0.20 g/hp-hr NOx reduction instead a 1.0 g/hp-hr NOx 

reduction. Note that while we evaluated this approach with respect to costs and competitive 

advantage, we think that it would not be appropriate to set the upper limit at 1.2 g/hp-hr. In 

particular, NCPs should not be available for levels that are higher than the level that EPA 

determines is practicable, which in this case would be no higher than 0.50 g/hp-hr.

For this scenario, a manufacturer would need to add an SCR system (catalyst, DEF 

tank, and dosing unit), an ammonia clean up catalyst, and a NOx sensor. Consistent with the 

cost methodology discussed in Chapter 3, the costs were estimated from the direct 

manufacturing costs of a SCR system and DOC projected for a light-duty pickup truck in the 

2017-2025 Light-Duty Greenhouse Gas Emissions Notice of Proposed Rulemaking.43 We 

assumed that the ammonia clean up catalyst would cost approximately one-fourth of the cost 

of a DOC due to the catalyst volume difference between the two. We converted the light-duty 

costs from 2009 dollars to 2011 dollars and then scaled the direct manufacturing cost of the 

SCR system and ammonia clean up catalyst based on the ratio of typical engine displacement 

in each engine class, as shown in Table C - 1 below.
70

Table C - 1: Direct Manufacturer Cost (2011$)

Light-Duty Pickup 

Truck (4.0L)

MHD (8L)

Complete SCR System $1,295 $2,590

Ammonia Clean Up Catalyst $132 $264

The cost for a NOx sensor was developed by converting a sensor’s retail price to a 

direct manufacturing cost, just as in Chapter 3. The retail price of the sensor is unchanged 

from the proposal. The direct manufacturing costs were calculated based on the Retail Price 

Equivalent (RPE). The RPE for heavy-duty engines is 1.36 as found in the study conducted 

by ICF International for the Heavy-Duty Greenhouse Gas Emissions rulemaking.44 The 

sensor costs are shown in Table C - 2.

45

 

Table C - 2: Direct Manufacturer Sensor Cost

MHD

Sensor Retail Price $221

Sensor Direct Manufacturing Cost $164

The Agency then applied a 1.15 indirect cost multiplier (ICM) to convert the direct 

manufacturing costs to marked up costs. The 1.15 multiplier consists of two percent mark up 

for research and development and 13 percent mark up for warranty and other costs.46 The 

marked up costs are shown below in Table C - 3.

Table C - 3: Total Hardware Cost

MHD

Incremental Direct Manufacturing Cost $3,018

Research and Development Cost (2%) $60

Warranty and Other Cost (13%) $392

Total Incremental Hardware Cost $3,470

We next calculated the costs for post-warranty repair and demurrage using the ratio of 

each of these costs to the warranty costs that was established in the 2004 NCP rule. The 2004 

NCP ratios are listed below in Table C - 4.

Table C - 4: 2004 Medium Heavy-Duty Engine NCP Warranty, Post-warranty repair, and 

Demurrage Costs

2004 MHD Costs Ratio to Warranty 

Cost

Warranty Costs $90

Post-warranty repair

Costs

$170 53%

Demurrage Costs $100 111%
71

We utilized the ratios of the post-warranty repair and demurrage costs relative to the 

warranty costs from 2004 to calculate the 2012 post-warranty repair and demurrage costs

relative to a warranty cost of $60, as shown in Table C - 5 below.

Table C - 5: Post-warranty repair, and Demurrage Costs for 2012 MY HHD Engines

MHD

Post-warranty Repair Costs $114

Demurrage Costs $67

In summary, the total hardware, post-warranty repair, and demurrage costs for a SCR 

system to achieve 0.20 g/hp-hr relative to a 1.2 g/hp-hr medium heavy-duty engine is $3,651. 

Next, we estimated the fuel and DEF operating cost differences between an engine 

meeting 1.2 g/hp-hr using EGR and a compliant engine (meeting the 0.20 g/hp-hr tailpipe 

NOx emissions standard) using SCR. We estimate that the baseline engine would have 

engine-out NOx emissions of 1.2 g/hp-hr. We used the same compliant engine that we 

defined in the final scenario described in Section 3.3.3 where the engine-out emissions were 

derived based on the assumption that this engine’s aftertreatment system could achieve 94

percent efficiency (at the end of the useful life) and thus have engine-out NOx emissions of 

3.0 g/hp-hr. As described in the Section 3.3.3 above, the compliant engine would require a 

2.8 g/hp-hr NOx reduction in the aftertreatment system and therefore a DEF dosing rate of 3.8 

percent. We also estimated that the compliant engine would have 2.25 percent better fuel 

consumption than the engine emitting at 1.2 g/hp-hr using the data in Figure 3-2 above. 

