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SIDLEY AUSTIN LLP

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February 15,2012

Via Overnight and Electronic Mail

The Honorable Lisa P. Jackson

Administrator

U.S. Environmental Protection Agency

Room 3000, Ariel Rios Building

1200 Pennsylvania Avenue, N.W.

Washington, D.C. 20460

The Honorable Gina McCarthy

Assistant Administrator, Office of Air and Radiation

U.S. Environmental Protection Agency

Ariel Rios Building, Mail Code: 6101A

1200 Pennsylvania Avenue, N.W.

Washington, D.C. 20460

Re: Petition for Administrative Stay of Interim Final Rule; Nonconformance Penalties

for On-Highway Heavy Heavy-Duty Diesel Engines, 77 Fed. Reg. 4678 (Jan. 31,

2012) (Docket No. EPA-HQ-OAR-2011-1000)

Dear Administrator Jackson and Assistant Administrator McCarthy:

Cummins Inc. ("Cummins") hereby petitions the Environmental Protection Agency

("EPA") to stay its interim final rule entitled Nonconformance Penalties for On-Highway Heavy

Heavy-Duty Diesel Engines, published at 77 Fed. Reg. 4678 (Jan. 31,2012) (the "Interim Final

Rule"), to allow time for judicial review of that rule.

Title II of the Clean Air Act ("CAA") fundamentally requires that every manufacturer of

vehicles or engines must demonstrate compliance with the emission standards established by

EPA. CAA § 206(a), 42 U.S.C. § 7525(a). Congress allowed a narrow exception: in specific

circumstances, an engine manufacturer may pay nonconformance penalties ("NCPs") and certify

to an alternate, less-stringent standard, provided that the penalty is set at a level that erases the

competitive advantages of noncompliance. Id. § 206(g). Obviously, allowing a manufacturer to

pay to pollute in lieu of meeting EPA's stringent standards has potentially profound economic,

competitive and environmental effects; thus, it is imperative that EPA follow Congress's

Sidley Austin LLP is a limited liability partnership practicing in affiliation with other Sidley Austin partnerships
Petition for Administrative Stay of Interim Final Rule

Docket No. EPA-HQ-OAR-2011-1000

February 15,2012

Page 2

instructions in § 206(g) precisely, lest EPA undercut the efforts and investments of companies

that labor to meet its stringent standards.

To make sure that EPA's decision to allow NCPs is thoughtful and well-informed, and

that NCPs are set sufficiently high to avoid incentivizing noncompliance, the CAA requires that

EPA authorize NCPs only after public notice and an opportunity for a public hearing. Id.

§ 206(g)(1). There is no "good cause" exception to that requirement; EPA must consider the

views of the regulated industry and other stakeholders before allowing a company to opt out of

compliance. But EPA instead rushed to implement the Interim Final Rule without a proposed

rule or a public hearing, rendering the rule ultra vires. Not surprisingly, as a result, the Interim

Final Rule is premised on incorrect assumptions and is rife with substantive defects. It provides

a competitive advantage to a large, sophisticated corporation that has intentionally eschewed

demonstrated emission control technology, to the detriment of Cummins.

Even if EPA were authorized for "good cause" to bypass notice-and-comment

rulemaking procedures when setting NCPs, there was no appropriate justification to act

precipitously in this case. The standards in question were promulgated in 2001 and phased in

between 2007 and 2009. The one company that EPA rushed to prop up has admitted that it has

known for years that it would run out of compliance options at this time. There is no "good

cause" for EPA's action.

Cummins is not aware of any mechanism by which EPA could provide compensation for

Cummins injuries, which are thus irreparable. Cummins intends to file a petition for judicial

review of the Interim Final Rule in the U.S. Court of Appeals for the District of Columbia

Circuit. An administrative stay of the rule would avoid the potential need for a motion for stay

before the Court and would conserve the resources of the Court and the parties. Cummins is

aware that several other manufactures have requested administrative stays of the Interim Final

Rule from EPA, 1and it supports those requests. Cummins will treat its petition as denied should

EPA deny any of those other requests, or if the deadlines for response requested by those other

manufacturers, including any extensions, pass with no EPA action.

I. Background

Cummins manufactures, among other products, on-highway heavy-duty diesel engines

("HDDEs") for sale in the United States. Only a limited number of companies manufacture that

category of engines, and all are sophisticated corporations with many years of experience

designing HDDEs to meet EPA's CAA Title II emissions standards. Those standards are well

ISee Petitions filed by Mack Trucks, Inc. and Volvo Group North America, LLC on January 27, 2012, and by

Daimler Trucks North America, LLC and Detroit Diesel Corporation on February 2, 2012.
Petition for Administrative Stay of Interim Final Rule

Docket No. EPA-HQ-OAR-2011-1000

February 15,2012

Page 3

known to all manufacturers. The one at issue here-for nitrogen oxides ("NOx")--was

announced almost eleven years ago, and manufacturers were given six years of lead time (2001-

2006) before the standard was phased in over an additional three years (2007-2009). See Control

of Air Pollution from New Motor Vehicles: Heavy-Duty Engine and Vehicle Standards and

Highway Diesel Fuel Sulfur Control Requirements, 66 Fed. Reg. 5002 (Jan. 18,2001) (the "2001

Rule").

During that lead time, Cummins and other manufacturers worked diligently to meet the

technology-forcing NOx standard set by the 2001 Rule. Cummins explored every available

option and ultimately determined that the only viable and economic path to meet 0.20 grams per

brake horsepower-hour ("glbhp-hr") NOx was to employ selective catalytic reduction ("SCR")

technology. Others came to the same conclusion. Only one company eschewed that technology

and stubbornly pursued the sole use of exhaust gas recirculation ("EGR") instead: Navistar, Inc.

But Navistar's EGR-only approach required the company to use NOx averaging, banking, and

trading credits to meet the 0.20 g/bhp-hr limit in 2010 and 2011.

With NOx credits apparently running low, Navistar sought alternative relief from EPA:

NCPs. To be successful, Navistar would have had to meet EPA's established criteria for

promulgating NCPs, including evidence inter alia that it was a "technological laggard." See,

e.g., 40 C.F.R. § 86.11 03-87. But Navistar-a company with approximately $14 billion in

annual revenue and over 20,000 employees-is not a technological laggard. It is not a company

trying hard to keep up but running behind. Rather, it deliberately chose an alternative path.

