a

GAO

United States General Accounting Office

Report to Congressional Requesters

March 2004 AIR POLLUTION

EPA Could Take 

Additional Steps to 

Help Maximize the 

Benefits from the 2007 

Diesel Emissions 

Standards

GAO-04-313
www.gao.gov/cgi-bin/getrpt?GAO-04-313.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact John B. 

Stephenson at (202) 512-6225 or 

stephensonj@gao.gov. 

Highlights of GAO-04-313, a report to 

congressional requesters 

March 2004

AIR POLLUTION

EPA Could Take Additional Steps to Help 

Maximize the Benefits from the 2007 

Diesel Emissions Standards 

Implementing the 2004 diesel emissions standards 15 months early disrupted 

some industries’ operations but also helped reduce pollution earlier. More 

specifically, because some manufacturers had to build new engines sooner than 

planned, most could not provide trucking companies with prototype engines 

early enough to test. Concerned that the new engines would be costly and 

unreliable, some of the companies said they bought more trucks with old 

engines than planned before October 2002. Our analysis of truck production and 

financial data also shows this surge. This adversely affected some companies’ 

operations and profits. To meet the increased demand for trucks with old 

engines, some manufacturers reported that they ramped up production of such 

engines before October. But when demand subsequently dropped, they had to 

decrease production and release workers, reducing profits and disrupting 

operations, at least until demand increased later in 2003. Manufacturers of the 

new engines also continued to lose market share to manufacturers that either 

did not have to meet the early date, or that did but chose not to, paying penalties 

instead. While accelerating the schedule for new engines affected some 

industries, it accelerated emissions benefits, although not to the extent or in the 

time frames anticipated. For example, EPA roughly estimated that its 

agreements with engine manufacturers that violated standards would reduce 

nitrogen oxide emissions by about 4 million tons over the life of the engines. But

because companies initially bought more trucks with old engines and owners are 

now operating trucks longer, some of the expected emissions reductions will be 

delayed. 

As for the 2007 standards, EPA has taken a number of steps to aid the transition 

to the new diesel engines and fuel, but some stakeholders would like more help. 

Most engine, emissions control, and fuel industry representatives said the 

needed technologies will be ready on time; but other engine, trucking, and fuel 

representatives have concerns and would like more help to ensure that the 

technology will be available. For example, manufacturers plan to have limited 

numbers of prototype engines ready for a few fleets to test by mid- to late-2005—

trucking companies say they need new engines 18 to 24 months before the 2007 

deadline to test the engines in all weather conditions and to develop their longterm purchasing plans. Some companies, however, are concerned that providing

test engines to only a few fleets may not provide the industry as a whole with 

sufficient information to judge the engines’ performance. In addition, they are 

still concerned that the new engines may be too costly and much less fuelefficient. As a result, they expect companies will again buy more trucks with old 

engines before the deadline, disrupting industry operations and emissions 

benefits. The fuel industry representatives said they can produce the low-sulfur 

fuel the new engines require on time and see no reason to delay the standards. 

Nevertheless, they worry the fuel initially may not be available nationwide and it 

may be difficult not to contaminate it with other fuels in the distribution system. 

Environmental and health groups do not want to delay the standards or the 

expected emissions benefits. Some stakeholders would like more information 

on technological progress. In addition, they would like more reassurance—such 

as from an independent review panel—that the technology will be ready on time 

and additional assistance—such as economic incentives—to encourage timely 

purchases of trucks with the new technologies. 

Diesel engine emissions pose 

health risks, but one major 

source—heavy-duty diesel 

vehicles—is critical for our 

economy. To reduce risks, the 

Environmental Protection Agency 

(EPA) has set stringent emissions 

standards for diesel engines. In 

1998, EPA found that some engine 

makers were violating standards, 

so they agreed to build engines that 

meet 2004 standards early, by 

October 2002. EPA has set even 

more stringent standards for 2007. 

GAO was asked to (1) assess the 

October 2002 deadline’s effects on 

industry and emissions, and (2) 

obtain stakeholders’ views on the 

readiness of technology for the 

2007 standards and EPA’s efforts to 

ensure this. GAO analyzed 

information from EPA, 10 large 

trucking companies, the engine 

makers subject to the early 

deadline, and other stakeholders. 

GAO recommends that EPA 

consider ways to address concerns 

about technology costs, reliability, 

and availability to meet the 2007 

standards—such as better 

communicating with all 

stakeholders and using an 

independent panel to assess 

progress and consider industry 

incentives. EPA is concerned 

about some of GAO’s findings and 

fears a panel could delay progress. 

GAO maintains its findings are well 

supported and that a panel could 

ultimately help improve 

communications, avoid delays, and 

ensure the benefits are achieved. 
Page i GAO-04-313 Air Pollution

Contents

Letter 1

Results in Brief 4

Background 9

The Consent Decrees and Their Accelerated Schedule for Reducing 

Diesel Emissions Overall Negatively Affected Sales of the Largest 

Trucks and Engines but Achieved Some Air Quality Benefits 15

Remaining Technology Challenges Must Be Resolved to Meet the 

2007 Standards, and Stakeholders’ Opinions Differ as to Whether 

They Will Be Addressed in Time 25

Some Stakeholders Commended EPA’s Efforts to Ensure 

Technology Is Ready by 2007, but Others Would Like the Agency 

to Provide More Certainty 36

Conclusions 45

Recommendation for Executive Action 46

Agency Comments and Our Evaluation 46

Appendixes

Appendix I: Scope and Methodology 52

Appendix II: Analysis of Class 8 Truck Production Data: January 1992 

through June 2003 59

Theoretical Framework 59

Data Used in the Estimation 61

Discussion of Results of Analysis 64

Appendix III: Comments from the Environmental Protection Agency 68

GAO Comments 73

Appendix IV: GAO Contacts and Staff Acknowledgments 78

GAO Contacts 78

Acknowledgments 78

Tables Table 1: Information on the Emission Standards Violations and 

Conditions of the 1998 Consent Decrees with Diesel 

Engine Manufacturers 12

Table 2: Responses of Ten Large Trucking Companies to the 

Consent Decrees and Their Basis for These Responses 17

Table 3: Fuel Industry Representatives’ Primary Concerns 29

Table 4: Ten Large Trucking Companies Involved in Freight 

Transportation in 2002 52
Contents

Page ii GAO-04-313 Air Pollution

Table 5: Stakeholders Providing the Most Comments on EPA’s 

Proposed 2007 Diesel Emissions Rule and the Number of 

Issues Addressed by Each 55

Table 6: Descriptive Statistics of Variables Used in Our Analysis 63

Table 7: Results of Selected Specification 64

Figures Figure 1: EPA’s Nitrogen Oxide Emissions Standards for 

Heavy-Duty Diesel Truck Engines, 1988 to 2007 11

Figure 2: U.S. and Canadian Production of Class 8 Diesel Trucks, 

January 2000 through June 2003 19

Figure 3: Comparison of Market Shares of Producers of Class 8 

Diesel Engines That Complied with the Decrees’ Nitrogen 

Oxide Standard and Those That Did Not Comply with the 

Decrees’ Nitrogen Oxide Standard: 1998 to 2003 22

Abbreviations

ACERT advanced combustion emissions reduction technology

ASTM American Society for Testing and Materials

ATA American Trucking Associations

BEA Bureau of Economic Analysis

BLS Bureau of Labor Statistics

EPA U. S. Environmental Protection Agency

FHA Federal Highway Administration

GAO U. S. General Accounting Office

GDP Gross Domestic Product

PPI Producer Price Index

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately.
Page 1 GAO-04-313 Air Pollution

United States General Accounting Office

Washington, D.C. 20548

A

March 11, 2004 Letr

Congressional Requesters:

Exhaust from diesel engines is among the most pervasive and harmful 

sources of air pollution. Diesel exhaust contains nitrogen oxides and 

several other toxic components and chemicals that, combined, pose a 

cancer risk greater than that of any other air pollutant, according to the 

American Lung Association.1

 Heavy-duty diesel vehicles—including, among 

others, those used to haul freight over long distances—are major 

contributors to nationwide diesel exhaust emissions, generating about 2.5 

million tons of nitrogen oxide emissions annually. 2

 However, large dieselpowered trucks are also critical to the nation’s economy.

To combat diesel-related health risks, EPA, under the Clean Air Act, sets 

standards for emissions from diesel engines. EPA may take enforcement 

action against any manufacturers selling engines that fail to comply with 

the standards. Since 1984, EPA has implemented standards that have 

progressively lowered the amount of key pollutants from diesel engines by 

more than 75 percent. In 1998, EPA found that a number of engine 

manufacturers, accounting for about 90 percent of the U.S. heavy-duty 

diesel engine market, had sold 1.3 million engines—almost all of the largest 

engines they had produced since 1987—that under certain circumstances 

were emitting nitrogen oxides at levels up to three times higher than 

allowed by the standards in place at that time. To achieve compliance, EPA, 

the U.S. Department of Justice, and these manufacturers agreed to be 

bound by consent decrees, legally binding dispute settlements. In what is 

commonly referred to as the pull-ahead provision of the decrees, the 

manufacturers found to have violated emissions standards agreed to 

accelerate by 15 months the schedule for meeting new, more stringent 

engine standards to October 2002 instead of the original mandatory date of 

2004. 

1

While diesel exhaust includes numerous toxic components, this report focuses primarily on 

nitrogen oxides, commonly referred to as NOx.

2

This report focuses only on heavy-duty highway diesel engines, defined by EPA as engines 

used in heavy-duty vehicles with a gross vehicle weight of 8,500 pounds or more. EPA 

certifies heavy-duty diesel engines in three categories: light heavy-duty (typically used in 

Class 2b through Class 5 vehicles weighing 8,500 to 19,500 pounds); medium heavy-duty (in 

Class 6 and 7 vehicles weighing 19,501 to 33,000 pounds); and heavy heavy-duty (in Class 8 

vehicles weighing more than 33,000 pounds).
Page 2 GAO-04-313 Air Pollution

In 2007, all diesel engine manufacturers will be required to meet still more 

stringent standards and the technology needed to meet them will require 

significant advancements over current engine and emissions control 

equipment. In addition, the engines will need a new grade of diesel fuel, 

with significantly lower sulfur content than current diesel supplies, to 

prevent degradation of the enhanced emissions control devices. To meet 

the 2007 requirement that at least 80 percent of all diesel fuel be the lowsulfur grade, refiners must begin producing this cleaner fuel by mid-2006. 

Distributors may also need to modify the nationwide distribution system to 

initially accommodate both the current and new fuel grades. Still more 

stringent emissions requirements are scheduled to go into effect in 2010.

Ultimately, the extent to which the trucking industry purchases trucks with 

the new engines—either the engines produced for the October 2002 

deadline or the 2007 standards—helps to determine whether the expected 

air quality benefits will be achieved in the time frames anticipated. 

Uncertainties about the availability, costs, reliability, and fuel-efficiency of 

these engines could negatively affect truck sales. This, in turn, could affect 

both the engine manufacturing and trucking industries. In this context, you 

asked us to (1) assess what impact, if any, the consent decrees’ provisions 

had on trucking companies, engine manufacturers, and expected nitrogen 

oxide emissions reductions; (2) obtain stakeholders’ views on whether new 

engine technologies and low-sulfur fuel will be available for industries to 

comply with the 2007 standards; and (3) obtain stakeholders’ views on 

EPA’s actions to ensure that the technologies and fuel will be ready in time. 
Page 3 GAO-04-313 Air Pollution

To respond to the first objective, we performed econometric modeling 

using production data for Class 8 diesel trucks—the largest class of trucks, 

generally powered by heavy-heavy-duty diesel engines—and other 

economic data from January 1992 through June 2003 to determine how, if 

at all, the accelerated implementation of the standards affected purchases 

of these trucks.3

 We also contacted, among others, officials of 10 of the 

nation’s largest trucking companies. We selected these companies because, 

on the basis of their truck fleet size, they seemed more likely than smaller 

companies to have purchased new trucks in the months before and 

immediately after October 2002. Therefore, they could recount their 

experience with the new engines and the impacts of the accelerated 

schedule. Because these companies were not selected randomly, we cannot 

project our findings to the entire trucking industry. We also contacted 

officials of the five existing engine manufacturers that were subject to the 

consent decrees.4

 Three of these manufacturers are also diesel truck 

manufacturers, and as such are responsible for redesigning truck chassis to 

incorporate the new engines and emissions control devices. We asked 

representatives of all five manufacturers a uniform set of questions about 

their companies’ strategies in reacting to the decrees, the resulting effects 

on their operations, and the manufacturers’ experiences with the new 

engines designed to comply with the decrees. In addition, we reviewed 

financial statements that some of these trucking and engine manufacturing 

companies submitted to the Securities and Exchange Commission to 

identify effects that the companies publicly disclosed. While we asked the 

engine manufacturers for data to substantiate their views, they generally 

preferred not to release information about their confidential engine 

designs. We were unable to identify any other independent analyses of the 

impacts of the consent decrees. 

3

Our analysis of the consent decrees' effects focuses on class 8 trucks because (1) these 

trucks comprise the largest class of trucks in service in the United States and, according to 

EPA data, account for about 90 percent of the emissions reductions expected from the pullahead provisions of the decrees, and (2) the manufacturers subject to the decrees account 

for about 95 percent of the U.S. market for these trucks. For our analysis, we used data 

starting in January 1992 because this was the earliest date for which detailed monthly truck 

production data were available, and ending in June 2003 because this was the latest date for 

which such data were available when we completed this segment of our analysis.

4

Seven manufacturers were originally subject to the consent decrees. Three of the 

manufacturers merged into one company, leaving five manufacturers subject to the decrees 

at the time of our review.
Page 4 GAO-04-313 Air Pollution

To determine the air quality effects of the decrees, we reviewed EPA’s 

estimates of the expected emissions reductions from accelerating the 

schedule for the new, cleaner engines. EPA made its estimate by using 1998 

truck production data to project the number of trucks with new engines it 

expected to be on the roads after the October 2002 deadline. We compared 

EPA’s projections of the number of trucks that would have new engines to 

the actual number of trucks produced with the new engines and assessed 

the likelihood that EPA would achieve the expected emissions reductions. 

We also discussed with EPA officials and staff the basis for their estimates 

of the expected emissions reductions from a second provision of the 

consent decrees, whereby truck owners would have emission computer 

controls on their older engines adjusted during engine overhauls. 

To identify stakeholders’ views on industries’ ability to comply with the 

2007 standards and EPA's activities to ensure the technologies are ready on 

time, we contacted officials representing 16 organizations and companies 

that offered the largest number of comments on EPA's 2007 emissions 

standards when proposed in 2000. These organizations represent the 

following industries: fuel, engine, and emissions control equipment 

manufacturing; trucking; and automobile manufacturers. They also 

represent environmental and health interests, as well as state and local 

governments. Finally, we discussed EPA’s actions to ensure the new engine 

technologies and low-sulfur fuel will be ready in time, as well as the 

agency’s plans if the standards cannot be implemented on schedule, with 

the Director of EPA’s Office of Transportation and Air Quality, as well as 

program managers from the agency’s Office of Air and Radiation (in 

Washington, D.C., and Ann Arbor, Michigan). (App. I includes a more 

detailed description of our methodology for conducting our work and 

selecting the stakeholders we interviewed.)

Results in Brief The consent decrees’ accelerated schedule for producing cleaner diesel 

engines helped reduce emission levels earlier than originally planned but 

also had a disruptive effect on most of the trucking companies and engine 

manufacturers we contacted. Most manufacturers were able to produce the 

cleaner engines by the accelerated deadline. However, they were not able 

to deliver prototype engines to trucking companies early enough for them 

to test the engines’ reliability, according to representatives of all 10 

companies we contacted. As a result, by October 2002, only 2 of the 10 

companies had bought a significant number of trucks equipped with the 

new, cleaner engines—which, according to company representatives, have 

operated well but have also increased fuel costs and may increase 
Page 5 GAO-04-313 Air Pollution

maintenance costs. The other eight companies initially postponed buying 

large numbers of trucks with the cleaner engines. For the most part, these 

companies instead bought more used trucks or new trucks with older 

technology than planned before October 2002. Truck production data 

suggest that other companies did this as well. Representatives of some of 

the eight companies said that their purchasing decisions, which allowed 

them to avoid the more expensive and potentially unreliable new engines, 

resulted in excess capacity and idle vehicles. This affected some of the 

larger companies’ operations and profits, according to the representatives, 

at least in the short term, and some of the small- to mid-sized companies 

may have also experienced some difficulties. 

These truck-purchasing decisions in response to the consent decrees had a 

ripple effect on engine manufacturers, according to representatives of the 

five engine manufacturers subject to the consent decrees that we 

contacted. These representatives told us that, to meet the increased 

demand for old technology trucks before October 2002, their companies 

hired new workers and increased operations, concurrently increasing 

sales. But, after the deadline, engine orders dropped—at least until leveling 

off again by the end of fiscal year 2003—and the manufacturers let go many 

new hires and suspended operations at some plants. Such instability 

resulted in increased costs and a net loss of revenue for some 

manufacturers, according to their representatives. In addition, four of the 

five engine manufacturers that had to build the cleaner engines earlier than 

planned lost a total of 23 percent of the market to other manufacturers 

between 1998—before the consent decrees went into effect—and 

September 2003. These four manufacturers lost market shares to one that 

did not have to make cleaner engines before 2004, and to two that did but 

chose instead to postpone making the cleaner engines and either pay 

penalties or compensate for excess emissions through other actions. While 

other factors also contributed to these changing market trends, 

representatives of the engine manufacturers and trucking companies we 

contacted said that the new engines had inherent drawbacks that placed 

them at a competitive disadvantage with the older diesel engines. 

The consent decrees did reduce emissions but not to the extent or in the 

time frames EPA anticipated. While EPA realized that accelerating the 

schedule for putting cleaner diesel engines on the roads by 15 months 

would have some economic impact, it estimated that this action would 

accelerate emissions reductions, thereby better protecting public health. 