The net present value of the 2.25 percent fuel savings is $2,002 and the DEF costs of a 

3.8 percent dosing rate is $2,266, using a seven percent discount rate. Lastly, the COC90

value was calculated based on the sum of the hardware costs, DEF costs, and fuel savings 

scaled to reflect the increment between our baseline engine of 0.50 g/hp-hr and 0.20 g/hp-hr 

per the equation below.

Scaling Factor = (0.50 – 0.20 g/hp-hr) ÷ (1.2 – 0.2 g/hp-hr) = 0.30

The resulting COC90 value using this method would be $1,174, as shown in Table C -

6.

Table C - 6: Scaled EGR Baseline Engine COC90 – Medium Heavy-Duty Engines

1.2 to 0.20 g/hp-hr COC90 for 0.50 to 0.20 g/hp-hr

Hardware Costs $3,651 $1,095

DEF Costs $2,266 $680

Fuel Savings -$2,002 -$601

Total $1,174

Based on comments received, we also calculated the NCP value using the surcharges 

used by SCR manufacturers in 2010, instead of a bill of materials approach. The emission 
72

surcharges that manufacturers have released publicly are what they determined to be the price 

increase necessary to recover costs associated with reducing emissions, including R&D, 

tooling, hardware, warranty and other overhead. Since many purchasers negotiate a lower 

price, the official surcharge can be assumed to be somewhat higher than the actual cost 

increase. The surcharges for SCR equipped medium heavy-duty engines ranged from $6,000 

to $7,300. To be conservative, we used $7,300. Calculating COC90 using a hardware cost of 

the highest emission surcharge ($7,300) would clearly be a worst case cost of compliance. 

Applying this value to a linear penalty curve with an upper limit of 1.2 g/hp-hr would result in 

the following scaling factor equation:

Scaling Factor = (0.50 – 0.20 g/hp-hr) ÷ (1.2 – 0.2 g/hp-hr) = 0.30

The hardware cost for a 0.50 g/hp-hr engine would therefore be $2,190 based on the 

scaling factor. However, surcharges do not cover operating costs; therefore, the NCP value 

should also include operating costs related to DEF and fuel. 

Assuming the same operating conditions as the previous scenario, the additional DEF 

cost to take and engine from 1.2 to 0.20 g/hp-hr NOx would be $2,266 based on 3.8 percent 

DEF dosing and the fuel savings to due to the SCR would be $2,002. Again, these values 

would be scaled to represent only the difference between 0.50 and 0.20 g/hp-hr NOx. The 

sum of the hardware and operating costs would lead to a medium heavy-duty NCP value of 

$2,269, as shown in Table C - 7. 

Table C - 7: MHD Costs

1.2 to 0.20 g/hp-hr MHD for 0.50 to 0.20 g/hp-hr

Hardware Costs $7,300 $2,190

DEF Costs $2,266 $680

Fuel Savings -$2,002 -$601

Total $2,269

2. 0.50 g/hp-hr NOx Baseline Engine with EGR

We also analyzed a scenario with a baseline engine that achieved 0.50 g/hp-hr NOx 

with EGR only. We calculated the net hardware cost of adding SCR, but removing some 

hardware that would no longer be required with SCR to the engine.

Adding SCR to a 0.50 g/hp-hr EGR engine would affect operating costs in three ways: 

it would add a cost for DEF, reduce costs for fuel, and could either increase or decrease the 

frequency of repairs. 

For this scenario (like the scenario above), we added a SCR system (catalyst and 

dosing unit), an ammonia clean up catalyst, and a NOx sensor. The SCR costs were estimated 

using the same calculations as the previous scenario. In summary, the total hardware, post-
73

warranty repair, and demurrage costs for a medium heavy-duty SCR system to achieve 0.20 

g/hp-hr relative to a 1.2 g/hp-hr engine is $3,651,as shown in Table C - 8 below.

