[Federal Register Volume 63, Number 81 (Tuesday, April 28, 1998)]
[Proposed Rules]
[Pages 23241-23254]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10710]


-----------------------------------------------------------------------

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 69 and 80

[FRL-5999-6]


State of Alaska Petition for Exemption From Diesel Fuel Sulfur 
Requirement

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: On March 14, 1994, EPA granted the State of Alaska a waiver 
from the requirements of EPA's low-sulfur diesel fuel program for motor 
vehicles, permanently exempting Alaska's remote areas and providing a 
temporary exemption for areas of Alaska served by the Federal Aid 
Highway System. The exemption applied to certain requirements in 
section 211(i) and (g) of the Clean Air Act, as implemented in EPA's 
regulations. On December 12, 1995, the Governor of Alaska petitioned 
EPA to permanently exempt the areas covered by the temporary exemption. 
In this document, EPA is proposing to grant Alaska's petition for a 
permanent exemption for areas of Alaska served by the Federal Aid 
Highway System.
    This proposed rulemaking, if finalized, is not expected to have a 
significant impact on the ability of Alaska's communities to attain the 
National Ambient Air Quality Standards for carbon monoxide and 
particulate matter, due to the limited contribution of emissions from 
diesel motor vehicles in those areas and the sulfur level currently 
found in motor vehicle diesel fuel used in Alaska. However, if 
circumstances change such that the exemption is no longer appropriate 
under Section 325 based on consideration of the factors relevant under 
that section, EPA could withdraw this exemption in the future after 
public notice and comment.

DATES: EPA will conduct a public hearing on today's proposal May 21, 
1998, if one is requested by May 12, 1998. If a hearing is held, 
comments on this proposal must be submitted on or before June 22, 1998. 
If no hearing is held, comments must be submitted on or before May 28, 
1998. For additional information on the public hearing see 
Supplementary Information.

ADDRESSES: Comments should be submitted in duplicate to Mr. Richard 
Babst, Environmental Engineer, Fuels Implementation Group, Fuels and 
Energy Division (6406-J), 401 M Street S.W., Washington, D.C. 20460.
    Public Hearing: A public hearing, if held, will be at the Anchorage 
Federal Building, room 135, in Anchorage, Alaska.
    Docket: Copies of information relevant to this petition are 
available for inspection in public docket A-96-26 at the Air Docket of 
the EPA, first floor, Waterside Mall, room M-1500, 401 M Street S.W., 
Washington, D.C. 20460, (202) 260-7548, between the hours of 8:00 a.m. 
to 5:30 p.m. Monday through Friday. A duplicate public docket has been 
established at EPA Alaska Operations Office--Anchorage, Federal 
Building, Room 537, 222 W. Seventh Avenue, #19, Anchorage, AK 99513-
7588, and is available from 8:00 a.m. to 5:00 p.m. Monday through 
Friday. A reasonable fee may be charged for copying docket materials.

FOR FURTHER INFORMATION CONTACT: Mr. Richard Babst, Environmental 
Engineer, Fuels Implementation Group, Fuels and Energy Division (6406-
J), 401 M Street S.W., Washington, D.C. 20460, (202) 564-9473.

SUPPLEMENTARY INFORMATION:

Public Hearing Information

    Anyone wishing to testify at the public hearing scheduled for May 
21, 1998, should notify Richard Babst by telephone at (202) 564-9473, 
by fax at (202) 565-2085, or by Internet message at 
<a href="/cdn-cgi/l/email-protection#f89a999a8b8cd68a919b90998a9cb89d8899d69f978e"><span class="__cf_email__" data-cfemail="0567646776712b776c666d647761456075642b626a73">[email protected]</span></a>. If the above contact person fails to receive any 
requests for testifying on this proposal by May 12, 1998, the hearing 
will be canceled without further notification. Persons interested in 
determining if the hearing has been canceled should contact the person 
named above after May 12, 1998.
    The public hearing, if held, will begin at 9:00 a.m and continue 
until all interested parties have had an opportunity to testify. A 
sign-up sheet will be available at a registration table the morning of 
the hearing for scheduling testimony for those who have not previously 
notified the contact person listed above. Testimonies will be scheduled 
on a first come, first serve basis. EPA suggests that approximately 25 
to 50 copies of the statement or material to be presented be brought to 
the hearing for distribution to the audience. In addition, EPA would 
find it helpful to receive an advance copy of any statement or material 
to be presented at the hearing in order to give EPA staff adequate time 
to review the material before the hearing. Such advance copies should 
be submitted to the contact person listed above.
    The hearing will be conducted informally and technical rules of 
evidence will not apply. Because a public hearing is designed to give 
interested parties an opportunity to participate in the proceeding, 
there are no adversary parties as such. Statements by participants will 
not be subject to cross examination by other participants. A written 
transcript of the hearing will be placed in the public docket for 
review. Anyone desiring to purchase a copy of the transcript should 
make individual arrangements with the court reporter recording the 
proceeding. The EPA Presiding Officer is authorized to strike from the 
record statements which he deems irrelevant or repetitious and to 
impose reasonable limits on the duration of the statement of any 
witness. EPA asks that persons who testify attempt to limit their 
testimony to ten minutes, if possible.
    The Administrator will base her final decision with regard to 
Alaska's petition for exemption from the diesel fuel sulfur content 
requirement on the record of the public hearing, if held, and on any 
other relevant written submissions and other pertinent information. 
This information will be available for public inspection at the EPA Air 
Docket, Docket No. A-96-26 (see ADDRESSES). For more information on 
public participation, see SUPPLEMENTARY INFORMATION: VII. Public 
Participation.

Table of Contents

I. Regulated Entities
II. Electronic Copies of Rulemaking Documents
III. Background
IV. Petition for Exemption
V. Comments Received and Other Issues
VI. Decision for Permanent Exemption
VII. Public Participation
VIII. Statutory Authority
IX. Administrative Designation and Regulatory Analysis
X. Compliance With the Regulatory Flexibility Act
XI. Paperwork Reduction Act
XII. Unfunded Mandates Act

I. Regulated Entities

    Entities potentially regulated by this action are refiners, 
marketers, distributors, retailers and wholesale purchaser-consumers of 
diesel fuel for

[[Page 23242]]

use in the state of Alaska. Regulated categories and entities include:

------------------------------------------------------------------------
                                                Examples of regulated   
                 Category                             entities          
------------------------------------------------------------------------
Industry..................................  Petroleum distributors,     
                                             marketers, retailers       
                                             (service station owners and
                                             operators), wholesale      
                                             purchaser consumers (fleet 
                                             managers who operate a     
                                             refueling facility to      
                                             refuel motor vehicles).    
Individuals...............................  Any owner or operator of a  
                                             diesel motor vehicle.      
Federal Government........................  Federal facilities,         
                                             including military bases   
                                             which operate a refueling  
                                             facility to refuel motor   
                                             vehicles.                  
------------------------------------------------------------------------

    This table is not intended to be exhaustive, but rather provides a 
guide for readers regarding entities likely to be regulated by this 
action. This table lists the types of entities that EPA is now aware 
could potentially be regulated by this action. Other types of entities 
not listed in the table could also be regulated. To determine whether 
your facility is regulated by this action, you should carefully examine 
the criteria contained in Secs. 80.29 and 80.30 of title 40 of the Code 
of Federal Regulations as modified by today's action. If you have 
questions regarding the applicability of this action to a particular 
entity, consult one of the persons listed in the preceding FOR FURTHER 
INFORMATION CONTACT section.

