For Navistar Engine Corp., the days of selling engines through the use of non-conformance penalties are over. At least for the time being, but the engine manufacturer is moving forward.

On Tuesday, June 12, the U.S. Court of Appeals for the District of Columbia reversed the Environmental Protection Agency’s recent interim final rule that allowed Navistar an unlimited use of non-conformance penalties, thereby allowing the sale of non-EPA 2010 NOx standard compliant engines.

Mack Trucks and Volvo Group North America filed the lawsuit requesting the court vacate the interim final rule issued by the EPA, without public notice or comment, that allowed Navistar to continue selling the engines by paying the non-conformance penalties.

The court’s decision, written by Circuit Judge Janice Rogers Brown, halted the use of non-conformance penalties.

“Navistar’s engines do not meet the 2010 NOx standard,” Judge Brown wrote. “But for the last few years, Navistar has been able to lawfully forestall that result and continue selling its noncompliant engines by using banked emission credits.

“Simply put, it bet on finding a way to make exhaust gas recirculation a feasible and compliant technology before its finite supply of credits ran out.”

Judge Brown called the latter part of 2011 a “day of reckoning” for Navistar with those emission credits believed by many to be running out and no EPA 2010 NOx-ceritified engine in its stable.

The EPA moved on an interim final rule that lifted the limits on non-conformance penalties. That rule allowed Navistar an unlimited amount of non-conformance penalties, at a price tag of $1,919 per engine.

The court has for the time being eliminated the option of continuing to pay non-conformance penalties for noncompliant NOx engines.

Judge Brown chastised the agency for circumventing the prescribed administrative procedures in issuing a final rule that merely placed an “emergency plan” into place for Navistar.

While the flow of non-conformance penalties has been halted by the court, it may not be for long.

The EPA is in the process of forming a final rule – complete with notice and comment period – that will essentially reinstate the nonconformance penalties option. In meantime, the company awaits word from the EPA on certification of the MaxxForce 13. The company submitted the engine in February. Status of that certification was unknown as of press time.

“We do recognize the pending final rule means our vacatur of the IRF (interim final rule) on these procedural grounds will be limited practical impact,” Judge Brown wrote.

However, she went on to caution the EPA before it moves forward with the final rule.

“Before the ink is dry on that final rule, we offer two observations,” she wrote. “First NCPs are meant to be a temporary bridge to compliance for manufacturers that have ‘made every effort to comply.’”

“Second, we emphasize that ‘no legislation pursues its purposes at all costs,” Brown wrote.

The opinion expresses the doubt of the judges that raising the level of non-conformance penalties will protect the interests of compliant manufacturers.

Following the court’s ruling Navistar’s stock traded 11 percent below Monday’s trading. However, the stock continued to trek upward on into early trading on Wednesday.

The company issued a statement disagreeing with the court’s decision and pledging to move to 2010 certification.

“While this was a lawsuit filed by certain Navistar competitors against the EPA, Navistar is impacted by the decision. We disagree with the court’s ruling and will ask for a rehearing,” the statement read.

“Navistar will work with EPA to fully understand the ruling and its impact on the use of NCPs until a final rule is implemented. At the same time, we will continue to cooperate with the EPA on the final NCP rule and will continue to work with the EPA on our 0.20g NOx certification.

“Navistar continues to make and ship engines and our customers will continue to receive the products they ordered with EPA-certified engines.”

It should also be noted that any remaining emissions credits that Navistar has in its bank could still be used to sell engines, regardless of the court’s ruling.

Also, the court’s ruling does not retroactively remove any noncompliance penalties paid for by Navistar used to achieve compliance, and those engines can still be delivered to customers.


Editor’s note: This article originally published with a headline that stated the court’s ruling halted the sale of the engine. This posting reflects the change to correctly state that the court’s ruling vacated an interim EPA rule that allowed companies unlimited non-conformance penalty options facilitating the sale of engines that do not meet emission standards.