Beneath the Surface - Emissions Credits Show Widely Different Set-Up Ahead of EPA‘27

Research evidence excerpt

Beneath the Surface - Emissions Credits Show Widely Different Set-Up Ahead of EPA‘27

Update

July 12, 2026 10:42 PM GMT

Morgan Stanley & Co. LLCMMachinery & Construction | North America Angel Castillo

Equity Analyst

Beneath the Surface - Emissions Angel.Castillo@morganstanley.comMorgan Stanley & Co. International plc+ +1 212 761-1931

Shaqeal A Kirunda

Equity AnalystCredits Show Widely Different Shaqeal.Kirunda@morganstanley.com +44 20 7425-0736

Morgan Stanley & Co. LLCSet-Up Ahead of EPA'27 Oliver Jiang

Research Associate

Emission credits 101. Alongside July 9th's notice, the EPA published a Draft Oliver.Jiang@morganstanley.com +1 212 761-6458

Regulatory Impact Analysis (DRIA) that disclosed each OEM's NOx emissions credit Stefan Diaz, CFA

"bank". OEMs can generate NOx credits by over-complying engines with the existing Stefan.Diaz@morganstanley.com +1 212 761-1834

standard. The credits can be used to offset non-complying engines in a given model Esther O Osinaiya

year, banked for future years. Historically, credit generation has occurred ahead of a Research Associate

Esther.Osinaiya@morganstanley.com +1 212 761-3176

new emissions standard, allowing OEMs to spread the development costs of the

Machinery & Construction

engines that meet it. To date, each OEM has generated some (or in the case of

North America

Daimler, much more) emission credits – see Exhibit 1 for the tally and the side box Industry View Attractive

for the technical details of how the different “classes” of credits are generated.

Why it matters. Going into 2027, engine OEMs with more usable credits can better

offset the non-complying emissions of MY26 engines, enabling a lower

nonconformance penalty (NCP) level for said engines. The key questions here we