PACCAR CEO R. Preston Feight told analysts on a recent earnings call that fines of $6,000 to $7,000 per engine under the EPA's proposed non-compliance penalty (NCP) framework might be cheaper than engineering a heavy-duty diesel to meet the 0.035 brake-horsepower-hour nitrogen oxide standard taking effect in model year 2027. Daimler Truck North America (Frankfurt/XETRA: DTNA) does not share the view.

Speaking at DTNA's proving ground in Madras, Oregon, on September 25, Dan Potter, the company's manager of product compliance and regulatory affairs, said the NCP pathway "contravenes what Congress specifically sets out on what performance penalties are intended to be used for." Companies eyeing NCPs as a strategy rather than a last resort are "planning to use these NCPs for reasons of economic importance rather than technological ones," Potter said.

What does the proposed rule actually require?

The Environmental Protection Agency released amendments in July to the nitrogen oxide rule for heavy- and medium-duty trucks. The core tightening — a drop from 0.2 to 0.035 bhp-hr — was not on the table for revision. It is going into effect for 2027 model year engines regardless. The comment period closed in late August.

The amendments also pulled back a controversial extension of the emissions warranty. The current 5-year/100,000-mile warranty will stay, rather than the 10-year/450,000-mile version the agency had previously floated. Potter called that the biggest bottom-line item for fleet customers.

"EPA did a good job when they wrote this rule, creating flexibility, building it into the rule, and we believe it helps support the product we are intending to bring in 2027 and further years," Potter said.

Why is Daimler worried about the NCP provision?

Under the Clean Air Act, NCPs are intended for cases where a manufacturer cannot meet a standard for technological reasons. The proposed amendment would let an OEM pay a fine in lieu of compliance, after full disclosure. That is different from today's regime, where a non-compliant engine maker faces potentially harsher penalties under the Clean Air Act after EPA action.

Feight framed the trade-off more bluntly on PACCAR's (NASDAQ: PCAR) second-quarter call. "Maybe the situation is very leveling now and maybe to our advantage a little bit in that the NCPs are allowing everybody to make sure we get the right products out there validated," he said. Given that engineering a compliant engine might cost up to $15,000, fines in the $6,000 to $7,000 range look attractive.

Potter noted that all major engine makers once said they could hit 0.035. "I have quotes from all of them that say we're well prepared," he said. He pointed to PACCAR's earnings call as evidence that some are now signaling they may not.

Who else is pushing back?

The Engine Manufacturers Association, which represents Daimler, PACCAR and other OEMs, told EPA the NCP expansion puts compliant suppliers at risk.

"Clean mobility suppliers have invested in developing technologies and manufacturing capacity for the past 10 years in advance of implementing these model year 2027 and later heavy-duty standards and depend on policy stability to avoid stranded investments," the EMA wrote. "The option to use expanded credit allowances and NCPs puts those investments and associated jobs at risk."

A coalition of Democratic state attorneys general echoed the concern, arguing the proposal "creates a pathway for manufacturers to disregard" the standard "in the first instance." The attorneys general said the legal criteria for invoking NCPs have not been met.

What happens to DEF and deratements?

The amendments also rework the rules around diesel exhaust fluid (DEF) deratements, replacing the current practice of sharply cutting engine power with a series of warnings as DEF levels drop. DEF itself remains; EPA is not phasing it out, contrary to online claims. The elimination of DEF sensors earlier this year, particularly aimed at agricultural use, was the first policy shift of 2026.

Will the Detroit 6 reach customers either way?

Potter stressed the new Detroit 6 engine from Daimler is already compliant with the 0.035 bhp-hr limit. It will appear on the Freightliner Cascadia in the upcoming model year regardless of how the amendment process ends. The OEM used the same event to demonstrate the latest generation of Active Brake Assist on the test track, with the system repeatedly halting a Freightliner ahead of a soft-target vehicle mock-up.

The final shape of the rule may take months to settle. The size of the loophole, not the underlying engine technology, is now the open question for the 2027 heavy-duty market.