Truck makers argue EPA violated its own regs in granting rival's certificates

Some of the country’s largest long-haul truck manufacturers returned to court today to argue that U.S. EPA violated its own regulations in allowing a competitor to make engines that exceeded agency air standards.

The manufacturers – including Daimler Trucks North America LLC, Mack Trucks Inc. and Volvo Group North America – are challenging EPA rulemaking following its 2001 heavy-duty engine emissions standards for smog- and soot-forming nitrogen oxides, or NOx.

EPA told the industry it must cut 95 percent of NOx emissions by 2010. The standard led to a split in the industry. Daimler and the challengers installed selective catalytic reduction technology and met the standard, while Navistar International Corp. relied on a different technology and failed to meet EPA’s limit.

At issue in the U.S. Court of Appeals for the District of Columbia Circuit case is whether EPA – after the standard went into effect in 2010 – could consider Navistar’s compliance efforts since 2001 as qualifying for a Clean Air Act exemption that allowed nonconforming engines to go on the market if Navistar paid a penalty.

Daimler and others claim the exemption unfairly penalized their successful efforts to comply with the standard.

Christopher Handman of Hogan Lovells, arguing on behalf of Daimler and the others, said that EPA could not consider previous work and that when the agency rewrote its regulations, it should have allowed for public comment.

“EPA simply changed the rules,” Handman said. “It moved the goal posts.”

After the technology Navistar attempted to use failed, the company was on the brink of shuttering its operations. It asked EPA for help, and the agency issued an interim rule that granted the company “certificates of conformity” allowing the engines to be manufactured if Navistar paid a penalty of $2,000 per engine.

The rule was challenged at the D.C. Circuit, and judges held that it should have been open to public comment. The truck makers also asked the D.C. Circuit to void the original certificates in light of the June 2012 ruling, but judges dismissed that case last Friday as moot because the certificates are no longer valid.

Less than 80 days after the ruling, however, EPA issued a final nonconformance penalty, or NCP, rule that increased the penalty to nearly $3,800 per engine.

Daimler and the other truck makers are now challenging that rule, claiming it is “deja vu all over again,” according to court documents.

The primary issue in the case is EPA’s definition of “substantial work” in the NCP rule. The term is one of multiple qualifying criteria. If EPA determines “substantial work” is needed to meet the new standard, it may proceed with the NCP rule.

In the challenged rule, EPA determined that substantial work was required for Navistar to meet the emissions limits by looking back to when the agency issued its 2001 standard.

Daimler and others say substantial work refers only to the future. And, since Navistar is now implementing off-the-shelf selective catalytic reduction technology in its trucks, meeting the standard doesn’t require substantial work.

“The regulation’s plain language does not allow the agency to look to the past,” Handman said.

The three-judge panel struggled with the complicated circumstances surrounding the NCP rule. Judge Karen Henderson, a Republican appointee, asked the Department of Justice whether Navistar’s 2013 models are compliant with the standard.

Michele Walter of DOJ, arguing on behalf of EPA, said most of the engines currently being made are compliant and all will be by the end of this year.

Judge David Tatel at times seemed open to vacating the NCP rule on the basis that the revision to the definition of substantial work should have been open for public comment. He also questioned EPA’s reasoning.

“Why would the agency include work all the way back to 2001?” asked Tatel, a Democratic appointee. “I don’t understand why you’d do that.”

Walter argued that EPA has largely interpreted significant work consistently for more than 20 years. This case is unique because it marks the first time EPA has issued an NCP rule after a standard has gone into effect.

That’s why EPA sought to clarify the language, she said, in response to a “new and confusing verb tense” argument from the other truck makers.

The third judge, Judith Rogers, also a Democratic appointee, at times appeared skeptical of arguments from both sides, and she, like Tatel, spent most of the arguments trying to nail down the facts of the case.

Aside from the current litigation, EPA also has come under criticism from public watchdogs because of its dealings with Navistar. Yesterday, the Public Employees for Environmental Responsibility asked EPA’s inspector general to investigate the issue because the technology Navistar used was developed in an EPA lab. PEER claims that situation created a conflict of interest when the agency then had to penalize the technology after it failed.

By the end of the arguments today, Tatel expressed some frustration.

“I thought I understand the case before I sat down here,” he said. “I’m not sure I do anymore.”

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