EPA estimated that two provisions of the consent decrees would achieve a 

reduction of roughly 4 million tons of nitrogen oxide. For example, EPA 
Page 6 GAO-04-313 Air Pollution

estimated that one provision—accelerating the schedule—would avert 

about 1 million tons of nitrogen oxides that would have been emitted if 

trucks with the older engine technology had been operating instead during 

this time. EPA estimated that a second provision of the consent decrees—

requiring that computers on older engines be adjusted to better control 

emissions when the engines were being overhauled—would avoid about 3 

million more tons of nitrogen oxide emissions over the remaining life of 

these engines. However, at the time EPA made its estimates, it used 1998 

truck production data, the most recent available, to predict future 

production. But overall production from October 2002 to December 2003—

the time period of the accelerated schedule—was actually relatively lower. 

In addition, as discussed, trucking companies bought more trucks with the 

older-engine technology before October 2002 than expected. Furthermore, 

truck owners are now operating their trucks longer before overhauling the 

engines and adjusting the emissions computer controls. As a result, not all 

of the 4 million in reductions is likely to be achieved in the time frames 

anticipated.

While EPA and the stakeholders designing new emissions control, engine, 

and fuel technologies say they will be ready to meet the more stringent 

standards for 2007, the trucking industry has concerns. Representatives of 

the association of emissions control technology manufacturers and the five 

engine manufacturers we contacted said that the technologies to control 

diesel emissions have advanced. While they acknowledged that several 

technical problems remain, all of the engine manufacturers reported that 

they expect to have engines ready by 2007 and plan to have prototype 

engines ready for trucking companies to test by mid- to late-2005. Trucking 

companies maintain they need 18 to 24 months to road test an engine’s 

reliability in all weather and operating conditions and to develop their 

future purchasing plans. Representatives of the fuel industry recognize that 

further work is needed to resolve such issues as whether (1) low-sulfur fuel 

will be available on time in sufficient volumes and in enough locations; and 

(2) fuel distributors will be able to avoid contaminating it with higher sulfur 

fuel that uses the same distribution systems but damages the emissions 

control equipment. Nevertheless, fuel industry representatives believe 

there is sufficient time to resolve these issues and that they are not a reason 

for delaying the 2007 standards, especially since the industry has made 

such a considerable investment to date. The environmental and health 

groups we contacted generally agree it is important not to delay the 

expected emissions reductions.
Page 7 GAO-04-313 Air Pollution

Representatives of the trucking companies we contacted, however, are not 

convinced that the new standards can be implemented smoothly and on 

time. They cite as problems the lingering questions about engine and fuel 

technology, the negative economic impact trucking companies experienced 

under the consent decrees, and the continuing doubts about whether they 

will have prototype engines early enough to fully test them before 2007. In 

addition, because the technologies needed to meet the 2007 standards are 

much more advanced than those associated with prior upgrades, the 

trucking companies are concerned that the new engines will cost much 

more and decrease fuel efficiency much more than EPA predicted in 2000 

when it was developing the standards. Consequently, according to 

representatives of 9 of the 10 trucking companies we contacted, companies 

most likely will once again decide to buy trucks before the deadline, but in 

larger numbers than they did in response to the consent decrees. This 

could again disrupt markets and postpone needed emissions reductions. 

EPA has taken a number of steps to help with and monitor the engine and 

fuel technology development, but some of the engine manufacturers and 

the trucking companies we contacted would like more help and 

reassurance that the technology will be ready on time. EPA program staff 

meet continuously with the companies producing all of the new 

technologies; issue progress reports; provide workshops; and, in 2002, 

convened the Clean Diesel Independent Review Panel to assess progress. 

Representatives of some of the engine manufacturers, the emissions 

control technology manufacturers association, the fuel industry, and the 

environmental and health groups we contacted commended EPA for its 

efforts. But some representatives of engine manufacturers and trucking 

companies would like EPA to provide them with additional help and 

reassurance that the technologies will be ready when needed. For example, 

some engine manufacturers said that economic incentives to 

manufacturers to produce engines on time and to trucking companies to 

buy the engines as scheduled would be helpful. In addition, some trucking 

company representatives believe that EPA has not included them in, or 

listened to their concerns about, implementation of the standards. EPA 

program managers disagreed, saying that in formulating the 2007 

standards, the agency solicited the trucking industry’s perspective and all 

entities had a chance to provide comments on the proposed rule. The EPA 

program managers added that the agency has gone out of its way to give 

industry much more lead-time than required to produce the technology and 

to provide assistance and monitoring. Consequently, they see no evidence 

that timely implementation of the standards is not achievable. We 

acknowledge EPA’s actions to date, but given the remaining technological 
Page 8 GAO-04-313 Air Pollution

uncertainties and stakeholder concerns—concerns that could have 

economic and emissions impacts—we are recommending that EPA 

consider what additional opportunities it could take to address the 

uncertainties and concerns. This could include better communicating with 

all stakeholders on the remaining technological uncertainties. In addition, 

EPA could convene another independent review panel to assess and 

communicate the progress of technology development, or consider 

financial incentives or other options to promote it.

In commenting on the report, EPA’s Assistant Administrator for Air and 

Radiation said EPA believes that, in many respects, our report is consistent 

with the agency’s assessment of the situation leading up to the 

implementation of the 2007 standards. However, the agency has several 

concerns about the basis for certain of our findings on those standards. In 

addition, as to our recommendations, EPA agrees that there might be 

merit—but not necessarily an agency role—in using financial incentives to 

achieve the 2007 milestone, but is concerned that convening an 

independent technology review board could delay the schedule, and is not 

needed. More specifically, EPA raised concerns that we (1) present 

selected stakeholders’ opinions without validating them and ignore 

evidence that the agency believes would prove or disprove their validity; 

(2) overstate the challenges to having fuel and engine technologies ready 

on time to meet the 2007 standards; and (3) inaccurately portray EPA’s 

efforts to work with stakeholders in developing the standards.

With respect to the first concern, we consistently solicited views from all 

key stakeholders and carefully and accurately characterized them in the 

report. We assessed these views by reviewing all available and relevant 

reports and studies issued on the technologies being addressed and that 

EPA identified or provided. We could not verify stakeholder opinions with 

actual data because manufacturers of the new technologies said that it 

would be detrimental to reveal information on their individual designs 

because it might harm their competitive positions relative to other 

companies. We did take great care to include the most current information 

and views possible in the report by, for example, re-contacting certain 

stakeholders in February 2004. With respect to EPA’s concern about the 

report’s tone, we devote considerable narrative to the views of the agency 

and all stakeholders who maintain the technology is on track. We do, 

however, have a professional responsibility to acknowledge that some 

stakeholders expressed concerns about the remaining technological risks 

and questions and to fully and accurately describe the basis of these 

concerns. Finally, with respect to EPA’s efforts to work with stakeholders, 
Page 9 GAO-04-313 Air Pollution

we agree that EPA deserves credit for taking a number of voluntary actions 

to outreach to stakeholders, and we describe these activities in depth. We 

are also very careful to present a balanced view of stakeholders’ opinions 

about these activities, and as such, were obligated to acknowledge that 

some stakeholders raised issues about EPA’s openness to concerns and 

willingness to address them.

Finally, as to our recommendations, EPA sees merit in using financial 

incentives to achieve the 2007 milestone, but does not see an agency role in 

this regard. Neither does the agency see a need to convene an independent 

technology review board. In this regard, we want to emphasize that we are 

recommending that EPA consider additional action to address 

stakeholders’ remaining concerns, and thereby enhance the likelihood of 

achieving emissions reductions, but we did not intend to limit the agency to 

the alternatives we suggested, especially if it could design more effective 

solutions. As to financial incentives, we understand that this would require 

congressional authorization and funding but believe the agency also has a 

role to play. For example, the Congress might look to the agency to make 

an initial proposal for incentives, or help to weigh their costs and benefits. 

As to using an independent panel to review EPA’s data and validate its 

conclusions on technology readiness, we do not believe that convening a 

panel would unduly disrupt the implementation schedule for the standards. 

If EPA has the necessary evidence available to demonstrate that 

technologies are ready as it contends it does, it should not be difficult or 

take considerable time for an independent body to review the data and 

validate this conclusion for all affected stakeholders. Furthermore, by 

addressing stakeholders’ concerns, EPA may help to avoid the negative 

impacts that were associated with the 2002 consent decrees and would 

ultimately help to ensure that the critical reductions and health benefits 

from the 2007 standards are achieved in a more timely manner.

Background Trucks handled more than two-thirds of all freight commodities shipped in 

2002, according to a recent report for the American Trucking Associations 

(ATA), an organization representing the majority of freight-hauling 

companies. Trucking companies that shipped freight earned revenues of 

about $585 billion, or 87 percent, of the total transportation revenues that 

year. The total volume of goods shipped by trucks is expected to rise to 10 

billion tons by 2008, with trucking companies’ revenues increasing to about 

$745 billion, according to the ATA report. The majority of trucks 

transporting freight are powered by diesel engines, primarily because they 

are 25 percent to 35 percent more energy efficient and more durable and 
Page 10 GAO-04-313 Air Pollution

reliable than gasoline-powered engines. Furthermore, diesel fuels generally 

are less volatile and, therefore, safer to store and handle than gasoline. 

On the other hand, diesel engines also have an adverse impact on air quality 

through their harmful exhaust emissions. Diesel exhaust is composed of 

several toxic components, including nitrogen oxides, fine particles 

(particulate matter), and numerous other known harmful chemicals. EPA 

estimates that exhaust from heavy-duty trucks and buses accounts for 

about one-third of the nitrogen oxide emissions and one-quarter of the 

particulate emissions from all mobile sources. EPA’s 2002 comprehensive 

review of the potential health effects from exposure to diesel engine 

exhaust found that short-term exposure to diesel emissions can cause 

respiratory irritation and inflammation and exacerbate existing allergies 

and asthma symptoms. Long-term exposure may cause lung damage and 

pose a cancer hazard to humans. The harmful components of diesel 

exhaust can also damage crops, forests, building materials, and statues. 

The exhaust also impairs visibility in many parts of the country. 

Although diesel exhaust is harmful, both EPA and engine manufacturers 

have successfully reduced the level of emissions from highway diesel 

engines over the past two decades. Since 1984, EPA has progressively 

implemented more and more stringent diesel emissions standards, for 

example, reducing the level of allowable nitrogen oxide emissions from 

diesel engines from 10.7 grams per unit of work in 1988 to 2.5 grams in 2004 

(see fig. 1).5

 

5

The emission limits are stated in terms of grams of emissions per brake horsepower-hour.
Page 11 GAO-04-313 Air Pollution

Figure 1: EPA’s Nitrogen Oxide Emissions Standards for Heavy-Duty Diesel Truck Engines, 1988 to 2007

To meet these standards, engine manufacturers should have made 

increasingly cleaner engines so that their nitrogen oxide emissions 

gradually declined to mandated levels. However, EPA determined that, 

from 1987 to 1998, seven of the nation’s largest diesel engine manufacturers 

sold 1.3 million heavy-duty diesel engines with computer software that 

altered the engines' pollution control equipment under highway driving 

conditions.6

 The Clean Air Act prohibits manufacturers from selling or 

installing motor vehicle engines or components equipped with devices that 

bypass, defeat, or render inoperative the engine's emission control system. 

These devices altered the engines' fuel injection timing and, while this 

improved fuel economy, it also increased nitrogen oxide emissions by two 

to three times the existing regulatory limits. In response, EPA undertook 

what it called “the largest Clean Air Act enforcement action in history” 

6

The engine manufacturers involved in this enforcement action were Caterpillar 

Incorporated, Detroit Diesel Corporation, Cummins Engine Company, Volvo Trucks 

Corporation, Mack Trucks Incorporated, Renault Vehicules Industriels, s.a., and Navistar 

International Transportation Company. Volvo subsequently purchased Mack Trucks and 

Renault in 2001, forming “the Volvo Group.”
Page 12 GAO-04-313 Air Pollution

against the manufacturers. To settle these cases, in 1998, EPA, the U.S. 

Department of Justice, and the engine manufacturers agreed to be bound 

by consent decrees. In the decrees, the manufacturers agreed to, among 

other things, (1) pay civil penalties of about $83 million, the largest civil 

penalty for an environmental violation as of that date; and (2) collectively 

invest $109.5 million towards research and development and other projects 

to lower nitrogen oxide emissions. 

Table 1 includes information on 

• the number of engines that each manufacturer subject to the decrees 

produced that violated the emissions standards, 

• the amount of nitrogen oxide emissions these engines produced in 

excess of the amounts allowed by the standards in effect at the time, 

• the amount of penalties each company paid, and 

• the amount of funds each company committed to invest in 

environmental projects.

Table 1: Information on the Emission Standards Violations and Conditions of the 1998 Consent Decrees with Diesel Engine 

Manufacturers 

Source: GAO analysis of EPA data.

The manufacturers also agreed to collectively spend $850 million or more 

to produce significantly cleaner engines by October 1, 2002. The nitrogen 

oxide emissions from the new engines were not to exceed 2.5 grams. 

Company

Number of engines 

with defeat devices 

Excess nitrogen 

oxide emissions

(tons) Civil penalties

Investment in 

environmental 

projects

Caterpillar Incorporated 320,000 2,100,000 $25 million $35 million

Cummins Engine Company 400,000 3,600,000 $25 million $35 million

Detroit Diesel Corporation 430,000 9,000,000 $12.5 million $12 million

Mack Trucks, Incorporated/Renault 

Vehicules Industriels, s.a. 90,000 860,000 $13 million $18 million

Navistar International Transportation 

Company 78,000 40,000 $2.9 million N/A

Volvo Truck Corporation 10,000 148,000 $5 million $9 million

Total 1,328,000 15,748,000 $83.4 million $109 million
Page 13 GAO-04-313 Air Pollution

Without the decrees, the engines would not have been required to meet this 

standard until January 1, 2004, 15 months later. 

The excess emissions caused by the defeat devices were of concern, 

especially for states and localities with areas that already had air quality 

problems (meaning that the areas did not meet at least one of the healthbased air quality standards). Every state must devise a plan, called a state 

implementation plan, that indicates what actions they will take to maintain 

or come into compliance with the standards. In devising these plans, states 

and localities estimate future emissions and design actions to reduce them 

as necessary. If the states and localities do not comply, they face certain 

sanctions, including the loss of access to federal transportation funds. But 

the use of the pollution control defeat devices that increased engine 

emissions jeopardized state air quality improvement plans and posed 

public health risks.

To ease compliance with the accelerated schedule, manufacturers could 

continue to sell their old engines until October 2002. If manufacturers were 

not able to, or chose not to, meet the deadline, they could continue to sell 

engines that did not meet the standards through three actions (1) paying 

nonconformance penalties, equal to the cost of engines that met the 

standards, to maintain a “level playing field” between the noncomplying 

companies and those manufacturers who met the deadline; (2) using a 

provision that allowed manufacturers to sell noncomplying engines after 

October 2002 if they sold an equal number of the cleaner engines before 

that date; and (3) using emissions averaging, banking, and trading to 

generate emissions credits towards compliance by reducing emissions in 

other areas.7

As the next step in its efforts to address diesel emissions, EPA, in January 

2001, finalized a rule—herein referred to as the 2007 rule--establishing new 

emissions standards that heavy-duty engines and vehicles must generally 

meet beginning in 2007. These standards, unlike the consent decrees 

established as the result of an enforcement action, were developed through 

a public rulemaking process that gave stakeholders from across the 

industry sectors the opportunity to provide input to EPA for consideration. 

7

Under this approach, manufacturers can certify their engine families at emissions levels 

above or below the standard, as long as they comply with the standards when averaged 

across their engine families. Manufacturers generate emissions credits by producing engine 

families that are certified below the standard, which can then be used to offset production 

of engine families that are certified to have emissions in excess of the standards. 
Page 14 GAO-04-313 Air Pollution

Also in contrast to the consent decrees, the 2007 standards gave industry 6 

to 10 years to develop technologies to meet the rule’s requirements. The 

2007 rule limits fine particle and nitrogen oxide emissions from heavy-duty 

diesel engines to 0.01 grams and 0.20 grams, respectively, a significant 

decrease compared to the consent decrees and 2004 standards. While the 

fine particle standard is effective in 2007, the nitrogen oxide standard will 

be phased in based on engine production: 50 percent of the engines sold 

between 2007 and 2009 and 100 percent of those sold beginning in 2010 

must meet the nitrogen oxide emissions standard. EPA estimates that the 

new standards will reduce emissions of fine particles and nitrogen oxides 

by 90 percent and 95 percent, respectively, from 2000 levels. 

Also in the 2007 rule, EPA regulates both heavy-duty vehicles and their fuel 

as a single system. To meet the standards, engines must include advanced 

emission control devices. Because these devices are damaged by sulfur, the 

rule establishes a mid-2006 deadline for reducing the sulfur allowed in 

highway diesel fuel. Under the rule, refiners are required to start producing 

diesel fuel with a sulfur content of no more than 15 parts per million 

(compared to current diesel fuel, which can contain up to 500 parts per 

million—a 97 percent reduction) beginning June 1, 2006. All diesel-powered 

highway vehicles produced in 2007 or later must use the low-sulfur fuel. 

Under certain conditions, and generally only until 2010, the rule allows 

refiners to continue producing and selling some diesel fuel with a sulfur 

content greater than 15 parts per million, but not exceeding 500 parts per 

million. However, the two fuels must be segregated in the distribution 

system so that the low-sulfur fuel is not contaminated. The fuel with the 

higher sulfur content may only be used in heavy-duty vehicles built before 

2007 because it will damage emissions control devices on newer engines. 

When developing the 2007 rule, EPA had to give appropriate consideration 

to the rule’s costs. The agency projected that the rule’s benefits would 

exceed its costs by a factor of 16 to 1. According to EPA, the new standards 

will result in significant annual reductions in harmful emissions, with total 

benefits as of 2030 estimated at about $70 billion. In addition, by 2030, the 

reduced emissions will prevent 8,300 premature deaths, more than 9,500 

hospitalizations, and 1.5 million workdays lost, according to EPA. The 

agency estimated that these benefits will come at an average cost increase 

of about $2,000 to $3,200 per new vehicle in the near term and about $1,200 

to $1,900 per new vehicle in the long term, depending on the vehicle size. 

This is relatively small compared to new vehicles whose base cost is about 

$96,000 for a new heavy heavy-duty truck to $250,000 for a new bus. 