Nonetheless, on January 31, 20 12, EPA announced NCPs for Navistar for model years

2012 and 2013.2 The rule was made effective immediately upon promulgation and was

promulgated with no advance notice or opportunity for public comment or hearing.

Simultaneously, EPA published a notice of proposed rulemaking for an NCP rule that would

supersede the NCPs established by the Interim Final Rule.

In light of the two other administrative stay petitions already before EPA, Cummins will

not repeat in detail below the arguments that have already been persuasively presented to the

agency; rather, it will focus on additional arguments not fully developed by the other parties or

that are specific to Cummins and will only summarize other points.

2 The Interim Final Rule cryptically states that it was necessitated by one manufacturer that cannot meet the 0.20

glbhp-hr NOx standard without using emissions credits, which are apparently about to be exhausted. 77 Fed. Reg. at

4680. That one manufacturer is known to Cummins and the rest of the industry to be Navistar, and a supporting

document in the rulemaking docket confirms that fact.
When an agency finds that justice so requires, it may postpone the effective date of action taken by

it, pending judicial review. On such conditions as may be required and to the extent necessary to

prevent irreparable injury, the reviewing court, including the court to which a case may be taken

on appeal from or on application for certiorari or other writ to a reviewing court, may issue all

necessary and appropriate process to postpone the effective date of an agency action or to preserve

status or rights pending conclusion of the review proceedings.

Petition for Administrative Stay of Interim Final Rule

Docket No. EPA-HQ-OAR-2011-1000

February 15,2012

Page 4

II. EPA Has Authority to Stay the Interim Final Rule

EPA has broad authority and discretion to stay the effectiveness of the Interim Final Rule

under Section 705 of the Administrative Procedure Act ("APA"), which allows the agency to

issue such relief when it finds "that justice so requires." 5 U.S.C. § 705.3 The standard for

issuance of an administrative stay under § 705 is significantly less stringent than the criteria

generally used by the courts. There is, for example, no requirement for the moving party to

make a showing of irreparable harm in order for an administrative stay to issue." Furthermore,

nothing prevents EPA from invoking its stay authority in APA § 705 after a rule has become

effective. The plain meaning of the term "postpone" encompasses rules that are already in

effect.

In the alternative to an APA stay, EPA should take action that would have the same

practical effect: it should suspend issuance of any certificates of conformity that permit NCPs to

be used to achieve compliance for 2012 or 2013 model year engines until EPA completes a

proper rulemaking.

Finally, also alternatively, Cummins and the other petitioners for an administrative stay

have identified more than adequate grounds for EPA to promulgate an APA "good cause" rule

staying the Interim Final Rule pending judicial review. Such a rule would not be promulgated

under CAA § 206(g)(I) (which does not permit "good cause" rules), but under the APA itself.

3 In full, APA § 705 provides as follows:

4 The AP A deliberately contrasts what is required for an administrative stay (''justice so requires") and a judicial

stay ("conditions as may be required" and "irreparable harm"). 5 U.S.C. § 705. Such differences must be given

effect. See Keene Corp. v. United States, 508 U.S. 200, 208 (1993) ("where Congress includes particular language

in one section of a statute but omits it in another ... , it is generally presumed that Congress acts intentionally and

purposely in the disparate inclusion or exclusion" (quoting Russello v. United States, 464 U.S. 16,23 (1983»; cf

Bailey v. United States, 516 U.S. 137, 146 (1995) ("we assume that Congress used two terms because it intended

each term to have a particular, nonsuperfluous meaning"). Thus, there is no irreparable harm requirement for an

administrative stay under the AP A. But see Sierra Club v. Jackson, Civ. No. 11-1278,2012 WL 34509, at * 17

(D.D.C. Jan. 9, 2012) (holding that under APA § 705, the standard for agency and judicial stays are the same; both

must use the D.C. Circuit's four-part test, which includes irreparable harm).
A. Cummins Will Prevail on the Merits

Petition for Administrative Stay of Interim Final Rule

Docket No. EPA-HQ-OAR-2011-1000

February 15,2012

Page 5

III. Justice Requires a Stay, and the Criteria for a Judicial Stay are AlsoMet

The Interim Final Rule was issued in violation of statutory and regulatory requirements,

while the procedural rights of Cummins and other interested parties were trampled. The rule's

substantive defects are tied to EPA's failure to provide the requisite public notice and

opportunity for comment and hearing before its promulgation, a process that would have

illuminated those deficiencies. In this situation, justice clearly requires that EPA stay the Interim

Final Rule until judicial review is complete, or until such time as EPA issues its final NCP rule

for 2012 and beyond, after notice and an opportunity for a hearing.

Although not required for an administrative stay, all of the criteria that must be shown for

issuance of a judicial stay are also present here: (1) the likelihood that the movant will prevail on

the merits; (2) the prospect of irreparable injury if relief is withheld; (3) the possibility of

substantial harm to others if relief is granted; and (4) the public interest. See Wash. Metro. Area

Transit Comm 'n v. Holiday Tours, 559 F.2d 841, 842-43 (D.C. Cir. 1977). When these factors

are balanced together, and in light of Cummins strong likelihood of success on the merits, they

favor issuance of a stay.

EPA promulgated the Interim Final Rule in violation of the plain terms of CAA

§ 206(g)(I), which provides that NCPs may only be issued "after notice and opportunity for

public hearing." 42 U.S.C. § 7525(g)(I). Under the APA § 553(b), the agency was not

permitted to invoke the § 553(b )(B) "good cause" exception because the exception cannot be

invoked if notice or hearing is required by statute. 5 U.S.C. § 553(b). Nothing in CAA § 307(d)

can rescue EPA's action here. That section is inapplicable for two distinct reasons discussed

below.

Even assuming arguendo that the APA "good cause" exception was theoretically

available to the agency, EPA's purported "good cause" for NCPs in this case falls far short of the

legal requirements for invoking that narrow exception. Furthermore, the rule does not even

satisfy EPA's three regulatory prerequisites for establishing NCPs. See 40 C.F.R. § 86.1103-87.