II. Electronic Copies of Rulemaking Documents

    The preamble and regulatory language are also available 
electronically from the EPA Internet Web site. This service is free of 
charge, except for any cost you already incur for Internet 
connectivity. An electronic version is made available on the day of 
publication on the primary Web site listed below. The EPA Office of 
Mobile Sources also publishes these notices on the secondary Web site 
listed below.

http://www.epa.gov/docs/fedrgstr/EPA-AIR/(either select desired date or 
use Search feature)
http://www.epa.gov/OMSWWW/(look in What's New or under the specific 
rulemaking topic)

    Please note that due to differences between the software used to 
develop the document and the software into which the document may be 
downloaded, changes in format, page length, etc. may occur.

III. Background

    Section 211(i)(1) of the Act prohibits the manufacture, sale, 
supply, offering for sale or supply, dispensing, transport, or 
introduction into commerce of motor vehicle diesel fuel which contains 
a concentration of sulfur in excess of 0.05 percent by weight, or which 
fails to meet a cetane index minimum of 40 beginning October 1, 1993. 
Section 211(i)(2) requires the Administrator to promulgate regulations 
to implement and enforce the requirements of paragraph (1), and 
authorizes the Administrator to require that diesel fuel not intended 
for motor vehicles be dyed in order to segregate that fuel from motor 
vehicle diesel fuel. Section 211(i)(4) provides that the States of 
Alaska and Hawaii may seek an exemption from the requirements of 
subsection 211(i) in the same manner as provided in section 325 
<SUP>1</SUP> of the Act, and requires the Administrator to take final 
action on any petition filed under this subsection, which seeks 
exemption from the requirements of section 211(i), within 12 months of 
the date of such petition.
---------------------------------------------------------------------------

    \1\ Section 211(i)(4) mistakenly refers to exemptions under 
section 324 of the Act (``Vapor Recovery for Small Business 
Marketers of Petroleum Products''). The proper reference is to 
section 325, and Congress clearly intended to refer to section 325, 
as shown by the language used in section 211(i)(4), and the United 
States Code citation used in section 806 of the Clean Air Act 
Amendments of 1990, Public Law No. 101-549. Section 806 of the 
Amendments, which added paragraph (i) to section 211 of the Act, 
used 42 U.S.C. 7625-1 as the United States Code designation for 
section 324. This is the proper designation for section 325 of the 
Act. Also see 136 Cong. Rec. S17236 (daily ed. October 26, 1990) 
(statement of Sen. Murkowski).
---------------------------------------------------------------------------

    Section 325 of the Act provides that upon application by the 
Governor of Guam, American Samoa, the Virgin Islands, or the 
Commonwealth of the Northern Mariana Islands, the Administrator may 
exempt any person or source, or class of persons or sources, in such 
territory from any requirement of the Act, with some specific 
exceptions. Such exemption may be granted if the Administrator finds 
that compliance with such requirement is not feasible or is 
unreasonable due to unique geographical, meteorological, or economic 
factors of such territory, or such other local factors as the 
Administrator deems significant.

IV. Petition for Exemption

    On February 12, 1993, the Honorable Walter J. Hickel, then Governor 
of the State of Alaska, submitted a petition to exempt motor vehicle 
diesel fuel in Alaska from subsections (1) and (2) of section 211(i), 
except the minimum cetane index requirement of 40. Subsection (1) 
prohibits motor vehicle diesel fuel from having a sulfur concentration 
greater than 0.05 percent by weight, or failing to meet a minimum 
cetane index of 40. Subsection (2) requires the Administrator to 
promulgate regulations to implement and enforce the requirements of 
subsection (1), and authorizes the Administrator to require that diesel 
fuel not intended for motor vehicles be dyed in order to segregate that 
diesel fuel from motor vehicle diesel fuel. The petition requested that 
the Environmental Protection Agency (EPA) temporarily exempt motor 
vehicle diesel fuel manufactured for sale, sold, supplied, or 
transported within the Federal Aid Highway System from meeting the 
sulfur content requirement specified in section 211(i) until October 1, 
1996. The petition also requested a permanent exemption from such 
requirements for those areas of Alaska not reachable by the Federal Aid 
Highway System. The petition was based on geographical, meteorological, 
air quality, and economic factors unique to the State of Alaska.
    The petition was granted on March 22, 1994 (59 FR 13610) and 
applied to all persons in Alaska subject to section 211(i) and related 
provisions in section 211(g) of the Act and EPA's low-sulfur 
requirement for motor vehicle diesel fuel in 40 CFR 80.29. Persons in 
communities served by the Federal Aid Highway System were exempt from 
compliance with the diesel fuel sulfur content requirement until 
October 1, 1996. Persons in communities that are not served by the 
Federal Aid Highway System were permanently exempt from compliance with 
the diesel fuel sulfur content requirement. Both the permanent and 
temporary exemptions apply to all persons who manufacture, sell, 
supply, offer for sale or supply, dispense, transport, or introduce 
into commerce, in the State of Alaska, motor vehicle diesel fuel. 
Alaska's exemptions do not apply to the minimum cetane requirement for 
motor vehicle diesel fuel.
    On December 12, 1995, the Honorable Governor Tony Knowles, Governor 
of the State of Alaska, petitioned the Administrator for a permanent 
exemption for all areas of the state

[[Page 23243]]

served by the Federal Aid Highway System, that is, those areas covered 
only by the temporary exemption. On August 19, 1996, EPA extended the 
temporary exemption until October 1, 1996 (61 FR 42812), to give ample 
time for the agency to consider comments to that petition that were 
subsequently submitted. Today's proposed decision addresses EPA's final 
action on the petition submitted on December 12, 1995. EPA proposes to 
grant the petition for a permanent exemption for all areas of the state 
served by the Federal Aid Highway System. This proposed permanent 
exemption, when combined with the previously granted permanent 
exemption for all areas of the state not served by the Federal Aid 
Highway System, would effectively provide the entire state of Alaska a 
permanent exemption. While this exemption would be permanent, EPA would 
reserve the right to withdraw it in the future after public notice and 
comment if circumstances change such that the exemption is no longer 
appropriate under section 325 based on consideration of the factors 
relevant under that section.
    The following subsections summarize the state's support for the 
exemption as provided for in the petition and rationale for the 
agency's proposed rule to grant the exemption. Comments received by the 
agency, subsequent submittals by Alaska, and additional rationale for 
the agency's rule to grant the permanent exemption are provided in 
section V.

