Diesel compression ratios are normally set high (16:1 to 23:1) for cold starting, yet data show optimum fuel efficiency and emissions occur at compression ratios below 14:1. The industry trend has been to steadily reduce compression ratio. Literature findings indicate that reducing Diesel compression ratio reduces fuel consumption, emissions, allows higher turbo boost, and improves engine life [1]. However, lowering the compression ratio commonly leads to cold starting problems and white smoke during warm-up. The innovation of this proposal allows lower and variable compression in a simple, low cost, energy efficient manner that can be incorporated into existing engine designs. Moreover, this innovation may be retrofitted into many engine types. EMA proposes to develop a two-step valve lifter that closes the intake and exhaust valves early, particularly during cold starting and warmup. The two-step lifter provides two different valve lift profiles. On the intake valve, the reduced lift profile causes early increases the effective compression ratio. On the exhaust valve, early closing retains heat and fuel that would normally escape out the exhaust. Once the engine is warm the normal cam profile can be used to provide an Atkinson / Miller style engine cycle which is known to improve fuel economy and emissions. Commercial Applications and other Benefits The expected product is a two-step, valve lifter combined with a camshaft that normally late intake valve closing that can be used on Diesel engines. A fuel economy improvement of 10% or more is estimated with a reduction in carbon dioxide, particulate and NOx emissions as well. Little or no modification of the engine block and heads is required to implement this technology.