** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 1 of 79

EO12866_NonConformance Penalties for On highway Heavy Duty Diesel 

Engines_2060-AR51_FRM_2012072

EO12866_NCP 2060-AR51FRM FRN_201272 - Final Redline.docx

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 86

[AMS-FRL-__________]-9716-5]

Nonconformance Penalties for On-highway Heavy-Duty Diesel Engines

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final Rule.

SUMMARY: EPA is taking final action to establish nonconformance penalties (NCPs) for

manufacturers of heavy heavy-duty diesel engines (HHDDE) in model years 2012 and 

later for emissions of oxides of nitrogen (NOx).) because we have found the criteria for 

NCPs in 40 CFR 86.1103-87 and the Clean Air Act have been met. The NOx standards to 

which these NCPs apply were established by a rule published on January 18, 2001 (66 FR 

5002). In general, NCPs allow a manufacturer of heavy-duty engines (HDEs) whose 

engines do not conform to specified applicable emission standards, but do not exceed a 

designated upper limit, to be issued a certificate of conformity upon payment of a monetary 

penalty to the United States Government. The upper limit associated with these NCPs is 

0.50 grams of NOx per brake horsepower-hour (g/bhp-hr). 

This Final Rule specifies certain parameters that are entered into the preexisting 

penalty formulas along with the emissions of the engine and the incorporation of other 

factors to determine the amount a manufacturer must pay. Key parameters that determine 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 2 of 79

the NCP a manufacturer must pay are EPA’s estimated cost of compliance for a near

worst-case engine and the degree to which the engine exceeds the emission standard (as 

measured from production engines).

Under the NCPs being adopted for HHDDEs, a nonconforming manufacturer with 

engines at the upper NOx limit of 0.50 g/bhp-hr would pay a penalty of $3,796 for each 

model year 2012 engine it produces. For later model years, this maximum penalty will 

increase by several hundred dollars per year. For example, by 2014 the maximum penalty 

could be as high as $5,000 per engine. Manufacturers would pay a lesser penalty if the 

NOx emissions of the nonconforming engine are below the upper NOx limit.

EPA proposed NCPs for medium heavy duty diesel engines. However, EPA is not 

taking final action with regard to NCPs for these engines at this time because EPA has not 

completed its review of the data and comments regarding these engines.

DATES: This rule is effective [INSERT DATE OF PUBLICATION]. DATES: This rule 

is effective [INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER]. 

Section 553(d) of the Administrative Procedure Act (APA), 5 U.S.C. chapter 5, generally 

provides that rules may not take effect earlier than 30 days after they are published in the 

Federal Register. APA section 553(d) excepts from this provision any action that grants 

or recognizes an exemption or relieves a restriction. Since today’s action can be 

considered to relieve a restriction that would otherwise prevent a manufacturer from 

certifying, EPA is making this action effective immediately upon 

publication.ADDRESSES: 

EPA has established a docket for this action under Docket ID 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 3 of 79

EPA-HQ-OAR-2011-1000. All documents in the docket are listed in the 

http://www.regulations.gov index. Although listed in the index, some information is not 

publicly available, e.g., confidential business information or other information whose

disclosure is restricted by statute. Certain other material, such as copyrighted material, will 

be publicly available only in hard copy in the docket. Publicly available docket materials 

are available either electronically in http://www.regulations.gov or in hard copy at the 

following location: EPA: EPA Docket Center, EPA/DC, EPA West, Room 3334, 1301 

Constitution Ave., NW., Washington, DC. The Public Reading Room is open from 8:30 

a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone 

number for the Air Docket is (202) 566-1742.

FOR FURTHER INFORMATION CONTACT: Chuck Moulis, U.S. EPA, National

Vehicle and Fuel Emissions Laboratory, 2000 Traverwood, Ann Arbor MI 48105;

Telephone (734) 214-4826; Email moulis.charles@epa.gov.

SUPPLEMENTARY INFORMATION:

Regulated Entities

This action could affect you if you produce or import new heavy-duty diesel 

engines which are intended for use in highway vehicles such as trucks and buses or 

heavy-duty highway vehicles. The table below gives some examples of entities that may 

be affected by these regulations. ButHowever, because these are only examples, you 

should carefully examine the regulations in 40 CFR part 86. If you have questions, call 

the person listed in the FOR FURTHER INFORMATION CONTACT section above. 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 4 of 79

Category NAICSa Codes Examples of potentially 

regulated entities

Industry 336112

336120

Engine and truck 

manufacturers. 

a North American Industry Classification System (NAICS).
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 5 of 79

Table of Contents

I. Executive Summary

A. Purpose of This Action

B. Summary of Today's Action

C. Impacts of This Action

II. Overview and Background

A. Overview

B. Statutory Authority

C. Background Regarding Nonconformance Penalty Rules

D. 2007 and 2010 NOx Standards

II.III. Previous Interim Final Rule

IV.III. NCP Eligibility

A. First criterion - whether the MY2010 NOx standard is more stringent than the 

previous NOx standard

B. Second criterion - whether substantial work will be required to meet the 

MY2010 NOx standard

C. Third criterion – whether there is likely to be a technological laggard.

D. Dicta from Mack Trucks, et al v. EPA

IVD. Issues Raised by the DC Circuit Court of Appeals

V. Penalty Rates

A. Upper Limit

B. Cost Parameter Values

C. Resulting Penalties

D. Consideration of Other Methodologies

VVI. Economic Impact

VIVII. Environmental Impact

VIIVIII. Emission Standards for Which We are Not Establishing NCPs in this Final Rule

A. Medium Heavy Duty Diesel NOx Standards

B. Light Heavy-Duty Diesel NOx Standards

C. Heavy-Duty Gasoline Engine Standards

D. Heavy-duty Diesel Engine NMHC, CO, and PM Standards

E. Heavy-duty CO2 Standards

VIIIIX. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review and Executive Order 

13563: Improving Regulation and Regulatory Review

B. Paperwork Reduction Act

C. Regulatory Flexibility Act

D. Unfunded Mandates Reform Act

E. Executive Order 13132 (Federalism)

F. Executive Order 13175 (Consultation and Coordination with Indian Tribal 

Governments)

G. Executive Order 13045: Protection of Children from Environmental Health 

Risks and Safety Risks

H. Executive Order 13211 (Energy Effects)
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 6 of 79

I. National Technology Transfer Advancement Act

J. Executive Order 12898: Federal Actions to Address Environmental Justice in 

Minority Populations and Low-Income Populations

K. Congressional Review Act

IXX. Statutory Provisions and Legal Authority

I. Executive Summary

A. Purpose of This Action

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

promulgate regulations permitting manufacturers of heavy-duty engines or heavy-duty 

vehicles to receive a certificate of conformity for engines or vehicles that exceed an EPA 

emissions standard if the manufacturer pays a nonconformance penalty (NCP). This 

action adopts NCPs for MY2012 and later heavy heavy-duty diesel engines (HHDDE) 

with respect to the NOx emissions standards applicable to these engines. Engine 

manufacturers will be able to receive a certificate of conformity based on either 

demonstrating compliance with the 0.20 g/bhp-hr NOx emission standard, or paying NCPs 

under the penalty formula established in this rule. This provides an alternative 

compliance option in situations where, as here, EPA has determined that the criteria for 

establishing NCPs have been met. 

B. Summary of Today's Action

EPA proposed that the criteria for setting NCPs had been met for the 0.20 g/bhp-hr 

NOx emission standard for HHDDEs, and we are setting NCPs for these diesel engines in 

this final action.1 The final NCPs for HHDDE are approximately twice the values 

proposed. This difference is primarily because of new information received during the 

public comment period related to fuel and diesel exhaust fluid (DEF) prices. The 

 

1 The proposed rule was published at 77 FR 4736 (January 31, 2012).
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 7 of 79

derivation of the final penalties is described in a support document titled 

“Nonconformance Penalties for 2012 and later Highway Heavy-Duty Diesel Engines: 

Technical Support Document” (Technical Support Document), which is available in the 

public docket for this rulemaking. Under the final penalty regulations, nonconforming 

manufacturer with engines at the upper NOx limit of 0.50 g/bhp-hr would pay a penalty of 

$3,775 for each model year 2012 engine it produces. Manufacturers would pay a lesser 

penalty if the NOx emissions of the engine are lower. For example, the penalty for a 2012 

engine with NOx emissions at 0.30 g/bhp-hr would be $1,259. 

C. Impacts of This Action

NCPs have a small environmental impact. We expect relatively few engine 

families to be certified under these provisions. Any impacts should be short-term in nature 

because the penalties are structured to increase over time to discourage use in later model 

years and because the penalty figures are high enough, such that the increase in the 

maximum penalty in later model years will likely limit the practical availability of NCPs in 

future years The. In addition, Navistar, the only company that has requested certificates 

based on the use of NCPs, has publicly announced it will introduce new technology 

engines in 2013 which will meet the 0.20 g/hp-hr NOx standard without the need for NCPs; 

NCPs generally also have minimal adverse economic impacts. Their use is optional, 

and manufacturers have historically chosen to use NCPs only when they are otherwise 

unable to comply with emissions standards. Manufacturers that choose to make use of the 

NCPs will incur those costs, which are based on the cost of complying with the emission 

standards. 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 8 of 79

I. II. Overview and Background

A. Overview

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

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

heavy-duty vehicles (HDVs) to receive a certificate of conformity for HDEs or HDVs that 

exceed a Federal emissions standard if the manufacturer pays a nonconformance penalty 

(NCP). Congress adopted section 206(g) in the Clean Air Act Amendments of 1977 as a 

response to a concern about manufacturers unable to comply with technology-forcing 

emissions standards for heavy-duty engines in the lead-time provided for the emissions

standards. NCPs were intended to remedy this concern, while ensuring that conforming 

manufacturers would not suffer a competitive disadvantage compared to nonconforming 

manufacturers. 

The first NCP rule, sometimes referred to as the “generic” NCP rule, established 

three basic criteria for determining the emission standards for which nonconformance 

penalties would be established in any given model year (. 50 FR 35374, (August 30, 

1985). The first criterion is that the emission standard in question is a new emission 

standard or that the standard is an existing standard and becomes more difficult to meet. 

This can occur in two ways, either by the emission standard itself becoming more stringent, 

or due to its interaction with another emission standard that has become more stringent. 

Second, EPA must find that substantial work is required in order to meet the emission 

standard. Third, EPA must find that it is likely that a manufacturer will be unable to 

comply by the end of the lead time provided for technological reasons (referred to in earlier 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 9 of 79

rules as a “technological laggard”). The first NCP rule also established the formula for 

determining the amount of an NCP. In subsequent NCP rules, EPA made determinations 

about which emissions standards met the criteria for establishing NCPs, and specified the 

values for various parameters that are used in the formula to calculate the dollar value of a 

manufacturer’s NCP. The regulations addressing these provisions are in Subpart L of 40 

CFR Part 86.

EPA proposed that these criteria had been met for the 0.20 g/bhp-hr NOx emission 

standard for heavy heavy-duty diesel engines. 77 FR 4736 (January 31, 2012).2 Although 

we did not identify the technological laggard in the NPRM, we have since identified 

Navistar as the manufacturer that needs NCPs. We proposed to establish NCPs because 

Navistar was unable to achieve the 0.20 g/bhp-hr NOx standard and did not have sufficient 

emission credits to cover the 2012 model year. At the time of the proposal, Navistar was 

attempting to meet the NOx emission standard with a technology that is different than the

approach used by other engine manufacturers. However, Navistar recently announced 

that it would switch its approach to use the same general technology as the other engine 

firmsmanufacturers – a catalytic approach called selective catalytic reduction (SCR). As 

described in Section IV. C. , we have determined that Navistar will be unable to apply this 

technology to all of its engine families sold in the U.S. to achieve 0.20 g/hp-hr NOx for at 

least several months, and will need NCPs until it completes it transition to the new 

technology.

We proposed to base the calculation of the NCPs on the existing regulatory 

framework, revising only the upper limit and the cost parameters. We also proposed to set 

 

2 EPA simultaneously published an Interim Final Rule establishing interim NCPs for heavy heavy-duty 

engines (77 FR 4678, January 31, 2012).
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 10 of 79

the upper limit at 0.50 g/bhp-hr, which means that no manufacturer paying NCPs would be 

allowed to certify engines with NOx emissions above this limit. WeThe proposed that the 

penalty for HHDDEs at that limit would bewas $1,919 for model year 2012. Consistent 

with the provisions of the existing regulations, this value reflected our best estimate of the 

near-worst case cost difference between an engine with NOx emissions at the upper limit 

and a compliant engine. The regulations contain provisions to increase the penalties each 

year for later model years, which we did not proposed to change. 

The NCPs being finalized for HHDDE are approximately twice the values 

proposed. This difference is primarily because of new information received during the 

public comment period related to fuel and diesel exhaust fluid (DEF) prices. The 

derivation of the final penalties is described in a support document titled “Final Technical 

Support Document: Nonconformance Penalties for 2012 and later Highway Heavy-Duty 

Diesel Engines: Technical Support Document” (Technical Support Document), which is 

available in the public docket for this rulemaking. 

It is important to note that the NCP parameters being finalized were developed 

using the same basic methodology described in the NPRM. As in all NCP rules, the final 

NCPs are based on the estimated difference in compliance costs for engines at the upper 

limit and engines at the standard. Thus, engines with emissions at the upper limit can be 

considered to be baseline engines for the analysis. These baseline engines also represent 

the engines against which complying engines could compete in the marketplace. 