Furthermore, EPA estimated that, when fully implemented, the sulfur 
Page 15 GAO-04-313 Air Pollution

reduction requirement would increase the cost of producing and 

distributing diesel fuel by about 4.5 to 5 cents per gallon, an increase of 

about 3 percent over average U.S. diesel fuel prices as of late November 

2003.

The Consent Decrees 

and Their Accelerated 

Schedule for Reducing 

Diesel Emissions 

Overall Negatively 

Affected Sales of the 

Largest Trucks and 

Engines but Achieved 

Some Air Quality 

Benefits

In part because trucking companies did not have what they considered to 

be sufficient time to adequately road test 2002 prototype engines, they had 

concerns about the price and reliability of the new engines. 

Representatives of four of the ten trucking companies we contacted said 

their companies, among other things, bought more new heavy-duty trucks 

equipped with older engine technology than planned before October 2002. 

This adversely affected their operations, at least in the short term, 

according to company officials. Our analysis of Class 8 truck production 

data also indicates that trucking companies may have pre-bought these 

trucks in 2002. To meet the increased demand for trucks with older 

engines, the major engine manufacturers increased production of new 

trucks with older engines before October, but had to decrease production 

when demand subsequently dropped until about early 2003, with 

detrimental effects, according to representatives of the engine 

manufacturers we contacted. These manufacturers also said that they lost 

market share to others that were not subject to the consent decrees or that 

decided to pay penalties rather than make a new engine on time. 

EPA estimated that accelerating the schedule for cleaner engines would 

accelerate emissions reductions, thereby better protecting public health. 

EPA roughly estimated that two provisions of the consent decrees would 

reduce nitrogen oxide emissions by roughly 4 million tons. However, as 

discussed, trucking companies bought more trucks with the older engine 

technology than planned, and truck owners are now operating trucks 

longer than expected, thereby reducing the number of trucks with cleaner 

engines on the road below anticipated levels. As a result, while emissions 

levels were reduced, the consent decrees will not achieve the full emissions 

reductions in the time frames EPA anticipated. 
Page 16 GAO-04-313 Air Pollution

Some Trucking Companies 

Purchased Large Numbers 

of Older Trucks Rather Than 

Trucks with the New, but 

Unproven Engines, 

Adversely Affecting Their 

Short-term Operations

The consent decrees had an adverse effect on some trucking companies 

even though the trucking industry was not a direct party to the decrees. 

They affected the industry because trucking companies are the ultimate 

purchasers of trucks equipped with new diesel engines designed to meet 

the consent decrees’ emissions standards requirements. Manufacturers did 

not provide trucks with prototype engines to the companies in time to 

sufficiently road test them, according to many of the trucking company 

officials we contacted. Several officials noted that their companies did not 

take delivery of trucks with the new engines for testing until the first half of 

2002—too late for their companies to perform what they considered to be 

adequate road testing. Consequently, many trucking companies decided not 

to risk the uncertainties associated with the new engines, instead opting for 

the older, familiar diesel technologies. As table 2 indicates, eight of the ten 

trucking companies we contacted bought trucks with the older engines 

prior to October 2002, postponed buying new trucks, or bought only a 

relatively small number of trucks with new engines, usually for testing 

purposes. 
Page 17 GAO-04-313 Air Pollution

Table 2: Responses of Ten Large Trucking Companies to the Consent Decrees and Their Basis for These Responses

Source: GAO analysis of information from 10 trucking companies.

Werner Enterprises and Swift Transportation publicly reported in their 

financial statements to shareholders that they pre-bought trucks with older 

engines and postponed buying new trucks, respectively, because of 

uncertainties surrounding the new engines. The two trucking companies in 

table 2 that bought large numbers of trucks with the new engines did so 

because they wanted to maintain consistent business relationships with 

their established engine suppliers and follow the fleet acquisition plans that 

they had developed based on their assessment of long-term business needs, 

according to company officials. 

The four companies that pre-bought large numbers of trucks before the 

October 2002 deadline did so primarily because they were concerned about 

the higher price and unproven reliability of the new engines, according to 

company officials. They said that the new engines would have added from 

$1,500 to $6,000 to the purchase price of a new heavy-duty truck—whose 

base cost is about $96,000—and would have reduced fuel economy by 2 to 

10 percent. For 2002, these additional costs could have ranged from about 

$4 million to $27 million per company in purchase price and about $3 

Number of 

companies adopting 

response Trucking companies’ responses to consent decrees Basis for responses

4 Pre-bought trucks with older engines. Companies 

reported purchasing an excess capacity of between 840 

and 5,000 trucks with older engines prior to October 

2002.

• Higher acquisition and operating costs of new 

engines; 

• Significant uncertainties about new engines' 

performance and durability.

1 Purchased new trucks with engines from a manufacturer 

who did not have to meet the new standards. 

• Somewhat concerned about new engines' 

dependability.

1 Purchased new trucks with engines from a manufacturer 

who was required to meet the standards but chose not to 

and instead paid penalties.

• Higher acquisition and operating costs of new 

engines;

• Desire to stay with known, established engine 

technology; uncertainty about new engines’ 

dependability.

2 Extended their leases on trucks with older engines, but 

did not lease new trucks. 

• Higher acquisition and operating costs of new 

engines; 

• Significant uncertainties about new engines' 

performance and durability.

2 Bought significant numbers of trucks with new engines. • Desire to maintain consistent relationship with 

engine suppliers;

• Desire to avoid deviating from their established longterm business plan, which would disrupt their 

operations.
Page 18 GAO-04-313 Air Pollution

million to $90 million per company in fuel costs. These trucking officials 

said that these additional costs would have been problematic for some 

companies because, according to one representative, the industry only 

returns 3 or 4 cents per dollar invested. Compounding these additional 

costs, according to trucking officials, is that they come without any clear 

offsetting economic or business advantages. According to several of the 

officials, recent engine modifications made to meet increasingly more 

stringent emissions standards also had positive economic benefits for the 

trucking companies, such as increased fuel efficiency. EPA officials noted, 

however, that some of these benefits, including better fuel economy, were 

achieved as a result of engine manufacturers using the defeat devices to 

avoid meeting emission standards. The agency acknowledged that trucking 

companies were not party to the engine manufacturers’ tactic but did 

benefit from it. 

Companies that pre-bought trucks found this strategy adversely affected 

their operations, at least in the short term, according to company officials. 

Companies had more trucks than they needed and lost money as excess 

trucks sat idle. For example, one trucking company reported in its financial 

statement to shareholders that such excess capacity cost the company 

$16.3 million in revenues—29 percent—in the first quarter of 2003. Despite 

effects such as these, some trucking officials told us that they would have 

pre-bought even more trucks with the older engines had they been 

available. These officials noted that while larger companies may have been 

able to weather these operational disruptions, smaller companies with 

narrower profit margins might have found it more difficult. 

Our analysis of data on the production of trucks with the new engines 

suggests that pre-buying in response to the consent decrees was a widely 

used strategy. As figure 2 shows, truck production began to increase from 

January through September 2002, despite a generally decreasing trend 

since April 2000.8

8

As noted, our analysis focuses on class 8 trucks because (1) these trucks comprise the 

largest class of trucks in service in the United States and, according to EPA data, account for 

about 90 percent of the emissions reductions expected from the pull-ahead provisions of the 

decrees, and (2) the manufacturers subject to the decrees account for about 95 percent of 

the U.S. market for these trucks. 
Page 19 GAO-04-313 Air Pollution

Figure 2: U.S. and Canadian Production of Class 8 Diesel Trucks, January 2000 through June 2003

More specifically, from April through September 2002, manufacturers 

produced about 93,000 Class 8 trucks. Our analysis shows that this 

production volume cannot be fully explained by changes in the economy’s 

growth rate or diesel fuel prices, but this increase, and the subsequent 

decrease, in production may be linked to the consent decrees. We 

recognize that a number of factors other than the consent decrees are also 

likely to have contributed to these trends. For example, trucking 

companies’ business decisions are driven by factors that affect their 

profitability, such as economic growth and activity, their expectations 

about future profits, their current inventory of trucks, and fuel and 

operating costs. In addition, other factors such as regulations, taxes, or 

subsidies affect companies’ profitability and truck purchasing decisions. 

After considering the information trucking companies provided us on their 

responses to the decrees and controlling for economic growth and fuel 

costs in our analysis, we estimate that 19,000 to 24,000 (20 percent to 26 

percent) of the 93,000 Class 8 trucks produced during this period may have 

been in response to the consent decrees. Subsequent to this increase, the 

data also show that production sharply decreased after October 2002 until 

recovering in 2003.
Page 20 GAO-04-313 Air Pollution

Those companies that bought trucks with the new engines reported 

experiencing few serious problems with them, although they generally 

believe that it is too soon to be certain of the new trucks’ maintenance 

costs. Some stated that preliminary indications may not be encouraging. 

For example, one company reported that roughly one-half of its 140 new 

heavy-duty engines experienced an engine valve failure prior to 50,000 

miles. In addition, these officials noted that roughly 20 percent of their 

heavy-duty vehicles with the new engines are out of service at any given 

time due to maintenance concerns, compared to 5 percent for the 

remainder of their fleet. Several of these officials expressed a concern that 

some companies may have difficulty absorbing increased costs from such 

maintenance problems. 

Engine Manufacturers 

Experienced Temporary 

Fluctuations in Sales and 

Shifts in Market Shares as a 

Result of the Decrees 

Initially, trucking companies’ increasing demand to pre-buy trucks with 

older engines in the 6 months before the October 2002 deadline increased 

the major diesel engine manufacturers' production and sales. In particular, 

demand was so great, according to some engine manufacturers, they could 

not keep up with it, despite hiring hundreds of temporary employees and 

running production lines 24 hours a day, 7 days a week. According to all 

five of the engine manufacturers we contacted, the pre-buy could have 

been much larger, but the engine manufacturing industry did not have the 

capacity to fill the demand. However, once the October 2002 deadline 

passed, demand for these engines fell dramatically. These dramatic swings 

in demand had a net adverse impact on engine manufacturers, at least for 

the short-term, according to those manufacturers we contacted. For 

example, at least one engine manufacturer laid off all of the temporary 

employees it had recently hired to meet the rising demand before October, 

as well as some more established workers. Another manufacturer said that 

such instability also hindered its ability to make business decisions, acquire 

capital, and meet customers’ demands. However, figure 2 shows that truck 

sales generally increased again starting in 2003. 

In addition to these general trends, many of the manufacturers of the new, 

cleaner engines told us that they lost customers to those companies that 

continued to produce engines that did not meet the new emissions 

standards. In 1998, the seven manufacturers subject to the consent decrees 

dominated the U.S. heavy-duty diesel engine market, accounting for about 

90 percent of engine sales. In response to the decrees, four of the seven 

engine manufacturers began to produce cleaner engines. Another of the 

seven manufacturers, Renault, decided to leave the U.S. heavy-duty diesel 

truck market in 2002, according to company officials. Furthermore, 
Page 21 GAO-04-313 Air Pollution

according to EPA, Navistar International chose to take other actions to 

compensate for its excess emissions rather than meet the new emissions 

standards early, as permitted under its consent decree. Caterpillar, until 

November 2003, continued to sell heavy-duty engines that did not fully 

comply with the new nitrogen oxide standards, but paid a nonconformance 

penalty for each engine sold. Therefore, by mid-2003, the U.S. heavy-duty 

diesel engine market was dominated by (1) the four manufacturers subject 

to the decrees that were selling engines that met the new emissions 

standards—Cummins, Detroit Diesel, Mack Trucks, and Volvo; (2) two 

manufacturers subject to the decrees that were selling engines that did not 

meet the standards—Navistar International and Caterpillar; and (3) 

Mercedes, that entered the U.S. market in 1999 but that did not have to 

meet the standards until 2004. 

In 1998, the year in which EPA and the engine manufacturers entered into 

the consent decree settlements, the four manufacturers selling engines that 

met the new standards had a combined share of the U.S. Class 8 truck 

market of about 73 percent, while the two manufacturers that were not 

selling such engines had roughly a 27 percent market share.9

 Since then, the 

market shares of the two groups of engine manufacturers have moved in 

almost directly opposite directions (see fig. 3). 

9

We adopted 1998 as the base year for this comparison because, shortly after the consent 

decrees were finalized, the manufacturers began making business decisions regarding how 

they would respond. 
Page 22 GAO-04-313 Air Pollution

Figure 3: Comparison of Market Shares of Producers of Class 8 Diesel Engines That 

Complied with the Decrees’ Nitrogen Oxide Standard and Those That Did Not 

Comply with the Decrees’ Nitrogen Oxide Standard: 1998 to 2003

By September 2003, the market share of the four manufacturers selling 

cleaner engines had shrunk to 50 percent and the share of the two 

companies—plus Mercedes—that continued to sell engines that did not 

meet the new standards increased to 50 percent.

While factors other than the consent decrees contributed to this shift in 

market shares over the years, according to many engine manufacturer and 

trucking company officials we contacted, the manufacturers that sold 

trucks with the cleaner engines also lost business because, as previously 

noted, these engines had inherent disadvantages relative to the existing 

engines that made them difficult to sell. Consequently, manufacturers that 

continued to market trucks with the older engines captured business from 

those companies selling trucks with the new engines. For example, 

Caterpillar’s share of the Class 8 truck market climbed from 24 percent in 

1998 to 35 percent in 2003, while Detroit Diesel’s share dropped from 27 

percent to 15 percent during the same period. Similarly, Mercedes’ market 
Page 23 GAO-04-313 Air Pollution

share rose from zero in 1998 to 10 percent in 2003, while Cummins’ share 

fell from 31 percent to 21 percent. 

We were unable to verify all of the claims made by trucking companies and 

engine manufacturers regarding financial impacts and truck purchase 

decisions resulting from the consent decrees because much of this 

information is confidential. To a limited extent, we were able to use 

financial statements some of these companies submitted to the Securities 

and Exchange Commission to verify some impacts for some companies. In 

addition, we conducted econometric analysis to shed light on the possible 

magnitude of the pre-buy.

The Consent Decrees 

Accelerated Emissions 

Reductions but Not to the 

Full Extent That EPA Had 

Estimated

Although EPA was not required to conduct a cost-benefit analysis of the 

provisions of the consent decrees, it did a rough estimate of the potential 

emissions reductions that could be achieved. At the time it made the 

estimate, EPA used truck production data from 1998, the most recent 

available at the time, to estimate that over the 15-month pull-ahead 

period—from October 2002 to January 2004—some 233,000 more trucks 

with cleaner engines would be on the road than without the pull-ahead. 

EPA multiplied this number by the amount of emissions reductions a single 

cleaner engine could achieve to estimate that the total emissions 

reductions expected by accelerating the schedule was roughly 1 million 

tons of nitrogen oxide emissions.

As previously discussed, because trucking companies postponed 

purchases, bought new trucks with the old engine technology, or bought 

used trucks rather than the cleaner engines, initially fewer trucks with 

cleaner engines will be on the road than EPA had estimated. Therefore, the 

consent decrees are not going to produce the total 1 million reduction, at 

least not during the time frames EPA predicted. For example, Class 8 truck 

production data through October 2003, or 13 of the 15 months of the pull 

ahead, show that about 148,000 fully or partially compliant heavy-heavyduty diesel engines are on the road, compared to EPA’s estimate of 233,000 

such compliant engines for the entire 15-month time frame. However, some 

factors came into play that EPA did not anticipate. For example, EPA did 

not expect Mercedes to enter the U.S. diesel truck market and claim about 

a 10 percent share, increasing the number of older-technology engines sold. 

Furthermore, EPA did not expect Caterpillar, with the largest engine sales 

when EPA developed its emissions estimates, to produce engines that, 

although cleaner than previous models, did not fully meet the new 

standards. Finally, the overall rate of engine production during the 15-
Page 24 GAO-04-313 Air Pollution

month period covered by EPA’s emissions estimates is going to be relatively 

lower than the rate in 1998, the year on which EPA based its estimates. 

Therefore, not as many cleaner engines were produced as EPA predicted. 

EPA also estimated that a second provision of the consent decrees—a 

requirement that computers on older engines be adjusted to better control 

emissions when these engines undergo regularly scheduled rebuilding—

would reduce nitrogen oxide emissions by about 3 million tons over the life 

of the engines. Under these “low-nitrogen oxide rebuild” provisions of the 

decrees, when operators brought their trucks in to have their engines 

rebuilt, engine manufacturers were required to supply kits to adjust 

computer controls to lower excess emissions. This adjustment is called 

“reflashing.” While reflashing can be performed without rebuilding the 

engine, EPA saw this as a convenient time for performing both operations 

at once. EPA estimated that this provision of the decrees would eventually 

apply to roughly 856,000 trucks. In addition, a number of engine 

manufacturing companies initiated incentive programs to encourage truck 

companies to voluntarily bring their trucks in to have them reflashed. 

Under the voluntary program, these trucks would be reflashed earlier than 

if they waited until the engines needed to be rebuilt under EPA's program, 

thereby reducing emissions sooner. 

As of September 2003, almost 60,000 trucks had been reflashed under the 

consent decrees' mandatory program and another 43,000 under the 

voluntary incentive programs, about 12 percent of EPA’s projected total. 

Fewer engines were rebuilt than EPA expected because trucking 

companies are running their engines longer than in previous years before 

rebuilding or replacing them. As a result, only a small portion of the 

emissions reductions predicted by EPA from reflashing may be achieved, 

depending on how many additional engines are adjusted and the rate at 

which this occurs. Estimating how many of the remaining 740,000 or more 

trucks will be reflashed under the consent decree provisions is difficult and 

must take into account the age and likely future mileage of the trucks. 