A. Geography and Location of the State of Alaska

    Alaska is about one-fifth as large as the combined area of the 
lower 48-states. Because of its extreme northern location, rugged 
terrain and sparse population, Alaska relies on barges to deliver a 
large percentage of its petroleum products. No other state relies on 
this type of delivery system to the extent Alaska does.
    Only 35 percent of Alaska's communities are served by the Federal 
Aid Highway System, which is a combination of road and marine highways. 
The remaining 65 percent of Alaska's communities are served by barge 
lines and are referred to as ``off-highway'' or ``remote'' communities. 
Although barge lines can directly access some off-highway communities, 
those communities that are not located on a navigable waterway are 
served by a two-stage delivery system: over water by barge line and 
then over land to reach the community.
    Because of the State's high latitude, it experiences seasonal 
extremes in the amount of daily sunlight and temperature, which in turn 
affects the period of time during which construction can occur, and, 
ultimately, the cost of construction in Alaska.
    According to the petition, Alaska's extreme northern location 
places it in a unique position to fuel transcontinental cargo flights 
between Europe, Asia, and North America. Roughly 75 percent of all air 
transit freight between Europe and Asia lands in Anchorage, as does 
that between Asia and the United States. The result is a large market 
for jet fuel (Jet-A kerosene) produced by local refiners, which 
decreases the relative importance of highway diesel fuel to these 
refiners. Based on State tax revenue receipts and estimates by Alaska's 
refiners, diesel fuel consumption for highway use represents roughly 
five percent of total Alaska distillate fuel consumption.<SUP>2</SUP>
---------------------------------------------------------------------------

    \2\ EPA independently verified these statements and estimates 
based on statistics from the Federal Highway Administration and the 
Department of Energy. These statistics show that the proportion of 
jet fuel consumption compared to total distillate consumption is 
approximately 65 percent for Alaska, compared to approximately 26 
percent for the United States. The per-capita consumption of jet 
fuel is approximately 26.6 barrels per year for Alaska, compared to 
approximately 2.1 barrels per year for the United States. The 
proportion of diesel fuel consumption for highway use compared to 
total distillate consumption is approximately three percent for 
Alaska, compared to approximately 29 percent for the United States. 
The per-capita consumption of diesel fuel for highway use is 
approximately 1.2 barrels per year for Alaska, compared to 
approximately 2.3 barrels per year for the United States.
---------------------------------------------------------------------------

B. Climate, Meteorology and Air Quality

    Alaska's climate is colder than that of the other 49 states. The 
extremely low temperatures experienced in Alaska during the winter 
imposes a more severe fuel specification requirement for diesel fuel in 
Alaska than in the rest of the country. This specification, known as a 
``cloud point'' specification <SUP>3</SUP> significantly affects 
vehicle start-up and other engine operations. Alaska has the most 
severe cloud point specification for diesel fuel in the U.S. at 
-56 deg.F. Because Alaska experiences extremely low temperatures in 
comparison to the other 49 states, and the cloud point specifications 
for diesel fuel in the lower 49 states are not as severe, most diesel 
fuel used in Alaska is produced by refiners located in Alaska. Jet-A 
kerosene meets the same cloud point specification as No. 1 diesel fuel 
(which is marketed primarily during the winter in Alaska, as opposed to 
No. 2 diesel fuel which is marketed primarily in the summer) and is 
commonly mixed with or used as a substitute for No. 1 diesel fuel. 
However, because Jet-A kerosene can have a sulfur content as high as 
0.3 percent, the motor vehicle diesel fuel sulfur requirement of 0.05 
percent would generally prohibit using Jet-A kerosene from being used 
as a fuel for motor vehicles.
---------------------------------------------------------------------------

    \3\ The cloud point defines the temperature at which cloud or 
haze or wax crystals appears in the fuel. The purpose of the cloud 
point specification is to ensure a minimum temperature above which 
fuel lines and other engine parts are not plugged by solids that 
form in the fuel. This specification is designated by the American 
Society for Testing and Materials (ASTM) in its ``Standard 
Specification for D975-96 Diesel Fuel Oils'', and varies by area of 
the country and by month of the year based on historical temperature 
records. Alaska has the most stringent cloud point specification in 
the United States. For example in January, Alaska's cloud point 
specification is -56 deg.F, -26 deg.F, and -2 deg.F for the northern 
(above 62 deg. latitude), southern (below 62 deg. latitude), and 
Aleutian Islands plus southeastern coast region, respectively. In 
contrast, the most stringent cloud point specification in January in 
the lower-48 states is -29 deg.F for Minnesota. For the State of 
Washington, from which some imported distillate is imported into 
Alaska, the January cloud point specification is +19.4 deg.F and 
0 deg.F for the western and eastern parts of the State, 
respectively.
---------------------------------------------------------------------------

    Ice formation on the navigable waters during the winter months 
restricts fuel delivery to off-highway areas served by barge lines. 
Therefore, fuel is generally only delivered to these areas between the 
months of May and October. This further restricts the ability of fuel 
distributors in Alaska to supply multiple grades of petroleum products 
to these communities.
    The only violations of national ambient air quality standards in 
Alaska have been for carbon monoxide (CO) and particulate matter 
(PM<INF>10</INF>). CO violations have only been recorded in the State's 
two largest communities: Anchorage and Fairbanks. PM<INF>10</INF> 
violations have only been recorded in two rural communities, Mendenhall 
Valley of Juneau and Eagle River in Anchorage. The most recent 
PM<INF>10</INF> inventories for these two communities show that these 
violations are largely the result of fugitive dust from paved and 
unpaved roads, and that diesel motor vehicles are responsible for less 
than one percent of the overall PM<INF>10</INF> being emitted within 
the borders of each of these areas <SUP>4</SUP>. Moreover, Eagle River 
has not had a violation of the PM<INF>10</INF> standard since 1986. 
Mendenhall Valley has initiated efforts for road paving to be 
implemented to control road dust. The sulfur content of diesel fuel is 
not expected to have a significant impact on ambient PM<INF>10</INF> or 
CO levels in any of these areas because of the minimal contribution by 
diesel motor vehicles to PM<INF>10</INF> in these areas and the 
insignificant

[[Page 23244]]

effect of diesel fuel sulfur content on CO emissions.
---------------------------------------------------------------------------

    \4\ ``PM<INF>10</INF> Emission Inventories for the Mendenhall 
Valley and Eagle River Areas,'' prepared for the U.S. Environmental 
Protection Agency, Region X, by Engineering-Science, February 1988.
---------------------------------------------------------------------------