As shown in Figure 1, a nonconforming manufacturer with engines at the upper 

NOx limit of 0.50 g/bhp-hr would pay a penalty of $3,796775 for each model year 2012 

engine it produces. For later model years, this maximum penalty will increase by several 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 11 of 79

hundred dollars per year as specified in 40 CFR 86.1113-87. While the exact rate of 

increase will depend on the number of engines for which NCPs are used, the penalty for 

engines at the upper limit could be more than $5,000 by 2015. Manufacturers would pay a 

lesser penalty if the NOx emissions of the nonconforming engine are lower. For example, 

the penalty for a 2012 engine with NOx emissions at 0.30 g/bhp-hr would be $1,265259.

Figure 1 – Penalty level as a function of compliance level

We received numerous comments on our proposal to establish NCPs. Our 

detailed analysis of these comments is contained in the Response to Comments document 

for this rulemaking. The major comments are summarized briefly below.

$-

$500 

$1,000 

$1,500 

$2,000 

$2,500 

$3,000 

$3,500 

$4,000 

0.20 0.25 0.30 0.35 0.40 0.45 0.50 NCP Value

NOx Emissions Level (g/hp-hr)

2012 Heavy Heavy-Duty Engine NCP
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 12 of 79

Several commenters questioned whether the regulatory criteria for 

establishing NCPs had been met. These comments are addressed in 

Section IV. 

Several commenters addressed the level of the penalty, mostly claiming that 

the penalty needed to be higher to meet the statutory requirement to remove 

the competitive disadvantage for complying manufacturers. These 

comments are addressed in Section V. 

The few comments we received on the upper limit supported setting it at 

0.50 g/bhp-hr. These comments are addressed in Section V. A. 

Comments on the methodology used to calculate costs addressed both our 

proposed methodology and alternative methodologies. Comments on our 

proposed methodology are discussed in Section V. B. and comments on 

alternative methodologies are discussed in Section V. D. 

NCPs have a small environmental impact. We expect relatively few engine 

families to be certified under these provisions. Any impacts should be short-term in nature 

because the increase in the maximum penalty in later model years will likely limit the 

practical availability of NCPs in future years. The structure of the penalties, by increasing 

over time, discourages use in later model years,; and because the penalty figures are high 

enough, such that use in later model years is unlikely to be a viable option for any

manufacturer.

NCPs generally also have minimal adverse economic impacts. Their use is 

optional, and manufacturers have historically chosen to use NCPs only when they are 

otherwise unable to comply with emissions standards. Manufacturers that choose to make 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 13 of 79

use of the NCPs will incur those costs, which are based on the cost of complying with the 

emission standards. 

The NCPs promulgated in this Final Rule will apply for all engines produced after 

[INSERT DATE OF PUBLICATION].

Section 553(d) of the Administrative Procedure Act (APA), 5 U.S.C. chapter 5, 

generally provides that rules may not take effect earlier than 30 days after they are 

published in the Federal Register. APA section 553(d) excepts from this provision any 

action that grants or recognizes an exemption or relieves a restriction. Since today’s 

action can be considered to relieve a restriction that would otherwise prevent a 

manufacturer from certifying, EPA is making this action effective immediately upon 

publication. This Final Rule does not set new requirements, but rather creates an optional 

path by which a manufacturer unable to meet the NOx standard may obtain a certificate of 

conformity that they could not otherwise obtain without this Final Rule. Thus, the NCPs 

promulgated in this Final Rule will apply for all engines introduced into commerce on or 

after [INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER].

B. Statutory Authority

Section 206(g) of the Act, 42 U.S.C. 7525(g), directs EPA to promulgate 

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

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

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

if the manufacturer pays a nonconformance penalty (NCP) . Congress adopted section 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 14 of 79

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

technology-forcing emissions standards for heavy-duty engines. The concern was if strict 

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

to comply in the lead-time provided for the emissions standards and would be forced out of 

the marketplace. NCPs were intended to remedy this concern. The nonconforming 

manufacturers would have a temporary alternative that would permit them to receive a 

certificate of conformity by payment of a penalty, allowing the engines or vehicles to be 

introduced into commerce and sold. At the same time, conforming manufacturers would 

not suffer compared to nonconforming manufacturers, because the NCPs would remove 

the competitive disadvantage to them. NCPs would be based, in part, on money saved by 

the nonconforming manufacturer. Providing this relief facilitated EPA’s authority to set 

technology forcing standards. Without this relief, EPA may have needed to be more 

cautious in setting standards, given the possibility that a lagging manufacturer might not be 

able to meet the standards in the lead-time provided.

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

may vary by pollutant and by class or category of vehicle or engine. No NCP-based 

certificate may be issued if the engine or vehicle exceeds the degree of reduction

determined by the Administrator to be practicable. This emission level is identified in the 

regulations as the upper limit. Section 206(g)(3) requires that NCPs: 

Account for the degree of emission nonconformity;

Increase periodically to provide incentive for nonconforming 

manufacturers to achieve the emission standards; and

Remove the competitive disadvantage to conforming manufacturers. 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 15 of 79

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

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

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

through regulation, the vehicle or engine would not qualify for an NCP under section 

206(g) and no certificate of conformity could be issued to the manufacturer. If the 

emission level is below the upper limit but above the standard, that emission level becomes 

the “compliance level,” which is also the benchmark for warranty and recall liability. The 

manufacturer who elects to pay the NCP is liable for vehicles or engines that exceed the 

compliance level in use. The manufacturer does not have in-use warranty or recall liability 

for emissions levels above the standard but below the compliance level. 

C. Background Regarding Nonconformance Penalty Rules

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

generally have been described as continuing “phases” of the initial NCP rule. The first 

NCP rule (Phase I), sometimes referred to as the “generic” NCP rule, established three 

basic criteria for determining the eligibility of emission standards for nonconformance 

penalties in any given model year (. 50 FR 35374, (August 30, 1985). When adopted in 

1985, EPA intended to use the criteria of 40 CFR 86.1103-87 in determining whether to 

establish NCPs. They were included in the regulations to clarify that EPA's obligation

under the generic rule to establish NCPs only applied where these criteria were met. As 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 16 of 79

described in Section V. of this Final Rule, we have determined that these criteria have been 

met.3

The first criterion is that the emission standard in question is a new emission 

standard or that the standard is an existing standard and becomes more difficult to meet. 

This can occur in two ways, either by the emission standard itself becoming more stringent, 

or due to its interaction with another emission standard that has become more stringent. 

SecondUnder the second criterion, EPA must find that substantial work is required in order 

to meet the emission standard. As described in §86.1103-87(b), EPA considers 

“substantial work” to mean the application of technology not previously used in that 

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

order to bring that vehicle/engine into compliance. EPA does not consider minor 

modifications or calibration changes to be classified as substantial work. EPA considers 

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

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

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

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

reasons (referred to in earlier rules as a “technological laggard”). Prior NCP rules have 

considered such a technological laggard to be a manufacturer who cannot meet a particular 

emission standard due to technological (not economic) difficulties and who, in the absence 

of NCPs, might be forced from the marketplace. 

The criteria and methodologies established in the 1985 NCP rule have since been 

used to determine eligibility and to establish NCPs for a number of heavy-duty emission 

 

3 We note that EPA may revise the criteria at any time through notice and comment rulemaking. Thus, these 

criteria do not constrain EPA from adopting NCPs in other circumstances, as long as the statutory criteria of 

section 206(g) are met.
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 17 of 79

standards. Phases II, III, IV, V, and VI published in the period from 1985 to 2002, 

established NCPs that, in combination, cover the full range of heavy-duty; from heavy 

light-duty trucks (6,000-8,500 pounds gross vehicle weight) to the largest diesel truck and 

urban bus engines. NCPs have been established for hydrocarbons (HC), carbon monoxide 

(CO), nitrogen oxides (NOx), and particulate matter (PM). The most recent NCP rule (67

FR 51464, August 8, 2002) established NCPs for the 2004 and later model year NOx 

standard for heavy-duty diesel engines (HDDEs). The NCP rulemaking phases are 

summarized in greater detail in the Technical Support Document for this rulemaking. 

D. 2007 and 2010 NOx Standards

The 0.20 g/bhp-hr NOx standard that applies for current and future heavy-duty 

engines was adopted January 18, 2001 (66 FR 5001), and first applied in the 2007 model 

year. However, because of phase-in provisions adopted in that rule and use of emission 

credits generated by manufacturers for early compliance, manufacturers have been able to

continue to produce engines with NOx emissions greater than 0.20 g/bhp-hr. Most 

engines during the phase-in had NOx emissions near 1.2 g/bhp-hr. The phase-in 

provisions ended after model year 2009 so that the 0.20 g/bhp-hr NOx standard was fully

phased-in for model year 2010. Equally important, the cap applicable to Family Emission 

Limits (FELs)4for credit-using engine families was lowered to 0.50 g/bhp-hr beginning in 

model year 2010. Because of these changes that occurred in model year 2010, the 0.20

g/bhp-hr NOx emission standard is often referred to as the 2010 NOx emission standard, 

 

4

FELs are emission levels specified by the manufacturer that serve as the 

applicable emission standard for engines participating in the emission averaging program. 

The FEL cap is the highest FEL to which a manufacturer may certify an engine using 

emission credits.
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 18 of 79

even though it applied to engines as early as model year 2007.

II. III. Previous Interim Final Rule

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

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

Rulemaking (NPRM). The NCPs in this Final Rule will supersede the NCPs that were 

promulgated in the Interim Final Rule as of [INSERT DATE OF PUBLICATION IN THE 

FEDERAL REGISTER].

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

These petitions and EPA’s responses denying them have been placed into the Docket for 

this rule. 

These engine manufacturers also filed judicial challenges to the Interim Final Rule. 

Mack Trucks, et al v. EPA, No. 12-1077 (D.C. Cir). They challenged EPA’s decision to 

establish NCPs in an interim final rule without going through notice and comment. They 

also challenged our finding that the regulatory criteria had been met to promulgate NCPs 

for the 2010 NOx standard, as well as our conclusion that the interim NCP levels removed 

the competitive disadvantage for complying manufacturers. On June 12, 2012, the Court 

of Appeals for the D.C. Circuit issued an opinion holding that EPA violated the procedural 

requirements for rulemaking because EPA did not have good cause to issue the rule 

without providing notice and opportunity for comment. Id., 2012 U.S. App. LEXIS 11851

(June 12, 2012). The Court did not rule on the merits of EPA's findings about the 

regulatory criteria or the level of the NCP. Nevertheless, it stated in dicta its concerns
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 19 of 79

about these issues, which are discussed below in Sections IV. III ((NCP Eligibility) and V. 

IV (Penalty Rates). 

III. IV. NCP Eligibility

Section II. C. I.C. of this Final Rule notes that EPA regulations provide for three 

criteria to be met in order to determine that an NCP should be established in any given 

model year. As is described below, these three criteria address different aspects of the 

appropriateness of NCPs, and it is important to consider each criterion separately in its own 

proper context. In general, the first two criteria address whether the standard in question 

created the possibility that a technological laggards could develop, while the third criterion 

addresses the likelihood that there will be a technological laggard. For the 2010 NOx 

standard, we find that these criteria have been met for heavy heavy-duty diesel engines, 

and it is therefore appropriate to establish NCPs for this standard for the current model year 

and later.

A. First criterion - whether the MY2010 and later NOx standard is more

stringent than the previous NOx standard

The first criterion requires that the emission standard in question must be more 

stringent than the previous standard. This is the case with the 2010 NOx standard. The 

previous emission standard for this category is a combined NMHC + NOx standard of 2.4 

g/bhp-hr, or optionally a 2.5 g/bhp-hr NMHC + NOx with a limit of 0.5 g/bhp-hr NMHC.5 

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

 

5 NMHC stands for non-methane hydrocarbons, which is a measure of total 

hydrocarbons with the methane emissions subtracted out. For typical on-highway diesel 

fueled heavy-duty engines, methane emissions are on the order of 10 percent of the total 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 20 of 79

Some commenters argued that this standard should no longer be considered a new 

standard because it went into full effect two model years ago. We did not promulgate 

NCPs for the 2010 and 2011 model years because we had no basis for concluding it was 

likely that any manufacturer required such NCPswould qualify as a technological laggard, 

as all manufacturers met the standard either directly or through application of credits. 

However, the fact that we did not promulgate NCPs for the first year a standard went into 

effect does not preclude us from promulgating NCPs for such standard at a later time, when 

it is determined the regulatory criteria have been met. While it is not a path we have 

generally taken, nothing in the statute or in our regulations, which refer to new or revised 

standards, precludes EPA from promulgating NCPs after the first year of a new or revised 

standard. goes into effect. See 50 FR 35374, 35376 (August 30, 1985), and 50 

FR9204FR 9204, 9206 (March 6, 1985). 

The first criterion, as with the other two criteria, reflects the key concepts 

underlying the NCP program – NCPs are designed to address situations where 

technological laggards are likely to develop in response to the adoption of technology 

forcing emission standards for this sector under CAA section 202(a)(3)(A). One purpose 

of section 206(g) is to avoid, at least temporarily, the problem of technological laggards 

being driven out of the market because of their inability to meet technology forcing

emission standards in the lead-time provided. 50 FR at9204, 9205, (March 6, 1985), 50 

FR at 35375 (August 30, 1985) ("The possibility of a technological laggard is a key 

concept in the NCP availability scheme."). The first criterion is directly linked to this -

 

hydrocarbon emissions.
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 21 of 79

"This condition creates the possibility for a technological laggard to exist." 50 FR at9204,

9206. (March 6,1985).

