SCR needs may tilt balance of 2010 US truck market

Implications: In 2010 EPA regulations significantly reduce allowable NOx emissions from diesel truck engines.   To date Selective Catalytic Reduction [SCR] is the only proven solution for compliance with the tighter NOx emission regulations.  Cummins and International have announced plans to go without costly SCR systems in 2010 but have not disclosed the use of credits which allows this interim maneuver. 

Analysis: In 2007 EPA regulations forcing the use of Diesel Particulate Filters [DPFs] on diesel trucks pushed prices up $3000 - $5000 in the Class 8 segment.  In 2010 EPA NOx emission regulations will force the use of Selective Catalytic Reduction [SCR] systems on most diesel trucks in the US.  The specific standard is 0.2 grams of NOx per brake-horsepower-hour [0.2 g/bhp-hr] which represents a near 90% reduction vs. previous levels. 

In the interim OEMs may accumulate credits by certifying some engines to the tighter standards.  These NOx credits are banked and can be applied against the 2010 standards, allowing engines that emit more than 0.2 g/bhp-hr to be sold in 2010 and beyond.

Neither Cummins nor International has publicly disclosed their strategy for relying on NOx credits to 'eliminate' SCR from their 2010 engines but have not demonstrated any technology that can meet the 0.2 gram standard without it.

Competitors including CAT and Volvo would be at a major disadvantage if they cannot match the 'no-SCR' engines for 2010.  SCR is expected to again add significant cost to heavy truck prices in addition to the higher operating costs due to SCR's need for supplemental Urea fuel additive.

It is unclear exactly how many credits are available but preliminary estimates are that Cummins may have as much as 3-7 years worth while International may only have 1-2 years.

As major fleet buyers seek to lock in SCR-free trucks for 2010 the industry may not see a 'pre-buy' in 2009 but certainly will see purchase agreements locked up for supply in 2010 and beyond until the NOx credits are depleted and SCR is installed.

Cummins and International will likely enjoy higher prices and share as long as they are able to keep SCR off of their engines with credits that competitors are unable to match.