The Environment Agency continued to monitor the status of development by each automaker, and in December 1976 announced the fiscal 1978 emissions regulations, which included a nitrogen oxide (NOx) standard of 0.25 grams per kilometer.

At around this time, Toyota's research and development focusing on achieving the target of 0.25 grams of NOx began to bear fruit. Also, further improvements were made to the reduction catalysts, and a new three-way catalytic converter was developed to the stage of practical application. As a result, the technological possibilities became more apparent.

The three-way catalytic converter, which is still used today, simultaneously purifies CO, HC and NOx through a catalytic reaction. Removing these three components simultaneously requires maintaining the intake mixture ratio at the stoichiometric air-fuel ratio. As such, the oxygen sensor (O₂ sensor) that detects the concentration of oxygen in the emissions plays a key role in the practical application of the three-way catalytic converter. The sensor electrode is exposed to high-temperature emissions, and during the early development stages, the electrode suffered from extremely poor durability, experiencing separation and cracking of the element.

The Engineering Department No. 1 was put in charge of developing a practical O₂ sensor and requested that the Toyota Central Research & Development Lab perform a fundamental physical property investigation of the element materials and analyze its deterioration. The department worked with Nippondenso Co., Ltd. (now Denso Corporation) to improve the element and to design and develop a structure that could withstand thermal shock. In addition, various trait assessment methods, including one that used an actual engine and one that focused on combustion gas, were developed. During that time, Toyota adopted a policy of launching vehicles compliant with the fiscal 1978 regulations in advance, and the Engineering Department No. 1 worked together with production engineers to ensure reliability during mass production. The result was an O₂ sensor with outstanding performance and durability.

Toyota continued these development efforts that placed the company's very existence at stake and performed repeated tests. The result was the launching in June 1977 of the Crown 2000, the Mark II 2000, and the new Chaser passenger car with the three-way catalytic converter to comply with the fiscal 1978 regulations.

As a second stage addressing of fiscal 1978 emissions regulations, in August of 1977, Toyota launched sales of five vehicle series fitted with the 12T-U engine (1,588 cc, 88 hp) featuring turbulence generating pot (TGP) combustion: the Corona 1600, Corolla 1600, Sprinter 1600 and the fully redesigned Carina and Celica, which, together, represented a total of 73 models.

That September, Toyota announced a Corolla and Sprinter with fiscal 1978 regulation controls using catalytic converters. The engine used was the 4K-U (1,290 cc, 72 hp), which provided much better fuel efficiency and drivability compared to vehicles compliant with the fiscal 1976 regulations.

In this way, Toyota put three different methods-the three-way catalytic converter, TGP combustion, and reduction catalysts-into practical use and implemented a series of countermeasures suited to each model to address the fiscal 1978 regulations in pursuit of a total balance that satisfied the requirements for emissions levels, fuel efficiency, performance, and price.

Meticulous reassessments and improvements of all engine components were made, and improvements to the intake and exhaust systems, modification of the combustion chamber shape, reduction of the weight of the valve train, reduction of friction resistance, and other modifications resulted in dramatic improvements in performance. Efforts were also made to improve the reliability of various electronic components and sensors including emissions control devices, ignition devices, and electronic fuel injection (EFI), and Toyota acquired considerable expertise in all processes from design to production.

The emissions regulations countermeasures undertaken by the entire Toyota Group were successful due to great effort and perseverance. All the more because the process was difficult, Toyota acquired a wide range of technologies, leading to great improvement in various performance indicators of its automobiles.

Of the implementation of emissions regulations at that time and the earnest efforts that went into developing methods to comply with them, President Eiji Toyoda later commented as follows:

It would do no good to satisfy emissions control standards if this meant making concessions in engine performance. Taking a more extreme view of the matter, if no one drove cars, there'd be no emissions to worry about and we'd all be assured of clean air to breathe. But then we wouldn't be talking about cars anymore. So we had to find a way of both maintaining our existing performance levels and meeting the standards. That was the minimum goal Toyota set for itself. We saw little hope of meeting the final target of 0.25 gram NOx by the date specified, so we asked for an extension. ...

This extension (of the 1976 regulations for two years) enabled us to meet the standards in all of our models, but I still think that those regulations were a brutal way to get the job done. It was like teaching someone how to swim by throwing him into the water and having him thrash about for his very life. One mistake and it would be all over. However, those controls did help us make large gains on Western automotive technology.

(Eiji Toyoda, Toyota: Fifty Years in Motion, pp. 140-142.)

Then-Director Kiyoshi Matsumoto, who directed research and development on emissions cleaning technologies, later made the following comment concerning the importance of internal development and teamwork:

Looking back on emissions controls, I believe that it was extremely beneficial that Toyota handled all of the hardware aspects including EFI control, sensors, and catalysts. We learned that by improving sensors we didn't have to be so strict about control, and that long-life catalysts allowed us to reduce the use of precious metals. We also learned how to make catalysts less susceptible to deterioration. And these kinds of things we are now able to carry out in minute changes in degree.

Toyota tackled the issues in cooperation with Denso, (Toyota) Central Research & Development Labs, and Cataler (Corporation), which proved to be an advantage, and Toyota was able to produce vehicles at lower cost than other companies. All carmakers want the best possible components for electronic controls, but depending on the components, having such is easier said than done. So I think the point is that you have to keep on strengthening your abilities.

“Record of Interview with Mr. Kiyoshi Matsumoto” published in “1997 Jidosha Gijutsu no Rekishi ni Kansuru Chosa Hokokusho,” by the Automotive Technology History Committee (a Japanese-only publication; Society of Automotive Engineers of Japan, 1998)

Then-Director Kaneyoshi Kusunoki, who was responsible for manufacturing and production engineering departments including serving as manager of the Special Components Manufacturing Planning Department, later had the following recollection:

From beginning to end, what made the emissions controls successful were the Japanese manufacturers. This imparted considerable confidence to our technological capabilities and technical levels.

(Kaneyoshi Kusunoki, Hard Work and Growth (Toyota Motor Corporation, published 2006), p. 42)