Given this purpose, the appropriate way to consider whether the new or revised 

standard is more stringent is to consider it from the point of adoption of the standard, by 

comparing it to the prior standard. It is at the point that EPA has adopted a standard that 

may force technology changes, and it is the difference in stringency between the old and 

the new or revised standard, that raises the possibility of a technological laggard. The

passage of time after adoption of the standard does not change the analysis of whether the 

new or revised standard is or is not more stringent than the previous standard. 50 FR 

at9204, 9206. (March 6, 1985). Even if EPA considers NCPs some model years after 

adoption of the standard the comparison under the first criterion is still between the new or 

revised standard and the prior standard, and their relative stringency. 

The first criterion establishes one circumstance that must occur to establish NCPs 

under the generic rule: a new or revised standard must be more stringent than the previous 

standard for the pollutant, or an existing standard must become more difficult to achieve. 

The passage of time by itself, from MY2010 to MY2012, does not change the fact that the 

MY2010 NOx standard was and continues to be more stringent than the standard 

applicable to model years before 2010, and this increase in stringency created the 

possibility for a technological laggard to exist. The first criterion is thus more in the 

nature of a static or historic fact, a threshold determination typically made based on the 

facts in existence at the time of adoption of the new or revised standard, a comparison of 

the stringency of the previous and the new or revised standard. 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 22 of 79

Based on this, EPA rejects commenters’ arguments. Even though the

determination on the first criterion is not being made until some model years after adoption 

of the 2010 standard, the 2010 NOx standard has always been a new or revised standard 

compared to the prior standard, and the 2010 standard was and continues to be more 

stringent than the preexisting NOx standard. The passage of time does not change the fact 

that adoption of a more stringent standard for MY2010 created the possibility for a 

technological laggard to exist. The 2010 standard is certainly a new or revised standard and 

certainly is more stringent than the previous standard for NOx. The fact that we are now 

in MY2012 does not change this conclusion.

B. Second criterion - whether substantial work will be required to meet 

the MY2010 NOx standard 

Under the second criterion, substantial work must be required to meet the standard. 

When we first established the 2010 NOx standard, we considered it to be a 

technology-forcing standard and subsequent history has shown that substantial work has 

been required to meet this emission standard. More importantly, all heavy heavy-duty 

diesel engines currently certified to the 0.20 g/bhp-hr standard without using credits are 

using new aftertreatment systems (that were generally not used in 2009) to meet this 

standard.6 Indeed, even Navistar substantially redesigned its emission control system in 

its attempt to achieve lower emissions without NOx aftertreatment. This work clearly

 

6

For this Final Rule, EPA describes those manufacturers that have achieved the 

0.20 g/hp-hr emission standard as “conforming”, “compliant” or “complying” 

manufacturers, and those that have not as the “nonconforming”, “noncompliant” or 

“noncomplying” manufacturers. However, it is important to clarify that manufacturers 

certifying above the 0.20 g/hp-hr NOx emission standard using emission credits are in 

compliance with regulations as long as they have enough emission credits to offset their

total NOx emissions above the standard.
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 23 of 79

meets the definition of substantial work, as it involves the use of either: new catalytic 

controls and related technology not previously used in these engines, or the significant

modification of existing EGR and related technology. None of the complying 

manufacturers dispute that they have done substantial work to achieve the 0.20 g/bhp-hr 

NOx standard. In fact, they emphasized in their comments how much work they have 

done to meet the standard.

The second criterion builds on the first criterion, as it involves an evaluation of the 

nature and degree of the technological challenge of the new or revised standard. If the 

new or revised standard increases the stringency to such a degree that it cannot be met by 

simple modifications to existing technology (i.e., that substantial work will be required to 

comply), then this criterion is satisfied. Like the first criterion, the second criterion 

reflects the key concern with the issue of a technological laggard - “When manufacturers 

must perform substantial work, it is possible that at least one will be unsuccessful and will 

become a laggard.” 50 FR at9204, 9206. (March 6, 1985). Like the first criterion, it is a 

determination of circumstances that establish a threshold or baseline for setting NCPs 

under the generic rule. It identifies circumstances that mean there is a possibility that a 

laggard may exist. 

Given this purpose, the appropriate way to consider the second criterion is to 

evaluate all of the work that must be accomplished to move from compliance with the 

previous standard to compliance with the new or revised standard. The possibility of a 

technological laggard is created by this entire amount of work that must be done, not any 

one subset or increment of the work. Thus, if EPA evaluates this criterion at some point 

after adoption of the new or revised standard, EPA still considers all of the work to go from 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 24 of 79

the previous to the new or revised standard, and not just the work remaining as of the date 

the determinations are made about compliance with the criteria under the generic NCP 

rule. 

While commenters did not dispute that substantial work was required to meet the 

2010 standard, some commenters claim it is no longer true that substantial work is required

because some manufacturers have met the standard. Some commented that these 

determinations must be based on the factual circumstances at the time of the NCP 

rulemaking and not the time the revised standard was issued. We disagree with these 

claims for two reasons.

First, this criterion is to be evaluated based on the total amount of work needed to 

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

timing of such changes. Indeed, the commenters’ approach would seem to be directly 

contrary to the purpose of the statute. The NCP program is designed to allow 

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

the standard. There is a clear expectation that some manufacturers might be technological

laggards. 50 FR at9204, 9206 (March 6, 1985) (“When manufacturers must perform

substantial work, it is possible that at least one will be unsuccessful and will become a

laggard.”) Where there is a technological laggard, it is the typical situation that other 

manufacturers have already complied or will comply on time. The fact that some 

manufacturers have surpassed the technological hurdles and achieved compliance with the 

new or revised standard does not in any way show that there is or cannot be a technological 

laggard who at least temporarily has not surpassed the technological hurdles. Refusing to 

establish NCPs solely because some manufacturers comply at the time NCPs are 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 25 of 79

established would frustrate Congress’ purpose by preventing establishment of NCPs when 

there is a technological laggard who temporarily can not comply with the standards and 

cannot certify engines without the NCP program. 

Thus, EPA bases the determination of substantial work on the total amount of work 

to go from compliance with the prior standard to compliance with the new standard, even if 

at the time of the NCP rulemaking some manufacturers have already completed some or all 

of such work. Under this criterion, the important question is whether manufacturers who 

were using technology that met the previous standard would need to conduct significant 

work to develop new technology or to build upon/change the old technology to meet the 

revised standard. Questions about work that still needs to be done at the point EPA begins 

an NCP rulemaking are relevant only in the context of the third criterion, whether there is 

likely to be a technological laggard. To avoid this confusion for future NCPs, we are 

clarifying in the regulatory text that this criterion is to be evaluated based on the need for 

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

timing for such changes.

Second, even under the current circumstances, we find that Navistar has needed to 

do substantial work to meet the standard. This is the case whether one considers the total 

amount of work to go from the previous standard to the MY2010 NOx standard, or whether 

one only considers the amount of work to go from the current status of its technology to 

compliance with the MY2010 standard. See the discussion below concerning the work 

conducted by Navistar to date and expected in the future. 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 26 of 79

We informed engine manufacturers in 2010 that we believed the first two criteria 

had been met.7 We note that the commenters now questioning whether these criteria have 

been met did not dispute our earlier view that we could have set NCPs at that time had we 

determined that a technological laggard was likely to develop. At that point, EPA was 

clear that the reason we were not establishing NCPs at that time was because we had not 

determined that a technological laggard was likely to develop. 

C. Third criterion – whether there is likely to be a technological laggard.

Under the third criterion, EPA considers all of the circumstances to determine 

whether there is likely to be a technological laggard. In the 1985 generic rule EPA 

indicated that:

Third, EPA must find that there is likely to be a technological laggard. Even when 

a standard becomes more stringent (or there is an adverse effect on a previously 

attainable standard), and even when manufacturers must perform substantial work, 

all manufacturers may still be able to meet the more stringent standard. For 

instance, compliance with a standard may involve merely the transference of 

technology from a similar application. Thus, EPA must make a determination 

whether the circumstances will likely give rise to a laggard. 50 FR at 9206.

50 FR 9204, 9206 (March 6,1985).

One of the concepts underlying a technological laggard is that a manufacturer faced 

with a new or revised standard, especially one that is technology forcing, will direct 

substantial resources and effort to develop and employ technology aimed at achieving 

compliance with the more stringent standard. Whether the manufacturer develops and 

employs the same or different technology than other manufacturers, there is a possibility 

that such a manufacturer will be temporarily unable to achieve the emissions standard in 

 

7 “Nonconformance Penalties for Heavy-Duty Diesel Engines in 2010 Model Year”, 

Letter from Karl J. Simon, Director, EPA Compliance and Innovative Strategies Division, 

February 22, 2010.
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 27 of 79

the lead time provided based on technological reasons. Instead of refusing to certify the 

manufacturer's engines, and driving them out of the market, the NCP program is 

specifically designed to provide a temporary path for certification until the remaining 

technological issues are resolved and the manufacturer achieves the standard. 50 FR at 

9204. (March 6,1985). The third criterion is designed to implement this concept, based on 

EPA’s evaluation of all of the circumstances. 

In this case, all of the circumstances indicate that there is more than a likelihood 

that there is an engine manufacturer that has not yet achieved the MY2010 NOx standard 

for technological reasons - we have determined that Navistar is in fact such a manufacturer. 

Unlike the rest of the industry, Navistar attempted to comply without SCR to reduce NOx 

emissions.8 However, to date Navistar has not succeeded in reaching the 0.20 

g/bhp-hr emission level. At this time, the only engine families Navistar has certified since 

the MY2010 standard took effect have used advanced EGR technology, and have been 

certified based on either banked emission credits or on Navistar’s payment of the interim 

NCPs. Navistar does not have sufficient credits to cover its entire model year 2012 

production without NCPs. Navistar has acknowledged in its public comments on this rule 

that it is effectively a technological laggard. On July 6, 2012, Navistar announced that it 

has begun the process of redesigning its trucks to use SCR engines in addition to their

in-cylinder emission control technology, which they expect. Navistar expects the SCR 

engines to be available beginning in early 2013. We have determined that Navistar will 

need access to NCPs to lawfully produce engines during this multi-month transition 

process.

 

8 This technology is based on internal engine controls and advanced exhaust gas recirculation technology.
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 28 of 79

Several commenters noted that Navistar cannot be a technological laggard as it has 

applied for certification of an engine family using this technology, seeking a certificate for 

a 0.20 g/bhp-hr engine that complies without the use of credits. However, Navistar has 

withdrawn that application recognizingbased on EPA concerns that the engine design (with 

its current hardware) does not meet the 0.20 g/bhp-hr NOx standard. 

While Navistar has announced that it will switch to SCR-based emission controls, 

we have determined that the work needed for Navistar to redesign all of its U.S. engines 

and vehicles for its announced alternate compliance path based on SCR cannot be 

completed immediately. Thus, Navistar will need NCPs during this transition period. 

These limitations are technological rather than economic in nature, and no amount of 

money could be spent by Navistar to bring all its engines into compliance for this model 

year.. Among the steps Navistar must complete, it must:

Select an SCR system design

Make arrangements with component suppliers

Validate components

Recalibrate its engine to work with the SCR system

Redesign it trucks to fit the SCR hardware

Complete its emission testing and durability testing for certification

Obtain EPA approval for the new engine-SCR system

We do not have a precise estimate of how long this will take for Navistar’s entire U.S. 

production of heavy heavy-duty diesel engines and associated vehicles. However, based 

on our experience and knowledge of this industry, this type of technology introduction is 

not finished in a one or two month period. Navistar has acknowledged as much in their 

July 6, 2012 announcement, which stated they will begin making the new technology 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 29 of 79

products available in early 2013.

Several commenters argued Navistar voluntarily chose a different technology path 

than other manufacturers, and could have complied in the lead time provided if it had 

developed and employed SCR technology from the beginning. Since Navistar chose what 

the commenters consider to be the wrong technology path, they argue it is a laggard based 

on its own business decision and not technological limitations. They stated that NCPs 

should not be established under these circumstances. We generally would agree with 

commenters assertioncommenters’ assertions that Navistar presumably could have chosen 

the same SCR technology path as other manufacturers some time ago, and presumably 

could have already achieved compliance with the MY2010 standard in the same time frame 

they did. If that had occurred, there would be no basis for establishing NCPs. However,

we disagree with commenters’ conclusions that NCPs should not be established based on 

this difference in choice of technology pathway. 

Navistar made a decision to attempt to meet the emission standard using a different 

technology path, without SCR. As with most of EPA’s mobile source emissions 

standards, the MY2010 emission standard is a performance standard, and does not specify 

what technology must be used or require that all manufacturers use the same technology. 

Commenters’ approach would penalize a manufacture who attempts to innovate and 

develop a technology pathway different from its competitors. This would effectively 

discourage technological innovation by requiring all manufacturers to use the same 

technology once one manufacturer has met the standard using that technology. 

Otherwise they would risk being driven from the market as no NCPs would be established. 

