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Ultra-low NOx and smokeless operation at higher loads up to half of the rated torque is attempted with large ratios of cold EGR. NOx decreases below 6 ppm (0.05 g/(kW·h)) and soot significantly increases when first decreasing the oxygen concentration to 16% with cold EGR, but after peaking at 12-14% oxygen, soot then deceases sharply to essentially zero at 9-10% oxygen while maintaining ultra low NOx and regardless of fuel injection quantity. However, at higher loads, with the oxygen concentration below 9-10%, the air/fuel ratio has to be over-rich to exceed half of rated torque, and thermal efficiency, CO, and THC deteriorate significantly. As EGR rate increases, exhaust gas emissions and thermal efficiency vary with the intake oxygen content rather than with the excess air ratio.