Information on which EPA claimed to rely, purportedly to comply with its regulatory criteria, is

demonstrably incorrect. Other information is missing from the record. In addition, the NCPs are

set too low to remove the competitive disadvantage to Cummins and other compliant engine

manufacturers, in violation of CAA § 206(g)(3)(E). In sum, the Interim Final Rule is clearly

without merit. 5

5 Because CAA § 307(d) does not apply to the Interim Final Rule as discussed below, the standard for judicial

review here is the one set forth in APA § 706, rather than in § 307(d)(9). See 5 U.S.C. § 706; see also Uti!. Solid
1. The Interim Final Rule Was Ultra Vires Because APA § 553(b)(B)

Was Not Available to EPA Here

Petition for Administrative Stay of Interim Final Rule

Docket No. EPA-HQ-OAR-2011-1000

February 15,2012

Page 6

EPA improperly relied on the APA's "good cause" exception, 5 U.S.C. § 553(b)(B), for

its promulgation of the Interim Final Rule without prior notice, comment, and an opportunity for

a public hearing. 77 Fed. Reg. at 4680. This narrow exception allows agencies to bypass

procedural requirements in limited circumstances, "when the agency for good cause finds that

notice and comment are impracticable, unnecessary, or contrary to the public interest." 5 U.S.c.

§ 553(b )(B). But the plain language of APA § 553(b) and CAA § 206(g)(1) make clear that the

good cause exception simply cannot be used by EPA for the purpose of promulgating NCPs.

AP A § 553(b) provides in relevant part:

Except when notice or hearing is required by statute, this subsection does not

apply-

(A) to interpretive rules, general statements of policy, or rules of agency

organization, procedure, or practice; or

(B) when the agency for good cause finds (and incorporates the finding and a

brief statement of reasons therefor in the rules issued) that notice and public

procedure thereon are impracticable, unnecessary, or contrary to the public

interest.

5 U.S.C. § 553(b) (emphasis added). Thus, in situations where notice and hearing is required by

the statute under which a rule is promulgated, then by the APA's plain terms the "good cause"

exception in § 553(b)(B) is inapplicable and cannot be invoked by an agency under any

circumstances.

Waste Activities Grp. v. EPA, 236 F.3d 749, 755 (D.C. Cir. 2001) (setting aside EPA "good cause" rule for

procedural error pursuant to 5 U.S.C. § 706(2)(D». The APA establishes a much lower standard for judicial

invalidation of an agency rulemaking for procedural error than does CAA § 307(d)(9), making reversal of the

Interim Final Rule more likely. Under APA § 706, any rule promulgated without observing required procedures can

be invalidated merely upon a showing of prejudice by the injured party. Compare 5 U.S.C. § 706(2)(D) with 42

U.S.C. § 7607(d)(9)(D) (court may set aside CAA rule due to procedural error only if the error is arbitrary and

capricious and there is a substantial likelihood that the rule would have been significantly changed, had the proper

procedures been observed). A procedural error is prejudicial for purposes of AP A § 706(2)(D) where there is "a

possibility that the error would have resulted in some change in the final rule." Small Refiner Lead Phase-Down

Task Force v. Us. EPA, 705 F.2d 506,521 (D.C. Cir. 1983) (emphasis in original).
·.. [T]he Commission may, in the absence of a request [for a hearing] by any

person whose interest may be affected, issue ... an amendment to an operating

license without a hearing, but upon thirty days' notice and publication once in the

Federal Register of its intent to do so....

Petition for Administrative Stay of Interim Final Rule

Docket No. EPA-HQ-OAR-2011-1000

February 15,2012

Page 7

Here, the statutory provision authorizing EPA to promulgate NCPs, CAA § 206(g)(I),

explicitly requires notice and an opportunity for a hearing in advance of the promulgation of

such rules:

In the case of any class or category of heavy-duty vehicles or engines to which a

standard promulgated under section 7521(a) of this title applies, except as

provided in paragraph (2), a certificate of conformity shall be issued under

subsection (a) of this section and shall not be suspended or revoked under

subsection (b) of this section for such vehicles or engines manufactured by a

manufacturer not withstanding the failure of such vehicles or engines to meet such

standard if such manufacturer pays a nonconformance penalty as provided under

regulations promulgated by the Administrator after notice and opportunity for

public hearing. ...

42 U.S.c. § 7607(g)(I) (emphasis added). The statutory language is unequivocal: EPA may

promulgate regulations establishing NCPs for particular vehicles or engines only after notice and

opportunity for public hearing have been provided. This is precisely the type of provision that

the APA's "good cause" exception expressly cannot be used to circumvent.

In Union of Concerned Scientists v. Nuclear Regulatory Commission, 711 F.2d 370 (D.C.

Cir. 1983), the D.C. Circuit examined and squarely rejected an agency's invocation of the "good

cause" exception where a statutory provision required public notice and hearing prior to rule

promulgation. In that case, the court reviewed the validity of a Nuclear Regulatory Commission

("NRC") rule that amended all nuclear plant operating licenses by suspending indefinitely the

deadline by which they must complete environmental qualification of certain safety-related

equipment. The NRC issued the rule without providing advance notice and comment, despite the

following language in Section 189(a) of the Atomic Energy Act (the statute authorizing the rule):

711 F.2d at 379-80.

The NRC attempted to justify bypassing the statutory notice and hearing requirements by

invoking the APA "good cause" exception in 5 U.S.C. § 553(b)(B). Like the Interim Final Rule

here, the NRC "expressly noted the interim nature" of its rule and indicated that the interim rule

would be superseded by a final rule. Id. at 375. The court, however, found sufficient grounds to

invalidate the regulation regardless of whether "good cause" existed (though it did examine the

issue and found good cause did not exist). Id. at 379-82. Based on the unequivocal language of
The hearing and notice requirements of the Atomic Energy Act are not subject to

the "good cause" exception of the APA. The AP A provides that an agency may

have recourse to the exception "[ejxcept when notice or hearing is required by

statute. "... As its terms clearly indicate, section 189(a) is just such a statute. The

Commission's rationale for dispensing with notice and comment would permit the

general rulemaking provisions of the APA to swallow the more specific command

of the Atomic Energy Act. Such a result would mock the fundamental maxim of

statutory construction that the terms of a more specific statute take precedence

over those of a more general statute where both statutes speak to the same

concerns .... The specific requirement of section 189(a) may not be

circumvented through the "good cause" exception of the APA.

