U.S. Court Tosses EPA Rule That Helped Navistar
06/12/2012| 02:37pm US/Eastern
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-- Appeals court tosses EPA interim rule allowing Navistar to sell non-compliant engines
-- Ruling a victory for Navistar competitors
-- Navistar shares down 10%
(Updates comments from the company and an analyst throughout, as well as adds details on court decision.)
By Brent Kendall and Bob Tita
WASHINGTON--A federal appeals court Tuesday struck down an Environmental Protection Agency decision earlier this year allowing truck maker Navistar International Corp. (>> Navistar International Corporation) to pay fines on diesel engines that don't meet the agency's latest pollution-reduction regulations.
The U.S. Court of Appeals for the District of Columbia Circuit ruled the EPA didn't have sufficient justification for disregarding the agency's normal rules in allowing Navistar to pay about $2,000 for every heavy-duty truck engine that failed to comply with the EPA standard for nitrogen oxide in diesel exhaust. The ruling threatens to suspend sales of Navistar's engines, causing the company's stock to plunge 11.4% to $25.51 in recent trading.
But analysts say the court's decision on the EPA's interim rule on the engine fines could soon be trumped by a permanent EPA rule that permits Navistar to continue paying the fines.
"We expect that the EPA could issue a final ruling in the coming weeks, and although this could also be challenged in court, it would take time during which Navistar could be allowed to continue producing engines," said Stephen Volkmann, an analyst for Jefferies & Co., in a note to investors.
Navistar said Tuesday it disagreed with the court's decision and intends to petition for a rehearing. In the meantime, the company said it will continue to assemble and ship engines while waiting for further guidance from the EPA.
"Our customers will continue to receive the products they ordered," a spokeswoman for Navistar said.
Tuesday's ruling was a win for Navistar's competitors, which challenged the EPA's fine schedule for Navistar. Engine maker Cummins Inc. (CMI), and truck makers Volvo AB (VOLVY, VOLV-B.SK) and Daimler AG's (DDAIY, DAI.XE) Freightliner unit said they spend hundreds of millions of dollars to comply with the EPA's 2010 standard requiring an ulta-low level of nitrogen oxide in diesel exhaust. Navistar's engines have yet to be certified by the EPA as meeting the 2010 standard, prompting its rivals to argue that the agency provided unfair assistance to Navistar by allowing the company to pay fines on the non-compliant engines it sells.
Navistar had been relying on pollution credits acquired previously to offset the company's lack of compliance with the nitrogen oxide standard. But as Navistar's supply of credits dwindled early this year, the EPA gave the company the option of paying noncompliance fines on its engines. Navistar has been attempting to reach the standard by using an exhaust treatment technology that is different from what the rest of the truck industry in North America is using. Certification of Navistar's 13-liter engine is pending before the EPA.
The EPA said in court papers that it moved quickly to adopt fines on an interim basis to address the "serious harm" facing Navistar. The agency said the suspension of Navistar's engine sales could cause layoffs to thousands of Navistar employees and the loss of billions of dollars in revenue.
The appeals court, however, said that harm was not severe enough to allow the EPA to depart from its normal practices, especially because the situation was "brought about by Navistar's own choice to continue to pursue a technology which, so far, is noncompliant."
"The rule does not stave off any imminent threat to the environment or safety or national security," Judge Janice Rogers Brown wrote for the court. "It does not remedy any real emergency at all, save the 'emergency' facing Navistar's bottom line."
After imposing the fines on an interim basis in January, the EPA initiated its regular rule-make process to finalized the fines. The agency has conducted a hearing and collected public comments on the fines. A final rule on the fines is expected soon.
The EPA did not immediately respond to a request for comment.
Write to Bob Tita at robert.tita@dowjones.com
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