Table C - 8: Direct Manufacturer Cost (2011$)

MHD

Incremental Direct Manufacturing Cost $3,018

Research and Development Cost (2%) $60

Warranty and Other Cost (13%) $392

Post-warranty Repair Costs $114

Demurrage Costs $67

Total Hardware Cost $3,651

Unlike Scenario #1 above, we did not scale the SCR costs for this alternative. Instead, 

we took the entire cost of the SCR system and subtracted the costs for the hardware that could 

be removed from a 0.50 g/hp-hr NOx EGR only engine. In other words, this would be the net 

cost of hardware changes made to the 0.50 g/hp-hr engines. Adding SCR would affect EGR 

cooling, diesel particulate filter regeneration, and turbocharging. We project that one of the 

two EGR coolers used on the 0.50 g/hp-hr engine could be removed because of the lower 

EGR requirements. In addition, we believe that the diesel particulate filter precious metal 

loading could be reduced by approximately 20 percent because the 0.20 g/hp-hr engine would 

have higher engine-out NOx emissions and lower engine-out PM emissions. Lastly, we 

project that the twin turbochargers used on a 0.50 g/hp-hr engine could be replaced with a 

single variable geometry turbocharger. 

We estimated the EGR cooler costs based on the average retail price of four 

replacement EGR coolers available for 2008-2010 heavy-duty pickup trucks.47 The retail 

price for the MHD engines was scaled relative to the engine displacement. Then the retail 

prices were converted to direct manufacturing costs using the heavy-duty engine Retail Price 

Equivalent of 1.35 used throughout this analysis. The costs are included in Table C - 9 below.

Table C - 9: MHD EGR Cooler Costs

HD Pickup Truck

(6.4L)

MHD (8L)

Retail EGR Cooler Cost $477 $596

Direct Mfr. EGR Cooler Cost $442

We estimated the diesel particulate filter precious metal loading and washcoat costs 

based on the costs derived from the 2017-2025 Light-Duty GHG NPRM. We assumed 20 

percent of the loading could be saved based on the higher engine-out NOx emissions and 

lower soot emissions of the 0.20 g/hp-hr engine. The direct manufacturing costs were scaled 

relative to the engine displacements, as shown in Table C - 10 below.
74

Table C - 10: Diesel Particulate Filter Costs

Light-Duty (4.0L) MHD (8L)

Diesel Particulate Washcoat and Precious 

Metal Loading Direct Mfr. Cost $861

20% of Diesel Particulate Washcoat and 

Precious Metal Loading $172 $344

The retail turbocharger costs were derived from the cost report developed by ICF 

International for the Heavy-Duty Greenhouse Gas rule.

48

 The retail prices were converted to 

direct manufacturing costs using the heavy-duty engine Retail Price Equivalent of 1.35 used 

throughout this analysis. The costs are included in Table C - 11 below.

Table C - 11: Turbocharger Costs

Retail Price Direct Mfr. Cost

Twin Turbochargers $1,000 $741

Variable Geometry Turbocharger $935 $693

Net MHD Turbocharger Cost $48

The sum of the direct manufacturing costs for the components that could be removed 

from the 0.50 g/hp-hr EGR engine are included in Table C - 12, while the marked up 

hardware costs are included in Table C - 13.

Table C - 12: Net EGR Direct Manufacturer Hardware Costs

MHD

EGR Cooler $442

DPF Loading $344

Net Turbocharger Cost $48

EGR Direct Mfr. Hardware Cost $834

Table C - 13: Medium Heavy-Duty Marked Up EGR Hardware Costs 

HHD

Incremental EGR Direct Manufacturing Cost $834

Research and Development Cost (2%) $17

Warranty and Other Cost (13%) $108

EGR Marked Up Hardware Cost $959

We next calculated the costs for post-warranty repair and demurrage using the ratio of 

each of these costs to the warranty costs that was established in the 2004 NCP rule, similar to 

the process used in Section 3.3.3.3 above. The 2004 ratios are listed in Table C – 4 above. 

The resulting values are shown in Table C - 14 below.
75

Table C - 14: Medium Heavy-Duty EGR Post-warranty repair and Demurrage Costs

MHD

Total EGR Hardware Cost $959

Post-warranty Repair Cost $32

Demurrage Cost $19

EGR Incremental Cost $1,009

The net hardware costs, taking into account the SCR hardware that would be required 

to meet the 0.20 g/hp-hr NOx emissions and the components on the 0.50 g/hp-hr engine that 

would no longer be required, are $2,642 as shown in Table C - 15.