    Finally, EPA recognizes that the primary purpose of reducing the 
sulfur content of motor vehicle diesel fuel is to reduce vehicle 
particulate emissions. Additional benefits cited in the final rule (55 
FR 34120, August 21, 1990) include a reduction in sulfur dioxide 
(SO<INF>2</INF>) emissions and the ability to use exhaust after-
treatment devices on diesel fueled vehicles, which would result in some 
reduction of HC and CO exhaust emissions. The use of high-sulfur diesel 
fuel may cause plugging or increased particulate sulfate emissions in 
diesel vehicles equipped with trap systems or oxidation catalysts, and 
could impair the ability of oxidation catalysts to reduce HC and CO 
exhaust emissions. However, any increase in sulfate particulate 
emissions would likely have an insignificant effect on ambient 
PM<INF>10</INF> levels in Alaska since current diesel motor vehicle 
contributions to PM<INF>10</INF> emissions are minimal. Also, the lower 
sulfur requirement for motor vehicle diesel fuel will have no impact on 
the attainment prospects of Fairbanks and Anchorage with respect to CO, 
since reducing sulfur content has no direct affect on CO emissions. 
Since Alaska is in attainment with the ozone and SO<INF>2</INF> 
national ambient air quality standards, there is currently no concern 
for reducing HC or SO<INF>2</INF> emissions.
    The Agency recognizes that granting this exemption means Alaska 
will forego the potential benefits to its air quality resulting from 
the use of low-sulfur diesel fuel. However, EPA believes that the 
potential benefits to Alaska's air quality are minimal and are far 
outweighed by the increased costs resulting from factors unique to 
Alaska to communities served by the Federal Aid Highway System.

C. Economic Factors

    In complying with the section 211(i) sulfur requirement, refiners 
have the option to invest in the process modifications necessary to 
produce low-sulfur diesel fuel for use in motor vehicles, or not invest 
in the process modifications and only supply diesel fuel for off-
highway purposes (e.g., heating, generation of electricity, non-road 
vehicles). Most of Alaska's refiners indicated that local refineries 
would choose to exit the market for highway diesel fuel if an exemption 
from the low-sulfur requirement is not granted. This is because of 
limited refining capabilities, the small size of the market for highway 
diesel fuel in Alaska, and the costs that would be incurred to produce 
low-sulfur diesel fuel.
    Demand for Jet-A kerosene, which is also sold as No. 1 diesel fuel 
because it meets Alaska's winter cloud point specification, accounts 
for about half of Alaska's distillate consumption and dominates refiner 
planning. A survey of the refiners in Alaska, conducted by the State, 
revealed that it would cost over $100,000,000 in construction and 
process modifications to refine Alaska North Slope (ANS) crude into 
diesel fuel that would meet the 0.05 percent sulfur requirement to meet 
the demand for highway diesel fuel. Among the reasons for the high cost 
include the construction costs in Alaska, which are 25 to 65 percent 
higher than costs in the lower 48 states, and the cost of modifying the 
fuel production process itself. The petition states that because there 
is such a small demand for highway diesel fuel in Alaska, the costs 
that would be incurred to comply with section 211(i)'s sulfur 
requirement are excessive in light of the expected benefits. Without an 
exemption from having to meet this requirement, most refiners would 
choose to exit the market for highway diesel fuel.
    Whether low-sulfur diesel fuel is produced in Alaska or imported 
from the lower-48 states or Canada, there remains the problem of 
segregating the two fuels for transport to communities along the FAHS 
accessible only by navigable waterways and subsequent storage of the 
fuels in those communities. Fuel is delivered to these communities only 
between the months of May and October due to ice formation which blocks 
waterways leading to these communities for much of the remainder of the 
year. The fuel supplied to these communities during the summer months 
must last through the winter and spring months until resupply can 
occur. Additionally, the existing fuel storage facilities limit the 
number of fuel types that can be stored for use in these communities. 
The cost of constructing separate storage facilities and providing 
separate tanks for transport of low-sulfur diesel fuel for motor 
vehicles could be significant. This is largely due to the high cost of 
construction in Alaska relative to the lower 48 states, and the 
constraints inherent in distributing fuel in Alaska. One alternative to 
constructing separate storage facilities is to supply only low-sulfur 
diesel fuel to these communities. However, the result would require use 
of the higher cost, low-sulfur diesel fuel for all diesel fuel needs. 
This would greatly increase the already high cost of living in these 
communities, since a large percentage of distillate consumption in 
these communities is for off-highway uses, such as operating diesel 
powered electrical generators.

D. Environmental Factors

    Information provided to EPA by the State of Alaska indicates that 
refiners supply and distribute standard diesel fuel in the summer which 
has a sulfur content of approximately 0.3 percent by weight, and supply 
and distribute Jet-A kerosene in the winter as an Arctic-grade diesel, 
which has a sulfur content between 0.065 and 0.11 percent by weight 
from Alaskan refiners, and 0.03 percent by weight from one refiner in 
the lower-48 states. Thus, the reported level of sulfur in motor 
vehicle diesel fuel used in Alaska is below the current ASTM sulfur 
specification which allows up to 0.5 percent by weight. Therefore, in 
general, the impact of not requiring the low-sulfur motor vehicle 
diesel fuel program in Alaska is not as significant as it would be if 
the current fuel approached the ASTM allowable sulfur content level.
    Although the State's largest communities, Fairbanks and Anchorage, 
are CO nonattainment areas, granting this exemption is not expected to 
have any significant impact on ambient CO levels because the sulfur 
content in diesel fuel does not significantly affect CO emissions. Two 
rural communities are designated nonattainment areas with respect to 
particulate matter (PM<INF>10</INF>); however, diesel motor vehicle 
exhaust is responsible for less than one percent of the overall 
PM<INF>10</INF> being emitted within the borders of these two areas 
where fugitive dust is reported to be the most significant problem. 
Thus, EPA believes that granting a permanent exemption to communities 
served by the Federal Aid Highway System will not have a significant 
impact on the ability of any of these communities to meet the current 
national ambient air quality standards.

V. Comments Received and Other Issues

    This section addresses issues and comments that EPA needed more 
time to consider at the time of the August 19, 1996 extension of the 
temporary exemption for areas served by the Federal Aid Highway System.