Such an interpretation would undercut the purpose of technology forcing standards – to 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 30 of 79

adopt standards where manufacturers may have to develop advanced technology or 

technology that is at the cutting edge of emissions control. This interpretation would 

suppress technological innovation out of fear that a wrong technological choice will lead to 

having to leave a market without the temporary benefit of NCPs. This approach would 

also ignore the premise of promulgating NCPs, which is that they are appropriate when one 

or more manufacturers have not met the standard, while one or more others have. 

Whether the laggard is not able to achieve compliance because of a technological hurdle in 

developing the same or different technology as their competitors, the result is the same –

they risk being removed from the market based on technological issues, if NCPs are not 

established. EPA does not see a valid basis for drawing such a distinction between 

technology pathways in deciding whether there is likely to be a technological laggard. 

As discussed later, in Section V. IV on the penalty rate, the provision of NCPs is 

only a temporary solution for the noncomplying technological laggard. The first-year 

penalty rate is designed to remove the economic disadvantage for the complying 

manufacturers, preventing harm to the competitors. The NCP rate also increases over 

time, such that in a short period of time the noncomplying manufacturer needs to achieve 

compliance or the increasing penalty rate will in effect drive it from the market. Since the 

NCP protects a complying manufacturer from a competitive disadvantage irrespective of 

the technology path chosen by its competitor, it is appropriate that EPA not draw a 

distinction based on whether the technological laggard chose the same or a different 

technology path than the complying manufacturers. This helps to preserve the nature of 

EPA’s standards as technology forcing performance standards that promote technological 

innovation across this sector of industry. 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 31 of 79

 Having made its decision to pursue a non-SCR technology to meet the standards, 

Navistar has not been able to produce engines that have been certified to meet the 0.020

standard without credits. The evidence is clear that Navistar chose to develop a different 

technological solution than other manufacturers, and that technological issues concerning 

this solution have delayed Navistar’s ability to meet the standard. It is for this 

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

economic decision not to tryreasons.

D. Issues Raised by the DC Circuit Court of Appeals

As noted above, in Mack Trucks, et al v. EPA, No. 12-1077 (D.C. Cir), the court 

included comments in its opinion, in dicta, concerning the appropriateness of NCPs under 

the circumstances presented in the Interim Final Rule. The court stated that:

We do recognize the pending final rule means our vacatur of the IFR on these 

procedural grounds will be of limited practical impact. Before the ink is dry on 

that final rule, we offer two observations about the parameters of this rulemaking. 

First, NCPs are meant to be a temporary bridge to compliance for manufacturers 

that have “made every effort to comply.” United States v. Caterpillar, Inc., 227 F. 

Supp. 2d 73, 88 (D.D.C. 2002). As EPA itself has explained, NCPs are not designed 

to bail out manufacturers that voluntarily choose, for whatever reason, not to adopt 

an existing, compliant technology. See 77 Fed. Reg. 4,736, 4,739 (Jan. 31, 2012) 

(“NCPs have always been intended for manufacturers that cannot meet an emission 

standard for technological reasons rather than manufacturers choosing not to 

comply.”); 50 Fed. Reg. 35,402, 35,403 (Aug. 30, 1985) (stating that NCPs are 

inappropriate “if many manufacturers’ vehicles/engines were already meeting the 

revised standard or could do so with relatively minor calibration changes or 

modifications”). Based solely on what EPA has offered in the IFR, it at least 

appears to us that NCPs are likely inappropriate in this case.9

Id., slip op. at 15.

The court noted that NCPs are intended to be a temporary bridge to compliance for 

manufacturers who have “made every effort to comply” and are not designed for 

 

9 Id., slip op. at 15.
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 32 of 79

manufacturers that voluntarily choose, for whatever reason, not to adopt an existing, 

compliant technology. EPA agrees with these general concepts, but they do not apply in 

this case. The court’s comments concern the issue of whether substantial work is needed 

to achieve compliance with the MY2010 NOx standard, and whether Navistar is properly 

considered likely to be a technological laggard in achieving compliance with this standard 

in light of the technology pathway it chose. Based on all of the circumstances before 

EPA, it is reasonable to determine that Navistar has made every effort to comply, for the 

technology pathway it chose. The need for NCPs is based on the failure to achieve the 

emissions standards using this technology. This failure is based on technological reasons, 

and not other reasons.

The court’s statement that NCPs were intended for manufacturers that “made every 

effort to comply” (United States v. Caterpillar, Inc., 227 F. Supp. 2d 73, 88 (D.D.C. 2002)) 

was made in a different context and does not apply here. This comment was in response to 

a suggestion from Caterpillar in that earlier case that the consent decree at issue should 

have been interpreted in a certain way (or modified) as EPA failed to issue an NCP rule 

with enough lead time. Caterpillar argued that it was harmed by this delay because “the 

purpose of the NCPs was to allow a manufacturer to weigh the costs of compliance against 

the costs of paying NCPs.”. The court rejected this view, as it would allow “engine 

manufacturers ... to calibrate the intensity of their compliance efforts to the NCP for each 

new standard, allowing them to opt for noncompliance when compliance becomes more 

expensive than the NCP. This kind of second-guessing, however, was clearly not Congress' 

intent in providing for NCPs.” 227 F.Supp. at 88. The court noted that “[i]nstead, NCPs 

were intended to give a manufacturer that has made every effort to comply, but has been 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 33 of 79

unable to achieve compliance, a chance to continue to participate in the market. Thus, 

NCPs serve their purpose even if promulgated after a company has made its engine design 

decisions, since those decisions should be based on whether compliance can be achieved, 

not on whether compliance is less expensive than paying NCPs.” Id. at 88-89.

In that context, it is clear that the court’s prior statement addressed the claim that a

manufacturer should be able to base their engine design decisions on the availability of 

NCPs, weighing which costs more and deciding based on this whether to pursue a 

technology pathway to compliance or pay NCPs. The court made clear that providing this 

kind of economic choice on compliance is not the purpose of an NCP. The court 

specifically noted that NCPs are appropriate in a case where the failure to achieve 

compliance is based on technological concerns encountered along the path to achieving 

compliance – that is, in circumstances like those in this current rulemaking,. 

The court’s statement was not related to whether, evaluating in retrospect at the 

point an NCP is established, a manufacturer had made every effort to comply prior to 

adoption of the NCPs. Navistar chose to pursue an engine emissions control design that is 

non-SCR based several years before NCPs were proposed. NCPs would be used by 

Navistar while it addresses the technology-based hurdles it now faces in switching to SCR 

controls. It faces these technology hurdles now as a result of the technology pathway it 

chose years before the NCP was adopted. The NCPs would not be used, as Caterpillar

asked the court to allow in the earlier case, to decide what technology path to follow and 

how hard to pursue it based on the economics of the cost of NCPs. In this case, Navistar 

made considerable efforts to develop and employ the non-SCR technology. Its choice of 

technological pathway to compliance was not based on weighing the costs of compliance 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 34 of 79

with the cost of NCPs. The court’s concerns in Caterpillar are not applicable to the facts

in this NCP rulemaking. 

The court also quoted from the generic 1985 rulemaking, noting that NCPs would 

not be appropriate if “many manufacturers were already meeting the standard, or could do 

so with relatively minor calibration changes or modifications.” This language from the 

1985 rulemaking refers to the second criterion, whether substantial work is required to 

achieve compliance with the more stringent new or revised standard. As discussed above, 

this is based on all of the work that must be done to move from the previous standard to the 

more stringent new or revised standard. This criterion is to be evaluated based on actual 

work needed to go from meeting the previous standard to meeting the current standard, 

regardless of the timing of such changes. Based on this, the amount of work remaining to 

be done when the NCP rulemaking occurs is not relevant to the second criterion. 

Likewise, whether some manufacturers have already achieved compliance at the time of 

the NCP rulemaking is also not relevant to determining whether the second criterion has 

been met. As noted above, it is not unexpected that at the time of this NCP rulemaking 

that “many manufacturers’ vehicles/engines were already meeting the revised standard or 

could do so with relatively minor calibration changes or modifications.” However, 

rejecting NCPs solely because some manufacturers have achieved or are on a path to 

achieve compliance, while one or more other manufacturers are not in the same position, 

would prevent lagging manufacturers from certifying in exactly those circumstances 

Congress contemplated providing for NCPs – some manufacturers are able to achieve 

compliance in the lead time provided, but for technological reasons others are not. NCPs 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 35 of 79

are designed to address just this situation, to temporarily avoid driving these manufactories 

out of the market. 50 FR at 35374. (August 30,1985).

Clearly, in this case, substantial work was required to meet the 0.20 g/bhp-hr 

standard. Every manufacturer has included (or will soon include) for the first time NOx 

aftertreatment (selective catalytic reduction), on their engines to meet the standard. Prior 

to deciding to change its technology approach, Navistar also greatly modified its exhaust 

gas recirculation (EGR) system to reduce NOx emissions and would likely have needed to 

do significantly more work to further reduce its NOx emissions to meet the standard. 

These are substantial changes to the emission control systems of these engines. While 

several manufacturers are currently using SCR systems, they were not doing so until they 

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

was needed to go from the previous standard to achieve compliance with the 2010 NOx 

standard, and the second criterion is satisfied. 

The court also noted that NCPs are not intended in a situation where the failure to 

achieve compliance is not related to technological reasons, but to a manufacturer’s 

choosing to not employ an available complying technology. As discussed above, EPA 

agrees that the basis for establishing NCPs must be a technological based laggard. The 

reasons for not achieving the emissions standard in the lead time provided must be based 

on a technological failure in developing and employing the chosen technology pathway. 

The court refers to a statement made by EPA when discussing the relationship between 

NCPs for the 2010 NOx standard and credits for the CO2 emissions standards adopted for 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 36 of 79

heavy-duty engines and trucks.

10

 77 FR at 4739. (January 31, 2012). EPA stated it was 

not providing NCPs for the new CO2 emissions standard as it was not in a position to 

determine that a technological laggard was likely to develop for that CO2 standard. In 

that context, EPA also determined that an engine that was certified to the 2010 NOx 

standard using NCPs should not be able to generate credits at the same time under the CO2 

emissions standards. EPA recognized that there was an interplay between NOx control 

and CO2 control, such that higher levels of NOx could lead to lower levels of CO2 

emissions. Under those circumstances, providing credits for the CO2 program could 

provide an incentive for a manufacturer to increase NOx emissions but still certify an 

engine using NCPs, where they could otherwise achieve the NOx standard without NCPs. 

That manufacturer could then generate credits under the CO2 program for the decrease in 

CO2 emissions resulting from the increase in NOx emissions. Thus, the manufacturer

would be choosing to not comply with a standard for which it was technologically capable 

of complying, and would be doing so to generate emission credits that would provide it 

some advantage in the future. This would not be consistent with either the purpose of the 

CO2 credit program (to provide an incentive for manufacturers to take technological and 

other efforts to over comply with the CO2 standard) or the purpose of the NCP program (to

provide relief to manufacturers that fail to achieve the standard on time for technological 

reasons, not for other reasons such as the economic benefit of generating CO2 credits by 

voluntarily increasing emissions of NOx).

EPA’s observation in the proposal confirmed that the basic purpose of NCPs is to

provide relief where there is a laggard for technological reasons, not other reasons. The 

 

10 EPA stated “NCPs have always been intended for manufacturers that cannot meet an emission standard 

for technological reasons rather than manufacturers choosing not to comply.”
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 37 of 79

concerns raised regarding CO2 credits and NOx NCPs are not related to our finding that 

Navistar is a technological laggard. No one argues that Navistar has failed to achieve a 

technological solution because of a decision to generate credits or reap economic benefits 

elsewhere. Instead Navistar's failure to achieve the standard as of this date is based on 

technological and not other reasons. 

This is similar to the circumstances in 2002 when Caterpillar developed its 

“ACERT” technology rather than use cooled EGR technology, which it had been 

developing until 2001. It needed to use NCPs because of delays in developing ACERT.

In that case, Caterpillar did not dispute that cooled-EGR would achieve the necessary 

emission reductions; rather it chose to attempt to meet the standard using what it believed 

to be a superior technology.

The court also noted its concern with the level of the penalty in the Interim Final 

Rule, and whether it adequately removed the economic disadvantage to conforming 

manufacturers. That issue is addressed in Section V. IV below. 

IV. V. Penalty Rates

This rulemaking is the most recent in a series of NCP rulemakings. These are 

referred to as Phases and are referenced below.11 The discussions of penalty rates and 

related reports and analyses in those rulemakings are incorporated by reference. This 

section briefly reviews the penalty rate formula originally promulgated in the Phase I rule 

(currently found at 40 CFR 86.1113-87) and discusses how EPA arrived at the penalty rates 

in this Final Rule. 

 

11 The previous NCP rules include: the Phase VI rulemaking (67 FR 51464, August 8, 2002), Phase IV 

rulemaking (58 FR 68532, December 28, 1993), Phase III rulemaking (55 FR 46622, November 5, 1990), the 

Phase II rulemaking (50 FR 53454, December 31, 1985) as well as the Phase I rulemaking (50 FR 35374, 

August 30, 1985).
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 38 of 79

The penalty rates being established in this rule rely on the existing NCP regulatory 

structure. Thus, the only changes being made to the regulations are:Only a few changes 

are being made to the regulations. As proposed, we are setting of the upper limit at 0.50 

g/hp-hr and are clarifying in §86.1104-91 that EPA may set the upper limit at: (1) a level 

below the previous standard if we determine that the lower level is achievable by all 

engines, or (2) a level above the previous standard if we determine that the standard is not 

achievable by all engines. We also proposed cost parameters to reflect the compliance 

costs for the 2010 standards and are finalizing these cost parameters, after revising them 

based on comments. Finally, in response to comments, we are clarifying that the second

NCP criterion is to be evaluated without regard to the specific timing of the NCP rule.