Many of these trucks no longer have enough useful life remaining to make 

rebuilding their engines cost-effective. Nevertheless, the California Air 

Resources Board and environmental departments in several other states 

are considering making reflashing of heavy-duty diesel engines compulsory, 

to try to reduce diesel emissions as much as possible.
Page 25 GAO-04-313 Air Pollution

Remaining Technology 

Challenges Must Be 

Resolved to Meet the 

2007 Standards, and 

Stakeholders’ Opinions 

Differ as to Whether 

They Will Be 

Addressed in Time

A number of engine technology and fuel supply and distribution issues 

must still be resolved to implement the 2007 standards. Most stakeholders 

who have made significant investments in developing the engine and fuel 

technology to meet the standards maintained that the issues can be 

resolved in time. Engine manufacturers we contacted expect to have new 

engines ready for 2007 and to be able to meet the trucking companies’ time 

frames for delivering trucks with prototype engines for testing. However, 

representatives of the fuel industry recognize that there is still work to do 

to resolve issues about whether (1) low-sulfur fuel will be available in 

sufficient volumes nationwide and (2) fuel distributors can keep from 

contaminating it with higher sulfur fuel that damages the emissions control 

equipment. However, they believe that there is sufficient time to resolve 

these issues and do not want the 2007 standards delayed. Furthermore, the 

environmental and health groups we contacted are encouraged by 

industries’ progress in developing the technologies needed to implement 

the standards. Given these lingering technology questions, the uncertainty 

about having sufficient time to test new engines, and the negative 

economic impact they experienced under the consent decrees, 

representatives of some of the trucking companies we contacted remain 

concerned that the new standards can be implemented smoothly. Because 

the technology to meet the 2007 standard is more advanced than prior 

upgrades, some trucking companies are concerned that the new engines 

will cost more and decrease fuel efficiency more than EPA has predicted. 

Consequently, according to representatives of nine of the ten trucking 

companies we contacted, companies will likely once again pre-buy trucks, 

potentially disrupting markets and postponing needed emissions 

reductions.

Engine Manufacturers 

Believe They Can Resolve 

Challenges and Produce an 

Engine in Time for 2007

Representatives of all five engine manufacturers we contacted, as well as 

the association of emissions control technology manufacturers, noted that 

control technologies for nitrogen oxide emissions—one of the pollutants 

addressed by the 2007 standards—have continued to advance. For 2007, 

manufacturers have evaluated five different engine technology options to 

control nitrogen oxide emissions—nitrogen oxide adsorbers, selective 

catalytic reduction, advanced exhaust gas recirculation, a lean nitrogen 

oxide catalyst, and advanced combustion emissions reduction technology 

(ACERT—a system developed by Caterpillar for its own engines). 

Generally, exhaust gas recirculation and ACERT limit the formation of 

nitrogen oxides, while the catalyst-based approaches promote nitrogen 

oxides reduction into nitrogen and oxygen. In December 2003, three of the 
Page 26 GAO-04-313 Air Pollution

five engine manufacturers we contacted announced the technologies they 

plan to use to meet the 2007 emission standards: Caterpillar chose its 

ACERT technology and Cummins and Volvo selected exhaust gas 

recirculation. In addition, in January 2004, while not specifically saying that 

it would use exhaust gas recirculation technology, International announced 

that it plans to meet the 2007 requirements without using either nitrogen 

oxide adsorbers or selective catalytic reduction. The company currently 

uses exhaust gas recycling technology in many of its existing engines. The 

remaining engine manufacturer is considering selective catalytic reduction.

Caterpillar, Cummins, International, and Volvo chose their respective 

approaches because each company is already using a basic form of the 

technology it selected to meet the 2004 standards and believes it can be 

modified to meet the 2007 standards as well. Several engine manufacturers, 

however, believe that they may not be able to advance the exhaust gas 

recirculation technology far enough to comply with the 2010 requirements, 

so, in planning ahead, they are pursuing this as well as other options. The 

firm that is considering selective catalytic reduction noted that this 

technology could meet both the 2007 and 2010 requirements. It has been in 

use in the United States for several years to control nitrogen oxide 

emissions from stationary sources, such as power plants or industrial 

facilities. It has also been used in European demonstration fleets to control 

pollution in diesel truck emissions. While the engine manufacturer that is 

considering selective catalytic reduction believes that remaining 

technological issues are relatively minor and should be resolved by 2007, it 

is less clear that several implementation issues will be resolved by that 

time. For example, selective catalytic reduction requires a continuing 

supply of a chemical compound—such as urea—to function properly. 

However, some engine manufacturers and other stakeholders, as well as 

EPA, are concerned because urea is not widely available and the industry 

would have to build its own distribution infrastructure, such as separate 

tanks at refueling stations. There are concerns that this may not be possible 

by 2007, that truck operators will not have sufficient supplies of the 

chemical when and where they need it, or that the operators will 

accidentally or intentionally fail to keep the urea tank on their trucks filled, 

thereby defeating the emissions control equipment. According to EPA 

officials, the engine manufacturer considering selective catalytic reduction 

is expected to submit a plan for a urea infrastructure in early 2004. EPA will 

evaluate the plan at that time.

As for nitrogen oxide adsorbers, EPA has helped to support and develop 

this technology and believes it remains a viable option for 2007, although 
Page 27 GAO-04-313 Air Pollution

none of the manufacturers has chosen this technology for the earlier 

deadline. In June 2002, the agency issued a report on, among other things, 

the progress being made to develop this technology. EPA concluded that, 

given the rapid progress and the relatively long lead-time before it would be 

used, adsorbers could be available to meet the 2007 standards. In October 

2002, the Clean Diesel Independent Review Panel EPA convened to assess 

technology development progress reached a similar conclusion, stating 

that although technological challenges remain, none are insurmountable. 

The panel further noted that engine, vehicle, and emission control 

manufacturers were making large investments to ensure the successful 

development and implementation of the adsorber technology for the 2007 

standards. In contrast, the engine manufacturers we contacted generally 

concurred that adsorbers might be a viable option for meeting the next 

phase of nitrogen oxide reductions in 2010, but they think the technology 

faces too many significant technical barriers to be a viable option for 2007.

Engine manufacturers believe they will have nitrogen oxide control 

technology ready for 2007 model year heavy-duty trucks and that they can 

make prototype trucks available to trucking companies for testing by midto late-2005.10 

We were unable to independently verify the claims of the engine 

manufacturers about the progress being made in developing engines and 

emissions control equipment and when these technologies are likely to be 

available. This is primarily because companies were concerned about not 

making information about their unique engine designs and progress readily 

available so that they can remain competitive. 

10Seven of the 10 trucking companies we contacted consistently maintained that they need a 

minimum of 18 months to perform what they consider to be adequate road testing.
Page 28 GAO-04-313 Air Pollution

Representatives of the Fuel 

Industry Have Concerns 

about Adequate Fuel 

Supplies and Distribution, 

but Believe They Have Time 

to Resolve the Concerns and 

Do Not Want the 2007 

Deadline Delayed 

The representatives of the diesel fuel industry we contacted—including 

officials of nine organizations collectively representing refiners, pipeline 

operators, terminal operators, and retail marketers—still have a number of 

concerns about implementing the new emissions standards on schedule. 

But, they believe they can resolve these issues before 2007. Regardless of 

their concerns, the representatives agreed that EPA should make no 

changes to the 2007 rule’s implementation dates and low-sulfur diesel fuel 

requirements because changing or delaying the rule would negatively affect 

the plans and investments already being made. Rather, these 

representatives believe the certainty the 2007 deadline provides, such as 

knowing what is required, is key to successfully implementing the 

standards in a timely and cost-effective manner. 

The representatives of the fuel industry organizations we contacted said 

that most of their members' efforts to meet the low-sulfur diesel fuel 

requirements are still in the planning phase. While the industry has the 

technical ability to produce fuel to meet the requirements—low-sulfur fuel 

is already being produced in limited quantities today—the fuel industry 

remains concerned about supply and distribution issues that could directly 

hinder implementing the requirements (see table 3). 
Page 29 GAO-04-313 Air Pollution

Table 3: Fuel Industry Representatives’ Primary Concerns 

Source: GAO.

a

Marathon Ashland also operates downstream businesses including terminals, retail markets, and a 

truck fleet. 

b

Terminals exist at fuel source locations, such as refineries, and serve as distribution points near 

market areas to temporarily store products. Terminals consist of fields of tanks holding different types 

and grades of petroleum products. 

As table 3 shows, the fuel industry’s primary concerns include the high 

probability that low-sulfur fuel supplies will be contaminated before they 

reach the market or retail level and the potential for shortages of the lowsulfur fuel. The concern over possible contamination of the fuel arises from 

the limited experience with these products. If such fuel is contaminated, it 

will damage emissions controls. Although the 2007 rule requires fuel 

refiners to produce diesel fuel containing no more than 15 parts per million 

of sulfur, delivering such fuel to the end user may require refiners to 

produce fuel with an even lower sulfur content. Sulfur from other fuel 

products may unintentionally be added to low-sulfur supplies through 

contamination in the distribution system. For example, a pipeline carries 

many different fuel types, grades, and compositions to accommodate 

product demands that vary both regionally and seasonally. As a result, 

there is always a certain amount of intermixing between the first product 

and the second at the point in the pipeline where the two meet. If these 

products have different sulfur contents, the mixture where the two fuels 

meet may contain much more sulfur than the lower graded of the two 

Contamination Supply availability Reliable field testing 

Refiners

American Petroleum Institute x x x

Marathon Ashland Petroleum, LLCa x x x

National Petrochemical and Refiners Association x x x

Western Independent Refiners Association x x

Pipeline Operators

Association of Oil Pipe Lines x x x

Terminal Operatorsb

Independent Fuel Terminal Operators of America x x x

Independent Liquid Terminals Association x x x

Marketers

Petroleum Marketers Association of America x x x

Society of Independent Gasoline Marketers of 

America

x x x
Page 30 GAO-04-313 Air Pollution

products. Furthermore, products containing large amounts of sulfur may 

leave residual amounts in the system that could become blended into other 

products, raising their sulfur content. Therefore, according to fuel industry 

representatives, fuel leaving the refinery must have a much lower sulfur 

content than 15 parts per million to allow for an increase through 

contamination. 

Because the extent of the contamination cannot be precisely predicted in 

advance, the exact sulfur level of the fuel that refineries would have to 

produce is uncertain. Pipeline operators expect that refiners will have to 

provide diesel fuel with sulfur levels as low as 7 parts per million in order 

to compensate for possible contamination from higher sulfur products in 

the system. However, even at these lower levels, the nine fuel industry 

representatives said that the likelihood of contamination during the 

delivery of the fuel through the distribution system is extremely high. Even 

if the low-sulfur fuel that pipeline operators receive meets their 

specifications, pipeline operators are unsure how they will sequence the 

new fuel with other products in the pipeline to prevent its contamination.11 

Once contamination occurs, the product could no longer be sold or used as 

low-sulfur highway fuel, thereby leaving less of the low-sulfur fuel available 

for sale. Fuel distributors also said that the potential for contamination 

increases when a fuel additive such as kerosene is blended with diesel fuel. 

Kerosene is commonly added to highway diesel fuel in the northern United 

States to prevent fuel from thickening in the cold weather. Although the 

2007 rule requires that additives must meet the same low-sulfur standard, 

refiners are not currently producing low-sulfur kerosene. 

Fuel industry representatives also are concerned about the adequacy of 

testing to detect and avoid widespread contamination of low-sulfur fuel 

supplies. According to these officials, testing is crucial in determining 

whether the low-sulfur fuel is meeting the standards at every point in the 

distribution system. Product testing is performed to control contamination 

and to define “cut points,” locations in a stream of products through a 

pipeline where one type of product, such as high sulfur diesel, ends and 

another product, such as low sulfur diesel, begins. Early detection of 

11Pipeline operators distribute “batches” of different petroleum products or grades of the 

same product in succession through a pipeline. A batch is a quantity of one product or grade 

that will be moved before the injection of a second product. Sequencing batches of 

petroleum products for pipeline transport has become more complex with the proliferation 

of product types, such as regular grade, mid-grade, and premium grade gasoline and diesel 

fuel. 
Page 31 GAO-04-313 Air Pollution

contamination gives pipeline and terminal operators flexibility in 

correcting problems before large portions of a product batch become 

ruined. However, eight of the fuel industry representatives we contacted 

expressed concern that a reliable and accurate test or testing device for 

measuring sulfur content is currently not available. 

Because of these contamination issues, nine fuel industry representatives 

expressed concern about whether there would be an adequate supply of 

the low-sulfur fuel nationwide during the phase-in period from 2007 to 

2010. For example, because adding separate storage tanks for low-sulfur 

fuel to prevent contamination would be expensive, terminal operators and 

retail marketers said they may be less likely to make the investment to 

carry this fuel. Furthermore, according to fuel industry representatives, 

trucking companies that deliver low-sulfur fuel may need to dedicate 

trucks exclusively for this purpose to ensure product integrity during 

delivery. This may lead to fuel shortages, which could be especially severe 

in the northern United States where fuel distribution is generally limited to 

delivery by truck.

In contrast to several of the fuel industry’s concerns, an EPA report 

summarizing data on refiners' plans to produce low-sulfur diesel fuel 

before 2010 stated that (1) the fuel industry is on target for complying with 

the low-sulfur fuel standard and (2) low-sulfur diesel fuel production will 

be sufficient to meet demand and the fuel will be available nationwide.12 

Although EPA acknowledges in its report that the information is 

preliminary, the agency believes that it provided the clearest snapshot of 

the highway diesel fuel market available at the time. According to EPA, the 

agency will update this report in 2004 and 2005 based on the most current 

data from the refiners. 

Despite their differing views on the progress towards meeting the 2007 

rule's requirements, fuel industry representatives agree there is still 

sufficient time to resolve their concerns. One of the representatives stated 

that, even without knowing how much the fuel is likely to be degraded 

through contamination, refineries are designing their plans and getting 

their budgets approved to make the needed modifications to their facilities.

12Summary and Analysis of the Highway Diesel Fuel 2003 Pre-compliance Reports, U.S. 

Environmental Protection Agency, EPA420-R-03-013, October 2003.
Page 32 GAO-04-313 Air Pollution

Environmental and Health 

Groups Have No Major 

Concerns about 

Implementing the Standards 

on Time and Want to Avoid 

Delays in Achieving 

Emissions Reductions

The representatives of the five environmental and health groups we 

contacted are generally encouraged by industries’ progress in developing 

the technologies needed to implement the 2007 rule.13 While all five groups 

commented on the 2007 rule when it was proposed in 2000, three of the 

groups’ representatives also were members of EPA’s Clean Diesel 

Independent Review Panel and assessed the industry’s progress in 

developing the needed technologies. In its 2002 report, the panel concluded 

that significant progress had been made and, although some challenges 

may remain, none were considered to be insurmountable.14 The fourth 

group’s representatives have been involved in a number of pilot projects 

with states, local governments, and the private sector involving the use of 

innovative emissions control technologies. Those experiences, in 

conjunction with their involvement in commenting on the proposed 2007 

rule, have led the group to believe that the technology is viable. Finally, 

based on information gathered from emissions control equipment 

manufacturers, the fifth group’s representative believes that the technology 

is progressing well. 

All of the representatives said that they are highly supportive of the 2007 

standards. Although two of the five groups initially wanted the standards to 

be implemented fully in 2007 rather than phasing them in through 2010, 

none of the groups wanted any changes made to the rule now. In fact, the 

only concern the representatives we contacted expressed was that there 

would be a delay in the rule’s implementation, resulting in a reduction of 

the anticipated environmental and health benefits. For example, the 

representative of the State and Territorial Air Pollution Program 

Administrators/Association of Local Air Pollution Control Officials stated 

that the diesel emissions reductions expected from timely implementation 

of the 2007 standards are critical to state and local air pollution control 

agencies’ efforts to meet air quality standards. According to this 

representative, achieving these emissions reductions is especially 

important for states and localities with areas that already have air quality 

13These groups include the American Lung Association, Environmental Defense, the Natural 

Resources Defense Council, Northeast States for Coordinated Air Use Management, and the 

State and Territorial Air Pollution Program Administrators/Association of Local Air 

Pollution Control Officials.

14Meeting Technology Challenges for the 2007 Heavy-Duty Highway Diesel Rule, Report of 

the Clean Diesel Independent Review Subcommittee, Clean Air Act Advisory Committee, 

Oct. 30, 2002.
Page 33 GAO-04-313 Air Pollution

problems. Many of these areas are relying on the 2007 standards to achieve 

their expected emissions reductions on time. 

Trucking Companies Are 

Concerned about the New 

Engines’ High Costs and 

Insufficient Time for Testing 

and May Pre-Buy Trucks 

with Old Engines before 

2007, Disrupting Markets 

and Postponing Air Quality 

Benefits 

Trucking officials we contacted expect that the costs of purchasing and 

operating trucks meeting the 2007 standards will be significantly higher 

than comparable earlier models, despite EPA’s estimates to the contrary. 

These officials said they do not consider EPA’s analysis credible, primarily 

because they believe the agency previously had seriously underestimated 

the industry’s costs to comply with the consent decrees. For example, 

EPA’s regulatory impact analysis for the 2004 emissions standards 

concluded that the industrywide cost to reduce nitrogen oxides would be 

about $224 per ton. Subsequently, in 2000, EPA estimated that to comply 

with the pull-ahead provisions of the consent decrees, these costs could 

increase to $272 per ton. However, an industry analysis stated that the 

actual cost could range between $8,000 and $13,000 per ton. EPA officials, 

in commenting on the cost variance of its estimates pointed out that the 

estimates it developed for the 2004 standards and its estimates of engine 

costs to meet the accelerated deadline for development are not 

comparable. Accelerating the schedule would generate additional costs 

that would not have been components of the 2004 estimate. For example, 

EPA officials noted that when the agency derived its estimates of costs to 

comply with the 2004 nitrogen oxide standards, it did not know that heavyduty engine manufacturers had installed defeat devices on existing engines. 

Thus the actual cost to comply with 2004 standards will include the cost to 

“catch up” with the previous standard. We did not assess the accuracy of 

EPA’s cost estimates. Nevertheless, the difference in EPA’s estimates has 

raised concerns among trucking company officials about the accuracy of 

EPA’s 2001 estimate of engine costs to comply with the 2007 standards.

One reason many industry officials that we contacted expect the 

compliance costs of the 2007 standards to be higher than EPA’s prediction 

is because the new trucks will incorporate significant technological 

advancements over current equipment to control nitrogen oxide emissions. 

