A federal appeals court has ruled that Navistar's business plight was not a good enough reason for the Environmental Protection Agency to allow Navistar continue selling engines that don't meet EPA's 2010 emissions rules simply by paying fines.

Navistar is still working to try to get EPA certification certification for an engine that meets the NOx limit of 0.2 grams per horsepower-hour using only exhaust-gas recirculation and not the selective catalytic reduction technology used by other engine makers.

Last October, Navistar told EPA that it was likely to run out of emissions credits in the first quarter of this year. Those credits were allowing it to meet EPA 2010 emissions requirements even though its MaxxForce engines release up to 0.4 to 0.5 grams per brake-horsepower-hour of NOx. Navistar told the EPA that If it was not permitted to pay a nonconformance penalty for each engine, it would be forced to stop production of its domestic Class 8 engines and trucks.

So EPA granted permission in January in an interim rule for Navistar to pay up to $1,900 per engine while it considered a final rule.

Normally a decision to allow such penalties requires a formal notice and public comment, but EPA said that time was too short for that. It takes up to nine months to complete that process, and Navistar didn't have the credits to go that long.

So the agency invoked a "good cause" exception that allowed it to grant the penalties without going through the comment period.

The competition sued. Mack Trucks, Volvo Group North America, Daimler Trucks North America, Detroit Diesel Corp. and Cummins Inc. told the court that EPA erred when it allowed Navistar to pay the penalties without having a public comment process, and that the EPA didn't have "good cause."

The court agreed.

"The rule does not stave off any imminent threat to the environment or safety or national security," Judge Janice Rogers Brown wrote for the U.S. Court of Appeals for the District of Columbia Circuit. "It does not remedy any real emergency at all, save the 'emergency' facing Navistar's bottom line.

"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," Brown wrote.

Navistar said in its submission to the court that if it were to lose the engine certifications it gets by paying the penalty, it would quickly expend its remaining credits and be driven from the heavy-duty engine and truck market. This would threaten the company and its shareholders, employees, dealers, suppliers, retirees and customers, Navistar said.

In a statement, Navistar said it disagrees with the court's ruling and will ask for a rehearing.

"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."

The EPA still must make a final rule allowing for the notice and comment. The court ruling means it's likely the agency will need to make some different arguments to continue to allow Navistar to pay fines.

Some observers think the decision makes it more likely Navistar will abandon its EGR-only strategy.

Read the court documents here.

Related Stories:

1/31/2012 EPA Sets Penalties for Emissions Non-Compliance

5/17/2012 Court Papers: EPA Penalties Keep Navistar in Class 8 Business