Updates to the cost parameters to reflect the compliance costs for the 2010 

standards. (Updated from the NPRM based on comments.)

Setting of the upper limit. (As proposed.)

Clarifying that the second NCP criterion is to be evaluated without regard to the 

specific timing of the NCP rule. (Added based on comments.)

Clarifying in §86.1104-91 that EPA may set the upper limit at a level below the 

previous standard if we determine that the lower level is achievable by all engines, 

or above the previous standard if we determine that the standard is not achievable 

by all engines. (As proposed.)

We received many comments supporting higher or lower penalties for a variety of 

reasons. However, the most important criteria in evaluating the penalties are how they 

conform to the statutory requirements and how they conform to the regulatory 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 39 of 79

requirements. With respect to the statutory requirements for the penalties in the first year, 

we note that the purpose of adopting NCPs is to allow a noncompliant manufacturer to 

continue selling its engines, provided it pays the penalty. However, section 206(g) of the

Clean Air Act directs EPA to set the NCPs at a level that will “remove any competitive 

disadvantage” to complying manufacturers. Contrary, to what some commenters 

suggested, this first year penalty level is not intended to punish the noncomplying 

manufacturer beyond the level needed to remove any competitive disadvantage for 

complying manufacturers. 

EPA has also set regulatory requirements for penalty levels. Most significantly, 

the regulations staterequire that we must set penalties be based on total incremental costs of 

compliance relative to engines at the upper limit, which we have done. In the first NCP 

rule, it was determined that compliance cost differences between engines at the upper limit 

and engines at the standard would be appropriate measures of the competitive disadvantage 

for complying manufacturers.12 We believe that the final NCPs being established 

conform to both the regulatory requirements and the statutory requirements.

The NCP rates being adopted in this FRM are specified for model year 2012. As 

required by section 206(g) of the Act, the existing regulations include a formula that 

increases (or “escalates”) the penalty rates with each new model year. The purpose of the 

escalator is to provide an incentive for manufacturers who use NCPs for more than one 

model year to achieve compliance quickly rather than continuing to use NCPs for multiple 

model years. 

 

12 While we have followed the regulatory formula for determining penalties for this rule, it should be noted 

that if we were to find that conforming to the regulatory requirements would not conform to the statutory 

requirements, we would need to revise the regulatory requirements through rulemaking.
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 40 of 79

As proposed, we will apply this annual adjustment formula to the NCPs by setting 

the 2012 model year as year number one. This is consistent with the existing regulatory 

text that states that year one is the first year that NCPs are available (see 40 CFR 

§1113-87(a)(4)). Traditionally, when NCPs are adopted, they are available the first model 

year the new or revised emission standard applies and there is no question about which 

model year should be year one for purposes of the annual escalator. However, this is less 

straightforward for this NCP rule. First, the 0.20 g/bhp-hr first applied beginning in the 

2007 model year, as part of a phase-in, but did not take full effect until MY2010. In 

addition, we are adopting NCPs more than two model years later. While we received 

comments supporting setting 2010 as the base year, we continue to believe the 2012 model 

year is the correct year for the first year of the escalator calculation. As discussed further 

in the Response to Comments document, we are not revising the regulatory text that 

specifies that year one is the first year that NCPs are available. Using the first year of 

NCP availability as the first year for the escalator calculation, the initial NCPs (i.e., NCPs 

during the first model year of availability) remove the disadvantage for the complying 

manufacturers, as Congress intended. Under this approach, the escalator would apply 

staring in MY2013, the earliest that any manufacturers could be using NCPs for more than 

one model year. This ties the initiation of the escalator, and the start of the economic 

incentive it provides, to the first year in which circumstances exist that call for such an 

incentive can exist – the firstsecond year in which NCPs are used for more than one year.of 

availability. MY2013 is the first year any manufacturer could use this NCP for multiple 

years. Adding an extra penalty equivalent to two years of escalation is contrary to the 

intent for this escalation. No manufacturer had access to NCPs prior to 2012, and 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 41 of 79

requiring an escalator based on the two previous years of the standard would treat a 

manufacturer who uses NCPs in either 2012 or 2013 as if they had already used NCPs for 

several more years than the actual usage. The additional escalator and related additional 

incentive is more than is needed to meet the objective of the escalator provision, and 

therefore is consistent with the purpose of the escalator provision. 

We are specifying the NCP formula using the normal NCP parameters: COC50, 

COC90, MC50, F, and UL. The NCP formula is the same as that promulgated in the Phase 

I rule. As was done in previous NCP rules, we consider additionalincremental

manufacturer costs and additionalincremental owner costs (for complying engines relative 

to the upper limit), but do not consider certification costs because both complying and 

noncomplying manufacturers must incur certification costs. COC50 is an estimate of the 

industry-wide average incremental cost per engine (references to engines are intended to 

include vehicles as well) associated with meeting the standard for which an NCP is 

established, compared with meeting the upper limit. COC90 is an estimate of the 90th 

percentile incremental cost per engine associated with meeting the standard for which an 

NCP is established, compared with meeting the associated upper limit. Conceptually, 

COC50 represents costs for a typical or average manufacturer, while COC90 represents 

costs for the manufacturers with the highest compliance costs. 

MC50 is an estimate of the industry-wide average marginal cost of compliance per 

unit of reduced pollutant associated with the least cost effective emission control 

technology installed to meet the new standard. MC50 is measured in dollars per g/bhp-hr 

for heavy-duty engines. F is a factor used to derive MC90, the 90th percentile marginal 

cost of compliance with the NCP standard for engines in the NCP category. MC90 defines 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 42 of 79

the slope of the penalty rate curve near the standard and is equal to MC50 multiplied by F. 

UL is the upper limit above which no engine may be certified. 

The derivation of the cost parameters is described in a support document titled 

“Technical Support Document: Nonconformance Penalties for 2012 and later Highway 

Heavy-Duty Diesel Engines” (Technical Support Document), which is available in the 

public docket for this rulemaking. All costs are presented in 2011 dollars. The Technical 

Support Document also includes alternative cost analyses that were considered. These 

alternative analyses are discussed in Section V.D of this preamble. 

A. Upper Limit

The upper limit (UL) is the emission level established by regulation above which 

NCPs are not available. A heavy duty engine cannot use NCPs to be certified for a level 

above the upper limit. CAA section 206(g)(2) refers to the upper limit as a percentage 

above the emission standard, set by regulation, that corresponds to an emission level EPA 

determines to be “practicable.” The upper limit is an important aspect of the NCP 

regulations not only because it establishes an emission level above which no engine may be 

certified using NCPs, but it is also a critical component of the cost analysis used to develop 

the penalty rates. The regulations specify that the relevant costs for determining the 

COC50 and the COC90 factors are the difference between an engine at the upper limit and 

one that meets the applicable standards (see 40 CFR 86.1113-87). 

The regulatory approach adopted under the prior NCP rules sets the upper limit at 

the prior emission standard when a prior emission standard exists and is then changed to 

become more stringent. EPA concluded that this upper limit should be reasonably 

achievable by all manufacturers with engines or vehicles in the relevant class. It should be 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 43 of 79

within reach of all manufacturers of HDEs or HDVs that are currently allowed so that they 

can continue to sell their engines and vehicles while finishing their development of fully 

complying engines. A manufacturer of a previously certified engine or vehicle should not 

be forced to immediately remove an HDE or HDV from the market when an emission 

standard becomes more stringent. The prior emissions standard generally meets these 

goals because manufactures have already certified their vehicles to that standard. 

In the NPRM, we proposed to revise the regulations in §86.1104-91 to clarify that 

EPA may set the upper limit at a level below the previous standard if we determine that the 

lower level is achievable by all engines or vehicles in the relevant subclass. That 

provision of the regulations was not opposed by any commenters and is included in this 

final rule. We are also finalizing the upper limit at 0.50 g/bhp-hr, which was widely 

supported by commenters. For this rule, all manufacturers are currently certifying all of 

their engines at or below the 0.50 g/bhp-hr FEL cap, providing clear evidence that this level 

can be met by all manufacturers. The reason EPA has rejected past suggestions that the 

upper limit should be more stringent than the prior emission standard does not apply here, 

as there is no difficulty in this case in identifying a limit that could be met by all 

manufacturers. See 50 FR at 35377. (August 30, 1985). Thus, setting the upper limit for 

this NCP rule at 0.50 g/bhp-hr NOx conforms to the purpose of the upper limit in setting 

NCPs. 

As proposed, we are also specifying that EPA could set the upper limit at a level 

above the previous standard in unusual circumstances, such as where a new standard for a 

different pollutant or other requirement effectively increases the stringency of the standard 

for which NCPs would apply. This occurred for heavy heavy-duty engines with the 2004 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 44 of 79

standards. While this change would not apply for this current NCP rulemaking, we 

proposed to add this clarification to make the regulations consistent with past practices.

B. Cost Parameter Values

The regulations being adopted specify that the values in Table 1 be used in the NCP 

formula for the 2012 and later model year NOx standard of 0.20 g/bhp-hr for heavy 

heavy-duty diesel engines. The basis is summarized here. The complete derivation of 

these parameters and a discussion of other approaches that were considered are described

in the Technical Support Document for this rulemaking. 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 45 of 79

Table 1: NCP Calculation Parameters 

Parameter

Heavy Heavy-Duty Diesel Engines

COC50

$3,228219

COC90

$3,796775

MC50

$10,759729 per g/bhp-hr

F

1.176173

UL

0.50 g/bhp-hr

Some commenters argued that EPA should not deviate from prior precedents for 

calculating costs. However, EPA has not used the same methodology in calculating costs

in each of the previous NCP rules. In each of our six previous NCP rulemakings, we 

estimated costs using a methodology appropriate for the specific circumstances that 

applied at the time. None were approached in exactly the same way. In each case we 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 46 of 79

considered key factors such as differences in calibration, hardware, and operating costs, 

but there have been some NCP calculations where other potential individual cost or cost 

saving elements have been included or excluded for various reasons. In determining how 

to calculate costs of compliance, EPA considers not only what data are available, but also 

the extent to which each cost element may affect the competitive balance of the market.

The NCP parameters being finalized were developed using the same basic 

methodology described in the NPRM. As in all NCP rules, the final NCPs are based on 

the estimated difference in compliance costs for engines at the upper limit and engines at 

the standard. Thus, engines with emissions at the upper limit can be considered to be 

baseline engines for the analysis. These baseline engines also represent the engines 

against which complying engines could compete in the marketplace. In this analysis, the 

most important baseline engine is the engine used as the baseline for calculating the 

nominally worst case compliance costs (COC90). As is described later, because the 

penalty curve being finalized in this NCP rule is a straight line, the value of COC50 does not 

affect the penalty curve.

The cost parameters being finalized are higher than the values proposed. These 

changes reflect new information received during the public comment period, most notably 

new updated information about fuel and DEF prices that was not available at the time we 

completed the cost analysis for the proposal. EPA also received comments suggesting

that the effectiveness of the heavy heavy-duty NCPs in meeting the statutory requirement 

to remove competitive disadvantage for complying manufacturer needs to be evaluated 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 47 of 79

relative to engines that could be developed in the near term (such as a reoptimized SCR 

engine). In response to these comments and the new information received, EPA is 

revising the COC90 baseline engine because we believe that the revised baseline engine 

better represents an optimized engine than the baseline engine used for the proposal. 

These changes are discussed in more detail below.

 The Clean Air Act’s requirements to “remove any competitive disadvantage” to 

complying manufacturers effectively requires EPA to consider not only existing engines 

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

during the period in which NCPs are available. Thus, the NCPs must be high enough to 

protect complying manufacturers from a competitive disadvantage relative both to SCR 

engines that are optimized to emit NOx at a level of 0.50 g/bhp-hr and to engines without 

SCR that emit at that level. We considered several methodologies for estimating the 

incremental compliance costs between the upper limit and the standard and selected the 

approach that best removes the potential competitive disadvantage for complying 

manufacturers. See Section V. D. for additional discussion of these alternate 

approaches.

It is important to note that while we received comments stating that the level of our 

proposed NCP was not high enough to remove the competitive advantage Navistar has 

selling non-SCR engines, none of the commenters provided evidence that this was the case

(such as evidence of increased market share or increased profits for Navistar). None of 

the commenters provided any method by which the value of Navistar’s actual competitive 

advantage could be calculated. Nevertheless, we have determined based on the 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 48 of 79

information available to us that Navistar’s competitive advantage is not greater than the 

competitive advantage based on compliance costs that we calculated relative to the 

reoptimized SCR baseline engine we have used as the basis of our COC90 costs. 