Petition for Administrative Stay of Interim Final Rule

Docket No. EPA-HQ-OAR-2011-1000

February 15,2012

Page 8

Atomic Energy Act § 189(a) and APA § 553(b), the court held that the good cause exception

could not justify the agency's dispensing with notice and comment on the rule, because the

Atomic Energy Act did not permit it:

!d. at 380-81 (emphasis in original; internal footnote and citations omitted). Similarly, in

Alabama Power Co. v. FERC, 160 F.3d 7 (D.C. Cir. 1998), the D.C. Circuit held that FERC's

characterization of an order as an "interpretive rule" within the meaning of APA § 553(b)(A) did

not exempt it from the notice-and-comment requirements of the organic statute pursuant to

which the order was promulgated; the APA § 553(b)(A) "interpretive rule" exception, like the

"good cause" exception, cannot be invoked "when notice or hearing is required by statute," 5

U.S.C. § 553(b). 160 F.3d at 11.

Here, as in Union of Concerned Scientists and Alabama Power, the statutory provision

under which EPA promulgated its Interim Final Rule contains specific procedural requirements.

There is no need even to analyze whether EPA had "good cause" to bypass those requirements,

because its reliance on the good cause exception is simply impermissible. Union of Concerned

Scientists, 711 F.2d at 380-81.

EPA audaciously suggests that because the agency took comments during prior NCP

rulemakings, it has satisfied its procedural obligations with respect to the current Interim Final

Rule. See 77 Fed. Reg. at 4680 ("Since these provisions have been established through noticeand-comment rulemaking several times before, interested parties have had opportunity to

comment on them."). This claim is meritless. First, the D.C. Circuit has roundly rejected the

notion that the existence of comments from a previous rulemaking can substitute for inviting full

public participation in the current rulemaking. See, e.g., Action on Smoking & Health v. Civil

Aeronautics Bd., 713 F.2d 795,800-01 (D.C. Cir. 1983) ("If one rulemaking proceeding has

culminated and another has begun, then new notice and comment procedures are required";

presence of a notice and comment record on aircraft smoking regulations from 2-4 years ago
2. There Was No "Good Cause" for Evading Notice and Comment on

the Interim Final Rule

Petition for Administrative Stay of Interim Final Rule

Docket No. EPA-HQ-OAR-2011-1000

February 15,2012

Page 9

does not render the solicitation of new comments unnecessary). Second, § 206(g)(1) itself

requires notice and an opportunity for a public hearing concerning NCPs for "such engines" that

will be subject to the NCPs. EPA has never before promulgated NCPs for the specific model

year engines and emission limitation at issue here, and neither Cummins nor any manufacturer

has ever had an opportunity for comment or a public hearing concerning the NCPs at issue here.

EPA's own simultaneous proposal of a notice of proposed NCP rulemaking and opportunity for a

hearing belies its assertion here.

Finally, § 307(d)(1) of the CAA does not provide EPA any relief, for two reasons. First,

it lists 22 types of EPA actions to which the CAA § 307(d) rulemaking requirements apply but

does not expressly cover promulgation of Title II NCPs. 42 U.S.C. § 7607(d)(1)(A)-(K). Nor

has EPA made any specific "determination" that NCP rulemakings shall be covered by § 307( d).

See id. § 307(d)(1)(L). In fact, EPA has specifically stated that § 307(d) does not apply to the

Interim Final Rule. 77 Fed. Reg. at 4680. Thus, § 307(d) is not facially applicable to NCP

rulemakings or the Interim Final Rule here. Since the Interim Final Rule was not subject to

§ 307( d) in the first instance, EPA cannot invoke the last sentence of § 307( d)(1) as the basis for

issuing an APA § 553(b)(B) "good cause" emergency rule.

Second, § 307(d)(I) does not "trump" specific provisions such as § 206(g)(I)'s

requirement for public notice and an opportunity for a hearing in advance of promulgation. It is

a fundamental canon of statutory construction that statutes should be construed "so as to avoid

rendering superfluous" any statutory language. Astoria Fed. Savings & Loan Ass 'n v. Solimino,

501 U.S. 104, 112 (1991). Congress chose to specify rulemaking procedures in very few

substantive provisions of the CAA, including § 206(g)( 1); for all other provisions that grant EPA

rulemaking power, the agency must refer to § 307(d) to determine applicable procedural

requirements. The specific requirements of § 206(g)(I)-which include an opportunity for a

public hearing, which is not even listed in § 307(d)-are not superseded by the generally

applicable provisions of § 307(d). See, e.g., Union of Concerned Scientists, 711 F.2d at 380-81.

In fact, EPA has never before invoked the APA "good cause" exception to bypass the procedural

requirements of § 206(g)(I).

Even assuming arguendo that the APA § 553(b)(B) "good cause" exception was

theoretically available to EPA to justify its departure from procedural requirements of CAA

§ 206(g)(I), the Interim Final Rule falls far short of meeting the very narrow "good cause"

standard. The D.C. Circuit has repeatedly stated that the § 553(b) exceptions to the notice-andcomment requirement "will be narrowly construed and only reluctantly countenanced." E.g.,

New Jersey v. EPA, 626 F.2d 1038, 1045 (D.C. Cir. 1980). The good cause exception is not an
Petition for Administrative Stay of Interim Final Rule

Docket No. EPA-HQ-OAR-2011-1000

February 15,2012

Page 10

"escape clause," and its use "should be limited to emergency situations." Util. Solid Waste

Activities Grp. v. EPA, 236 F.3d 749, 754 (D.C. Cir. 2001).

Here, EPA alleged three justifications for its reliance on the good cause exception:

(1) taking interim final action would avoid the possibility of a particular engine manufacturer

(Navistar) being unable to certify a complete product line for model year 2012 and/or 2013;

(2) the rule only amends "limited provisions" in existing NCP regulations; and (3) the rule will

be limited in duration. 77 Fed. Reg. at 4680. Taken together, those three factors do not nearly

constitute an "emergency situation" justifying a departure from important procedural protections.

First, EPA presupposes that the CAA establishes an obligation to enable all engine

manufacturers to certify "complete product lines" of noncompliant engines without interruption,

regardless of the reason for their noncompliance. But the purpose ofNCPs, as EPA recognizes,

is to protect so-called "technological laggards" from being driven out of the market by

technology-driven regulations, not to reward companies whose calculated decisions result in

negative consequences.