Many of these officials believe this technology will add thousands of dollars 

to the purchase price of new trucks rather than the long-term $3,200 

estimated by EPA. In addition, these officials are concerned that the 2007 

trucks will experience another 3 to 5 percent loss in fuel economy—added 

to the 3 to 5 percent loss resulting from the consent decrees—that could 

increase their companies’ fuel costs by millions of dollars per year. Even 

minor increases in business costs can have adverse effects in the trucking 

industry, according to trucking industry officials we contacted, because 
Page 34 GAO-04-313 Air Pollution

these companies’ profit margins are very narrow—sometimes only 2 cents 

per dollar earned. The officials claim that the highly competitive nature of 

the trucking business precludes companies from passing such significant 

cost increases to their customers. For example, the two trucking 

companies we contacted that bought only trucks with the new engines 

prior to October 2002—and in so doing incurred millions of dollars in 

additional expenses, according to company representatives—said they had 

to compete against companies that pre-bought trucks with the older 

engines and avoided the additional expenses. These two companies felt 

they could not increase the fees they charged without risking the loss of 

customers to their competitors. According to officials of these two 

companies, even large, profitable companies can afford to absorb these 

losses for only a short time, and small- and mid-sized companies are likely 

to have also experienced difficulties. None of the engine manufacturers 

could estimate with precision the amount that acquisition or operating 

costs are likely to increase. However, all of the engine manufacturers we 

contacted agreed that the engines and emissions control equipment for 

2007 trucks will be more expensive to buy and to operate than comparable 

previous models.

By February 2004, four of the five engine manufacturers had announced the 

technologies they planned to pursue for 2007 and all five had stated their 

plans to have limited numbers of prototype engines available for road 

testing by mid- to late-2005. However, some trucking companies still had 

doubts as to whether engine manufacturers would actually deliver 

prototypes for road testing in the promised timeframes. For example, one 

trucking company told us that the original timetable, which would allow 

engine manufacturers to stay on schedule to deliver prototypes no later 

than mid-2005, was for the manufacturers to select their technologies 

during the summer of 2003. The 6-month delay added to his concern about 

the availability of prototypes to enable valid field evaluations by mid-2005. 

According to 7 of the 10 trucking firms we contacted, they need 18 to 24 

months to put a sufficient number of miles on heavy-duty trucks—under a 

variety of driving conditions through all four seasons of the year—to fully 

evaluate the vehicles’ operating costs, performance, reliability, and 

durability. Officials at all ten trucking companies said that they were 

reluctant to take the risks associated with the new technologies unless they 

have enough time to fully assess the new trucks. For example, officials at 

one company noted that it has only 12 maintenance facilities nationwide 

and when a truck breaks down on the highway, it is very expensive to 

repair. Consequently, these officials are not willing to take a chance on 

equipment that has not been adequately tested.
Page 35 GAO-04-313 Air Pollution

Without adequate testing time, the trucking company officials we contacted 

believe that they and other trucking companies will likely pre-buy trucks 

with older engines before 2007, with more companies purchasing more 

trucks than they did before the consent decrees’ October 2002 deadline. 

Even officials from one of the trucking companies that bought only trucks 

with new engines in 2002 said that they would consider pre-buying if the 

new equipment is not fully tested. According to most of the trucking 

industry officials we contacted, the adverse impacts of a pre-buy on 

trucking companies and engine manufacturers could be worse in 2007 than 

in 2002. Many of the trucking companies we contacted agreed that the 

industry needs to have the cost, reliability, and other uncertainties 

associated with the 2007 trucks resolved in order to achieve greater 

stability within the industry.

In late February 2004, we again contacted all ten trucking companies to 

determine the extent to which the engine manufacturers’ announcements 

that test vehicles would likely be available in 2005 may have eased their 

concerns regarding the introduction of new engine and emissions control 

technologies in 2007. Of the five companies that responded to our inquiries, 

one stated unequivocally that the engine manufacturers’ announcements 

had not at all reduced its concerns. Representatives of the remaining four 

companies stated that their levels of concern had been somewhat reduced 

by the announcements, but they continue to be concerned about a number 

of unresolved issues. For example, despite engine manufacturers’ 

assurances, companies continue to be concerned about the durability of 

the new engines as well as the cost of purchasing and operating them. In 

addition, representatives of some of these companies questioned whether 

the availability of a relatively small number of test vehicles in a limited 

number of fleets could provide sufficient information to allay the concerns 

of the trucking industry as a whole. Finally, some trucking companies 

highlighted lingering concerns regarding potential shortages and higher 

costs of low-sulfur diesel fuel. 
Page 36 GAO-04-313 Air Pollution

Some Stakeholders 

Commended EPA’s 

Efforts to Ensure 

Technology Is Ready 

by 2007, but Others 

Would Like the Agency 

to Provide More 

Certainty

EPA has taken a number of steps to help with and monitor the engine and 

fuel technology development. For example, EPA staff continue to meet 

with representatives of the key industries, issue reports on technology 

progress, and conduct stakeholder workshops. Representatives of some of 

the engine manufacturers, the emissions control technology manufacturers 

association, the fuel industry, and the environmental and health groups we 

contacted commended EPA's efforts for helping to advance the needed 

technologies. However, some of the engine manufacturers and the trucking 

companies we contacted would like more help and reassurance that the 

technology will be ready when needed, including economic incentives to 

manufacturers to produce engines on time and trucking companies to buy 

them as scheduled. Furthermore, some trucking representatives believe 

that EPA has not included them in, or listened to their concerns about, 

implementation of the standards. EPA program managers maintain that the 

agency has given the industries more lead-time than required to produce 

the technology and provided extensive assistance and monitoring. They 

stated that the agency could take a number of additional actions if the 

standards cannot be implemented on time, such as granting individual 

companies temporary relief from the standards or postponing active 

enforcement. But EPA sees no evidence that timely implementation of the 

standards is not achievable.

EPA Has Undertaken a 

Number of Efforts to 

Monitor and Facilitate the 

Standards’ Timely 

Implementation 

According to EPA, the agency is not required to ensure that the engine and 

emissions control technologies or low-sulfur fuel supplies will be available 

on time or that the industries comply in a timely manner. However, the 

Clean Air Act requires that EPA establish standards taking into 

consideration the availability and costs of technology, lead-time, and other 

factors. In responding to the act’s requirements, EPA concluded that all of 

the evidence indicates that industries can and will implement the engine 

and fuel requirements of the 2007 rule successfully and in a timely manner. 

According to EPA, the technologies for meeting the standards are well 

known and some are already in use. For example, refineries are now using 

technology to reduce sulfur in diesel fuel and engine manufacturers are 

installing filters that reduce fine particle emissions from engines. In 

addition, the technologies for meeting the nitrogen oxide standard in the 

2007 rule are being developed at a rate faster than anticipated, according to 

EPA, and the remaining engineering issues are being addressed. 

EPA’s confidence is based, in part, on provisions that the agency built into 

the 2007 rule to ease compliance. For example, in developing the rule, EPA 
Page 37 GAO-04-313 Air Pollution

gave the industries 6 to 10 years to plan, develop, and produce fuel and 

engines that meet the requirements. By comparison, the Clean Air Act only 

requires EPA to allow no less than 4 years of lead-time for regulated entities 

to develop any new technologies required to comply with a rule. EPA also 

included hardship and other provisions to address problems that certain 

small businesses may have in complying with the rule. 

In addition to specific rule provisions, EPA continues to take steps to 

monitor the development of needed technologies and fuel supplies and to 

ensure that the standards will be successfully implemented. These efforts 

include: 

• Technology Progress Review Meetings - According to EPA, agency 

representatives have continuously met with diesel engine 

manufacturers, emissions control equipment producers, oil refiners, 

refinery technology companies, and fuel distributors; visited technical 

research centers; and met with leading engineers and scientists from 

more than 30 companies for briefings on the progress being made to 

comply with the 2007 standards.

• Progress Review Reports - In the preamble to the 2007 rule, EPA 

committed to issuing a progress report every 2 years on the status of 

nitrogen oxide adsorber technology, the emissions control technology, 

which the agency believes to be the most promising for meeting the 

standards. The first report, issued in June 2002, concluded that the 

engine manufacturers and the emissions control equipment industry’s 

efforts to develop this technology were progressing rapidly and on 

schedule. The report also included an update on the status of filters to 

control particulates and the refining industry’s progress towards 

meeting the low sulfur diesel fuel requirements for 2006. The report did 

not include supporting technical evidence from each company to 

validate EPA’s conclusions. EPA plans to release its second engine 

progress review report in early 2004.

• Refiners Pre-Compliance Reports - The 2007 rule requires fuel refiners 

and importers to submit annual reports from 2003 through 2005, which 

must contain information on, among other things: (1) an estimate of the 

volumes of low-sulfur and higher-sulfur diesel fuel that each refinery 

plans to produce or import; and (2) engineering plans, the status of 

efforts to obtain any necessary permits and financial commitments for 

making the necessary refinery modifications to produce low-sulfur fuel, 

and construction progress. EPA summarized these data and issued its 
Page 38 GAO-04-313 Air Pollution

first annual report in October 2003, stating that the industry is on target 

for complying with the low-sulfur fuel requirements on time, fuel 

production will be sufficient to meet demand, and low-sulfur fuel will be 

widely available nationwide. EPA plans to issue additional 

precompliance reports in 2004 and 2005.

• Implementation Workshops - EPA has held public workshops on the 

2007 standards and plans to hold additional ones in the future as 

appropriate. In November 2002, EPA sponsored a clean diesel fuel 

implementation workshop, which focused on issues such as record 

keeping and reporting requirements for the fuel industry and diesel fuel 

refining, distribution, storage, and marketing challenges. In addition, in 

August 2003, EPA, the trucking industry, and engine manufacturers cosponsored another implementation workshop to facilitate the exchange 

of information among EPA, engine manufacturers, and other parties 

including truck manufacturers and truck operators, and to give EPA a 

forum to provide additional guidance on implementation issues.

• Clean Diesel Independent Review Panel - As previously discussed, at 

EPA’s request, the Clean Air Act Advisory Committee’s Clean Diesel 

Independent Review Panel15—an expert panel composed of 

representatives of engine and emissions control equipment 

manufacturers, trucking companies, fuel refiners and distributors, and 

environmental and health organizations—independently assessed 

industries' progress towards complying with the 2007 rule. In its 

October 2002 final report, the panel found that both the engine and fuel 

industries were developing the technologies needed to comply with the 

2007 standards at an appropriate rate, but that these industries needed 

to address a number of technical issues for implementation to be 

successful. The panel agreed that none of these issues was 

insurmountable and that, for a number of these issues, EPA’s planned 

implementation workshops were an appropriate means to move 

forward. 

15The Clean Diesel Independent Review Panel was created by a charter issued under the 

Clean Air Act Advisory Committee. Generally, the purpose of the Committee is to provide 

independent advice and counsel to EPA on policy and technical issues associated with 

implementation of the Clean Air Act Amendments of 1990. The purpose of the panel was to 

review industries’ progress toward developing the technologies necessary to implement the 

2007 diesel rules.
Page 39 GAO-04-313 Air Pollution

• Guidance Documents - In November 2002, EPA issued guidance on 

engine manufacturers’ testing procedures to determine whether their 

engines comply with the new standards, and the agency also issued a 

draft document responding to questions raised by the fuel refining and 

distribution industries during the workshop held earlier that month. 

EPA plans to issue additional guidance on implementing the 2007 

standards, if needed. 

• Other Technology-Related Activities - According to EPA, the agency has 

taken an active role in a number of areas regarding technology 

development and information-sharing with the diesel engine industry 

and other stakeholders, including:

• an on-going testing program at EPA’s National Vehicle and Fuel 

Emissions Laboratory in Ann Arbor, Michigan, in which EPA has 

evaluated the status of engine and emissions control technology, 

including particulate filters and nitrogen oxide adsorber catalyst 

technologies. EPA believes that this program helps to inform the 

agency of the current state of these technologies and allows EPA to 

make general information on technology progress publicly available. 

• two government/industry technology demonstration programs 

sponsored by the Department of Energy: the Diesel Emission 

Control-Sulfur Effects Project, completed in 2001, which primarily 

focused on the impacts of diesel fuel sulfur on emission control 

technologies; and the Advanced Petroleum-Based Fuels-Diesel 

Emissions Control Project, which focuses on developing and 

demonstrating engine and emissions control systems that can comply 

with the 2007 standards. 

• a number of industry-sponsored task groups, including (1) the Diesel 

Engine Oil Advisory Panel, made up of the American Petroleum 

Institute, the American Chemistry Council, the American Society for 

Testing and Materials (ASTM), and a number of individual oil, engine, 

and additive companies, which is developing voluntary standards for 

engine oil formulations for the 2007 engines; and (2) the Diesel Fuel 

Lubricity Task Force, sponsored by ASTM, which is working to 

develop fuel test methods and specifications. EPA participates in 

these groups to provide input on technical issues and clarification on 

the 2007 rule, and to track the industry’s progress.
Page 40 GAO-04-313 Air Pollution

• Other Outreach Activities - EPA has participated in numerous 

conferences and meetings sponsored by a wide range of stakeholders at 

which agency officials have made presentations discussing the 2007 

rule. EPA believes that these conferences are useful (1) for stakeholders 

to get the latest information on the status of the 2007 rule 

implementation and (2) for EPA to answer questions about the rule and 

hear first-hand input from the regulated industry and other 

stakeholders. 

Based on all of these activities, EPA maintains that industries will 

successfully implement the requirements of the 2007 rule on time and that, 

beyond the agency’s planned workshops and other monitoring and 

outreach activities, it needs to take no additional actions to ensure timely 

compliance.16

Some Stakeholders Believe 

EPA Has Done Enough to 

Promote the Technology, 

While Others Would Like 

More Help and Outreach

In general, a number of stakeholders we contacted—the association of 

emissions control equipment manufacturers, a number of the fuel industry 

representatives, the environmental and public health groups, and two of 

the engine manufacturers—either commended EPA for its efforts to ensure 

the needed technology is ready on time, or believe the agency is already 

doing enough to provide such assurances. Two of the remaining engine 

manufacturers and some fuel industry representatives, as well as all of the 

trucking companies, would like more help in developing the technology or 

proof that it is on track.

The association of emissions control equipment manufacturers praised 

EPA for its efforts to assist in the development of the needed technology. In 

addition, many of the fuel industry representatives we contacted 

commended EPA’s efforts to reach out to them and actively involve them in 

preparing for the implementation of the 2007 standards. In particular, the 

representatives found EPA’s implementation workshops and its draft 

question-and-answer document to be the most helpful. 

16Engine manufacturers and others challenged the 2007 rule on various grounds, including 

the feasibility of developing emissions control systems that would satisfy the new nitrogen 

oxide and particulate matter standards. The court not only found no basis for reversing 

EPA's prediction of the future development of adequate nitrogen oxide adsorbers, but also 

denied the other petitions. National Petrochemical and Refiners Association v. EPA, 287 F.3d 

1130 (D.C. Cir. 2002).
Page 41 GAO-04-313 Air Pollution

Representatives of the five environmental and public health groups 

commended EPA’s efforts to implement the 2007 standards and to include 

them and other stakeholders in the implementation process. Specifically, 

the groups said that EPA’s outreach efforts were comprehensive and 

inclusive. Not only did EPA solicit comments from as many stakeholders as 

possible during the rulemaking process, but it also has continued to 

encourage discussions between the stakeholders at its implementation 

workshops. Generally, the groups agreed that EPA does not need to go 

beyond its current and planned activities to ensure timely implementation 

of the standards.

As for the five engine manufacturers, representatives from one found EPA’s 

efforts to be particularly supportive and representatives from two others 

said the efforts were “somewhat” effective in easing development of the 

needed technologies. Officials from one of these manufacturers said that 

EPA has been responsive to the manufacturers’ questions, all of which 

should help them meet the 2007 standards. Representatives from another 

manufacturer stated that EPA has been diligent in monitoring the progress 

of engine development, visiting suppliers as well as the engine makers’ 

facilities, which has helped speed the development of the engines. The 

agency’s work in its Ann Arbor, Michigan, research laboratory has also 

helped in this regard. In contrast, officials from a fourth company noted 

that EPA had not been particularly responsive to the industry or its 

concerns. (The remaining manufacturer’s representatives did not express 

an opinion in this regard.)

On the other hand, two engine manufacturers described workshops 

sponsored by EPA that focused on complying with the 2007 rule as only 

marginally effective. For example, one engine manufacturer’s officials 

commented that the workshops appear to be "staged” and convened only to 

confirm the agency’s preconceived ideas, although EPA noted that 

members of the trucking and engine manufacturing industries cosponsored these workshops, and that would make it difficult for the agency 

to preordain their outcomes. These companies’ officials further stated that 

they did not need EPA’s help in developing new diesel technologies, but did 

need the agency’s assistance in convincing customers to buy the trucks 

with the 2007 engines, however. Four of the five manufacturers also 

asserted that economic incentives for trucking companies could assist 

them and facilitate the implementation of the 2007 rule. In general, officials 

from both of these industry groups favored tax breaks or subsidies for 

trucking companies to purchase the new technologies on time. According 

to these officials, investing millions of dollars in developing or buying new, 
Page 42 GAO-04-313 Air Pollution

relatively unproven equipment carries an inherent business risk and 

provides companies with a powerful incentive to stay with older, familiar—

and dirtier—equipment. EPA officials told us that the agency would have to 

request authority from the Congress to provide industries with economic 

incentives.

As for other stakeholders, representatives of the terminal and marketing 

segment of the distribution industry, in particular, were disappointed that 

the Clean Diesel Independent Review Panel addressed only technology 

issues and not distribution issues, such as contamination. Furthermore, all 

of the trucking companies we contacted agreed that EPA could do more to 

address the uncertainties facing their industry, and thereby help minimize 

any pre-buy that might occur. In particular, while EPA actively involved 

them in developing the 2007 rule, they believe that the agency has not 

addressed their concerns in implementing the standards. For example, 

according to ATA officials, EPA did not initially include representatives of 

the trucking industry in the agency’s Clean Diesel Independent Review 

Panel, and invited ATA to participate only after the organization 

complained about being excluded. EPA acknowledged that, in retrospect, 

they should have included trucking industry representatives on the panel 

from the outset and responded by adding an ATA representative to the 

panel. Furthermore, ATA officials told us that the panel’s review did not 

include several important technical issues, such as consideration of 

alternative emissions control technologies, and that panel members were 

discouraged from raising such issues. Finally, the ATA officials said that 

several panel members published reports dissenting with the panel’s main 

conclusion that technology development was on schedule, but that EPA 

has not made these reports generally available. As a result of these factors, 

ATA officials said they do not have great confidence in the panel’s findings 

and they remain largely unconvinced that trucking companies’ interests 

have been well represented in EPA’s panel process. According to EPA 

officials, however, panel membership was comprised overwhelmingly of 

experts on engine and vehicle technology development. 