(1) General Methodology

Our approach to estimating compliance costs differs slightly from that used in 

recent NCP rules, where EPA based the NCPs directly on the actual compliance cost 

increases associated with meeting the standard for complying manufacturers (borne by the 

complying manufacturers and the operators who purchase their compliant engines), 

whether provided by the manufacturers or estimated by EPA. This was appropriate in 

those prior rules because each of the manufacturers had actually produced engines at the 

upper limit (which was usually the previous emission standard) and had reengineered those 

engines to meet the new or revised standard, so the costs associated with that change were

straightforward to calculate. We determined that the manufacturers’ input accurately 

reflected the manufacturers’ actual costs because the costs were derived directly from 

actual in-production engine information. In the case of this NCP rule, however, compliant 

manufacturers have generally not designed and optimized their in-production engines for 

the U.S. market at 0.50 g/bhp-hr NOx (the upper limit) and then reengineered their engines 

to meet the 0.20 g/bhp-hr standard.13 Thus, a compliance cost estimate based directly on 

actual experience for the full range of in-production engines was not available for this NCP 

rule. 

 

13 Note that Cummins is using emission credits to certify one medium heavy-duty engine family with a NOx 

FEL at 0.50 g/hp-hr. While costs associated with this medium heavy-duty engine cannot be used directly for 

heavy heavy-duty engines, as described in the Final TSD, related confidential cost information provided by 

Cummins was used to significantly inform our cost analysis.
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 49 of 79

Instead of averaging actual cost increases relative to the upper limit (because none 

were available), the NCP penalty formulas for this rule are based primarily on EPA’s 

estimate of the cost difference between a hypothetical engine emitting at the upper limit 

(the “baseline engine”) and one emitting at the standard (the “compliant engine”). We 

received compliance cost information from several engine manufacturers, both before the 

proposal and during the comment period, and used that information to inform our own 

analysis of compliance costs, as described in the Technical Support Document. 

 

It is worth noting that each of the engine manufacturers that provided cost 

information before the proposal considered baseline engines with different technology 

packages. However in their comments on the proposal, complying manufacturers based 

their compliance costs on either a baseline engine equipped with similar hardware as 

EPA’s revised baseline engine, or based on a pre-2010 non-SCR engine with NOx 

emissions near 1.2 g/bhp-hr. See Section V. D. of this notice for a discussion of why 

using the 1.2 g/bhp-hr baseline engine is not appropriate. 

As noted earlier, with NCPs available, a complying manufacturer could compete

against not only EGR-equipped engines, but also against SCR-equipped engines that could 

be reoptimized to emit at 0.50 g/hr-hr. Since engine manufacturers are not currently 

producing SCR-equipped heavy heavy-duty engines at the upper limit, such engines must 

be considered based on our best estimate of how such an engine would be manufactured. 

Based on our review of the various hypothetical baseline engine designs, we proposed to 

use as a baseline engine our best estimate of an optimized SCR engine, because we 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 50 of 79

believed it would be the most competitive 0.50 g/bhp-hr engine. Information available at 

that time projected little difference inwhen comparing fuel and DEF prices, so for the 

proposal we assumed the baseline engine would have been optimized to use less DEF 

compared to 0.20 g/bhp-hr engines but had the same fuel consumption rates. 14 We did 

not believe there would be a significant difference in costs using a baseline engine 

optimized for better fuel consumption, because we projected that fuel savings would have 

been offset by increased DEF costs. As is described in the Technical Support Document, 

for the proposal we also believed estimating costs by this approach was the least 

speculative method to determine compliance costs, and we did not believe there were 

competing designs that were substantially more competitive based on the compliance cost 

inputs we used. 

Based on new information and comments we received, we are revising our baseline 

engine for the heavy heavy-duty service class. Specifically, as is described below, we are 

revising the COC90 baseline engine to be more optimized for low fuel consumption at 0.50 

g/bhp-hr NOx than was assumed for the proposal. For the proposal, we estimated that 

reducing NOx emissions from 0.50 g/bhp-hr to 0.20 g/bhp-hr would require an increase in 

DEF consumption but would not change fuel consumption because we projected that there 

would be little price difference between DEF and fuel. However, we now have new 

information indicating that fuel prices will likely be at least one dollar per gallon higher 

than DEF prices for the foreseeable future. We agree with commenters that engine 

 

14 The proposal was based on the Energy Information Administration’s 2011 fuel price projections and the 

retail price of DEF in October 2011; this Final Rule is based on the Energy Information Administration’s 

2012 fuel price projections and the DEF price projection from Integer Research. See Chapter 3 of the 

Technical Support Document for additional detail.
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 51 of 79

manufacturers designing engines for 0.50 g/bhp-hr NOx would have responded (and could 

still respond) to this price difference by optimizing their existing 0.20 g/bhp-hr SCR engine

designs to have slightly higher engine-out NOx, which would reduce fuel consumption,

and reduce the excess NOx by increasing DEF consumption. Thus compared to this 

revised baseline engine, a compliant engine would have higher fuel consumption but lower 

DEF consumption.

We are now projecting that DEF prices will be at least one dollar less per gallon 

than diesel fuel prices for the foreseeable future (as shown in Figure 2), and the appropriate 

baseline engine is one that would have been designed to take advantage of this price 

difference. We have updated our fuel price projections using the Energy Information 

Administration’s (EIA) Annual Energy Outlook 2012 Early Release (AEO2012) to project 

fuel prices through 2035. EIA is now projecting diesel fuel prices will be about fifty cents 

more per gallon than was projected in 2011. We have also revised our projection of DEF 

prices based on information from Integer Research provide by commenters. While we 

proposed using a constant DEF price through 2042, (because we did not have any 

projections for future DEF prices at the time we developed the proposal), we are now 

projecting that DEF prices will fall for the next few years, and then increase as the price of 

natural gas increases (using AEO2012 projections).

15

 

15 Natural gas is used in the production of urea, a primary component of DEF.
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 52 of 79

Figure 2 Proposed and Final Fuel and DEF Price Projections

The current baseline engine is similar, but not identical, to what we proposed with 

respect to hardware. As proposed, the baseline engine technology package would employ 

the same basic emission controls used to meet the 2007 NOx and PM emission standards 

(e.g. cooled exhaust gas recirculation (EGR), optimized turbo-charging, optimized fuel 

injection, diesel particulate filters), plus liquid urea based selective catalytic reduction 

(SCR) NOx emissions control technology with an appropriately sized tank for the liquid 

urea (also known as diesel emission fluid or “DEF”). However, we now believe the 

baseline engine could have used less expensive hardware than we proposed. We continue

to believe that manufacturers could reduce the size of the SCR catalyst if they were allowed 

to havemeet a higher NOx emissionsemission limit. In addition, we now believe that they 

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

2012 2022 2032

FRM Fuel Price FRM DEF Price

NPRM Fuel Price NPRM DEF Price
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 53 of 79

could also reduce the precious metal loading of the diesel oxidation catalyst (DOC), and 

lower the cost of the turbocharger. Thus, the hardware component of the compliance 

costs has gone up from what we proposed (i.e., the cost of the hardware on the baseline 

engine has gone down). Further details are provided in this rule’s Technical Support 

Document. 

(a) Calculated Values

The most significant of the NCP parameters is the 90th percentile costs of 

compliance, COC90, which defines the penalty for engines emitting at the upper limit. 

The value of COC50 is important only when EPA estimates that marginal compliance costs 

change as the compliance level approaches the standard. In such cases, COC50 defines 

that point on the curve at which the slope changes. However, for this NCP rule we believe

that because of the narrow emission range between the upper limit and the standard (0.20 to 

0.50 g/bhp-hr), it is appropriate to assume that marginal compliance costs are constant. 

Thus, we are not summarizing our derivation of COC50 in this preamble since its value 

does not affect the penalty amounts. See the Technical Support Document for a 

discussion of COC50.

We estimated COC90 by assuming the baseline engine would have been an SCR 

equipped engine with tailpipe NOx emissions at 0.50 g/bhp-hr and that it would have 

looked very similar to an engine with tailpipe NOx emissions at 0.20 g/bhp-hr. However,
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 54 of 79

as noted above, the higher NOx emissions of the baseline engine would allow the use of 

less expensive hardware and would be calibrated to minimize the combined consumption 

of fuel and DEF. As described in more detail in the Technical Support Document, we 

estimated reasonable 90th percentile (or worst case) costs associated with bringing such a 

baseline engine into full compliance with the 0.20 g/bhp-hr NOx emission standard.

16

 We 

note that the average costs associated with SCR may well be lower than the 90th percentile 

costs presented here.

We estimate that the SCR hardware used by a complying manufacturer (i.e., an

SCR system that would achieve 0.20 g/bhp-hr NOx) cost the manufacturer $5,522 per 

engine for the 90th percentile engine compared to an engine emitting at 1.2 g/bhp-hr. We 

estimate that the baseline hardware (i.e., an engine and SCR system that would achieve 

0.50 but not 0.20 g/bhp-hr NOx) for the 90th percentile engine would have cost the 

manufacturers only $4,441 (including R&D, warranty, and other overhead costs) after 

hardware savings associated with the DOC and turbocharger are deducted. Therefore, the 

manufacturers would have to spend $1,081 more in hardware, R&D, warranty and other 

overhead costs to produce a 0.20 g/bhp-hr engine than it would have cost to produce a 0.50 

g/bhp-hr engine. We calculated the difference in operating costs the same way.

These COC90 costs are summarized in the Table 2. The values in the tables are the 

costs that would be incurred by a manufacturer or operator for a model year 2012 0.20 

 

16 The Act requires that we remove competitive disadvantage for complying manufacturers. We 

recognize that there is uncertainty in our estimates. To ensure that we protect the complying manufacturer 

our overall approach is somewhat conservative. See the Technical Support Document for additional 

discussion of how we addressed uncertainty in our estimates.
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 55 of 79

g/bhp-hr engine relative to a 0.50 g/bhp-hr baseline engine. All operating costs are 

presented as net present value (NPV) relative to 2012 using a 7 percent discount rate.

17

 

For example, we estimate that the NPV of the lifetime fuel cost of a 0.20 g/bhp-hr engine 

would be $8,828833 higher than the fuel cost for a baseline engine, but the NPV of DEF 

costs would be $6,164191 lower.

Table 2: COC90 Dollar-per-VehicleEngine† Costs (2011 Dollars)

FRM

COC90

NPRM 

COC90

Lifetime Fuel Costs $8,828833 $0

Lifetime DEF Costs (Savings) ($6,164191) $1,374

Hardware Costs $927 $474

Research and Development Cost $19 $9

Warranty and Other Manufacturer Costs $135 $62

Operator Repair Costs $52 $0

Total Cost $3,796775 $1,919

† Although penalties are accessed per engine, costs include vehicle costs.

We estimated the marginal costs of compliance as being equal to the total

incremental costs of compliance divided by 0.30 g/bhp-hr (the difference between the 

upper limit and the standard). This assumes that the cost to reduce emissions from 0.30

g/bhp-hr to 0.20 g/bhp-hr is not significantly different from the cost to reduce emissions 

 

17 Penalties are calculated based on costs for a model year 2012 engine. The regulations include separate 

provisions to increase penalties for later model years.
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 56 of 79

from 0.50 g/bhp-hr to 0.40 g/bhp-hr. This results in a penalty curve that is a straight line, 

which in turn makes our estimate of the average cost of compliance irrelevant to the 

calculation of the penalty. In other words, the COC50 point lies directly between zero cost 

at 0.20 g/bhp-hr and COC90 at the Upper Limit of 0.50 g/bhp-hr NOx. The penalty paid 

for engines at any compliance level between the standard and the upper limit would be 

equal to EPA’s estimate of the highest marginal cost paid by a complying manufacturer for 

the same emission range.

C. Resulting Penalties

The calculation parameters listed in Table 1are used to calculate the penalty rate. 

These parameters are used in the penalty rate formulas which are defined in the existing 

NCP regulations (See 40 CFR 86.1113(a)(1) and (2)). Using the parameters in Table 1, 

and the equations in the existing NCP regulations, we have plotted penalty rates versus 

compliance levels in Figure 1 above. This penalty curve is for the first year of use of the 

NCPs (i.e., the annual adjustment factors specified in the existing NCP regulations have 

been set equal to one). The maximum first year penalty is equal to COC90, which is 

$3,796775.

The Clean Air Act NCP provisions require that the penalty be set at such a level that 

it removes competitive disadvantage for a complying manufacturer. For the reasons 

described in the Technical Support Document, we believe that the NCPs being established 

in this rulemaking fulfills this requirement. 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 57 of 79

D. Consideration of Other Methodologies

We received comments suggesting how we should revise our estimated costs, if we 

continued to use the proposed methodology. Where appropriate, we incorporated these 

concepts into our final cost methodology. We also received comments arguing that we 

should change our methodology. However, as described in the Technical Support 

Document, we determined that the other methodologies were not appropriate.