Second, the agency's characterization of the NCPs as a "limited" change to existing

regulations is disingenuous. NCPs are either available in a particular model year or they are not.

By promulgating NCPs for model years 2012 and 2013, EPA changed the status quo of the

marketplace. Third, even though this is an "interim" rule of somewhat "limited" duration does

not mean that the effects of the rule will be limited; to the contrary, engines certified with NCPs

pursuant to the Interim Final Rule will remain on the road for many years, with the attendant

excess NOx emissions. The harm to Cummins and other manufacturers may linger too.

Most egregiously, the fact that Navistar is running low on credits is in no way a new,

unexpected or "emergency" development. Indeed, just last week the company's Senior Vice

President of North American Sales Operations was quoted by the news media as stating, "We've

known for two years" that the company would run out of credits at about this time."

3. The Interim Final Rule Violates EPA's Own Regulations

EPA has established three regulatory criteria that must be met before it may promulgate

NCPs, and not a single one of them is present here. See 40 C.F.R. § 82.1103-87. First, there

must be a new or revised emission standard, or an existing emission standard that has become

more difficult to achieve. Id. § 82.1103-87(a). Here, there is no such emission standard for

2012. The NOx standard was enacted nearly eleven years ago, engine manufacturers were given

6 "Navistar Submits 13-Liter Engine to EPA, Says New Model Meets Emissions Rule," Transport Topics, Feb. 6,

2012 (Exhibit A hereto).
Petition for Administrative Stay of Interim Final Rule

Docket No. EPA-HQ-OAR-2011-1000

February 15,2012

Page 11

years of lead time before it began to be phased in, and the NOx emission level at issue, 0.20 g/hphr, became applicable in 2010, not 2012.

Second, substantial work must be required in order to meet the emission standard,

meaning that compliance requires "the application of technology not previously used in an

engine or vehicle class or subclass, or the significant modification of existing technology or

design parameters." Id. § 82.l103-87(a)(1) & (b). That is manifestly not the case here. For

many years, industry has recognized that SCR technology would be necessary to achieve the low

NOx standard first set forth in the 2001 Rule. Moreover, for its part, Navistar claims to rely on

existing EGR-only technology, not SCR.

Third, EPA must find that there is likely to be a "technological laggard. " /d. § 82.1103-

87(a)(2). Navistar is no "technological laggard," and the basis for EPA's finding to the

contrary-that the company "has not yet submitted an application for certification for any model

year 2012 heavy heavy-duty diesel engines that would not require emission credits" (77 Fed.

Reg. at 4681 )-is neither determinative nor true. In fact, on the very day the agency

promulgated the Interim Final Rule, Navistar submitted certification data for a 0.20 glbhp-hr

engine to EPA.7 Navistar's Senior Vice President of North American Sales told the media that

Navistar has delayed releasing the engine for sale because it wants to improve its fuel economy'

4. The Interim Final Rule Violates CAA Section 206(g)(3)(e)

In authorizing the establishment ofNCPs, Congress did not intend to encourage noncompliance with revised emission standards." Accordingly, CAA § 206(g)(3)(E) requires NCPs

to be set at a level which "shall remove any competitive disadvantage to manufacturers whose

7 See Navistar Press Release, "Navistar Hosts Analyst Day to Detail Strategy Driving Shareholder Value; Company

formally submits EPA certification data for O.2g NOx in-cylinder engine" (Feb. 1,2012) ("The company also

announced it formally submitted its O.2g NOx in-cylinder engine certification data to the United States

Environmental Protection Agency"), available at http://www.navistar.comlNavistar/News/Newsroom# (Exhibit B

hereto); see also "Customers Wouldn't Pay Extra for Any Non-Compliance Penalties Imposed on Navistar, Hebe

Says," Truckinginfo, the web site of Heavy Duty Trucking magazine (Feb. 1,2010), available at

http://www.truckinginfo.cominews/news-detail.asp?news _ id=7 5958&news _category _id=36 ("Navistar is ready

with an engine that does meet the O.2-gram NOx limit, and it submitted its specifications to the EPA on Tuesday

[January 31,2012].") (Exhibit C hereto).

8 See "Customers Wouldn't Pay Extra for Any Non-Compliance Penalties Imposed on Navistar, Hebe Says," supra

n.7 (Exhibit C hereto).

9 See H. Rep. No. 294, at 276 (1977), reprinted in 1977 U.S.C.C.A.N. at 1355 ("[T]he NCP formula must be such

as will reflect the degree of the nonconformity, create incentives for compliance with the revised standards, and

prevent any competitive disadvantage for manufacturers which do meet revised standards.")
Petition for Administrative Stay of Interim Final Rule

Docket No. EPA-HQ-OAR-2011-1000

February 15,2012

Page 12

engines or vehicles achieve the required degree of emission reduction ... " 42 U.S.C.

§ 7525(g)(3)(E). Here, EPA's formula for determining the NCPs did not properly take into

account the costs of SCR development or fuel efficiency, for example, and these errors resulted

in NCPs that are too low to reflect the competitive disadvantage to Cummins and other

compliant engine manufacturers. As a result, Navistar is being rewarded with an economic

benefit for failing to comply with EPA's emissions regulations.

B. Cummins Will Be Irreparably Injured Absent a Stay of the Interim Final

Rule

Congress and the courts have recognized the potential negative effect NCPs can have on

fair competition in the engine manufacturing marketplace. See, e.g., Nat 'l Petrochemical &

Refiners Ass'n v. EPA, 287 F.3d 1134, 1147-48 (D.C. Cir 2002) (NCP provision places

competitive interests with the "zone of interest" ofCAA Title II); see also supra n.9. Thus,

Congress charged EPA, inter alia, with (i) assuring that NCPs "remove any competitive

disadvantage to manufacturers whose engines ... achieve the required degree of emissions

reduction," CAA § 206(g)(3)(E), and (ii) promulgating NCPs only after notice and an

opportunity for a public hearing, id. § 206(g)(I), in part so that marketplace participants could

provide the Agency with information relevant to its mandatory competitive disadvantage inquiry.

Beyond a doubt, NCPs that are either entirely impermissible (which is the case here) or

materially inadequate to eliminate competitive disadvantages (which is also the case here) will

give rise to competitive injuries.