Table C - 15: Medium Heavy-Duty Engine Net Hardware Costs

HHD

SCR Incremental Cost $3,651

EGR Incremental Cost -$1,009

Net Hardware Cost $2,642

Next, we estimated the fuel and DEF operating cost differences between an engine 

meeting 0.50 g/hp-hr using EGR and a compliant engine (meeting the 0.20 g/hp-hr tailpipe 

NOx emissions standard). We estimate that the EGR baseline engine would have engine-out 

NOx emissions of 0.50 g/hp-hr. We used the same compliant engine that we defined in the 

previous scenario where the engine-out emissions assumes that this engine’s aftertreatment 

system could achieve 94 percent efficiency (at the end of the useful life) and thus have 

engine-out NOx emissions of 3.0 g/hp-hr. As described in the final scenario above, the 

compliant engine would require a 2.8 g/hp-hr NOx reduction in the aftertreatment system and 

therefore a DEF dosing rate of 3.8 percent. We also estimated that the compliant engine with 

3.0 g/hp-hr NOx engine-out emissions would have 3.25 percent better fuel consumption than 

the baseline engine with engine-out emissions of 0.50 g/hp-hr NOx using the data in Figure 

3-2 above in Chapter 3.

The net present value of the fuel savings are $2,864 and the DEF costs are $2,244, 

using a seven percent discount rate. The COC90 value was calculated based on the sum of the 

hardware costs, DEF costs, and fuel savings, as shown in Table C - 16. The COC90 value 

using this method would be $2,022.

Table C - 16: 0.50 g/hp-hr EGR Baseline Engine COC90 – Medium Heavy-Duty Engines

COC90 for 0.50 to 0.20 g/hp-hr

Hardware Costs $2,642

DEF Costs $2,244

Fuel Savings -$2,864

Total $2,022
76

3. 0.50 g/hp-hr Baseline Engine with Optimized SCR+EGR

For the proposal, we estimated that reducing NOx emission from 0.50 g/hp-hr to 0.20 

g/hp-hr would require an increase in DEF consumption of 0.40 gallons for every 100 gallons 

of fuel consumed, but would not change fuel consumption. This was consistent with our 

projection that there would be little price difference between DEF and fuel. However, we 

now have new information indicating that fuel prices will likely be significantly higher than 

DEF prices for the foreseeable future. We agree with commenters that engines manufacturers 

designing engines for 0.50 g/hp-hr NOx would have responded to this price difference by 

optimizing the engines to have slightly higher engine-out NOx to improve fuel consumption 

and reduce the excess NOx by increasing DEF consumption.

For this Final Rule, we first defined a baseline and a compliant engine (meeting the 

0.20 g/hp-hr tailpipe NOx emissions standard), both equipped with SCR. We estimate that 

the baseline engine would have engine-out NOx emissions of approximately 4.8 g/hp-hr. This 

value was derived from the assumption that the engine would have 0.5 g/hp-hr tailpipe NOx 

emissions and that the aftertreatment system is 90 percent efficient at reducing NOx. 

Similarly, we derived the engine-out emissions of the compliant engine emitting 0.20 g/hp-hr 

at the tailpipe assuming that this engine’s aftertreatment system could achieve 94 percent 

efficiency due to the additional hardware we discuss below. We estimate that the complying 

engine would have engine-out NOx emissions of 3.0 g/hp-hr. 

To determine the DEF consumption for each engine, we considered test data showing 

how NOx emissions and DEF consumption were related for a SCR engine. We obtained test 

data from a heavy-duty engine equipped with SCR tested at the National Vehicle and Fuel 

Emissions Laboratory. Figure 3-1 above in Chapter 3 shows the impact of DEF dosing rate 

on NOx emission reduction achieved in the SCR system follows a linear trend. We used the 

linear trend equation for each scenario to determine the DEF dosing rate based on the NOx 

emissions reduction required of the aftertreatment system. The baseline engine, which 

requires a 4.3 g/hp-hr NOx reduction would require a DEF dosing rate of 5.9 percent. 

Similarly, the compliant engine would require a 2.8 g/hp-hr NOx reduction in the 

aftertreatment system and therefore a DEF dosing rate of 3.8 percent.