Some trucking companies are also skeptical of the effectiveness of EPA’s 

other efforts to monitor and assist the development of technology for the 

2007 rule. For example, several trucking company officials we contacted 

believe EPA has already made important implementation decisions—

largely without input from trucking companies—and the workshops’ main 

function is merely to validate those decisions. Several trucking companies 

and ATA officials expressed the belief that EPA’s overall approach to 

implementing the 2007 rule is too inflexible. For example, the ATA officials 
Page 43 GAO-04-313 Air Pollution

maintain that EPA’s analysis supporting the 2007 rule dramatically 

understates trucking companies’ costs to comply with the rule and ignores 

the possible severe effects of these costs on the companies. ATA 

representatives have recommended that EPA update its analysis to take 

into account better information that is now available. However, EPA 

officials continue to believe that the regulatory impact analysis it prepared 

in support of the rule is sufficient, and pointed out that the agency is not 

required to, and does not routinely, update its analysis supporting such 

rulemakings. They also maintain that engine manufacturers, not trucking 

companies, are the entities being regulated under the 2007 rule. As a result, 

following the rulemaking, most of the EPA’s direct dealings were with 

engine makers, not trucking companies, according to these officials. 

However, they said that, more recently, EPA has actively consulted trucking 

companies. The trucking companies would like EPA to work more directly 

and closely with them, hear and address their concerns, and provide more 

reassurance that the technologies will be ready by 2007.

EPA Could Take a Number 

of Actions If the Standards 

Cannot Be Implemented on 

Time 

According to EPA, the agency is not required to take action in the event 

that the engine and emissions control technologies and low-sulfur fuel are 

not available in time to implement the 2007 standards as scheduled. 

However, according to EPA, if circumstances arise that would require 

additional action, the agency will address them at that time. 

EPA believes that timely implementation of the 2007 standards is 

achievable and to plan for failure to meet the deadline would undermine 

the rule. EPA maintains that the collective efforts of the industries to 

develop plans and technologies needed to meet the standards, combined 

with the agency’s monitoring of their progress, is the proper course of 

action at this time and is showing significant positive progress towards 

timely and successful implementation. According to EPA, entities that are 

being regulated have for decades developed technologies and implemented 

requirements based on the certainty that the regulations would not be 

changed in a way that would disrupt their planning and investment. With 

this in mind, EPA maintains that it would not be prudent or good 

government to change the regulations or delay their implementation. 

According to EPA, the agency’s efforts to provide the industries significant 

lead-time for developing the needed technologies, ensure that all 

stakeholders are actively developing them, and monitor their progress are 

the most prudent actions the agency can take. 
Page 44 GAO-04-313 Air Pollution

According to EPA, if it appears that industries cannot comply with the 2007 

standards on time, the agency would not readily make substantive changes 

to the rule—such as modifying the implementation dates or changing the 

allowable emissions levels of the standards—because industries have 

invested large amounts to comply with the standards in the specified 

timeframe. Nevertheless, EPA officials point out that, if there was 

convincing evidence that modifying some aspect of the requirements was 

justified and necessary, the agency could take a number of actions: 

• EPA could revise the rule in response to a specific petition. Under the 

Clean Air Act,17 any person can petition the EPA Administrator to 

change a rule. The petition must demonstrate that it was impracticable 

to raise the objection during the public comment period when the rule 

was composed and that the objection is of central relevance to the 

outcome of the rule. EPA believes that the appropriate mechanism for 

substantively changing the 2007 requirements would be to undertake a 

standard rulemaking process in response to a petition, in which the 

agency would post a notice of rulemaking in the Federal Register and 

request, review, and address public comments on the proposed revisions 

to the rule.

• EPA could also develop nonconformance penalties in the event that one 

or more engine manufacturers was unable to produce compliant 

engines, as it did for the 2004 standards and consent decrees. EPA 

establishes nonconformance penalties when: (1) the emission standard 

is more stringent than the previous standard or an existing standard 

becomes more difficult to achieve because of a new standard, and if 

EPA finds that it will require substantial work to comply; and (2) it is 

likely that one or more manufacturers will be a “technological laggard,” 

unable to produce compliant engines by the required date.18 Typically, 

EPA decides whether to establish penalties 1 or 2 years before the 

compliance dates, primarily because information on manufacturers’ 

ability to comply is not available until then. Therefore, EPA believes that 

it is not appropriate to consider penalties before late 2004. 

17Clean Air Act, Section 307(d)(7)(B) (codified at 42 U.S.C. 7607(d)(7)(B)).

18Previous nonconformance rules have considered a technological laggard to be a 

manufacturer who cannot meet a particular emission standard due to technological, rather 

than economic, difficulties and who, in the absence of the penalties, might be forced from 

the marketplace, including the elimination of one or more engine families or configurations 

from production.
Page 45 GAO-04-313 Air Pollution

• In the event that an individual refiner is unable to comply with the 2007 

rule, EPA could grant the company relief from meeting its low-sulfur 

requirement in response to a request under the rule’s hardship 

application process. The refiner would then develop an alternative 

compliance plan. 

• EPA may, in certain circumstances, determine in advance that it will not 

actively enforce an environmental regulation, including the 2007 rule. 

However, according to EPA, the agency would take this action only if it 

is clearly needed to serve the public interest. Typically, EPA grants 

requests for selective enforcement of a regulation when a weather 

emergency, fire, explosion, or similar circumstance outside a requester’s 

control makes compliance impracticable, or when compliance with the 

original rule would cause the regulated entities significant hardship.

Conclusions The consent decrees and 2007 standards are critical pieces of EPA’s 

strategy to control harmful diesel emissions and protect public health. 

While the accelerated schedule in the consent decrees had an impact on 

both the engine and trucking industries, it helped to further the agency’s 

emissions reduction goals by putting cleaner diesel engines on the road 

earlier than otherwise planned. The agency has also made a significant 

investment in developing, and ensuring the implementation of, the 2007 

standards. Nevertheless, stakeholders from two critical industry groups—

engine manufacturers and trucking companies—would like more help. In 

particular, engine manufacturers would like assurances from EPA that, 

once the cleaner engines are available, the trucking industry will purchase 

them. Furthermore, the trucking industry, as a result of its experience with 

the consent decrees, believes it has not been a key player with EPA in 

responding to the consent decrees or implementing the 2007 standards. 

Because the trucking industry is a major source of the emissions EPA is 

trying to combat, if trucking companies delay purchase of the cleaner 

engines, the economic effect could be more severe than what occurred as a 

result of the decrees and could postpone the emissions reductions. The 

trucking industry is also a key player in the nation’s transportation system 

needed to keep a healthy economy. Therefore, it is important to achieve 

emissions reductions while minimizing the negative economic effects on 

trucking and its related industries.

For these reasons, EPA may want to consider what additional efforts it 

could take to help engine manufacturers produce clean engines in time for 

road testing, to reassure trucking companies that they will be able to buy 
Page 46 GAO-04-313 Air Pollution

tested engines on time, and to address major concerns of other key 

stakeholders. Careful consideration should be given to these efforts so that 

they will not unduly delay progress towards the standards, however. For 

example, EPA could consider if it has time to establish an independent 

expert panel, similar to its 2002 panel, to review industry’s progress in 

developing the necessary technologies. The panel should consist of 

representatives of all of the key stakeholders who would identify and 

address their major concerns to the extent practicable. The panel could 

review the data EPA has already collected or new data from the engine and 

fuel industries to measure the progress of technology development, 

communicate this to all stakeholders, and determine what, if any, 

additional actions, such as incentives, are needed to ensure that standards 

are met. The agency would have to establish the panel as soon as possible 

in 2004, however, if it is to have enough time to be effective and not unduly 

delay progress. Making more of an investment in working with all of the 

stakeholders critical to meeting the 2007 standards would help EPA ensure 

that it will achieve its goals of reduced emissions and increased public 

health protection.

Recommendation for 

Executive Action

To maximize public health and air quality benefits, and minimize adverse 

impacts on affected industries, we recommend that the Administrator, 

EPA, consider additional opportunities to allay engine, fuel, and trucking 

industry concerns about the costs and likelihood of meeting the 2007 

standards with reliable engine and fuel technology. Opportunities could 

include better communicating with all stakeholders on the remaining 

technological uncertainties. EPA could also convene another independent 

review panel to (a) address stakeholders’ remaining concerns; (b) assess 

and communicate the progress of technology development; and (c) 

determine what, if any, additional actions are needed to meet the 2007 

standards such as considering the costs and benefits of incentives for 

developing and purchasing the technology on time, and other alternatives. 

Agency Comments and 

Our Evaluation

We provided EPA with a draft of this report for review. The Assistant 

Administrator for Air and Radiation said EPA believes that, in many 

respects, our report is consistent with the agency’s assessment of the 

situation leading up to the implementation of the 2007 standards. However, 

the agency has concerns about the basis for certain of our findings on the 

standards. More specifically, EPA asserted that we (1) present selected 

stakeholders’ opinions without validating them and ignore evidence that 
Page 47 GAO-04-313 Air Pollution

the agency believes would prove or disprove their validity, (2) overstate the 

challenges to having fuel and engine technologies ready on time to meet the 

2007 standards, and (3) inaccurately portray EPA’s efforts to work with 

stakeholders in developing the rule. As to our recommendations, EPA sees 

merit in using financial incentives to achieve the 2007 milestone, but does 

not see an agency role in this regard. Neither does the agency see a need to 

convene an independent technology review board.

We disagree with EPA’s assertions. In our view, EPA needs to work with 

stakeholders to better address any remaining concerns they have about the 

availability of the new engines and fuel required to meet the 2007 

standards. We fully appreciate that the anticipated emissions reductions 

are critical for many states whose air quality is in trouble, that the 2007 

standards are vital to protecting public health, and that the agency and the 

engine, emissions control, and fuel industries have made extensive efforts 

to successfully implement the 2007 rule. We also recognize that to achieve 

the rule’s objectives, the trucking industry must purchase trucks with the 

new engines beginning in 2007. Otherwise, we are concerned that the 

nation may relive the negative effects that resulted from the 2002 consent 

decrees. In 2002, trucking companies pre-bought older engines before the 

deadline, delaying emissions and health benefits, because they believed 

they did not have enough time to test new engines or enough information 

on costs. To ensure that this does not happen with the 2007 standards, we 

believe EPA should strengthen its process for working with stakeholders to 

allay any remaining concerns about whether fuel will be available in 

sufficient quantities and locations, whether enough new engines will be 

ready in time to thoroughly test them, and how much the engines will cost 

to buy and operate. 

With respect to EPA’s specific assertions, we disagree with EPA’s opinion 

that we present certain stakeholders’ views without regard to their validity. 

We carefully and consistently collected the views of engine and emissions 

control manufacturers, trucking companies, fuel industry representatives, 

and environmental and health groups, and were equally careful to 

accurately present their opinions, consistent with our methodology and 

quality assurance standards. Furthermore, the report acknowledges that 

we were unable to verify opinions about the technologies’ readiness with 

hard data on their design and performance because the industries 

manufacturing the technologies were not comfortable in releasing 

information about their individual designs. Nevertheless, we did not simply 

accept stakeholders’ views at face value, but where possible, assessed the 

basis for their opinions, such as reviewing available studies and reports on 
Page 48 GAO-04-313 Air Pollution

the technologies. We also disagree with EPA’s assertion that we did not 

consider additional information and evidence that agency program 

managers provided to us late in the course of our work after reviewing a 

draft summary of the facts to be used in the report. At that time, EPA 

provided extensive written comments on the summary, along with a 

number of press releases from engine manufacturers and trade press 

articles. In response, we spent considerable time carefully assessing all of 

this information and made a number of changes to the report where 

appropriate. However, the agency did not provide any additional 

quantitative data or other information that would allow us to better 

evaluate the stakeholders’ positions. 

We also disagree with several EPA assertions that the report overstated the 

technological challenges to successfully delivering the necessary fuel and 

engines on time. In this regard, we devote considerable narrative to the 

views of the agency and all the stakeholders who share these views that 

both technologies are on track. However, we were obligated to 

acknowledge some stakeholders’ concerns over the remaining 

technological risks and questions. In addition, we include the most current 

information possible on technological developments in our report. For 

example, after several manufacturers announced by February 2004 their 

plans to have a limited number of prototype engines ready for testing in 

2005, we re-contacted the trucking company representatives to determine 

the extent to which these announcements addressed their concerns.

Additionally, we acknowledge that EPA deserves credit for its activities to 

work with various stakeholders to help ensure that the technologies will be 

ready in time and we devote considerable narrative to describing these 

activities in the report. We are also very careful to give a balanced 

presentation of the stakeholders’ opinions about EPA’s activities and 

therefore were obligated to acknowledge that some stakeholders 

questioned the agency’s openness to their concerns and willingness to 

address them. For example, we note in the report that EPA officials 

acknowledged the agency initially did not invite anyone from the trucking 

industry to participate on the 2002 Clean Diesel Independent Review Panel 

and only did so after the industry lobbied the agency.

Finally, with regard to EPA’s comments on our recommendations, we want 

to emphasize that we are recommending that the agency consider 

additional steps to alleviate the remaining concerns raised by stakeholders, 

avoid a significant pre-buy of older engines, and better guarantee that the 

emissions and health benefits are achieved. We suggest actions for the 
Page 49 GAO-04-313 Air Pollution

agency to consider, but do not intend to limit the agency to the alternatives 

we suggested, especially if it could design more effective solutions. In this 

light, with regard to financial incentives, we recognize that the Congress 

must provide the agency direction and funding for such an approach, but 

expect that it would also look to the agency to play a role, such as making 

the initial proposal for incentives or helping to determine their merits and 

costs. As to convening an independent review panel, we do not believe that 

this would unduly delay the schedule for implementing the standards. In 

addition, we believe a panel could help address stakeholders’ remaining 

concerns, thereby helping to prevent a repeat of the negative impacts from 

the 2002 consent decrees and instead ultimately ensure that the critical 

emissions and health benefits anticipated from the 2007 standards are 

achieved in a timely manner.

Appendix III contains the text of EPA’s letter along with our detailed 

responses to the issues raised. EPA also provided some technical 

comments, which we have incorporated as appropriate.

We are sending copies of this report to the Chairman and Ranking Minority 

Member of the Senate Appropriations Committee and its Subcommittee on 

VA, HUD, and Independent Agencies; the Senate Committee on 

Environment and Public Works; the Senate Committee on Commerce, 

Science, and Transportation; the House Appropriations Committee and its 

Subcommittee on VA, HUD, and Independent Agencies; the House 

Committee on Energy and Commerce; the House Committee on 

Transportation and Infrastructure; the House Committee on Government 

Reform and its Subcommittee on Energy Policy, Natural Resources, and 

Regulatory Affairs; other interested members of Congress; the 

Administrator, EPA; the Director of the Office of Management and Budget; 

and other interested parties. We will also make copies available to others 

upon request. In addition, the report will be available at no charge on GAO’s 

Web site at http://www.gao.gov. If you have any questions about this report, 
Page 50 GAO-04-313 Air Pollution

please contact me at (202) 512-3841. Key contributors to this report are 

listed in appendix IV.

John B. Stephenson

Director, Natural Resources and Environment
Page 51 GAO-04-313 Air Pollution

List of Congressional Requesters

The Honorable Roscoe Bartlett

The Honorable John Boozman

The Honorable Mac Collins

The Honorable Barbara Cubin

The Honorable Sam Graves

The Honorable Mark Green

The Honorable Melissa A. Hart

The Honorable Ernest Istook

The Honorable Walter B. Jones

The Honorable Ray LaHood

The Honorable Jim McCrery

The Honorable C. L. “Butch” Otter

The Honorable Mike Rogers

The Honorable Jim Ryun

The Honorable John Shadegg

The Honorable John Shimkus

The Honorable Bill Shuster

The Honorable Mark Souder

The Honorable Lee Terry

House of Representatives
Page 52 GAO-04-313 Air Pollution

Appendix I

Scope and Methodology ApApenednxidexiIs

Our objectives in this review were to determine (1) the effects, if any, of 

EPA’s 1998 consent decrees with diesel engine manufacturers on trucking 

companies, engine manufacturers, and expected emissions reductions; 

(2) stakeholders’ views on industries’ ability to comply with the 2007 

standards and EPA’s actions to ensure that the new engine technologies and 

low-sulfur fuel will be ready in time; and (3) if not, EPA’s options and plans 

for mitigating any potential negative effects on key industry sectors. 

To address the first objective, we performed econometric modeling using 

data on new Class 8 diesel truck production, GDP, and diesel fuel prices 

from January 1992 through June 2003 to determine the extent to which 

Class 8 truck purchases may have been associated with the consent 

decrees. We assessed the reliability of these data by reviewing existing 

information about the data as well as some testing of the truck data for 

obvious errors. In addition, we had discussions with the vendor concerning 

the reliability of the truck data. We determined that the data were 

sufficiently reliable for purposes of this review. Details of our methodology 

for this specific analysis are included in appendix II.

In addition, we contacted, among others, officials of ten of the nation’s 

largest trucking companies as defined by the number of trucks in their 

fleets (see table 4). 

Table 4: Ten Large Trucking Companies Involved in Freight Transportation in 2002

Source: American Trucking Associations.

Truck company

Number of trucks

in fleet

Ryder Systems, Incorporated 52,400

US Freightways Corporation 21,200

Penske Truck Leasing Corporation 19,562

Schneider National, Incorporated 14,000

Swift Transportation Company, Incorporated 12,748

Roadway Corporation 12,300

Yellow Corporation 11,657

FedEx Corporation 11,203

J.B. Hunt Transport Services, Incorporated 10,770

United Parcel Service, Incorporated 10,300

Total 176,140
Appendix I

Scope and Methodology

Page 53 GAO-04-313 Air Pollution

We identified these companies from data provided by the American 

Trucking Associations (ATA), an organization representing the majority of 

the trucking companies involved in freight transportation. Because ATA 

could not identify which of its member companies had purchased engines 

in the months before and immediately after October 2002, GAO and ATA 

agreed that the largest trucking companies, as determined by the total 

number of trucks in their fleets, were more likely than smaller companies 

to have purchased trucks during that period and, therefore, would be in the 

best position to recount their experience with both the new engines and the 

impacts of the accelerated schedule. ATA provided us with a list of 48 of 

their member companies with truck fleets ranging from a high of over 

52,000 trucks to a low of 60 trucks. From this list, we selected those ten 

companies that each had fleets of over 10,000 trucks in 2002. (This 10,000-

truck level provided a natural breaking point in the data, since the next 

largest company owned about 8,400 trucks.) These 10 companies 

accounted for a total of 176,000 trucks, 3 percent of the total truck 

inventory in 2002. Because these companies were not selected randomly, 

we cannot project our findings to the entire trucking industry. We asked the 

representatives of these companies a uniform set of questions about the 

companies’ strategies in reacting to the decrees, the effects of the decrees 

on their operations, and their experiences with the new engines designed 

to comply with the decrees. We also reviewed financial statements some of 

these companies submitted to the Securities and Exchange Commission to 

identify effects that the companies publicly disclosed.

