Just saw this. Great reason to never get emissions testing at a muffler shop, not saying you did. High NOx is, as lucky pointed out, caused by high combustion chamber temps. Causes...EGR, Cat, or lean mixture...so lean the engine would probably clatter. Pulling timing back to 8 degrees BTDC will get many cars thru.
I got the first test at a Canadian Tire shop near home and they suggested I go to a muffler shop to get a new cat. This CTC store is really busy and they don't like messing around with older cars, so that's when I went to Ralph at the CTC store in central Ottawa as his shop does a lot of work on older cars for members of my sports car club, and he's done some work for me on the '89 240. I found the new cat at a local supplier who had one in stock, which was a bit of a surprise as there's not very many 240s still running around where I live, and Ralph's lads did a good job of installing it even with the flange on the down pipe being a bit rusted. I mentioned in my IPD post that the knock sensor is done and that a new one really hard to find, so they did back off the timing a bit to compensate. I took the expressway home (or at least as near to my home as I can) and got some good running at 125 km/h or so, and the car runs fine. BTW, I don't think either of my 240s has an EGR as I think they were only on '91 and up models.