Next, we estimated the fuel consumption impact due to engine calibration changes, 

such as changes to injection timing and EGR rates, to achieve various engine-out NOx 

emissions. Figure 3-2 above in Chapter 3 shows our estimate of the impact, based partially on 

confidential business information provided by engine manufacturers. We project that the fuel 

consumption of the compliant engine with engine-out emissions of 3.0 g/hp-hr would be 

approximately 1.9 percent worse than the baseline engine with engine-out emissions of 4.8 

g/hp-hr.
77

Next we calculated the NPV of the DEF and fuel consumption changes. We estimated 

the NPV of the DEF impact using a DEF prices discussed above in Section 3.1.3 and included 

in Appendix A. We estimated the NPV of the fuel impact using projected fuel prices from the 

Annual Energy Outlook 2012. The baseline fuel economy of a typical medium heavy-duty 

vehicle was assumed to be 9.71 mpg based on the baseline fuel consumption rates generated 

for the Heavy-Duty GHG rule.49 The NPV of the lifetime costs of the incremental decrease in 

DEF consumption is $1,235 and increase in fuel consumption of $1,762, using a seven 

percent discount rate and 2011 dollars. 

An SCR aftertreatment system may 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, a sensor for better control over the urea injection. All of these 

costs would apply for both the typical and worst case engines, except for the turbocharger 

enhancements, which would only apply to the worst case engine. 

The incremental SCR catalyst costs were estimated from the direct manufacturing 

costs of a SCR system projected for a light-duty pickup truck in the 2017-2025 Light-Duty 

Greenhouse Gas Emissions Notice of Proposed Rulemaking.50 We first converted the costs 

from 2009 dollars to 2011 dollars and then scaled the direct manufacturing cost of the SCR 

catalyst based on the ratio of typical engine displacement in each engine class, as shown in

Table C - 17 below.

Table C - 17: SCR Direct Manufacturer Cost (2011$)

Light-Duty Pickup 

Truck (4.0L)

MHD (8L)

Complete SCR Catalyst $427 $853

20% SCR Catalyst Cost $171

The incremental cost of the catalyst to improve the NOx conversion efficiency through 

increased SCR catalyst volume and/or improved loading is estimated to be 20 percent of the 

total catalyst cost, as shown below. The Agency then applied a 1.15 indirect cost multiplier 

(ICM) to convert the direct manufacturing costs to marked up costs. The 1.15 multiplier 

consists of two percent for research and development and 13 percent for warranty and other 

costs.51 The marked up costs are shown below in Table C - 18.

Table C - 18: SCR Catalyst Incremental Cost

MHD

Incremental Direct Manufacturing Cost $171

Research and Development Cost (2%) $3

Warranty and Other Cost (13%) $22
78

Total Incremental SCR Catalyst Cost $196

The incremental DOC costs were estimated using the same cost process used for the 

SCR catalyst. The direct manufacturing costs of the DOC are estimated from a light-duty 

pickup truck DOC cost in the 2017-2025 Light-Duty Greenhouse Gas Emissions Notice of 

Proposed Rulemaking.52 We first converted the DOC costs from 2009 dollars to 2011 dollars 

and then scaled the direct manufacturing cost of the DOC based on the ratio of typical engine 

displacement in each engine class, as shown in Table C - 19 below.

Table C - 19: DOC Direct Manufacturer Cost (2011$)

Light-Duty (4.0L) MHD (8L)

DOC $528 $1,057

We agree with commenters which stated that the DOC would require additional 

precious metals in the compliant engine because the lower engine out NOx emissions would 

require additional nitrogen dioxide production from the DOC. Our estimate is that the 

improved loading would cost approximately 20 percent of the total DOC cost, as shown 

below in Table C - 20. Also shown in the table below, we then applied a two percent mark up 

for research and development and 13 percent for warranty and other costs.53 

Table C - 20: DOC Incremental Cost

MHD

Incremental Direct Manufacturing Cost $211

Research and Development Cost (2%) $4

Warranty and Other Cost (13%) $27

Total Incremental DOC Cost $243

The cost for an ammonia sensor was developed by converting a sensor’s retail price to 

a direct manufacturing cost and then to a marked up cost, similar to the procedure used above 

for the SCR catalyst cost. The direct manufacturing costs were calculated based on the Retail 

Price Equivalent (RPE). The RPE for heavy-duty engines is 1.36 as found in the study 

conducted by ICF International for the Heavy-Duty Greenhouse Gas Emissions rulemaking.54 

The sensor costs are shown in Table C - 21.