In addition, to determine the effects of accelerating implementation of the 

2004 standards on the engine manufacturing industry, we contacted 

officials of the seven engine manufacturers that were subject to the 

consent decrees. These companies included Caterpillar Incorporated, 

Cummins Engine Company, Detroit Diesel Corporation, Mack Trucks 

Incorporated, Navistar International Transportation Corporation, Renault 

Vehicules Industriels, s.a., and Volvo Truck Corporation. 

As with the trucking companies, we asked the representatives of these 

engine manufacturers questions about their companies’ strategies with 

regard to the decrees, the decrees’ effects on their operations, and the 

performance of the new engines. We also reviewed some of these 

manufacturers’ Securities and Exchange Commission submissions. While 

we asked these companies for data to support their statements about the 

effects of the decrees, generally they said that it would be detrimental to 

reveal information about their business operations or technology designs 

because it might harm their competitive positions relative to other 
Appendix I

Scope and Methodology

Page 54 GAO-04-313 Air Pollution

companies. We also did not identify any other independent analyses of the 

impacts of the consent decrees.

To determine the air quality effects of the decrees, we reviewed EPA’s 1998 

projections of the emissions reductions expected from accelerating the 

schedule, based on its estimate of the number of trucks that would have the 

new engines. We compared this to data on the actual number of trucks with 

new engines to assess the likelihood that EPA would achieve the expected 

emissions reductions. We also discussed with EPA officials and staff the 

basis for their estimates of the expected emissions reductions from a 

second provision of the consent decrees, whereby truck owners would 

have emission computer controls on their older engines adjusted during 

engine overhauls. 

To respond to the second objective, we contacted officials representing 16 

organizations and companies from among those that offered the largest 

number of comments on EPA’s 2007 emissions standards when proposed in 

2000 (see table 5). 
Appendix I

Scope and Methodology

Page 55 GAO-04-313 Air Pollution

Table 5: Stakeholders Providing the Most Comments on EPA’s Proposed 2007 Diesel Emissions Rule and the Number of Issues 

Addressed by Each 

Source: GAO analysis of EPA data. 

We identified these stakeholders by first reviewing the list of 

organizations/persons commenting on EPA’s proposed 2007 rule during the 

public comment period in 2000. EPA recorded over 700 separate comments 

on various issues relating to the rule. We used the number of issues on 

which individual organizations commented, as determined by EPA, as a 

proxy for the level of interest or concern by these organizations regarding 

EPA’s 2007 rule. From EPA’s response document, we identified over 500 

separate commenters, ranging from individual citizens, local interest 

groups, and companies to national organizations representing major 

industries and environmental, health, and other interests. Using this 

information, we placed commenters in general categories reflecting the 

interests they represented, for example, the fuel industry or environmental 

and health interests. Within each category, we ranked the commenters 

based on the total number of issues on which each commented. From each 

category, we generally selected those commenters who addressed more 

Organizations/companies commenting on 2007 rule Industry/affiliation

Number of 

issues 

addressed

Alliance of Automobile Manufacturers Automobile industry 40

American Lung Association Environmental/health 103

American Petroleum Institute Fuel industry 128

American Trucking Associations Trucking/carrier 24

Cummins Engine Company Engine manufacturing 78

Detroit Diesel Corporation Engine manufacturing 39

Engine Manufacturers Association Engine manufacturing 125

Environmental Defense Environmental/health 31

Navistar International Transportation Corporation Engine manufacturing 51

Manufacturers of Emissions Controls Association Emissions control equipment 

manufacturing

34

Marathon Ashland Petroleum Fuel industry 105

National Petrochemical and Refiners Association Fuel industry 58

Natural Resources Defense Council Environmental/health 44

Northeast States for Coordinated Air Use Management State/local government 35

State and Territorial Air Pollution Program Administrators/ 

Association of Local Air Pollution Control Officials

State/local government 48

Western Independent Refiners Association Fuel industry 27
Appendix I

Scope and Methodology

Page 56 GAO-04-313 Air Pollution

than 25. This approach eliminated all but 21 of the more than 500 

commenters. 

We then made several modifications to this list. First, we made an 

exception to retain the ATA, which commented on 24 issues, but which 

represents a large segment of the trucking industry, a key stakeholder 

affected by the 2007 rule. We also eliminated two commenters who 

represented agriculture interests, but addressed more than 25 issues 

because agricultural issues were not relevant to our review. Finally, we 

eliminated from our list most individual companies whose interests are 

represented by national organizations that were also on the list of contacts. 

We made this decision on the assumption that the national organization 

would reflect the concerns of the individual member companies that also 

commented. However, we included in our list Marathon Ashland Petroleum 

because of the large number of issues on which this company commented, 

although an organization representing its interests was also included. We 

also included Cummins, Incorporated; Detroit Diesel Corporation; and 

Navistar International Truck and Engine Corporation, three of the original 

seven engine manufacturers who were subject to the consent decrees, 

primarily because we wanted to discuss the effects of the decrees on their 

industry and took the opportunity to discuss issues relating to the 2007 

standards as well.

In addition to the 16 organizations and companies identified through this 

process, we also contacted representatives of the refining and distribution 

sectors of the fuel industry to ensure that we had a broad range of views. 

These sectors did not appear to be represented among the commenting 

stakeholders, despite their key role in implementing the 2007 rule. These 

organizations included the Association of Oil Pipe Lines, the Independent 

Fuel Terminal Operators of America, the Independent Liquid Terminals 

Association, the Petroleum Marketers Association of America, and the 

Society of Independent Gasoline Marketers of America.

We asked all of these stakeholders to provide their views on whether the 

technologies needed to meet the 2007 standards would be available on 

time. We took a number of steps to try to assess the basis of support for 

stakeholders’ views about the readiness of technology to meet the 2007 

standards. First, we asked each engine manufacturer that we contacted if 

the company could provide us with data to demonstrate the status of 

technology development. However, the representatives said that it would 

be detrimental to reveal information about their technology designs or 

business operations because it might harm their competitive positions 
Appendix I

Scope and Methodology

Page 57 GAO-04-313 Air Pollution

relative to other companies. Alternatively, we evaluated the stakeholders’ 

positions by considering publicly available information, including studies 

and reports issued on the technologies and on the development of the 

standards.

Because the representatives of the trucking companies we contacted had 

views about the availability, readiness, and costs of the engines for 2007 

that differed from the other stakeholders, we took some additional steps to 

assess the basis of their views. For example, we asked the engine 

manufacturers and EPA officials to respond to the concerns raised by the 

trucking representatives, and where the manufacturers’ and agency’s views 

differed, we reflected them and the basis of their comments in the report 

for balance. We also considered the information we collected and the 

analyses we conducted in regard to the impacts of the 2002 consent 

decrees to determine if they offered any perspectives on the trucking 

industry’s concerns about meeting the 2007 standards. For example, we 

used the information showing that: (1) the industry pre-bought older 

engines prior to October 2002 because companies did not have engines in 

time to test their reliability and possible costs; (2) companies that had 

bought the new engines determined both the purchase price, and 

operations and maintenance costs, were higher than estimated and 

anticipated; and (3) EPA developed its estimate of what it would cost to 

buy and operate new engines for 2007 in 2000, before technology designs 

were completed and selected to assess the trucking representatives’ 

concerns about meeting the 2007 standards. We also used the information 

obtained from the engine manufacturers to assess the trucking industry’s 

concerns about how soon test engines would be available, such as the fact 

that manufacturers were 6 months behind schedule in selecting the 

technology they would use to meet the standards.

We also asked all of the stakeholders we contacted to provide their views 

on EPA’s efforts to ensure that the needed engine and fuel technologies will 

be available by 2007. We obtained information from EPA on their activities 

in this regard and provided a summary of these activities to the 

stakeholders we contacted and asked them for their views on the 

effectiveness of these efforts. We also discussed with the Director of EPA’s 

Office of Transportation and Air Quality as well as program managers from 

the agency’s Office of Air and Radiation (in Washington, D.C., and Ann 

Arbor, Michigan), their activities to ensure timely compliance with the 

standards, as well as their plans if the standards cannot be implemented on 

schedule. 
Appendix I

Scope and Methodology

Page 58 GAO-04-313 Air Pollution

We conducted our work between January 2003 and February 2004 in 

accordance with generally accepted government auditing standards.
Page 59 GAO-04-313 Air Pollution

Appendix II

Analysis of Class 8 Truck Production Data: 

January 1992 through June 2003 ApendxiI

This appendix describes the econometric models we used to analyze the 

relationship between EPA’s 1998 consent decrees with diesel engine 

manufacturers and subsequent demand for Class 8 trucks. We used 

quarterly data on U.S. and Canadian production of heavy-heavy-duty diesel 

trucks (classified by the industry as Class 8 trucks) for the years 1992 

through 2003.1

 We also accounted for the possible effects of gross 

domestic product (GDP), diesel fuel prices, and seasonal factors on truck 

demand in our analysis.

After applying standard econometric techniques to control for possible 

biases in our analysis, we found that there was a significant increase in 

Class 8 truck production, ranging from about 19,000 to 24,000 trucks, in the 

6 months before October 2002, which may be associated with EPA’s 

consent decrees. These amounts represent 20 percent to 26 percent of the 

total 93,000 Class 8 diesel trucks produced in U.S. and Canadian plants 

during that 6-month period. 

Theoretical 

Framework

To describe how EPA’s consent decrees may have affected truck demand, 

we defined a binary variable, CD. CD takes the value of one for the 6-month 

period prior to October 2002 and the value of zero otherwise. In addition, 

since truck demand is likely to be seasonal, related to the strength of the 

economy, and related to diesel fuel prices, we included these three factors 

in our basic model.2

1

This information is from Ward’s Communications 

(http://wardsauto.com/reference_sample/index.htm).

2

We tried to incorporate truck prices in our analysis to account for the price effects on truck 

demand. Because we did not have data on actual truck prices, we used the class-8 truck 

Producer Price Index (PPI) from the Bureau of Labor Statistics (BLS). To avoid biases that 

may arise when estimating truck price and demand simultaneously in one equation, we 

applied a 2SLS estimation technique. 2SLS is a technique that allows us to first estimate the 

influence of EPA’s consent decrees on truck prices, and then to estimate truck prices’ effects 

on truck demand. However, the consent decrees’ effect on the truck production price index 

is not statistically significant. In addition, the subsequent effects of the truck production 

price index on truck demand vary widely in different specifications. For this reason, we 

decided to model EPA’s consent decrees’ effect on truck demand as in models (1) through 

(4). 
Appendix II

Analysis of Class 8 Truck Production Data: 

January 1992 through June 2003

Page 60 GAO-04-313 Air Pollution

Qt=β 0 +γ1 T1+γ 2 T2+γ 3 T3+β 1 ∆GDPt +β 2 DPt+ β 3 CD +εt , (1)

where β 0, β 1,, β 2 ,β 3 ,γ 1 ,γ 2 , and γ3 are coefficients to be estimated. Qt, 

∆GDPt, and DPt denote quarterly truck production,3 annualized growth rate 

of real GDP, and real diesel fuel prices, respectively. T1 , T2 , and T3 are 

binary variables, which, like CD, take values of one for specified quarters 

but the value of zero otherwise. The three binary variables, T1 , T2 , and T3 , 

are used to account for likely recurrent quarterly fluctuations in truck 

production. εt

 is a random error, to which all standard assumptions apply; t

is the index for time period.

The GDP is an important indicator of the strength of the economy, which 

can be used by truck operators to gauge the strength of future demand for 

their services. We expect truck operators to purchase more trucks in 

response to a strong economy and vice versa, which implies a positive β 1 in 

equation (1). On the other hand, we expect truck operators to delay truck 

purchases if diesel fuel prices are increasing, because of the importance of 

fuel in operating trucks. As a result, we expect β 2 in equation (1) to be 

negative. Following the same reasoning, if companies pre-bought so that 

truck production increased in the 6 months prior to EPA’s consent decrees, 

the coefficient of CD, β 3, will be positive in equation (1).

The basic model, as depicted by equation (1), may yield a biased estimate 

of the coefficient of CD, β 3 , because it does not account for effects that may 

arise when the different factors interact with each other over time. To 

account for these possible effects, we revised the basic model (1) by 

assuming an autoregressive process of degree one, AR(1),4

 and by 

including in the basic model (1) several lagged variables as below: 

3

Industry sources indicated that timing of truck production is closely tied to timing of truck 

purchases. As a result, we will characterize effects on truck production as also affecting 

truck purchases/demand hereafter.

4

An autoregressive process (AR) is one of the most commonly used econometric techniques 

to account for temporal correlation across different time periods. In models (2) through (4), 

AR(1) assumes that the error term, εt

, is defined as εt =ρεt-1+ μ t. The numbers for AR(1), as 

shown in table 7 for the analysis results represent the coefficient ρ7..
Appendix II

Analysis of Class 8 Truck Production Data: 

January 1992 through June 2003

Page 61 GAO-04-313 Air Pollution

Qt=β 0 +γ 1 T1+γ2 T2+γ3 T3+β 1 ∆GDPt +β 2 DPt+β 3 CD +AR(1)+μ t , (2)

Qt=β 0 +γ 1 T1+γ2 T2+γ3 T3+β 1 ∆GDPt +β 2 DPt+β 3 CD +β 4 Qt-1 +AR(1)+μ t , (3)

Qt=β 0 +γ 1 T1+γ2 T2+γ3 T3+β 1 ∆GDPt +β 2 DPt+β 3 CD +β 5 ∆GDPt-1 +β 6 DPt1+AR(1)+μ t (4)

Including AR(1) in models (2) through (4) allows us to account for the 

possible temporal correlation or autocorrelation of factors that we did not 

consider—for example, truck insurance premiums and used truck prices, 

among other factors—with GDP or fuel prices. We included Qt-1, as in 

model (3), because truck production in the current period is closely 

associated with production in previous periods. In model (4), we included 

the lagged GDP growth rate, ∆GDPt-1, and fuel prices, DPt-1, in the previous 

period because truck operators may purchase more trucks in response to 

strong growth rates in GDP in previous periods, and they may delay truck 

purchases when diesel fuel prices have been increasing in previous 

periods.

Data Used in the 

Estimation

Data on Class-8 Truck 

Production in U.S. and 

Canadian Factories

Although EPA’s consent decrees directly affected the cost and engineering 

of diesel engines, data on diesel engine prices were not available. 

Therefore, we used data on quarterly Class-8 truck production in the
Appendix II

Analysis of Class 8 Truck Production Data: 

January 1992 through June 2003

Page 62 GAO-04-313 Air Pollution

United States and Canada from 1992 through June 2003.5 Most of these 

Class-8 trucks—vehicles weighing more than 33,001 pounds—are powered 

by diesel engines that are subject to EPA’s consent decrees. These data 

were obtained from a commercial company, Ward’s Communications. 

GDP and Diesel Fuel Prices We obtained data on GDP from the Bureau of Economic Analysis (BEA) 

within the Department of Commerce. We computed retail diesel fuel prices 

using data on wholesale diesel fuel prices from the U.S. Energy Information 

Administration within the Department of Energy, and the weighted state 

tax and federal tax on diesel from the Federal Highway Administration 

(FHA) within the Department of Transportation. In addition, we adjusted 

diesel fuel prices to 1996 price levels to account for inflation within the 

study periods using GDP chain-price levels.6

Other Data We Used According to truck manufacturers we contacted, EPA’s consent decrees 

have resulted in higher prices for new trucks equipped with compliant 

diesel engines. The higher prices may increase demand for substitutes, 

such as trucks with noncompliant engines or used trucks. In order to 

account for pricing effects on truck demand, we used the Class-8 truck PPI 

from BLS because actual truck prices data were not available. 

In addition to using GDP in our analysis, we used the American Trucking 

Association’s (ATA) truck tonnage index and the GDP less expenditures on 

5

Truck production is closely tied to diesel engine production with a slight lag. In addition, 

for the best measurement, we intended to include only trucks produced, domestically or 

abroad, for U.S. domestic consumption and exclude those produced for overseas markets. 

However, this approach would not allow us to include in our analysis data from 1992 

through 1997, because Ward’s included separate domestic and export data for Class-8 truck 

production in the United States and Canada only after 1997. Prior to 1998, truck production 

data were aggregated for both the United States and Canada. The aggregate U.S. and 

Canadian truck production should reflect closely the number of trucks produced, 

domestically or abroad, for operation in the United States because the total Canadian truck 

production was about one-sixth the size of total U.S. and Canada production, about threequarters of the total Canadian production were exported to the United States, and about 86 

percent of the Class-8 trucks produced in the United States are for domestic consumption 

(calculations based on Ward’s data on U.S. and Canadian production from 1998 through the 

first half of 2003).

6

We made this adjustment in order to be consistent with BEA’s inflation adjustment for GDP 

at 1996 price levels. 
Appendix II

Analysis of Class 8 Truck Production Data: 

January 1992 through June 2003

Page 63 GAO-04-313 Air Pollution

services as alternative measures for GDP. These two indicators are more 

closely related to truck production than GDP.

Table 6 shows descriptive statistics of the three key variables used in the 

estimation. 

