AIR POLLUTION:

Judges seem skeptical of truck makers' arguments against EPA penalty rule

Three of the nation's biggest long-haul truck manufacturers argued in court today that U.S. EPA should have voided air compliance certificates granted to a competitor in light of a court ruling last year.

The manufacturers -- Daimler Trucks North America LLC, Mack Trucks Inc. and Volvo Group North America -- are challenging "certificates of conformity" EPA issued to Navistar International Corp. to manufacture trucks in compliance with EPA's 2001 nitrogen oxides (NOx) limits for heavy-duty truck engines. Such certificates are required before manufacturing can begin.

The problem, the companies contended to the U.S. Court of Appeals for the District of Columbia Circuit, is Navistar's engines didn't meet the standard but EPA allowed them to go on the market if Navistar paid a $2,000 penalty per engine.

In June 2012, the D.C. Circuit vacated part of EPA's decision, arguing the agency's penalty rule should have been open to public comment (E&ENews PM, June 12, 2012).

Consequently, the certificates "need to be vacated as a matter of law," Christopher Handman of Hogan Lovells argued on behalf of the truck manufacturers.

"The certificates are necessarily unlawful," he said.

The three-judge panel, however, seemed reluctant to back the challenge. A key issue, they argued, was redressability, meaning what the court or EPA could do to remedy the years-long dispute for Daimler and the others.

Handman countered that the companies see two potential remedies. If the certificates were voided, any citizen could file a lawsuit under the Clean Air Act challenging the engines for violating EPA's standard. Or, he said, EPA could initiate an enforcement action.

That didn't seem to satisfy Judge Srikanth Srinivasan.

"What you have in mind is not something that EPA would do," Srinivasan said in one of his first hearings since his Senate confirmation in May.

Srinivasan added that "there is something that seems a bit mismatched" about the challenge, because Daimler and others are asking EPA to retroactively void certificates used to manufacture trucks that have already entered commerce. The certificates are no longer being used by Navistar, he noted.

The case dates to 2001, when EPA ordered long-haul truck makers to reduce soot- and smog-forming NOx emissions by 95 percent.

Industry split into two camps. One -- represented by Daimler, Volvo and Mack -- used selective catalytic reduction technology and met the standard.

The second, Navistar, developed its own technology that fell short of meeting the EPA limit when it fully went into effect in 2010.

Navistar told EPA it would potentially have to cease nearly all manufacturing. The agency responded by issuing an "interim final rule" that allowed Navistar to obtain certificates of conformity if the company paid a penalty of about $2,000 per truck.

The other truck makers protested, arguing that the rule gave Navistar an unfair advantage because Mack, Volvo and others had spent millions of dollars developing their pollution control technology.

After last year's ruling, the truck makers asked EPA to void Navistar's certificates of conformity. EPA said it didn't need to, which didn't satisfy the companies and led them to challenge the agency in the current lawsuit.

EPA contends that the truck makers' arguments fail on several grounds. First, the penalty for noncompliance is now higher than it was in the now-outdated interim final rule, and Navistar now pays the steeper rate of nearly $3,800 per engine. Consequently, EPA says the challenge is moot.

Second, EPA claims the manufacturers lack standing because they haven't shown any injury that is directly traceable to Navistar's certificates.

Michele Walter of the Department of Justice, representing EPA, argued that the challenge is a business dispute that cannot be fixed by the court.

"You can't go back and unring the bell of lost market share," Walter said. She added that even if penalties were assessed, they would flow to Treasury -- not Daimler, Volvo and Mack.

EPA also claims it cannot under the law simply vacate certificates without due process.

Srinivasan was joined on the panel by Judges Karen Henderson and Thomas Griffith, both Republican appointees. Griffith participated by phone; he and Henderson asked few questions.

Srinivasan aggressively questioned Walter, however, about whether the issue was whether penalties for Navistar are really what the others are after.

"The money doesn't flow to them," he said, "but it flows out of Navistar."

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