A. Availability of Arctic-Grade, Low-Sulfur Diesel Fuel From Out-of-
State Refiners

    In a letter to the Alaska Department of Environmental Conservation 
of July 20, 1995, the Clean Air Coalition suggested that importing low-
sulfur diesel fuel is a low cost option to comply with the low-sulfur 
highway diesel fuel requirement, since highway diesel fuel

[[Page 23245]]

is such a small part of the diesel fuel market in Alaska. It also noted 
that Southeast Alaska already imports low-sulfur diesel fuel from Puget 
Sound.
    Although the 1995 staff report from the Low-Sulfur Diesel Task 
Force agreed that some low-sulfur diesel fuel is being imported to 
Southeast Alaska, generally from the Puget Sound area, an October 13, 
1997 letter to EPA from the Alaska Department of Environmental 
Conservation, indicated that much of this ``low-sulfur'' diesel fuel 
may not comply with the Federal sulfur requirements for motor vehicle 
diesel fuel. Much of the ``low-sulfur'' fuel being imported is, in 
fact, downgraded Jet-A kerosene. The letter explains that in Southeast 
Alaska, jet fuel is a significant portion of the distillate market, but 
tank storage is limited. Because of this storage limitation and the 
very specific requirements for jet fuel, two of the three major 
distributors surveyed by the Alaska Department of Environmental 
Conservation purchase only Jet-A kerosene to supply all their customers 
for aviation and other uses, including motor vehicles. But even if some 
diesel fuel being imported to Southeast Alaska is actually low-sulfur 
motor vehicle fuel rather than Jet-A kerosene, it would not be arctic 
grade. In Southeast Alaska, the climate is mild enough to use the same 
fuel that is refined for the Seattle area. Consequently, the fuel being 
imported into Southeast Alaska either does not meet the Federal sulfur 
requirements for motor vehicles, or is not arctic grade, or both.
    The Low-Sulfur Diesel Task Force also investigated the potential 
for importing low-sulfur motor vehicle diesel fuel from British 
Columbia, which has required low-sulfur diesel fuel as of April 15, 
1995.<SUP>5</SUP> The task force concluded that Canada does not appear 
to be a significant source of low-sulfur highway diesel fuel to Alaska. 
In support of this contention, Alaska's December 12, 1995 Petition for 
Exemption stated that the British Columbia Ministry of Environment 
reported supplies of low-sulfur diesel in British Columbia ``will 
remain tight''. The Petition also stated that, based on discussions 
with Alaska refiners, ``Canadian fuel does not seem to be available for 
Alaska'', and one Alaska refiner reported that diesel fuel ``is sold 
from Alaska into the Yukon Territory and northern British Columbia.'' 
The petition concludes that ``sufficient Canadian fuel is not available 
to meet Alaska's diesel fuel needs for an arctic-grade low-sulfur 
diesel fuel.''
---------------------------------------------------------------------------

    \5\ British Columbia is the Canadian Province directly north of 
the State of Washington, and directly south and east of Southeast 
Alaska. Directly north of British Columbia and east of the interior 
of Alaska is the Canadian Province of Yukon, which does not require 
low-sulfur motor vehicle diesel fuel.
---------------------------------------------------------------------------

    EPA believes, based on the information provided, that adequate 
supplies of arctic-grade low-sulfur diesel fuel are not likely to be 
available for import into Alaska. Even if U.S. refiners in the lower-48 
states wanted to enter this market, they would have to confront the 
similar problem that would be encountered by the Alaskan refiners of 
changing or modifying the refineries to produce low-sulfur arctic-grade 
motor vehicle diesel fuel, or Jet-A kerosene that meets the Federal 
motor vehicle sulfur requirement. The Alaskan refiners, which produce 
significant amounts of Jet-A kerosene, apparently have already 
concluded that the small highway diesel market in Alaska is too small 
for such changes and modifications to be economical. Economic 
feasibility directly relates to availability, since EPA does not have 
authority to require refiners to enter or remain in the motor vehicle 
diesel fuel market in Alaska. Finally, Canada is not a likely source of 
imports, because its refiners apparently do not have the capacity to 
export low-sulfur diesel fuel to Alaska.

B. Cost of Importing Low-Sulfur Diesel Fuel

    In letters to the Alaska Department of Environmental Conservation 
of July, 1995 and October 30, 1995, the Clean Air Coalition suggested 
that Alaskan refineries and fuel distributors have not documented that 
there will be any increase to the consumer in complying with the low-
sulfur requirement, and that increasing imports is a viable alternative 
to fuel produced in-state. The Clean Air Coalition noted that it costs 
five cents a gallon to import the fuel, and companies already import a 
significant amount of fuel to sell alongside fuel produced in-state. It 
further noted that Southeast Alaska already imports low-sulfur diesel 
from Puget Sound with no additional costs to consumers.
    The 1995 staff report of the Low-Sulfur Diesel Task Force indicated 
that diesel fuel being shipped to Southeast Alaska is not segregated in 
shipping barges, and the same fuel that is sold for non-road uses, such 
as heating oil, is also sold as motor vehicle diesel fuel. The 
distributors buy the fuel that has the lowest cost. The report noted 
that low-sulfur diesel fuel can vary from six cents more expensive to 
three cents less expensive per gallon than high sulfur 
fuel.<SUP>6</SUP>
---------------------------------------------------------------------------

    \6\ For an independent ``snap-shot'' assessment of the price 
difference between low and high sulfur diesel fuel, EPA looked at 
one time-period, the weeks of August 1 through August 29, 1997. From 
summary statistics published in ``The Oil Daily'' for that time 
period, EPA calculated the difference between the average price of 
low-sulfur diesel fuel and the average price of high-sulfur diesel 
fuel. This calculated price difference was 0.79 and 1.16 cents per 
gallon for the Gulf Coast and New York areas, respectively. The Oil 
Daily also provides summary statistics for the Los Angeles area, but 
not for high-sulfur fuel, which apparently is not distributed in Los 
Angeles.
---------------------------------------------------------------------------

    Alaska's December 12, 1995 Petition for Exemption indicates the 
cost of transporting diesel fuel to Alaska depends on the destination. 
In Southeast Alaska the transportation costs would not increase by 
using low-sulfur diesel fuel because fuel is already imported to that 
area. However, the shipping costs would increase for other areas which 
currently obtain their fuel from in-state refineries. For example, the 
shipping cost for low-sulfur diesel fuel from the Puget Sound area to 
Anchorage would be approximately four cents per gallon, according to 
one distributor.
    In its September 3, 1997 submittal of information to EPA, the 
Alaska Department of Environmental Conservation said it surveyed three 
major distributors in Southeast Alaska. Two of these distributors 
indicated they provide only low-sulfur diesel fuel (they downgrade Jet-
A kerosene to sell as diesel fuel), but it does not meet the 0.05 
percent low sulfur motor vehicle diesel fuel requirement. Excluding 
distillate sold as jet fuel, an estimated 23 percent of diesel fuel is 
sold for on-road uses.<SUP>7</SUP> These distributors indicated the 
price difference between the low-sulfur (Jet-A kerosene) and high-
sulfur diesel fuels vary from one to four cents per gallon. 
Consequently, for these two distributors because of the lack of 
separate storage capacity, the estimated price increase for non-motor 
vehicle users in Juneau is $92,000 to $368,000 per year. In its October 
13, 1997 letter to EPA, the Alaska Department of Environmental 
Conservation verified that the ``low-sulfur'' diesel fuel being 
imported into Southeast Alaska is Jet-A kerosene, which tends to be 
more expensive than low-sulfur motor vehicle diesel fuel but does not 
necessarily meet the Federal sulfur requirements.
---------------------------------------------------------------------------

