EPA reversed again in federal court

WASHINGTON (Legal Newsline) -- The U.S. Court of Appeals for the District of Columbia Circuit has vacated the issuance of an interim regulation by the Environmental Protection Agency permitting Navistar to sell diesel engines not in compliance with clean air standards.

EPA proclaimed an interim final rule, January 2012, to permit manufacturers of heavy-duty diesel engines to pay nonconformance penalties in exchange for the right to sell noncompliant engines. The EPA took this action without providing formal notice or an opportunity for comment. It invoked, instead, the "good cause" exception provided in the Administrative Procedure Act.

This action caused some of Navistar's competitors, notably Mack Truck and Volvo, to sue the EPA. They maintained the EPA did not have just cause to issue the interim regulation. They argued that they spent millions making their engines compliant with pollution standards and that Navistar did not giving it a market advantage.

According to the court documents, most manufacturers of heavy-duty diesel engines invested "hundreds of millions of dollars" to develop a technology called selective catalytic reduction. This technology converts nitrogen oxide into nitrogen and water by using a special after treatment system and a diesel-based chemical agent. With selective catalytic reduction, manufacturers have managed to meet the 2010 NOx standard.

But Navistar, opted for a different approach. For its domestic sales, Navistar tried an exhaust gas recirculation technology that proved unable to comply with the 2010 NOx standard. Navistar would be unable to sell these engines in the United States -- unless it changed its technology.

Navistar continued selling its noncompliant engines by using banked emission credits. As the court observed, "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."

But the company informed EPA in October 2011 that it would run out of credits sometime in 2012. EPA estimated that Navistar would soon be out of the market. It then issued its IFR on Jan. 31, 2012, without formal notice and comment. EPA hurriedly promulgated the IFR to make NCPs available to Navistar

EPA explained its decision to forego notice and comment procedures by invoking the "good cause" exception of the APA, permitting a federal agency to dispense with formal notice and comment procedures if the agency determines that it is contrary to the public interest. It cited four reasons to show good cause: "(1) notice and comment would mean "the possibility of an engine manufacturer [Navistar] ... being unable to certify a complete product line of engines for model year 2012 and/or -," (2) EPA was only "amending limited provisions in existing NCP regulations," (3) the IFR's "duration is limited," and (4) "there is no risk to the public interest in allowing manufacturers to certify using NCPs before the point at which EPA could make them available through a full notice-and-comment rulemaking."'

The court criticized the EPA invoking "good cause" because of Navistar's plight, "It does not remedy any real emergency at all, save the "emergency" facing Navistar's bottom line. Indeed, all EPA points to is "the serious harm to Navistar and its employees" and "the ripple effect on its customers and suppliers,"' but it also noted the same could be said for any manufacturer facing a standard with which its product does not comply.

Ultimately the Appeals Court said that, "EPA is certainly free to make whatever findings it deems appropriate in the pending final rulemaking-subject, of course, to this Court's review. For now, therefore, we simply hold that EPA lacked good cause for not providing formal notice-and-comment rulemaking, and accordingly vacate the IFR and remand for further proceedings."