Specifically, by giving Navistar a competitive advantage through the Interim Final Rule

here, Cummins is irreparably harmed. The Interim Final Rule permits Navistar to preserve or

potentially gain market share that it would have otherwise lost to Cummins, which translates into

lost sales and other forms of harm. Cummins is not aware of any mechanism by which EPA

could provide compensation for Cummins injuries. Unrecoverable economic losses amount to

irreparable harm. See Thunder Basin Coal Co. v. Reich, 510 U.S. 200, 220-21 (1994) (Scalia, J.,

concurring) ("[C]omplying with a regulation later held invalid almost always produces the

irreparable harm of nonrecoverable compliance costs."); Armour & Co. v. Freeman, 304 F.2d

404,406 (D.C. Cir. 1962) ("loss of profits which could never be recaptured" is irreparable

harm); Brendsel v. Office of Fed. Hous. Enter. Oversight, 339 F. Supp. 2d 52 (D.D.C. 2004)

(financial losses were irreparable harm because sovereign immunity prevented recoupment from

government).

C. The Balance of Harms Clearly Weighs in Favor ofa Stay

The third and fourth factors applicable to a judicial stay-the possibility of substantial

harm to others, and the public interest-are addressed in detail in the two other petitions for an
* * *

Petition for Administrative Stay of Interim Final Rule

Docket No. EPA-HQ-OAR-2011-1000

February 15,2012

Page 13

administrative stay. In short, neither EPA nor Navistar would be harmed by a stay ofthe Interim

Final Rule. EPA would benefit from a stay, because it would be spared the cost and effort

associated with certifying engines under a flawed rule (with an incorrectly calculated NCP) that

will later be replaced by a final rule covering the same model years after formal rulemaking is

completed. Navistar faces no demonstrable harm from a stay of the Interim Final Rule either.

EPA speculates that "it is possible" Navistar may deplete its supply of NO x credits at some

unnamed time "during the 2012 model year," 77 Fed. Reg. at 4680, but there is no concrete

evidence in the rulemaking docket to support this supposition. Moreover, the fact that Navistar

has now submitted certification data for a compliant engine (see supra n.7) demonstrates that

EPA's belief was ill-founded.

Without question, the public interest would benefit from issuance of a stay. The agency's

compliance with notice and hearing requirements that are designed to protect the public is itself

an important public interest. Keeping higher-polluting engines off of the highways while EPA

completes a rulemaking that more accurately accounts for the costs of noncompliance with the

NOx emission standard will also benefit public health and the environment.

For all of the foregoing reasons, Cummins respectfully requests that the Administrator

agree to stay the Interim Final Rule pending judicial review.

Sincerely,

Samuel I. Gutter

Timothy K. Webster

Counsel for Cummins Inc.

Attachments
Exhibit A
Navistar Submits 13-Liter Engine to EPA, Says New Model Meets Emissions Rule | Transport Topics Online | Trucking, Freight Transportation and Logistics News

http://www.ttnews.com/articles/printopt.aspx?storyid=28622[2/14/2012 2:06:34 PM]

Updated:

Navistar Submits 13-Liter Engine to EPA, Says New

Model Meets Emissions Rule

By Howard S. Abramson, Editorial Director

This story appears in the Feb. 6 print edition of Transport Topics.

LISLE, Ill. — Navistar Inc. has formally submitted to the Environmental Protection Agency a 13-liter heavy-duty engine model that it says

meets current federal emissions standards.

The truck and engine maker delivered its engine to EPA on Jan. 31, the eve of its quarterly meeting with Wall Street analysts, said

James Hebe, Navistar’s senior vice president for North American sales. EPA now will evaluate the model and determine its suitability.

Hebe said Navistar now has “done what has never been done in the world” by any other engine maker, namely to reduce nitrogen oxide

emissions to 0.2 gram per brake horsepower-hour without adding urea to the exhaust stream.

The company’s “in-cylinder solution,” he said, would prove superior to competitors’ models because fleets won’t have to deal with the

components of additional exhaust treatment or have to add fluid to the exhaust.

All other heavy-duty engine manufacturers reduce NOx by injecting a urea solution into the exhaust, which interacts with a catalytic

converter to remove NOx. That method is called selective catalytic reduction. Navistar relies entirely on exhaust gas recirculation to

remove NOx.

Navistar delivered its engine model just days after EPA revealed that it would assess the company up to $1,900 for every heavy-duty

engine it sells that doesn’t meet the 0.2-gram standard, after the company exhausts credits that have allowed it to sell engines since

2010 that emit more NOx than the regulation’s limit (1-30, p. 1).

Navistar has been applying credits it earned in past years when some of its engines burned more cleanly than federal standards

required.

Now, Navistar is close to exhausting those credits and is moving to meet the emissions standards without them.

At a dinner meeting with reporters here, Hebe said the new engine model is virtually identical to the earlier one and that the

improvements are largely software changes. He said there would be no price changes for the new engine.

“Essentially, there’s no change in the engine,” Dan Ustian, Navistar’s president and CEO, said at the Feb. 1 analyst meeting at company

headquarters here. “It’s all in the controls. The customer won’t even know the difference. There will be no change in performance, no

change in fuel efficiency.”

Ustian termed the potential EPA penalty “Plan B. We don’t intend to use Plan B,” he said, adding that he was hopeful EPA would certify

the engine in time to prevent such fines.

Margaret Oge, director of EPA’s Office of Transportation and Air Quality, said earlier that the fine was adopted as a way to allow

Navistar to continue selling engines in case the new model isn’t certified in time. Without such a fine regime, she said, the company

would have to cease selling the model.

Hebe also said Navistar was asking EPA to grant it the flexibility he said it has given to the OEMs that employ SCR, such as allowing

their engines to temporarily exceed emissions standards at some times, such as before they reach normal operating temperature.

“We can’t get optimum performance out of the new engine without” that flexibility from EPA, he said, although the engines would operate

satisfactorily and within federal standards but would lose some fuel efficiency and power.

Jack Allen, president of Navistar’s North American Truck Group, said the company wants to make sure “that we’re treated fairly, on an

equitable basis,” by EPA.

Hebe said Navistar was prepared to go into production of the new engine as soon as EPA certifies it as compliant.