Our primary methodology estimates the difference in lifetime compliance costs 

between a compliant 0.20 g/bhp-hr engine and a 0.50 g/bhp-hr engine that we believe 

would have the greatest competitive advantage over the compliant engine. As noted 

earlier, we believe that an SCR engine optimized for 0.50 g/bhp-hr would have the greatest 

competitive advantage over compliant engines. Two of the other approaches we 

considered would have involved using non-SCR engines as the baseline engines, as 

suggested by some commenters. However, as described below, we determined that these 

approaches would not sufficiently remove the potential competitive advantage of an 

optimized SCR engine. 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 58 of 79

In the first approach we considered using a 0.50 g/bhp-hr EGR engine (such as the 

engines Navistar is currently selling) as the baseline engine. This option was supported 

by one manufacturer during preproposal discussion, but was not supported in any 

comments on the NPRM. Nevertheless, we evaluated this approach to ensure that our 

methodology is the most appropriate one. Specifically, we estimated the hardware and 

operating costs associated with adding SCR to a non-SCR engine to meet the 0.20 g/bhp-hr 

standard. As is described in the Technical Support Document, we estimated that there 

would be significant hardware costs to add SCR plus significant operating costs for DEF 

consumption. However, these would be mostly offset by the fuel savings associated with 

SCR engines, plus hardware savings from down-sizing the EGR system. The combined 

effect would be to make the costs of going from the EGR engine to the compliant engine 

lower than the costs of going from the baseline SCR engine to the compliant engine. Put 

another way, this means that the cost savings of changing from a compliant engine to an 

EGR-only engine are smaller than the cost savings of changing from a compliant engine to 

the baseline SCR engine, indicating that an EGR engine at 0.50 g/bhp-hr would have a 

smaller competitive advantage than the baseline engine we used to develop the final NCPs. 

Moreover, this means that NCPs based on this approach would not remove the competitive 

disadvantage to complying manufacturers, where manufacturers of optimized SCR engines 

could pay the lower NCP and still have a competitive advantage over compliant engines.
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 59 of 79

In the second approach, we considered setting an upper limit at 1.2 g/bhp-hr and 

including the full cost of SCR as the compliance cost. As was true for the previous 

approach, we estimated that most of the hardware and DEF costs would be offset by the 

fuel savings, making the NCP at 0.50 g/bhp-hr lower than our estimate of the competitive 

advantage for SCR engines optimized for 0.50 g/bhp-hr. This means that setting the upper 

limit at 1.2 and calculating costs in this way would not remove the competitive 

disadvantage for complying manufacturers compared to a manufacturer who optimized its 

SCR engine for 0.50 g/bhp-hr NOx. Note that while we evaluated this approach with 

respect to costs and competitive disadvantage, we think that there are other reasons why it 

would not be appropriate to set the upper limit at 1.2 g/bhp-hr. In particular, the upper 

limit may not be set at a level that is higher than the level that EPA determines is 

practicable, which would be no higher than 0.50 g/bhp-hr. 

Finally, we considered other scenarios in which the baseline engine would have 

been an SCR engine that was fundamentally redesigned to have NOx emissions at 0.50 

g/bhp-hr (rather than reoptimizing an existing design). For example, some manufacturers 

have suggested that it would be possible to redesign engines to meet 0.50 g/bhp-hr without 

cooled EGR. This could result in significant savings for hardware and warranty costs. 

We determined that ,while it may well be technologically possible to redesign current SCR 

engines to meet 0.50 g/bhp-hr NOx with significantly lower hardware costs, there is no 

business scenario in which such savings would justify paying an NCP. Fundamentally 

redesigning an engine would take a minimum of two years and involve substantial capital 

costs. So a manufacturer that began redesigning its engines today could not expect to 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 60 of 79

have the new engine ready for production before model year 2015. At that point, the 

annual adjustments to the NCPs would have increased the penalty substantially. 

Moreover, using NCPs in model year 2015 and later would result in a rapidly increasing 

penalty due to the annual adjustment factors, so a manufacturer would need to recover all 

of its investments within one or two model years. However, this would require the 

manufacturer to raise its prices so much that it would make its engines uncompetitive in the 

marketplace.
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 61 of 79

V. VI. Economic Impact

Because the use of NCPs is optional, manufacturers have the flexibility and will 

likely choose whether or not to use NCPs based on their ability to comply with emissions 

standards. If no manufacturer elects to use NCPs, these manufacturers and the users of 

their products will not incur any additional costs related to NCPs. NCPs remedy the 

potential problem of having a manufacturer forced out of the marketplace due to that 

manufacturer's inability to conform to new, strict emission standards in a timely manner. 

Without NCPs, a manufacturer which has difficulty certifying HDEs in conformance with 

emission standards or whose engines fail a Selective Enforcement Audit (SEA) has only 

two alternatives: fix the nonconforming engines, perhaps at a prohibitive cost, or prevent 

their introduction into commerce. The availability of NCPs provides manufacturers with 

a third alternative: continue production and introduce into commerce upon payment of a 

penalty an engine that exceeds the standard until an emission conformance technique is 

developed. Therefore, NCPs represent a regulatory mechanism that allows affected 

manufacturers to have increased flexibility. A decision to use NCPs may be a 

manufacturer's only way to continue to introduce its products into commerce.

VI. VII. Environmental Impact

When evaluating the environmental impact of this rule, one must keep in mind that, 

under the Act, NCPs are a consequence of enacting new, more stringent emissions 

requirements for heavy duty engines. Emission standards are set at a level that most, but 

not necessarily all, manufacturers can achieve by the model year in which the standard 

becomes effective. Following International Harvester v. Ruckelshaus, 478 F. 2d 615 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 62 of 79

(D.C. Cir. 1973), Congress realized the dilemma that technology-forcing standards could 

potentially cause, and allowed manufacturers of heavy-duty engines to certify 

nonconforming vehicles/engines upon the payment of an NCP, under certain terms and 

conditions. This mechanism was intended to allow manufacturer(s) who cannot meet 

technology-forcing standards immediately to continue to manufacture nonconforming 

engines while they tackle the technological problems associated with meeting new 

emission standard(s). Thus, as part of the statutory structure to force technological 

improvements without driving manufacturers or individual engine models out of the 

market, NCPs provide a flexibility that fosters long-term emissions improvement through 

the setting of lower emission standards at an earlier date than could otherwise be feasible. 

Because NCPs are designed to increase with time, manufacturers using NCPs are likely to 

reduce emission levels to meet the standard as quickly as possible, which minimizes the 

environmental impact.

As is always the case with NCPs, the potential exists for there to be more extensive 

use of NCPs beyond what is projected at this time, where we project use by one 

manufacturers for a limited number of model years. For example, depending upon the 

penalty rate and other factors, some otherwise fully compliant manufacturers could elect to 

pay the NCP in order to reconfigure their 0.20 g/bhp-hr NOx compliant engines to emit up 

to 0.50 g/bhp-hr so that they can re-optimize engine hardware and vehicle operating costs. 

This potential action is not without R&D and other financial costs to the manufacturer and 

thus is not a decision which would be taken lightly. Furthermore, we believe that any such 

impacts would be short-term and self-limiting in nature because the NCP annual 

adjustment factor, established via prior NCP rules, increases the levels of the penalties over 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 63 of 79

time and based on the extent of the use of NCPs by all manufacturers. In other words the 

NCP program is structured such that the incentives to produce engines that meet the 

standard increase year-by-year and increase upon NCP use. The practical impact of this 

adjustment factor is that the NCPs will rapidly become an undesirable option for all 

manufacturers that may elect to use them. However, while we expect their use to be 

limited, we have no way of predicting at this time exactly how many manufacturersengines

will make use of the NCPs, or how many engine families would be subject to. Navistar 

has indicated that it will use NCPs until sometime in 2013, when it begins introducing 

vehicles with SCR technology that meet the NCP program0.20 g/hp-hr standard. Because 

of these uncertainties we are unable to accurately quantify the potential impact the NCPs 

might have on emission inventories, although, as stated above, any impacts are expected to 

be short-term and self-limiting in nature. 

VII. VIII. Emission Standards for Which We are Not 

Establishing NCPs in this Final Rule

This section identifies the emission standards for which we are not establishing NCPs 

in this Final Rule. 

A. Medium Heavy Duty Diesel NOx Standards

EPA proposed to find that the criteria for providing NCPs had been met for medium 

heavy duty diesel engines, and we proposed NCPs for these engines. However, EPA is 

not taking final action with regard to NCPs for these engines at this time because EPA has 

not completed its review of the comments and the technical data regarding establishing 

NCPs for these engines. A full discussion of compliance costs for medium heavy-duty 

engines is contained in Appendix C of the TSD for this rule. Parties may provide 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 64 of 79

comments regarding these estimates by submitting comments to the docket for this rule.

B. Light Heavy-Duty Diesel NOx Standards

EPA believes that the first two NCP criteria have been met for the 2010 NOx 

standard for light heavy-duty diesel engines. However, we have not determined that there 

is likely to be a technological laggard. We are unaware of any manufacturer that will be 

unable to either achieve 0.20 g/bhp-hr for the 2012 and 2013 model year or will not have 

sufficient NOx emission credits to continue certifying light heavy-duty engines for the 

foreseeable future. 

C. Heavy-Duty Gasoline Engine Standards

In a final rule published on January 18, 2001 (66 FR 5001), EPA established more 

stringent emission standards for all heavy-duty gasoline (or “Otto-cycle”) vehicles and 

engines. These standards took two forms: a chassis-based set of standards for complete 

vehicles under 14,000 pounds GVWR (the chassis-based program), and an engine-based 

set of standards for all other Otto-cycle heavy-duty engines (the engine-based program). 

Each of the two programs has an associated averaging, banking, and trading (ABT) 

program. The new standards generally took effect starting with the 2008 model year, and 

since all manufacturers are in compliance with them, the criteria for establishing NCPs has 

not been met and we are not establishing NCPs for gasoline engines or vehicles. 

D. Heavy-duty Diesel Engine NMHC, CO, and PM Standards

EPA adopted new NMHC and PM for model year 2007 and later heavy-duty 

engines in the same rule that set the 2010 NOx emission standard (66 FR 5001, January 18, 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 65 of 79

2001). The CO standard was not changed. We are not establishing NCPs for any of 

these other standards because all manufacturers are already fully compliant with them. 

E. Heavy-duty CO2 Standards 

In a final rule published on September 15, 2011 (76 FR 57106), EPA established 

new CO2 emission standards for all heavy-duty vehicles and engines. We are not 

considering NCPs for any of these standards at this time because we currently do not have 

a basis to conclude that a technological laggard is likely to develop.

As proposed, we are adding a new regulatory provision related to these CO2 

emission standards. The provision prohibits generating emission credits for CO2 or any 

other pollutant from engines paying NCPs for NOx. Given the general tradeoff between 

CO2 and NOx emissions, we were concerned that a manufacturer capable of meeting the 

0.20 g/bhp-hr NOx emission standard could choose to pay an NCP in order to generate 

CO2 credits by recalibrating its engines for higher NOx emissions and lower CO2. There 

are two reasons this would be inappropriate. It would not be consistent with either the 

purpose of the CO2 credit program (to provide an incentive for manufacturers to take 

technological and other efforts to over comply with the CO2 standard) and would not be 

consistent with the purpose of the NCP program (to provide relief to manufacturers that fail 

to achieve the standard on time for technological reasons, not for other reasons such as the 

economic benefit of generating CO2 credits by voluntarily increasing emissions of NOx).
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 66 of 79

VIII. IX. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review and 

Executive Order 13563: Improving Regulation and Regulatory 

Review

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is a 

"significant regulatory action” because it raises novel legal and policy issues. 

Accordingly, EPA submitted this action to the Office of Management and Budget (OMB) 

for review under Executive Orders 12866 and 13563 (76 FR 3821, January 21, 2011) and 

any changes made in response to OMB recommendations have been documented in the 

docket for this action. 

B. Paperwork Reduction Act

This action does not impose any new information collection burden. It only 

updates the penalty amounts to correspond to the current emission standards. However, 

the Office of Management and Budget (OMB) has previously approved the information 

collection requirements contained in the existing regulations 40 CFR part 86, subpart L 

under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. and has 

assigned OMB control number 2060-0132. The OMB control numbers for EPA's 

regulations in 40 CFR are listed in 40 CFR part 9.
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 67 of 79

C. Regulatory Flexibility Act

(1) Overview

The Regulatory Flexibility Act generally requires an agency to prepare a regulatory 

flexibility analysis of any rule subject to notice and comment rulemaking requirements 

under the Administrative Procedure Act or any other statute, unless the agency certifies 

that the rule will not have a significant economic impact on a substantial number of small 

entities. Small entities include small businesses, small organizations, and small 

governmental jurisdictions.

For purposes of assessing the impacts of these rules on small entities, small entity is 

defined as: (1) a small business as defined by SBA regulations at 13 CFR 121.201; (2) a 

small governmental jurisdiction that is a government of a city, county, town, school district 

or special district with a population of less than 50,000; and (3) a small organization that is 

any not-for-profit enterprise which is independently owned and operated and is not 

dominant in its field.

(2) Summary of Potentially Affected Small Entities

After considering the economic impacts of this rule on small entities, I certify that 

this action will not have a significant impact on a substantial number of small entities. 

When these emission standards were established, the final rulemaking (66 FR 

5001, January 18, 2001) noted that we were not aware of “any manufacturers of 

heavy-duty engines that meet SBA’s definition of a small business.” Based on an updated 

assessment, EPA has identified a total of about 14 manufacturers that produce diesel cycle 

heavy-duty motor vehicle engines. Of these, none of these are small businesses that are 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 68 of 79

producing engines with NOx emissions above 0.20 g/bhp-hr. Based on this, we are 

certifying that this rule will not have a significant economic impact on a substantial number 

of small entities.

(3) Conclusions

I therefore certify that this Final Rule will not have a significant economic impact 

on a substantial number of small entities. 