55

 

Table C - 21: Incremental Sensor Cost
79

MHD

Sensor Retail Price $221

Sensor Direct Manufacturing Cost $164

Sensor Research and Development Cost (2%) $3

Sensor Warranty and Other Cost (13%) $21

Total Incremental Sensor Cost $189

Finally, we calculated the costs of modifications required for the variable geometry 

turbocharger. Based on the Light-Duty GHG cost estimates, we estimated that the VGT 

would have a direct manufacturing cost of $218 (2011$) for a large pick-up. Using cylinder 

displacement volume to ratio the costs into the medium and heavy heavy-duty classes, we 

derived the VGT costs included in Table C - 22.

Table C - 22: VGT Direct Manufacturer Cost (2011$)

Light-Duty Pickup 

Truck (4.0L)

MHD (8L)

VGT $218 $436

We agree with commenters who stated that the turbomachinery may require additional 

costs in the compliant engine because of the higher EGR rates required to achieve the lower 

engine-out NOx emissions would require additional thermal management and performance 

balancing. Our estimate is that the improved VGT would cost approximately 20 percent of 

the total VGT cost, as shown below in Table C - 23.

Table C - 23: VGT Incremental Cost for COC90

MHD

Incremental Direct Manufacturing Cost $87

Research and Development Cost (2%) $2

Warranty and Other Cost (13%) $11

Total Incremental VGT Cost $100

Manufacturers would generally be expected to incur additional warranty costs due to 

the addition of new components, as noted above in the hardware costs. Typically, this would 

cover the costs of repairs that are needed during the warranty period. There can also be 

additional unscheduled repairs to the new hardware. In addition, for both warranty repairs 

and post-warranty repairs, there are also real costs incurred by the vehicle owners for 

demurrage (i.e., the time during which the vehicle is out of service). 

Some manufacturers provided us with estimates with post-warranty repair costs with 

demurrage, while others did not. After reviewing these different estimates, it became clear 

that they were not consistent, and that we needed to estimate post-warranty repair and 

demurrage costs separately. 
80

For the Final Rule, we calculated the post-warranty repair and demurrage costs 

relative to the incremental warranty costs we calculated above. We utilized the ratio of the 

post-warranty repair and demurrage costs relative to the warranty costs from 2004 to calculate 

the 2012 post-warranty repair and demurrage costs, as shown in Table C - 24 below.

Table C - 24: Final Rule Warranty, Post-warranty repair, and Demurrage Costs for 2012 MY 

MHD Engines

MHD

Warranty Costs $13

Post-Warranty Repair Costs $13

Demurrage Costs $8

We estimate that the warranty and post warranty costs of the OBD-related issues are 

$27 based on the assumption that a MHD engine costs approximately $20,000 and that all 

warranty costs are two percent of the direct manufacturing cost, per our Indirect Cost 

Multiplier approach that is being used throughout this analysis. We assumed that 50 percent 

of the warranty costs are emission-related, and of those, only five percent are related to OBD 

threshold levels. This leads to an OBD-caused warranty level of $10 and using the ratios in 

Table C-4, the post warranty OBD costs would be $17. The OBD-related repair costs for 

MHD engines are included below in Table C - 25. 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.

Table C - 25: OBD Warranty and Post-Warranty Repair Costs for 2012 MY MHD Engines

OBD Related 

Warranty

OBD Related 

Post-warranty 

Repair

OBD Threshold Related Costs $10 $17

The total estimated costs for COC90 for MHD engines are included below in Table C -

26.
81

Table C - 26: MHD COC90 Costs

MHD

COC90

Fuel Operating Costs $1,762

DEF Operating Savings -$1,235

Hardware Costs $633

Research and Development Cost $13

Warranty and Other Manufacturer Costs $92

Post-warranty Repair Costs $30

Demurrage Costs $8

Total Cost $1,303

4. Summary of the MHD NCP Analysis

As noted earlier, a complying manufacturer could be competing against not only EGRequipped engines, but also against SCR-equipped engines that could be reoptimized to emit at 

0.50 g/hr-hr. Thus, in selecting our cost methodology we must consider both types of 

engines. For medium heavy-duty, we currently believe that the methodology based on a 0.50 

g/hp-hr EGR engine would best conform to the statutory requirements to allow noncomplying 

manufacturers to continue selling engines without any competitive advantage. We are also 

considering the methodology based on a reoptimized 0.50 g/hp-hr SCR engine. However, we 

believe that the EGR baseline engine would have a larger competitive advantage over 

compliant medium heavy-duty engines, so that basing the penalties on the reoptimized SCR 

engine would be less protective for complying manufacturers. This is reflected in the fact that 

our estimate of the costs associated with bringing an optimized 0.50 g/hp-hr SCR into 

compliance is less than our estimate of the costs associated with bringing a 0.50 g/hp-hr EGR 

into compliance.