Table 6: Descriptive Statistics of Variables Used in Our Analysis

Quarterly truck 

production in the United 

States and Canada

Annualized GDP 

growth rate at 1996 

price levels

Retail diesel price 

at 1996 price levels

Mean 51,918 3.13 118.55

Median 51,280 3.09 116.31

Maximum 78,530 6.89 146.67

Minimum 32,154 -1.60 92.99

Standard 

deviation 13,480 2.06 11.59

Number of

observations 45 45 45
Appendix II

Analysis of Class 8 Truck Production Data: 

January 1992 through June 2003

Page 64 GAO-04-313 Air Pollution

Discussion of Results 

of Analysis

Table 7 presents the results of our analysis using total quarterly class-8 

truck production in the United States and Canada as the dependent 

variable. 

Table 7: Results of Selected Specification (t-statistics in parentheses)

Source: GAO analysis.

Note: *, **, and *** denote statistical significance at the 10 percent, 5 percent, and 1 percent level, 

respectively.

Model (1) (2) (3) (4)

Constant 98201.29***

(4.45)

 75056.79***

(4.42)

33086.15***

(2.88)

82488.69***

(3.6)

T1 

(2nd quarter) 

1563.85

(0.30)

2193.17

(1.62)

2004.48*

(1.78)

2314.14

(1.54)

T2

(3rd quarter) 

71.51

(0.013)

-832.04

(-0.54)

-3279.56**

(-2.44)

-800.93

(-0.48)

T3

(4th quarter)

-1646.69

(-0.30)

-2.56

(-0.0018)

-160.96

(-0.14)

-230.52

(-0.15)

Qt-1 — — 0.77***

(5.77)

—

∆GDPt 1607.96

(1.57)

 309.53

(0.99)

455.49*

(1.76)

482.32

(1.23)

∆GDPt-1 — — — 231.26

(0.58)

DPt -431.08**

(-2.47)

 -186.19

(--1.63)

-186.67**

(-2.37)

-148.48

(-1.19)

DPt-1 — — — -112.06

(-0.92)

CD -5529.72

(-0.60)

 10099.04**

(2.7)

12015.87***

(4.02)

9397.99**

(2.42)

AR(1) — 0.92***

(15.46)

0.62***

(2.74)

0.91***

(13.56)

Adj. R2 0.153 0.871 0.933 0.862

DW statistic 0.352 0.839 1.945 0.945

Number of

observations 45 44 44 43
Appendix II

Analysis of Class 8 Truck Production Data: 

January 1992 through June 2003

Page 65 GAO-04-313 Air Pollution

In addition, we performed various analyses using alternative combinations 

and definitions of variables to test if our analysis results are sensitive to the 

choices of variables.7

 The range of estimates produced using model 

specifications (2) through (4) also do not vary much with respect to what 

choices of variables we considered in the analysis. 

Results of Model (1) In the basic model (1), only the diesel price in the current period, DPt

, and 

the constant term, C, are statistically significant. The low value of the 

adjusted R-squared statistic, (0.153), suggests that much of the variation of 

Qt

 is not explained by the included variables. In addition, the DurbinWatson (DW) statistic of 0.352, which is less than the critical value of 1.019 

for a sample size of 45 with 7 explanatory variables at the 1 percent 

significance level, suggests a strong positive autocorrelation of residuals 

between the current and previous periods. 

Results of Model (2) We controlled for the possible autocorrelation, suggested by the low DW 

statistic in model (1), by modeling the error term as a first-order 

autoregressive process, AR(1), in model (2). As shown in table 7, the 

adjusted R2

 statistic improves significantly to 0.87, explaining more of the 

variation in truck production. The DW statistic also improves significantly 

to suggest the effectiveness of AR(1) correction for the error terms and 

indicates a positive autocorrelation of residuals between the current and 

previous periods.8

 More importantly, only the coefficient of CD and the 

constant term are statistically significant, suggesting an increase of 20,198 

(the coefficient 10,099 multiplied by 2) Class-8 trucks in the 6 months prior 

to EPA’s consent decrees. This increase in truck production may be 

associated with the decrees. 

7

For example, we substituted GDP with two other measures: GDP less consumption 

expenditures on services, and ATA’s tonnage index. In some analyses, we used annualized 

percentage change in diesel prices instead of diesel fuel prices at 1996 dollars. In addition, 

we experimented with different time lags. The results produced using model specifications 

(2) through (4) with these alternative estimates consistently showed a signifcant increase in 

truck production associated with EPA’s consent decrees. For example, when we reestimated models (1) through (4) using GDP less expenditures on services, the coefficients 

of CD in models (1) through (4) are –5926.10, 10080.32, 11954.69, and 9381.81, respectively. 

The above coefficients for models (2) through (4) are statistically significant at the 5 percent 

level.

8

The DW statistic of 0.839 is still less than the critical value of 0.974 for a sample size of 45 

with 8 explanatory variables at the 1 percent significance level.
Appendix II

Analysis of Class 8 Truck Production Data: 

January 1992 through June 2003

Page 66 GAO-04-313 Air Pollution

Results of Model (3) For model (3), we added truck production in the previous period, Qt-1, to 

model (2) to account for the effects of truck inventories. As a result, CD’s 

coefficient increases. The coefficient of ∆GDPt

 increased appreciably and 

becomes statistically significant. The coefficient of DPt

 changes little and 

also becomes statistically significant. The coefficient of Qt-1 is positive and 

statistically significant, suggesting that an increase in truck production in 

the previous period is likely to be followed by an increase in production in 

the current period. The high-adjusted R2

 statistic of 0.933 also suggests that 

much of the variation of Qt is explained by the included variables. The DW 

statistic of 1.945 unambiguously suggests that including truck production 

in the previous period can adequately account for the autocorrelation in the 

error terms.9

 

Results of Model (4) In model (4), we added ∆GDPt

, and DPt of previous periods to model (2) 

because they also may be good indicators of truck production in the 

current period. Compared to model (3), including the additional lagged 

variables to model (2) does not enable us to explain more of the variation 

in truck production as suggested by a decreasing adjusted R2

 statistic. Like 

model (2), the DW statistic of model (4) indicates that autocorrelation is 

still present. 

The results of models (2) through (4) suggest that the coefficient of CD is 

fairly robust to the choice of variables used in the estimation. They also 

suggest that EPA’s consent decrees may be associated with a significant 

increase in truck production from March through September 2002, the 6 

months prior to implementation of the pull-ahead provision of the consent 

decrees.

Limitation Our analysis considers only the truck operators’ strategy of accelerating 

their purchases, or pre-buy, in the 6 months leading up to EPA’s consent 

decrees. Truck operators could also comply with EPA’s consent decree by 

buying used trucks, having existing engines remanufactured, or extending 

the life of the existing fleet. Any of these responses would have resulted in 

lower truck production. However, in the absence of data on these other 

9

The DW statistic of 1.945 is greater than the critical value of 1.834 for a sample of 45 with 9 

explanatory variables (Source: Greene, William H., Econometric Analysis, Prentice-Hall, 

Inc., 1993, pp.738-739). 
Appendix II

Analysis of Class 8 Truck Production Data: 

January 1992 through June 2003

Page 67 GAO-04-313 Air Pollution

strategies, our analysis does not assess the full extent of the effects of 

EPA’s consent decrees on truck operators’ business operations.
Page 68 GAO-04-313 Air Pollution

Appendix III

Comments from the Environmental 

Protection Agency ApendxiI

Note: GAO comments 

supplementing those in 

the report text appear 

at the end of this 

appendix.

See comment 1.
Appendix III

Comments from the Environmental 

Protection Agency

Page 69 GAO-04-313 Air Pollution

See comment 2.

See comment 3.
Appendix III

Comments from the Environmental 

Protection Agency

Page 70 GAO-04-313 Air Pollution

See comment 3.
Appendix III

Comments from the Environmental 

Protection Agency

Page 71 GAO-04-313 Air Pollution

See comment 4.

See comment 5.

See comment 6.
Appendix III

Comments from the Environmental 

Protection Agency

Page 72 GAO-04-313 Air Pollution
Appendix III

Comments from the Environmental 

Protection Agency

Page 73 GAO-04-313 Air Pollution

The following are GAO’s comments on the Environmental Protection 

Agency’s letter dated February 24, 2004.

GAO Comments As a preface to addressing EPA’s specific comments on this report below, 

GAO wants to reiterate that it recognizes how critical the anticipated 

emissions reductions are for many states whose air quality is in trouble, 

how critical it is for the 2007 standards to succeed in order to significantly 

reduce emissions and protect public health, and all of the work and 

investment the agency and the engine, emissions control, and fuel 

industries have made. These critically important objectives, however, 

depend to a large extent on trucking companies’ decisions to buy and run 

the improved engines. In our view, EPA has an important window of 

opportunity to make some improvements in the process it is using to work 

with stakeholders to both ensure technology is ready and allay any 

remaining stakeholder concerns about the new engines and fuel. 

Addressing concerns about whether fuel will be available in sufficient 

quantities and locations and the new engines will be ready in time to test 

should not be overly burdensome and will help to prevent a significant prebuy of older engines before 2007 that would delay emissions and health 

benefits as occurred in 2002. 

1. EPA agrees that, in many respects, GAO’s report is consistent with the 

agency’s assessment of the situation leading up to the implementation 

of the 2007 standards. However, we do not agree with EPA’s assertion 

that we gave disproportionate weight and consideration to the views of 

the trucking industry which conflict with the agency’s assessment for 

the following reasons. First, we carefully and consistently collected the 

views of all stakeholders—engine and emissions control 

manufacturers, trucking companies, fuel industry representatives, and 

environmental and health groups—and were equally careful to 

accurately present and assess their views. Consistent with our 

methodology and quality assurance standards, we also did not simply 

accept stakeholders’ views at face value, but did where possible assess 

the basis for their views. For example, we determined that the trucking 

company representatives’ concerns about the reliability and costs of 

the new engines were based on the technological leap required to meet 

the 2007 standards; that EPA’s estimates of the new engines’ costs were 

developed in 2000 before engine designs were developed; and that 

some of the engine manufacturers and fuel industry representatives 

designing the technologies acknowledged that there were remaining 

technological risks and questions. We also carefully point out that we 
Appendix III

Comments from the Environmental 

Protection Agency

Page 74 GAO-04-313 Air Pollution

were unable to fully confirm some of the views and opinions of 

stakeholders because the industries designing new engine and fuel 

technology were not comfortable in releasing information about their 

individual designs. In addition, we reviewed reports EPA issued on the 

progress towards the standards, but the reports primarily represented 

EPA’s conclusions and did not present the specific data on which these 

were based. 

2. We also disagree with EPA’s assertion that we did not consider 

additional information and evidence that agency program managers 

provided to GAO late in the course of our work after reviewing a draft 

summary of the facts to be used in the report. Throughout our review, 

we worked closely with the EPA program managers responsible for the 

2007 standards to ensure that we clearly understood the issues and 

EPA’s positions, and had the most current information. In addition, to 

ensure the accuracy of the information in our report, at the conclusion 

of our work, we provided EPA program managers a summary of the 

factual information supporting our findings for their review. At that 

time, EPA provided extensive written comments on the summary, along 

with a number of press releases from engine manufacturers and trade 

press articles. However, the agency did not provide any additional 

quantitative data or other information that would allow us to better 

assess the stakeholders’ positions. We spent considerable time 

carefully assessing EPA’s comments and the additional information and 

made a number of changes to the report where appropriate. 

Furthermore, we extended our report time frame by 6 weeks to give 

EPA extra time to provide its comments and supporting information 

and for us to carefully assess it and respond accordingly. 

3. We also disagree with several EPA assertions that the report has an 

overall negative tone and overstates the technological challenges to 

successfully deliver the necessary fuel and engines, does not clearly 

state engine manufacturers’ commitments to have test engines ready in 

time, and accepts at face value the trucking representatives’ position 

that having test vehicles by mid-2005 is a critical deadline. We devote 

considerable narrative to the views of the agency and all the 

stakeholders who share these views that the technologies—for both 

cleaner engines and low-sulfur fuel—are on track. In addition, though, 

we have a professional responsibility to acknowledge that some 

stakeholders—including some engine manufacturers and fuel 

distribution and trucking industry representatives—expressed 

concerns over the remaining technological risks and questions. As 
Appendix III

Comments from the Environmental 

Protection Agency

Page 75 GAO-04-313 Air Pollution

such, we accurately describe these challenges and the concerns they 

create. For example, EPA asserts that the report projects a negative 

tone with regard to the progress of the oil industry in preparing to 

supply low-sulfur fuel for 2007. However, we report that the fuel 

industry stakeholders we contacted identified a number of remaining 

issues that need to be resolved, none of which they considered to be 

insurmountable. We reviewed EPA’s summary of pre-compliance 

reports detailing refiners’ plans to produce low-sulfur fuel and agree 

that the refiners’ ability to produce the fuel does not appear to be an 

area of concern. However, these reports do not address the primary 

concerns that industry representatives raised, which relate to 

distribution challenges. As we make clear in the report, without trying 

to further alleviate these and other stakeholder concerns, the agency 

may not achieve its emissions and public health goals with the 2007 

standards. 

We also took great care to include the most current information 

possible in our report. For example, in January 2004, we updated our 

report to reflect that engine companies had finally publicly announced 

the technologies they would use to meet the 2007 standards, although 6 

months later than planned. In addition, after several of the 

manufacturers subsequently issued press releases in January and 

February 2004, stating that they expected to have at least a limited 

number of prototype engines ready for testing by mid-2005, we recontacted the trucking company representatives to determine the 

extent to which these announcements addressed their concerns, and 

updated the report accordingly.

Additionally, GAO does report the trucking representatives’ position 

that they need to have prototypes by about mid-2005, as well as the 

basis for their position, which is to (a) determine engine reliability in all 

seasons and weather conditions and for long enough periods to 

determine the resulting operating and maintenance impacts, and (b) 

subsequently develop their acquisition strategies based on this 

information. These arguments seem plausible. However, more 

importantly, we report their position because some of the 

representatives said that without enough testing time, companies were 

already considering whether to pre-buy older engines before 2007, in 

larger quantities than they did for 2002, further jeopardizing emissions 

and health benefits. We believe that this is the important concern EPA 

needed to be aware of and try to mitigate. We did not attempt to 

confirm the validity of the 18-24 month testing time frame 
Appendix III

Comments from the Environmental 

Protection Agency

Page 76 GAO-04-313 Air Pollution

representatives said they needed for the 2007 standards with the 

industry’s historical time frames to test upgraded engines. In part, we 

did not because the engine designs for 2007 are a technological leap 

over current equipment and may require longer lead times to develop. 

Similarly, they may need longer lead times for testing.

4. We agree with EPA’s concern about clearly distinguishing the 2002 

consent decrees and 2007 standards, and made changes to the report as 

a result. The engine requirements established in the consent decrees 

were done as part of a legal settlement in response to an enforcement 

action, not through a public rulemaking process where all stakeholders 

had input into establishing the requirements. In addition, the engine 

companies had a relatively small amount of lead time to design the new 

engines because as part of the settlement, manufacturers agreed to 

accelerate the schedule for new engines by 15 months. In contrast, the 

2007 standards were developed through a more extensive public 

rulemaking process with wide participation from all stakeholders, and 

manufacturers and fuel refiners had about 6 years lead time to develop 

the needed emissions control, engine, and fuel technologies. We 

disagree with EPA, however, that these two actions are not comparable 

in any respect. Whether new engines are being designed in response to 

an enforcement action or rulemaking, the industry’s market reaction to 

the consent decrees may offer some lessons learned that EPA could 

incorporate into its process for implementing the 2007 standards.

5. We agree that EPA deserves credit for the large number of voluntary 

activities it has undertaken to work with various stakeholders to help 

ensure that the technology will be ready in time and devote 

considerable narrative to describing these activities in the report. We 

were also very careful to present a balanced view of the stakeholders’ 

opinions about the agency’s activities. For this reason, we were 

obligated to acknowledge that some of the engine manufacturers and 

trucking representatives raised questions about the agency’s openness 

to their concerns and willingness to address them. EPA maintains that 

the agency had extensive involvement with stakeholders—including 

the trucking industry—in developing the 2007 rule. This is true. 

However, the trucking industry’s concerns are not with the 2000 

rulemaking process, but with the process EPA has used since then to 

involve stakeholders in implementing the standards. For example, as 

we note in the report, EPA officials acknowledged that the agency 

initially did not invite anyone from the trucking industry to participate 
Appendix III

Comments from the Environmental 

Protection Agency

Page 77 GAO-04-313 Air Pollution

on the 2002 Clean Diesel Independent Review Panel and only did so 

after the industry lobbied the agency.

6. As to GAO’s recommendations, EPA agrees with the merits of providing 

financial incentives—although the agency does not see a role for itself 

in this action—and disagrees with the merits of convening an 

independent panel. We want to clarify that GAO is recommending that 

the agency consider additional steps to alleviate existing concerns, 

avoid a significant pre-buy of older engines, and better guarantee that 

the emissions and health benefits are achieved. We thereby offer 

several alternative actions for the agency to consider, but do not intend 

to limit the agency in any way to these alternatives or suggest that they 

are the only effective means to resolve concerns. That said, with regard 

to the suggestion of using financial incentives, we recognize that the 

Congress must provide the agency direction and funding for such an 

approach, but expect that it would also look to the agency to play a 

role, such as submitting a proposal for incentives or at least helping to 

determine their merits and costs. As to convening an independent 

review panel, we appreciate EPA’s concerns that this could 

unnecessarily delay the schedule for implementing the standards, and 

the agency is in the best position to determine this. But, if EPA has the 

necessary evidence available to demonstrate technologies are ready as 

it contends it does, it should not be difficult or take considerable time 

for an independent body to review the data and validate this conclusion 

for all affected stakeholders. Otherwise, if the trucking industry 

remains concerned and pre-buys older engines prior to 2007, this will in 

effect delay implementation of the standards and their anticipated 

benefits.
Page 78 GAO-04-313 Air Pollution

Appendix IV

GAO Contacts and Staff Acknowledgments ApendxiIV

GAO Contacts John B. Stephenson (202) 512-3841

Eileen R. Larence (202) 512-6510

Vincent P. Price (202) 512-6529

Acknowledgments In addition to the individuals named above, Charles W. Bausell, Jr., Tyra 

DiPalma-Vigil, Richard Frankel, Terence Lam, and Eugene Wisnoski made 

key contributions to this report. Important contributions were also made 

by Nancy Crothers and Amy Webbink.

(360301)
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Permit No. GI00