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A power loss with increased EGR flow is definitely to be expected. Thats kind of what we're after actually.
When you experimented, how did you control the EGR valve? Did you have it running long at all before you had ignition problems? Do you have any data/testing to share?
Definitely getting too much EGR will decrease mileage as it causes misfires and incomplete burning just as running too lean would do. A high swirl head and strong ignition system will definitely help you run higher mixes of EGR.
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