He said that EPA’s action last week wasn’t a surprise. “We’ve known for two years” that the company would run out of credits about this
Navistar Submits 13-Liter Engine to EPA, Says New Model Meets Emissions Rule | Transport Topics Online | Trucking, Freight Transportation and Logistics News

http://www.ttnews.com/articles/printopt.aspx?storyid=28622[2/14/2012 2:06:34 PM]

time.

Hebe said Navistar had enough credits to continue selling the current engine in the 10 states that have adopted the stricter emissions

rules set by the California Air Resources Board until EPA acts on its new model.

He said the company would do whatever it takes to continue selling the engines in all other states and that any additional costs would

be borne by Navistar, and not by its customers.

Hebe said that, “based on past experience,” he didn’t expect EPA to take very long to certify the new engine.

Allen told reporters after the analyst meeting on Feb. 1 that the company would submit its 11-liter and 15-liter models to EPA for

certification as soon as the 13-liter model, the workhorse of the fleet, is approved.

Meanwhile, Hebe also took strong exception to comments by Denny Slagle, head of North American operations for the Volvo Group,

criticizing EPA and Navistar.

Slagle told Transport Topics Jan. 26 that the $1,900 fine prospect “is outrageously unfair and another blatant accommodation by the

EPA to a company that adopted a failed emissions strategy.” He said the fines weren’t high enough.

Hebe said Slagle “didn’t have the right” to make such a comment, and he wondered if his competitor “will be man enough” to apologize

after EPA certifies Navistar’s new engine.
Exhibit B
Navistar Hosts Analyst Day to Detail Strategy Driving Shareholder Value - Feb 1, 2012

http://media.navistar.com/index.php?s=43&item=540&printable[2/14/2012 2:08:55 PM]

Navistar Hosts Analyst Day to Detail Strategy Driving Shareholder Value

2012 earnings guidance of $5.00 to $5.75 adjusted diluted earnings per share

Adjusted manufacturing segment profit expected to increase 13 - 30 percent

Company formally submits EPA certification data for 0.2g NOx in-cylinder engine

LISLE, Ill., Feb. 1, 2012 /PRNewswire/ -- Navistar International Corporation (NYSE: NAV) announced it

will outline the critical elements of its strategy to achieve $20 billion in sales and $1.8 billion in segment

profit at an Analyst Day event to be held today at its new product development center in Lisle, Ill. The

company also announced it formally submitted its 0.2g NOx in-cylinder engine certification data to the

United States Environmental Protection Agency.

"When our investors and analysts walk through the doors of our new product development center

today, they will see our world-class integration capabilities that are playing a major role in our drive

toward achieving our long-term operational and financial goals," said Daniel C. Ustian, Navistar

chairman, president and chief executive officer. "We've made the right investments and delivered

improved performance during one of the most challenging economic cycles in recent history, and our

executives today will describe in detail how we are positioned for further growth and differentiation in

2012."

Navistar expects North America truck demand to increase 5 to 18 percent in fiscal year ending October

31, 2012, to a range of 275,000 to 310,000. Included in its earning guidance for fiscal 2012 was the

improved adjusted manufacturing segment profit of $1.0 to $1.15 billion, a 13 to 30 percent increase

over the $882 million achieved in fiscal 2011. The primary driver of our expected improvements is

improved results from Navistar's core truck, engine and service parts businesses, partially offset by

lower demand for military vehicles.

Navistar said adjusted net income attributable to Navistar International Corporation for fiscal year

ending October 31, 2012, is expected to be between $350 million and $400 million, or $5.00 to $5.75

adjusted diluted earnings per share, which is generally consistent with performance in fiscal 2011.

However, the company will absorb approximately $90 million in higher post retirement health care costs

and expects its effective tax rate to be 25 to 30 percent with cash taxes expected to be below 10

percent.

Navistar International Corporation (NYSE: NAV) is a holding company whose subsidiaries and affiliates

produce International® brand commercial and military trucks, MaxxForce® brand diesel engines, IC

BusTM brand school and commercial buses, Monaco® RV brands of recreational vehicles, and

Workhorse® brand chassis for motor homes and step vans. It also is a private-label designer and

manufacturer of diesel engines for the pickup truck, van and SUV markets. The company also provides

truck and diesel engine service parts. Another affiliate offers financing services. Additional information is

available at www.Navistar.com/newsroom.

SEC Regulation G Non-GAAP Reconciliation

The financial measures presented below of adjusted income and adjusted diluted earnings

per share attributable to Navistar International Corporation, manufacturing segment profit,

and adjusted manufacturing segment profit are unaudited and not in accordance with, or

an alternative for, financial measures presented in accordance with U.S. generally accepted

accounting principles (GAAP). The non-GAAP financial information presented herein should

be considered supplemental to, and not as a substitute for, or superior to, financial

measures calculated in accordance with GAAP.

We believe manufacturing segment profit, which includes the segment profits of our Truck,

Engine, and Parts reporting segments, provides meaningful information of our core

manufacturing business and therefore we use it to supplement our GAAP reporting by

identifying items that may not be related to the core manufacturing business. We have

chosen to provide this supplemental information to investors, analysts and other interested

parties to enable them to perform additional analyses of operating results, to illustrate the

results of operations giving effect to the non-GAAP adjustments shown in the below

reconciliation, and to provide an additional measure of performance.

In addition, we believe that adjusted income and adjusted diluted earnings per share

attributable to Navistar International Corporation and manufacturing segment profit
Navistar Hosts Analyst Day to Detail Strategy Driving Shareholder Value - Feb 1, 2012

http://media.navistar.com/index.php?s=43&item=540&printable[2/14/2012 2:08:55 PM]

excluding certain items, which are not considered to be part of our ongoing business,

improves the comparability of year to year results and is representative of our underlying

performance. We have chosen to provide this supplemental information to investors,

analysts and other interested parties to enable them to perform additional analyses of

operating results, to illustrate the results of operations giving effect to the non-GAAP

adjustments shown in the reconciliations below, and to provide an additional measure of

performance.