    \7\ EPA calculated that if jet fuel were included in the total 
distillate sales, the estimate for on-road uses in Southeast Alaska 
would be eight percent, which is consistent with earlier estimates 
by the Alaska Department of Environmental Conservation that motor 
vehicle use of total distillates is approximately five percent 
statewide.
---------------------------------------------------------------------------

    In evaluating the cost of importing low-sulfur diesel fuel, EPA has

[[Page 23246]]

considered two principle components of importation costs: (1) The cost 
of the fuel to be imported, and (2) the shipping costs. These 
components are discussed separately, as follows.
    The cost of the fuel to be imported is difficult to assess because 
of the limited information. The 1995 Staff Report of the Low-Sulfur 
Diesel Task Force indicated that low-sulfur diesel fuel can vary from 
six cents more expensive to three cents less expensive per gallon than 
high-sulfur diesel fuel. Two major fuel distributors for Southeast 
Alaska recently estimated the difference in cost between low-sulfur 
diesel fuel and high-sulfur diesel fuel to be one to four cents per 
gallon. The actual costs could be even higher. As indicated by these 
two distributors, the low-sulfur diesel fuel they import is downgraded 
Jet-A kerosene, which is arctic grade but does not necessarily meet the 
low-sulfur motor vehicle requirements.
    One would ordinarily presume that if the diesel fuel meeting the 
low-sulfur requirements cost less, it would be the fuel of choice for 
the importers. However, according to the October 13, 1997 letter from 
the Alaska Department of Environmental Conservation, the distributors 
import the more expensive Jet-A kerosene for all uses because limited 
storage prevents segregation among the intended uses. Thus, while 
importing low-sulfur motor vehicle diesel fuel could reduce the cost of 
the fuel, this cost reduction would apparently be more than offset by 
the increased cost associated with segregated storage. Further, that 
fuel which is currently refined and distributed as low-sulfur motor 
vehicle diesel fuel is not arctic grade.
    Consequently, increased costs would be incurred if arctic grade 
low-sulfur motor vehicle diesel fuel were required. Further, this does 
not mean that refiners in the lower-48 states will produce the required 
low-sulfur fuel, or if they did produce it that they would necessarily 
sell it based on current market prices (see the previous Subsection A. 
Availability of arctic-grade, low sulfur diesel fuel from out-of-state 
refiners).
    EPA understands that diesel fuel is currently shipped to Southeast 
Alaska, primarily from the Puget Sound area. Thus, any cost increase 
due to shipping low-sulfur diesel fuel to Southeast Alaska would be the 
cost associated with segregating the low-sulfur motor vehicle diesel 
fuel from the higher-sulfur diesel fuel designated for non-motor 
vehicle uses. This can be accomplished either by separate tanks on the 
shipping vessels, or by making separate trips for the low-sulfur diesel 
fuel designated for motor vehicle use. EPA believes that this cost 
would be either zero or minimal.
    Increased shipping costs to other areas of Alaska may be more than 
minimal. For areas that already receive imported distillate, current 
shipping cost estimates are for shipments of non-segregated distillate, 
of which only about five percent is intended for highway use. Similarly 
as with Southeast Alaska, the low-sulfur requirement would require 
either segregated or separate shipments for motor vehicle diesel fuel, 
but EPA believes that this cost increase would be either zero or 
minimal. For areas that are now served by in-state refineries, low-
sulfur diesel fuel for motor vehicles would have to be imported, 
thereby adding shipping costs. The Alaska Clean Air Coalition noted 
that it currently costs five cents a gallon to import fuel. One 
distributor estimated a cost of four cents per gallon for shipping 
imported fuel from Puget Sound to Anchorage. This analysis may be 
purely academic, however, in refiners in the lower-48 states decide to 
not produce the required low-sulfur arctic grade diesel fuel because of 
the small motor vehicle diesel market in Alaska.

C. Costs of Storing and Distributing Low-Sulfur Diesel Fuel

    The Alaska Center for the Environment, in a letter of June 19, 1996 
to the EPA, commented that Canada experienced no increase in 
distribution costs after requiring low-sulfur diesel fuel. This 
information was reportedly obtained from a January 11, 1995 meeting 
with the Alaska Department of Environmental Conservation. The 
implication of this comment is that distribution costs projected for 
low-sulfur diesel fuel in Alaska may be overstated.
    The 1995 staff report of the Low-Sulfur Diesel Task Force indicated 
that the increase in distribution costs for low-sulfur diesel fuel can 
vary widely. For Southeast Alaska the increase in distribution cost 
would likely be zero. For other areas of the state, three distributors 
that provided data indicated a five, seven and twenty cents-per-gallon 
increase in distribution costs for low-sulfur diesel fuel.
    Similarly, the December 12, 1995 Petition for Exemption indicated 
the cost increase would vary depending on the location. It indicated 
that fuel segregation is the major contributor to distribution costs 
because the highway diesel market is less than five percent of the 
distillate market. Distributors ``cannot be expected'' to import and 
supply low-sulfur distillate for the other 95 percent of the market. 
According to the petition, distribution costs are likely to be higher 
in Kodiak and other lower volume distribution locations, which would 
have to recover the increased cost of tank and piping additions or 
modifications over a small volume of fuel. One distributor in Kodiak 
stated that its cost increase might be as high as 20 cents-per-gallon. 
In contrast, one distributor in Anchorage indicated it would not have 
to build a new tank for low-sulfur diesel, and reported it would have 
no increase in distribution cost.
    In its August 5, 1997 submittal to EPA, the Alaska Department of 
Environmental Conservation estimated that if low-sulfur diesel fuel 
were required for highway vehicles, even if only during the summer, the 
distribution cost increases would range from five to twenty cents per 
gallon. In its September 3, 1997 submittal of information to EPA, the 
Alaska Department of Environmental Conservation said it surveyed three 
major distributors in Southeast Alaska. One of these distributors 
indicated it imports both high and low sulfur (downgraded Jet-A 
kerosene) diesel fuel into Southeast Alaska, but it mixes the two 
together because it does not have separate storage facilities. The 
other two distributors indicated they provide only low-sulfur diesel 
(downgraded Jet-A kerosene), but it does not meet the 0.05 percent low 
sulfur diesel fuel requirement. Thus, if low-sulfur diesel fuel were 
required for motor vehicles, these distributors would have to either 
provide for separate storage, or purchase complying diesel fuel for all 
uses.
    In a January 27, 1998 telephone conversation, the Alaska Department 
of Environmental Conservation indicated that cost is not the only 
factor in considering expansion of fuel storage capacity. It cited an 
example of the difficulties Mapco has had in expanding its storage 
capacity at an Anchorage tank farm. Mapco has been trying 
unsuccessfully for four years to get the necessary permits, but has not 
been able to overcome the Alaska Department of Conservation 
requirements, the coastal zone management requirements, and objections 
by the adjacent residential neighborhood.
    In its October 13, 1997 letter to EPA, the Alaska Department of 
Environmental Conservation indicated that it is not ``completely 
reasonable [to compare] British Columbia's experience with 
implementation of low sulfur diesel, because British Columbia is less 
remote and does not have the same climate as Alaska.'' The interior of 
Alaska borders Yukon, and considering geography and climate, it would 
be more appropriate to compare to Yukon's

[[Page 23247]]

experience. But Yukon does not require low-sulfur motor vehicle diesel 
fuel.
    Considering the available information, EPA believes that storage 
and distribution costs would likely increase, and the extent would 
depend on the area and the distributor. Those costs could likely range 
from zero or minimal to very high (e.g., in Kodiak).