The reason the why the appropriate baseline engine for medium heavy-duty (an EGR 

engine) is different than the appropriate baseline engine for heavy heavy-duty (an SCR 

engine) is that medium heavy-duty vehicles do not normally accrue as many miles during 

their lifetimes as heavy heavy-duty vehicles, which reduces the lifetime operating costs. 

Purchasers of medium heavy-duty engines tend to more concerned about hardware costs (and 

less about operating costs) than purchasers of heavy heavy-duty engines.

Note that while we evaluated approach involving a higher upper limit, we think that it 

would not be appropriate to set the upper limit at 1.2 g/hp-hr. In particular, NCPs should not 

be available for levels that are higher than the level that EPA determines is practicable, which 

in this case would be no higher than 0.50 g/hp-hr.
82

Reoptimized SCR 

Baseline 0.50 g/hphr Engine

1.2 g/hp-hr SCR 

Baseline Engine 

with Scaled Costs

0.50 g/hp-hr EGR 

Baseline Engine

Description of 

Alternative

Base NCPs on a 

baseline engine that 

achieves 0.50 g/hphr NOx using SCR 

that is reoptimized 

for fuel and DEF 

consumption.

Base NCPs on the 

full cost of 

hardware needed to 

reduce NOx 

emissions from 1.2 

g/hp-hr (the typical 

emission level of a 

2009 engine) to 

0.20 g/hp-hr scaled 

to represent the 

costs for an engine 

with a compliance 

level at 0.50 g/hphr.

Base NCPs on a 

baseline engine that 

achieves 0.50 g/hphr NOx without 

SCR.

First-Year Penalty 

at 0.50 g/hp-hr

$1,303 $1,174 – 2,269 $2,022
83

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3

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for Medium- and Heavy-Duty Engines and Vehicles – Regulatory Impact Analysis. Page 6-2. The baseline fuel 

efficiency for HHD is 20.3 gal/100 mile and vocational diesel vehicles equal 10.3 gal/100 mile.

27 U.S. Environmental Protection Agency and National Highway Traffic Safety Administration. Draft Joint 

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Advanced Diesel costs. 

28 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. Table 4-8. July 

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Emission Standards and Corporate Average Fuel Economy. Page 3-96. Last viewed on April 25, 2012 at 

http://www.epa.gov/otaq/climate/documents/420d11901.pdf. The SCR and DOC costs are built into the 

Advanced Diesel costs. 

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http://www.newgmparts.com/partlocator/index.cfm?action=getJointLocator&siteid=213815&chapter=§ioni
85

 

ds=2,2496&groupid=2497&subgroupid=104139&make=6&model=Silverado%203500HD&year=2011&catalog

id=2&displayCatalogid=0

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2004 Highway Heavy Duty Diesel Engines. August 2002. Table 3-7 on Page 27.

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for Medium- and Heavy-Duty Engines and Vehicles – Regulatory Impact Analysis. Page 6-2. The baseline fuel 

efficiency for HHD is 20.3 gal/100 mile and vocational diesel vehicles equal 10.3 gal/100 mile.

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Emission Standards and Corporate Average Fuel Economy. Page 3-96. Last viewed on April 25, 2012 at 

http://www.epa.gov/otaq/climate/documents/420d11901.pdf. The SCR and DOC costs are built into the 

Advanced Diesel costs. 

38 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. July 2010.

39 NewGMParts.com. NOx sensor for a 6.6L diesel engine for a GM 3500 HD Pickup truck retailed for $221. 

Last accessed on 12/5/2011 at 

http://www.newgmparts.com/partlocator/index.cfm?action=getJointLocator&siteid=213815&chapter=§ioni

ds=2,2496&groupid=2497&subgroupid=104139&make=6&model=Silverado%203500HD&year=2011&catalog

id=2&displayCatalogid=0

40 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. Table 4-8. July 

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41 Last viewed on April 25, 2012 at http://www.bulletproofdiesel.com/BulletProof_EGR_Cooler_Square_p/ntegrc-1.htm, http://www.ocdiesel.com/Bullet-Proof-Diesel-EGR-Cooler-Horizontal-p/bpd%206700001.htm, 

http://www.ocdiesel.com/Bullet-Proof-Diesel-EGR-Cooler-Vertical-p/bpd%206700002.htm, 

http://www.napaonline.com/Catalog/CatalogItemDetail.aspx?R=BK_6003561_0359565975

42 ICF International. Investigation of Costs for Strategies to Reduce Greenhouse Gas Emissions for Heavy-Duty 

On-Road Vehicles. July 20, 2010. Page 83.

