UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

NATIONAL VEHICLE AND FUEL EMISSIONS LABORATORY

2565 PLYMOUTH ROAD

ANN ARBOR, MICHIGAN 48105-2498

 

MEMORANDUM

SUBJECT: Analysis of the Potential Economic Impacts of Delaying NCPs

FROM: Charles Moulis, Senior Environmental Engineer

Assessment and Standards Division

TO: Docket Number EPA-HQ-OAR-1000

DATE: January 18, 2012

Introduction – Late in 2011, EPA was notified by Navistar International Corporation that it is likely to 

consume its current supply of NOx emission credits for its heavy heavy-duty diesel engines sometime in

2012. Based on its current credit balance and projected sales for this service class, we have concluded 

that credits will likely be depleted in the early part of 2012. Navistar has not provided EPA with any 

2012 model year applications for certification for which EPA could certify Navistar-produced heavy 

heavy-duty diesel engines as meeting the 0.20 g/hp-hr standard without credits. Therefore, all indications 

are that without nonconformance penalties (NCPs), Navistar would soon be prohibited from introducing 

into U.S. commerce any new heavy heavy-duty engines. At a minimum, this would have led to Navistar 

ceasing nearly all assembly of heavy heavy-duty diesel engines. Navistar may or may not have continued 

production of heavy heavy-duty engines for export. Since Navistar’s current tractor designs would need 

to be redesigned to accept other manufacturers’ SCR-equipped engines, it would likely also have led to 

Navistar ceasing assembly of heavy heavy-duty vehicles for up to a year.

EPA has determined that the only way in which it can make non-conformance penalties (NCPs) available

for the bulk of the 2012 model year is to establish them through an Interim Final Rule. This 

memorandum summarizes EPA’s analysis of the potential economic impacts of delaying NCPs. Note that 

the potential economic impacts of not having NCPs available when Navistar exhausts its credits was part 

of the justification given for setting interim NCPs.

Summary of Current Navistar Operations – According to Navistar’s 2010 Annual Report, its global 

operations employed more than 15,000 workers and had net revenues over $12 billion in 2010. It 

manufactures medium and heavy heavy-duty highway diesel engines and vehicles. It also manufactures

military vehicles. We estimate that its heavy heavy-duty Class 8 tractor sales represent about one-quarter 

of its revenue.

Workers Making Heavy Heavy-duty Engines and Vehicles - While we do not have details of how many of 

Navistar’s employees are currently involved in the assembly of heavy heavy-duty diesel engines and 

vehicles, if it is proportional to revenue, then it could be one-quarter of Navistar’s employees. Halting

nearly all assembly of heavy heavy-duty diesel engines and vehicles would have likely resulted in the 

layoff of these workers and would also have had a cascading impact on Navistar’s suppliers, dealers, and 

other businesses that support the assembly plants. Thus, this scenario would likely have resulted in the 

layoff of several thousand workers.

OFFICE OF

AIR AND RADIATION
Corporate Solvency – It is unclear how much the loss of about one-quarter of Navistar’s annual revenue 

would have affected the rest of the corporation in the near term. It is possible that the rest of its 

operations would have continued unchanged. However, it is also possible that this loss of revenue would 

have resulted in additional layoffs beyond those workers that build heavy heavy-duty engines and 

vehicles. Moreover, EPA cannot rule out the possibility that this would have threatened the overall 

solvency of Navistar. Thus, it is possible that overall job losses could have been significantly more than 

the thousands potentially affected directly.

Impact on the Rest of the Heavy-Duty Market - If Navistar had been forced to halt its Class 8 truck 

production, it would have also affected its customers and the other truck manufacturers. Those trucking 

companies that negotiated contracts with Navistar for the purchase of new trucks would have been unable 

to take delivery of all of the trucks ordered. They likely would have then negotiated new contracts to 

purchase new trucks from Navistar’s competitors, who then would have ramped up production of their 

vehicles (and asked their suppliers to ramp up production) to meet this new demand. Ultimately, this may 

have resulted in a number of new jobs that would essentially offset the job losses at Navistar. However, it 

is likely that it would have taken manufacturers and suppliers at least several months, and perhaps as 

much as a year, to increase production enough to fully meet the new demand. The new jobs may have 

lagged even more if manufacturers chose to initially increase overtime hours instead of hiring new 

workers.