D. Alternative Fuel or Fuel Standard

    In a letter of July 20, 1995 to the Alaska Department of 
Environmental Conservation, the Clean Air Coalition proposed three 
alternatives to a permanent statewide exemption to the low sulfur 
diesel fuel requirement. The first suggested alternative is to exclude 
Southeast Alaska from any exemption. This area already imports low-
sulfur diesel for transportation, power generation and home use from 
Puget Sound with no additional cost to consumers. The second suggested 
alternative is to require Alaska to import low-sulfur diesel in the 
summer months only, and ``allow'' Alaska to use ``winter diesel'' in 
the colder months. The third suggested alternative is to require Alaska 
to use ``winter diesel'' year-round, even though the ``winter diesel'' 
does not ``fully meet Clean Air Act standards.'' It notes that Chevron 
produces a ``winter diesel fuel'' with 0.03 percent sulfur content, and 
other companies sell it with a sulfur content from 0.65 to 0.10 
percent. EPA presumes that this ``winter diesel'' is Jet-A kerosene, 
which meets the stringent Alaskan winter diesel fuel cloud point 
specification of -56 deg. F, and consequently is commonly mixed with, 
or used as a substitute for, No. 1 diesel fuel in Alaska.
    In a letter of April 23, 1996 to the EPA, the Alaska Center for the 
Environment proposed the same three alternatives to a permanent 
statewide exemption of the low-sulfur diesel fuel requirement. The 
letter also references the staff report of the Low-Sulfur Diesel Task 
Force in noting that the sulfur content of Alaskan Jet-A kerosene 
contains from 0.03 to 0.09 percent sulfur, and that requiring Jet-A 
kerosene year-round would simply result in the importation of Jet-A 
kerosene increasing from the current 13 percent to 21 percent.
Alternative 1: Exclude Southeast Alaska
    In support of the alternative that Southeast Alaska be excluded 
from any exemption, the Clean Air Coalition stated that Southeast 
Alaska already imports low-sulfur diesel for transportation, power 
generation and home use from Puget Sound with no additional cost to 
consumers. In its August 5, 1997 submittal to EPA, the Alaska 
Department of Environmental Conservation stated that diesel fuel for 
all uses is imported to Southeast Alaska from the lower 48 states by 
barge, and on-road and non-road diesel is not segregated. Currently, 
market price determines whether high or low-sulfur diesel is 
distributed. If low-sulfur diesel were required for highway use, either 
separate storage may be needed to segregate the highway fuel, or 
citizens using diesel for home heating would have to bear any 
associated price increases for all the diesel fuel to meet the low-
sulfur requirement. In the latter case, the Alaska Department of 
Environmental Conservation estimated that if a five cent per gallon 
increase occurs, home heating costs could increase $430,000 per year.
    In its September 3, 1997 submittal of information to EPA, the 
Alaska Department of Environmental Conservation indicated it surveyed 
three major distributors in Southeast Alaska. One of these distributors 
indicated it imports both high and low sulfur (downgraded Jet-A 
kerosene) diesel fuel into Southeast Alaska, but it mixes the two 
together because it does not have separate storage facilities. The 
other two distributors indicated they provide only low-sulfur diesel 
(downgraded Jet-A kerosene) to sell as diesel fuel. These distributors 
indicated the price difference between the low and high-sulfur diesel 
fuels vary from one to four cents per gallon. In its October 13, 1997 
letter to EPA, the Alaska Department of Environmental Conservation 
clarified that these two distributors import only Jet-A kerosene 
because jet fuel is a large portion of their market and they are unable 
to segregate that fuel because of lack of storage facilities. Thus, 
they purchase the generally more expensive Jet-A kerosene to supply all 
users of distillate.
    The Alaska Department of Environmental Conservation also raised an 
equity issue. Southeast Alaska residents would be required to bear the 
cost of any increases due to the low-sulfur requirements, while 
residents in other areas of the state would be exempted. Finally, the 
Department of Environmental Conservation stated that Southeast Alaska 
does not have a major highway system--transport of goods and freight 
between towns occurs by water or air.
    After considering the issues raised, EPA concluded the expected air 
quality benefits associated with excluding Southeast Alaska from the 
exemption would be negligible or minimal, and EPA is concerned about 
the potential for cost increases, not only for motor vehicle uses, but 
also for other uses, as discussed below.
    First EPA considered the impact of an exemption from the motor 
vehicle diesel fuel sulfur requirements on air quality benefits in 
Southeast Alaska. All parties generally agree that Southeast Alaska 
already imports a low-sulfur fuel for some of its market. Also, the 
portion of fuel that is used for motor vehicles is relatively small. To 
the extent Southeast Alaska is currently importing low-sulfur diesel 
fuel that already meets the Federal requirements for motor vehicles, no 
additional air quality benefits would result from requiring low-sulfur 
diesel for motor vehicle use. To the extent Southeast Alaska is 
currently importing low-sulfur non-complying diesel fuel (e.g., Jet-A 
kerosene with sulfur content above 0.05 percent by weight), minimal air 
quality benefits would result from requiring that fuel to meet the 0.05 
percent sulfur requirement. To the extent Southeast Alaska is currently 
importing high-sulfur diesel fuel, requiring the use of low-sulfur 
highway diesel fuel would likely result in a certain amount of reduced 
per-vehicle emissions.
    The only national ambient air quality standards nonattainment area 
in Southeast Alaska is the Mendenhall Valley in Juneau for 
PM<INF>10</INF>, where diesel truck exhaust, brake wear and tire wear 
combined contribute less than one percent to the PM<INF>10</INF> 
inventory.<SUP>8</SUP> By contrast, the largest sources of 
PM<INF>10</INF> in Mendenhall Valley are fugitive and windblown dust 
which account for 89 percent of the annual inventory. This means that 
the maximum reduction in PM<INF>10</INF> that can be achieved by 
totally eliminating all motor vehicle diesel emissions is only one 
percent. Low-sulfur motor vehicle diesel fuel meeting the Federal 
sulfur content requirement would eliminate only a portion of that one 
percent. Consequently, EPA believes that the air quality benefits of 
reducing motor vehicle diesel exhaust by requiring low-sulfur diesel 
fuel for motor vehicles would be negligible. (For discussion on 
localized environmental impacts see Subsection E: Local environmental 
effects. Also, EPA is not addressing future requirements, including for 
the new national ambient air quality standard for PM<INF>2.5</INF>, in 
this proposed rule--see Subsection H: New National Ambient Air Quality 
Standards).
---------------------------------------------------------------------------