43 U.S. Environmental Protection Agency and National Highway Traffic Safety Administration. Draft Joint 

Technical Support Document: Proposed Rulemaking for 2017-2025 Light-Duty Vehicle Greenhouse Gas 

Emission Standards and Corporate Average Fuel Economy. Page 3-96. Last viewed on April 25, 2012 at 

http://www.epa.gov/otaq/climate/documents/420d11901.pdf. The SCR and DOC costs are built into the 

Advanced Diesel costs. 

44 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. July 2010.
86

 

45 NewGMParts.com. NOx sensor for a 6.6L diesel engine for a GM 3500 HD Pickup truck retailed for $221. 

Last accessed on 12/5/2011 at 

http://www.newgmparts.com/partlocator/index.cfm?action=getJointLocator&siteid=213815&chapter=§ioni

ds=2,2496&groupid=2497&subgroupid=104139&make=6&model=Silverado%203500HD&year=2011&catalog

id=2&displayCatalogid=0

46 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. Table 4-8. July 

2010.

47 Last viewed on April 25, 2012 at http://www.bulletproofdiesel.com/BulletProof_EGR_Cooler_Square_p/ntegrc-1.htm, http://www.ocdiesel.com/Bullet-Proof-Diesel-EGR-Cooler-Horizontal-p/bpd%206700001.htm, 

http://www.ocdiesel.com/Bullet-Proof-Diesel-EGR-Cooler-Vertical-p/bpd%206700002.htm, 

http://www.napaonline.com/Catalog/CatalogItemDetail.aspx?R=BK_6003561_0359565975

48 ICF International. Investigation of Costs for Strategies to Reduce Greenhouse Gas Emissions for Heavy-Duty 

On-Road Vehicles. July 20, 2010. Page 83.

49 U.S.EPA. Final Rulemaking to Establish Greenhouse Gas Emissions Standards and Fuel Efficiency Standards 

for Medium- and Heavy-Duty Engines and Vehicles – Regulatory Impact Analysis. Page 6-2. The baseline fuel 

efficiency for HHD is 20.3 gal/100 mile and vocational diesel vehicles equal 10.3 gal/100 mile.

50 U.S. Environmental Protection Agency and National Highway Traffic Safety Administration. Draft Joint 

Technical Support Document: Proposed Rulemaking for 2017-2025 Light-Duty Vehicle Greenhouse Gas 

Emission Standards and Corporate Average Fuel Economy. Page 3-96. Last viewed on April 25, 2012 at 

http://www.epa.gov/otaq/climate/documents/420d11901.pdf. The SCR and DOC costs are built into the 

Advanced Diesel costs. 

51 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. Table 4-8. July 

2010.

52 U.S. Environmental Protection Agency and National Highway Traffic Safety Administration. Draft Joint 

Technical Support Document: Proposed Rulemaking for 2017-2025 Light-Duty Vehicle Greenhouse Gas 

Emission Standards and Corporate Average Fuel Economy. Page 3-96. Last viewed on April 25, 2012 at 

http://www.epa.gov/otaq/climate/documents/420d11901.pdf. The SCR and DOC costs are built into the 

Advanced Diesel costs. 

53 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. Table 4-8. July 

2010.

54 RTI International. Heavy-duty Truck Retail Price Equivalent and Indirect Cost Multipliers. July 2010.

55 NewGMParts.com. NOx sensor for a 6.6L diesel engine for a GM 3500 HD Pickup truck retailed for $221. 

Last accessed on 12/5/2011 at 

http://www.newgmparts.com/partlocator/index.cfm?action=getJointLocator&siteid=213815&chapter=§ioni

ds=2,2496&groupid=2497&subgroupid=104139&make=6&model=Silverado%203500HD&year=2011&catalog

id=2&displayCatalogid=0