D. Unfunded Mandates Reform Act

This rule does not contain a Federal mandate that may result in expenditures of 

$100 million or more for State, local, and tribal governments, in the aggregate, or the 

private sector in any one year. The agency has determined that this action does not contain 

a Federal mandate that may result in expenditures of $100 million or more for the private 

sector in any one year. Because the use of NCPs is optional, manufacturers have the 

flexibility and will likely choose whether or not to use NCPs based on their ability to 

comply with emissions standards. The availability of NCPs provides manufacturers with 

a third alternative: to continue production and introduce into commerce upon payment of a 

penalty an engine that exceeds the standard until an emission conformance technique is 

developed. Therefore, NCPs represent a regulatory mechanism that allows affected 

manufacturers to have increased flexibility. Thus, this action is not subject to the 

requirements of sections 202 or 205 of the UMRA. This action is also not subject to the 

requirements of section 203 of the UMRA because it contains no regulatory requirements 

that might significantly or uniquely affect small governments. 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 69 of 79

E. Executive Order 13132 (Federalism)

Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999), 

requires EPA to develop an accountable process to ensure “meaningful and timely input by 

State and local officials in the development of regulatory policies that have federalism 

implications.” “Policies that have federalism implications” is defined in the Executive 

Order to include regulations that have “substantial direct effects on the States, on the 

relationship between the national government and the States, or on the distribution of 

power and responsibilities among the various levels of government.” 

This action does not have federalism implications. It will not have substantial 

direct effects on the States, on the relationship between the national government and the 

States, or on the distribution of power and responsibilities among the various levels of 

government, as specified in Executive Order 13132. These rules will apply to 

manufacturers of on-highway engines and not to state or local governments. Thus, 

Executive Order 13132 does not apply to this action. 

F. Executive Order 13175 (Consultation and Coordination with Indian 

Tribal Governments)

This Final Rule does not have tribal implications, as specified in Executive Order 

13175 (65 FR 67249, November 9, 2000). This rule will be implemented at the Federal 

level and impose compliance costs only on engine manufacturers who elect to use the NCP 

regulatory flexibility to comply with emissions standards. Tribal governments would be 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 70 of 79

affected only to the extent they purchase and use engines and vehicles to which an NCP has 

been applied. Thus, Executive Order 13175 does not apply to this rule.

G. Executive Order 13045: Protection of Children from Environmental 

Health Risks and Safety Risks

Executive Order 13045: Protection of Children from Environmental Health Risks 

and Safety Risks (62FR1988562 FR 19885, April 23, 1997) applies to any rule that: (1) is 

determined to be "economically significant" as defined under Executive Order 12866, and 

(2) concerns an environmental health or safety risk that EPA has reason to believe may 

have a disproportionate effect on children. If the regulatory action meets both criteria, the 

agency must evaluate the environmental health or safety effects of the planned rule on 

children, and explain why the planned regulation is preferable to other potentially effective 

and reasonably feasible alternatives considered by the agency.

EPA interprets Executive Order 13045 as applying only to those regulatory actions 

that are based on health or safety risks, such that the analysis required under section 5-501 

of the Order has the potential to influence the regulation. This rule is not subject to 

Executive Order 13045 because it does not establish an environmental standard intended to 

mitigate health or safety risks.

H. Executive Order 13211 (Energy Effects)

This action is not a “significant energy action” as defined in Executive Order 13211 

(66 FR 28355 (May 22, 2001)), because it is not likely to have a significant adverse effect 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 71 of 79

on the supply, distribution, or use of energy. We have concluded that any energy impacts 

of this rule will be small because:

The NCPs will be used for a limited duration.

This rule will affect a small number of heavy duty vehicles relative to the 

total in-use fleet.

The per-vehicle impact of this rule will be small. 

I. National Technology Transfer Advancement Act

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 

(“NTTAA”), Public Law No. 104-113, 12(d) (15 U.S.C. 272 note) directs the agencies to 

use voluntary consensus standards in its regulatory activities unless to do so would be 

inconsistent with applicable law or otherwise impractical. Voluntary consensus standards 

are technical standards (e.g., materials, specifications, test methods, sampling procedures, 

and business practices) that are developed or adopted by voluntary consensus standards 

bodies. NTTAA directs EPA to provide Congress, through OMB, explanations when the 

EPA decides not to use available and applicable voluntary consensus standards.

This rule does not involve technical standards. Therefore, EPA is not considering 

the use of any voluntary consensus standards.
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 72 of 79

J. Executive Order 12898: Federal Actions to Address Environmental 

Justice in Minority Populations and Low-Income Populations

Executive Order 12898 (59 FR 7629, February 16, 1994) establishes federal 

executive policy on environmental justice. Its main provision directs federal agencies, to 

the greatest extent practicable and permitted by law, to make environmental justice part of 

their mission by identifying and addressing, as appropriate, disproportionately high and 

adverse human health or environmental effects of their programs, policies, and activities 

on minority populations and low-income populations in the United States. 

EPA has determined that this action will not have disproportionately high and 

adverse human health or environmental effects on minority or low-income populations. 

The overall environmental impacts of this action are expected to be small and of limited 

duration. Moreover, there is no reason to believe that trucks using NCP engines will be 

more likely to operate near any minority or low-income populations than other trucks. 

K. Congressional Review Act 

The Congressional Review Act, 5 U.S.C. §801 et seq., as added by the Small 

Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a 

rule may take effect, the agency promulgating the rule must submit a rule report, which 

includes a copy of the rule, to each House of the Congress and to the Comptroller General 

of the United States. EPA will submit a report containing this rule and other required 

information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller 

General of the United States prior to publication of the rule in the Federal Register. A 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 73 of 79

Major rule cannot take effect until 60 days after it is published in the Federal Register. 

This action is not a “major rule” as defined by 5 U.S.C. §804(2). This rule will be 

effective [INSERT DATE OF PUBLICATION]. IN THE FEDERAL REGISTER]. 

IX. X. Statutory Provisions and Legal Authority

Statutory authority for the vehicle controls in these rules is found in CAA sections 

202 and 206(g), of the CAA, 42 U.S.C. 7521 and 7525(g).

List of Subjects in 

40 CFR part 86

Administrative practice and procedure, Confidential business information, Motor vehicle 

pollution, Reporting and recordkeeping requirements.

Date:_____________________________

_________________________________

Lisa P. Jackson,

Administrator
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 74 of 79

Environmental Protection Agency

40 CFR Chapter I

For the reasons set forth in the preamble, the Environmental Protection Agency is 

amending 40 CFR chapter I of the Code of Federal Regulations as follows: 

PART 86-- CONTROL OF EMISSIONS FROM NEW AND IN-USE HIGHWAY 

VEHICLES AND ENGINES

1. The authority citation for part 86 continues to read as follows:

Authority: 42 U.S.C. 7401-7671q.

Subpart L—[Amended] 

2. Section 86.1103-87 is amended to read as follows:

§ 86.1103-87 Criteria for availability of nonconformance penalties.

(a) EPA shall establish for each subclass of heavy-duty engines and heavy-duty vehicles 

(other than motorcycles), an NCP for a motor vehicle pollutant, when any new or revised 

emission standard is more stringent than the previous standard for the pollutant, or when an 

existing standard for that pollutant becomes more difficult to achieve because of a new or 

revised standard, provided that EPA finds:

(1) That for such subclass of engines or vehicles, substantial work is required to meet the 

standard for which the NCP is offered, and
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 75 of 79

(2) That there is likely to be a technological laggard.

(b) Substantial work, as used in paragraph (a)(1) of this section, means the application of 

technology that was not generally used in an engine or vehicle class or subclass to meet 

standards prior to the implementation of the new or revised standard, or the significant 

modification of existing technology or design parameters, needed to bring the vehicle or 

engine into compliance with either the more stringent new or revised standard or an 

existing standard which becomes more difficult to achieve because of a new or revised 

standard. Substantial work is determined by the total amount of work required to meet the 

standard for which the NCP is offered, compared to the previous standard, irrespective of 

when EPA establishes the NCP.

3. Section 86.1104-91 is amended to read as follows:

§ 86.1104-91 Determination of upper limits.

EPA shall set a separate upper limit for each phase of NCPs and for each service class. 

(a) Except as provided in paragraphs (b), (c) and (d) of this section, the upper limit shall be 

set as follows: 

(1) The upper limit applicable to a pollutant emission standard for a subclass of heavy-duty 

engines or heavy-duty vehicles for which an NCP is established in accordance with 

§86.1103–87, shall be the previous pollutant emission standard for that subclass.

(2) If a manufacturer participates in any of the emissions averaging, trading, or banking 

programs, and carries over certification of an engine family from the prior model year, the 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 76 of 79

upper limit for that engine family shall be the family emission limit of the prior model year, 

unless the family emission limit is less than the upper limit determined in paragraph (a) of 

this section.

(b) If no previous standard existed for the pollutant under paragraph (a) of this section, the 

upper limit will be developed by EPA during rulemaking.

(c) EPA may set the upper limit during rulemaking at a level below the level specified in 

paragraph (a) of this section if we determine that a lower level is achievable by all engines 

or vehicles in that subclass.

(d) EPA may set the upper limit at a level above the level specified in paragraph (a) of this 

section if we determine that the such level will not be achievable by all engines or 

vehicles in that subclass. 

4. Section 86.1105-87 is amended by revising paragraph (e) and adding paragraph (j) to 

read as follows:

§ 86.1105-87 Emission standards for which nonconformance penalties are 

available.

* * * * *

(e) The values of COC50, COC90, and MC50 in paragraphs (a) and (b) of this section are 

expressed in December 1984 dollars. The values of COC50, COC90, and MC50 in 

paragraphs (c) and (d) of this section are expressed in December 1989 dollars. The values 

of COC50, COC90, and MC50 in paragraph (f) of this section are expressed in December 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 77 of 79

1991 dollars. The values of COC50, COC90, and MC50 in paragraphs (g) and (h) of this 

section are expressed in December 1994 dollars. The values of COC50, COC90, and MC50 in 

paragraph (i) of this section are expressed in December 2001 dollars. The values of 

COC50, COC90, and MC50 in paragraph (j) of this section are expressed in December 2011 

dollars. These values shall be adjusted for inflation to dollars as of January of the calendar 

year preceding the model year in which the NCP is first available by using the change in 

the overall Consumer Price Index, and rounded to the nearest whole dollar in accordance 

with ASTM E29–67 (reapproved 1980), Standard Recommended Practice for Indicating 

Which Places of Figures are to be Considered Significant in Specified Limiting Values. 

This method was approved by the Director of the Federal Register in accordance with 5 

U.S.C. 552(a) and 1 CFR part 51. This document is available from ASTM International, 

100 Barr Harbor Drive, P.O. Box C700, West Conshohocken, PA 19428–2959, and is also 

available for inspection as part of Docket A–91–06, located at the U.S. EPA, Air and 

Radiation Docket and Information Center, 1301 Constitution Ave., NW., Room 3334, EPA 

West Building, Washington, DC 20004, (202) 202–1744or1744 or at the National 

Archives and Records Administration (NARA). For information on the availability of this 

material at NARA, call 202–741–6030, or go to: 

http://www.archives.gov/federal-register/cfr/ibr-locations.html. This incorporation by 

reference was approved by the Director of the Federal Register on January 13, 1992. These 

materials are incorporated as they exist on the date of the approval and a notice of any 

change in these materials will be published in the Federal Register.

* * * * *

(j) Effective in the 2012 and later model years, NCPs will be available for the following 
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 78 of 79

emission standard:

(1) Diesel heavy-duty engine oxides of nitrogen standard of 0.20 grams per brake 

horsepower-hour in §86.007–11(a)(1)(i).

(i) [Reserved].

(ii) For heavy heavy-duty diesel engines:

(A) The following values shall be used to calculate an NCP in accordance with 

§86.1113–87(a):

( 1 ) COC50: $3,228219.

( 2 ) COC90: $3,796775.

( 3 ) MC50: $10,759729 per gram per brake horsepower-hour NOx.

( 4 ) F: 1.176173.

( 5 ) UL: 0.50 grams per brake horsepower-hour NOx.

(B) The following factor shall be used to calculate the engineering and 

development component of the NCP for the standard set forth in 

§86.007–11(a)(1)(i) in accordance with §86.1113–87(h): 0.005.

(2) Manufacturers may not generate emission credits for any pollutant from engines for 

which the manufacturer pays an NCP for the NOx standard identified in paragraph (j)(1) of 

this subsectionsection.

(3) The penalty shall be adjusted annually as specified in §86.1113-87 with 2012 as the 

first year. Note that this means AAF2012 is equal to 1.
** EO12866 Review –FRM (08/29/12) Do not cite, Quote or Release During 

Review**

Page 79 of 79

5. Section 86.1113-87 is amended by revising paragraph (g)(1) to read as follows:

§ 86.1113-87 Calculation and payment of penalty.

* * * * *

(g)(1) Except as provided in paragraph (g)(2) of this section, the nonconformance penalty 

or penalties assessed under this subpart must be paid as follows:

(i) By the quarterly due dates, i.e., within 30 days of the end of each calendar quarter 

(March 31, June 30, September 30 and December 31), or according to such other payment 

schedule as the Administrator may approve pursuant to a manufacturer's request, for all 

nonconforming engines or vehicles produced by a manufacturer in accordance with 

paragraph (b) of this section and distributed into commerce for that quarter.

(ii) The penalty shall be payable to U.S. Environmental Protection Agency, NCP Fund, 

Motor Vehicle and Engine Compliance Program, P.O. Box 979032

St. Louis, MO 63197-9000. Note on the check and supporting information that this is an 

NCP payment.

* * * * *