Fiscal 2012 guidance: adjusted net income and diluted earnings per share attributable to Navistar

International Corporation reconciliation:

Lower Upper

(Dollars in millions, except per share data)

Net income attributable to Navistar International

Corporation....................................................... $ 280 $ 345

Plus: Engineering integration costs & restructuring of North American manufacturing

operations, net of

tax(A)................................................................................................................. 70 55

Adjusted net income attributable to Navistar International

Corporation........................... $ 350 $ 400

Diluted earnings per share attributable to Navistar International

Corporation............................... $ 4.00 $ 4.95

Effect of adjustments on diluted earnings per share attributable to Navistar International

Corporation............................................................................................................................... 1.00 0.80

Adjusted diluted earnings per share attributable to Navistar International

Corporation. $ 5.00 $ 5.75

Approximate diluted weighted shares

outstanding........................................................................ 69.8 69.8

Fiscal 2012 guidance: manufacturing segment profit and adjusted manufacturing segment profit

reconciliation:

Lower Upper

(Dollars in millions)

Net income attributable to Navistar International

Corporation....................................................... $ 280 $ 345

Less: Financial services segment profit, Corporate and eliminations, and income

taxes................ (620) (725)

Manufacturing segment

profit.................................................................................................. 900 1,070

Plus: Engineering integration costs & restructuring of North American manufacturing

operations (A)............................................................................................................................. 100 80

Adjusted manufacturing segment

profit.................................................................................. $ 1,000 $ 1,150

(A) Engineering integration costs relate to the consolidation of our truck and engine engineering operations as well as the

move of our world headquarters, as we continue to develop plans for efficient transitions related to these activities and the

optimization of our operations and management structure. Restructuring of North American manufacturing operations are

charges primarily related to our plans to close our Chatham, Ontario heavy truck plant and Workhorse chassis plant in

Union City, Indiana, and to significantly scale back operations at our Monaco recreational vehicle headquarters and motor

coach manufacturing plant in Coburg, Oregon.
Navistar Hosts Analyst Day to Detail Strategy Driving Shareholder Value - Feb 1, 2012

http://media.navistar.com/index.php?s=43&item=540&printable[2/14/2012 2:08:55 PM]

Strategy at an industry of 350K: manufacturing segment profit reconciliation:

Target

U.S. & Canada

Industry........................................................................................................................................................ 350,000

Sales and revenues, net (Dollars in

billions)......................................................................................................................... $ 20 +

(Dollars in millions)

Net income attributable to Navistar International

Corporation............................................................................................... $ 892

Less: Financial services segment profit, Corporate and eliminations, and income

taxes........................................................ (888)

Manufacturing segment

profit.......................................................................................................................................... $ 1,780

Forward-Looking Statement

Information provided and statements contained in this report that are not purely historical

are forward-looking statements within the meaning of Section 27A of the Securities Act of

1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and

the Private Securities Litigation Reform Act of 1995. Such forward-looking statements only

speak as of the date of this report and the Company assumes no obligation to update the

information included in this report. Such forward-looking statements include information

concerning our possible or assumed future results of operations, including descriptions of

our business strategy. These statements often include words such as "believe," "expect,"

"anticipate," "intend," "plan," "estimate," or similar expressions. These statements are not

guarantees of performance or results and they involve risks, uncertainties, and

assumptions. For a further description of these factors, see Item 1A, Risk Factors, of our

Form 10-K for the fiscal year ended October 31, 2011, which was filed on December 20,

2011. Although we believe that these forward-looking statements are based on reasonable

assumptions, there are many factors that could affect our actual financial results or results

of operations and could cause actual results to differ materially from those in the forwardlooking statements. All future written and oral forward-looking statements by us or

persons acting on our behalf are expressly qualified in their entirety by the cautionary

statements contained or referred to above. Except for our ongoing obligations to disclose

material information as required by the federal securities laws, we do not have any

obligations or intention to release publicly any revisions to any forward-looking

statements to reflect events or circumstances in the future or to reflect the occurrence of

unanticipated events.

SOURCE Navistar International Corporation

For further information: Media Contact, Karen Denning, +1-331-332-3535, for Navistar International

Corporation; Investor Contact, Heather Kos, +1-331-332-2406, for Navistar International Corporation
Exhibit C
Print

2/1/2012 

Customers Wouldn't Pay Extra for Any Non-Compliance Penalties Imposed on Navistar, 

Hebe Says

By Tom Berg, Senior Editor

Customers would not see an upcharge if Navistar International has to pay government penalties for producing 

engines whose emissions exceed the absolute federal limit for nitrogen oxide (NOx), said Jim Hebe, senior vice 

president of North American sales. 

Hebe was commenting on the Environmental Protection Agency's announcement that Navistar might have to pay 

a penalty for each engine produced that exceeds a limit of 0.2 gram per horsepower-hour for NOx. The penalty 

would be as much as $1,900 per engine, EPA said. 

If the issue goes to that, Navistar would not announce actual penalty figures, Hebe said. 

"What we pay would be between us and the EPA," he said. "It's no one else's business." Non-compliance 

penalties are a function of how close or far a manufacturer is to declared limits, and actual amounts have to be 

calculated, he added. 

Navistar now makes 2010-legal diesels which emit as much as 0.5 gram of NOx compared to competitors' 

engines that meet the 0.2-gram limit. EPA allows the higher amount because of credits Navistar previously 

earned for producing thousands of engines that were cleaner than required. 

EPA said Navistar has estimated its credits would run out at the end of February, but that it could continue 

making and selling its current engines if it paid penalties. 

Hebe, in remarks to trade press reporters last night, said Navistar's credits might not run out when EPA 

estimates. He also said Navistar has enough credits to deal with a separate issue, certification of its engines by 

the California Air Resources Board, which will allow continued selling of Navistar diesels there. 

Meanwhile, Navistar is ready with an engine that does meet the 0.2-gram NOx limit, and it submitted its 

specifications to the EPA on Tuesday. 

But "we can't get optimum performance" in fuel economy, and executives don't want to release the engine for 

sale, Hebe said. Tests show the point-2 engine, a 12.4-liter Maxx Force 13, gets fuel economy as good as the 

current model, but execs want it to be better. 

Drivers and owners "won't see the difference" in the point-2 engine's performance if they used it as it now is, 

because there are no equipment changes, he said. The lower NOx emissions can be achieved with modified fuel 

pressures, altered introduction of inlet air, and recalibration of electronic controls. 

Navistar will continue to avoid liquid urea injection into exhaust, the active part of competitors' selective catalytic 

reduction method, Hebe insisted. 

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