WASHINGTON (Bloomberg) -- The U.S. Environmental Protection Agency is fining diesel-engine maker Navistar International Corp. for shortcomings in pollution-control technology the agency helped it develop.
"EPA is entangled in a blatant conflict in regulating a business partner," Jeff Ruch, executive director of Public Employees for Environmental Responsibility, said in an e-mail.
Ruch's group, a Washington-based watchdog of state and federal environmental agencies, uncovered the Navistar-EPA business connections in documents it obtained through the Freedom of Information Act and shared with Bloomberg News.
Navistar, the third-biggest U.S. and Canadian maker of truck engines, signed a deal in 2004 to take technology EPA scientists invented and incorporate it into its engines to meet future pollution rules, according to documents published on the agency's Web site. The EPA's technologies, for which the company paid royalties, remain a part of the company's engine designs, said Patrick Charbonneau, Navistar's vice president for government relations.
EPA officials said after the deal was signed that the technology would help companies such as Navistar meet the agency's rules without expensive catalytic-reduction devices. Navistar, unlike competitors such as Cummins Inc., took just that approach. It is now being fined by the EPA because its heavy-duty engines release too much smog-causing emissions.
Volvo Group North America LLC and Cummins, which met the rules using different technology, argued in regulatory filings that the agency was going too easy on Navistar by charging fines that aren't high enough. The Navistar-EPA connection stems from a rule enacted by the agency in 2001 that required a 95 percent reduction in emissions of nitrous oxide from heavy-duty diesel engines.
It gave the industry until 2010 to comply. EPA employees at the National Vehicle and Fuel Emissions Laboratory in Ann Arbor, Mich., were working at the time on something called Clean Diesel Combustion. The technology relies on high pressure and low engine temperature to reduce the amount of nitrous oxide created during engine combustion, Charbonneau said in an interview.
EPA inventors patented the technology and met with the largest engine makers about adopting it.
Navistar announced on May 13, 2004, a partnership with the EPA to develop the technology for commercial purposes. The partnership, which ended in 2008, focused on helping the company with its V6 engine for light-duty vehicles, the EPA said in an e-mailed response to questions.
Navistar at the time said the partnership would also help it with the bigger engines that are at issue now.
"This new partnership with the EPA enhances our opportunity to deliver a low-cost diesel solution that will meet 2007 light-duty standards and 2010 heavy-duty standards," Navistar CEO Daniel Ustian said in a statement then.
In fact, the basics of that technology are still used "across our engine family," Charbonneau said. He called the partnership a success, because it helped the company develop a low-polluting engine.
"It did the types of things that one would have envisioned," he said.
The EPA's model contract for cooperative arrangements such as the one with Navistar includes a provision for a company to pay the agency royalties, without stating an amount. The agency declined Ruch's request to disclose the amounts paid.
Any royalties Navistar paid are "confidential business information," Cathy Milbourn, an agency spokeswoman, said in an e-mail. Relations between the company and the EPA haven't been smooth in recent years.
The EPA ruled the company hadn't met the 2010 standards. Last year Navistar sued the agency for approving its competitors' engines, arguing in court that selective catalytic reduction failed in practical tests. The EPA in January allowed Navistar to sell the non-compliant engines if it paid penalties of as much as $2,000 apiece.
That brought protests from Navistar's competitors that the fines were too low to compensate for their costs of controlling the pollution. The EPA is reviewing those penalty amounts. The U.S. Court of Appeals in Washington on June 12 threw out an EPA interim rule that let Navistar pay those fines.
The arguments are far from over: Last month Navistar resubmitted an engine design to the EPA for approval.