    \8\ ``PM<INF>10</INF> Emission Inventories for the Mendenhall 
Valley and Eagle River Areas,'' prepared for the U.S. Environmental 
Protection Agency, Region X, by Engineering-Science, February 1988.
---------------------------------------------------------------------------

    The Clean Air Coalition raised the issue that secondary air quality 
benefits

[[Page 23248]]

of low-sulfur highway diesel fuel could be significant. Because 
distillate fuel shipments in Southeast Alaska are generally not 
segregated by end-use, a requirement for low-sulfur highway diesel fuel 
might spill over into the distillates transported for non-highway uses, 
such as for heating and electrical generation.
    EPA agrees that there could be secondary air quality benefits to 
requiring low-sulfur diesel fuel in Southeast Alaska, however, EPA does 
not know the extent of that potential impact. If suppliers and 
distributors in Southeast Alaska elect in-full or in-part to not 
segregate diesel fuel by end-use in response to the motor vehicle low-
sulfur diesel fuel requirement, except possibly for Jet-A kerosene, 
they would have to supply the more restrictive low-sulfur motor vehicle 
diesel fuel for the non-motor vehicle uses. The air quality benefits--
primarily reduced particulate emissions--would depend on the change in 
proportion of the non-motor vehicle diesel fuel that would meet the 
motor vehicle low-sulfur diesel fuel requirement, the change in sulfur 
content between the diesel fuel that is currently distributed and that 
which would be distributed under a motor vehicle low-sulfur diesel fuel 
requirement, and the change in emissions between the current and the 
motor vehicle low-sulfur diesel fuel for the various non-motor vehicle 
diesel combustion sources. Such diesel sources include, but are not 
limited to, utility diesel electrical power generators, small diesel 
electrical power generators (e.g., for construction and remote sites, 
backup generators for businesses, hospitals and homes, etc.), 
construction and farm vehicles (e.g., road graders, bull-dozers, farm 
tractors, etc.), construction and farm equipment (e.g., air 
compressors, harvesters, etc.) and heaters (e.g., industrial boilers, 
home furnaces, kerosene heaters, etc.).
    Since fugitive and windblown dust account for 89 percent of the 
annual PM<INF>10</INF> inventory, the maximum that total emissions from 
all petroleum products (including diesel fuel, bunker fuel, fuel oil, 
kerosene, gasoline, etc.) can contribute is only 11 percent of the 
annual inventory. Assuming a best case scenario in which all petroleum 
fuels (not just the motor vehicle diesel fuels) were to meet the 
Federal sulfur content requirement for motor vehicle diesel fuel, only 
a portion of the 11 percent of the annual inventory of PM<INF>10</INF> 
would be eliminated.
    Considering the cost impact of requiring low-sulfur highway diesel 
fuel, market price and storage facilities determines whether high or 
low-sulfur diesel is distributed to Southeast Alaska. To the extent 
Southeast Alaska is currently importing low-sulfur diesel that meets 
the Federal sulfur content requirement for motor vehicle diesel fuel, 
no additional costs would result from requiring low-sulfur diesel for 
motor vehicle use. To the extent Southeast Alaska is currently 
importing diesel fuel that does not meet the Federal sulfur content 
requirement, EPA assumes that the current market results in the lowest 
overall fuel cost and that higher overall fuel costs would result from 
requiring low-sulfur diesel for motor vehicle use. Even though low-
sulfur motor vehicle diesel fuel (non-arctic grade) would normally be 
priced less than Jet-A kerosene in the typical market, apparently this 
lower cost would not offset the anticipated cost of modifying or 
expanding the available storage facilities in Southeast Alaska to 
provide for segregated storage. Consequently, the low-sulfur 
requirement for motor vehicle diesel fuel is likely to result in higher 
fuel costs.
    These higher fuel costs would likely be passed on to consumers. If 
segregated storage is provided only for Jet-A kerosene and not for 
motor vehicle fuel, citizens using the unsegregated low-sulfur motor 
vehicle fuel for home heating, electricity and other non-road uses 
would also have to bear the associated price increase. Because non-road 
applications of diesel fuel use significantly higher quantities of the 
fuel,<SUP>9</SUP> this overall cost to homeowners and businesses could 
be significant.
---------------------------------------------------------------------------

    \9\ According to its September 3, 1997 submittal to EPA, the 
Alaska Department of Environmental Conservation stated that the two 
major distributors in Southeast Alaska that they surveyed and that 
import only Jet-A kerosene indicated on-road uses of diesel fuel 
account for only 23 percent of their diesel fuel sales, excluding 
that which is intended for use by jets. Thus, excluding use by jets, 
non-road uses of diesel fuel account for more than three times the 
volume of diesel fuel that is used on-road.
---------------------------------------------------------------------------

    Because of the lack of significant air quality and cost benefits of 
excluding Southeast Alaska from the exemption, EPA has rejected this 
alternative. However, EPA may revisit this alternative in the future if 
the exemption that is promulgated subsequent to this proposal is no 
longer appropriate under Sec. 325 based on consideration of the factors 
relevant under that section.
Alternative 2: Exclude the Summer Seasons From the Exemption
    This alternative is designed to achieve some benefits for Alaska by 
requiring the use of low-sulfur diesel fuel for at least part of the 
year, but to avoid the unique requirements and constraints associated 
with Alaska's arctic climate during the winter. In its August 5, 1997 
submittal to EPA, the Alaska Department of Environmental Conservation 
stated that importing low-sulfur diesel fuel only during the summer 
months is problematic. Alaskan refiners cannot produce low-sulfur 
diesel fuel and thus would be cut out of the market, and distributors 
would need additional storage to segregate the low-sulfur diesel fuel, 
even though segregation might only be necessary for part of the year.
    EPA previously concluded in this proposed rule that requiring low-
sulfur highway diesel fuel in Alaska is not expected to have a 
significant impact on ambient PM<INF>10</INF> or CO levels in Alaska, 
or Alaska's prospects for attainment with the national ambient air 
quality standards (see Subsection IV.B: Climate, Meteorology and Air 
Quality). Consequently, requiring low-sulfur highway diesel fuel in 
Alaska for only part of the year would also not be expected to have a 
significant impact on ambient PM<INF>10 </INF>or CO levels in Alaska, 
or Alaska's prospects for attainment with the national ambient air 
quality standards. (For discussion on localized environmental impacts--
see Subsection E: Local environmental effects. EPA is not addressing 
future requirements in this proposed rule, including for the new 
national ambient air quality standard for PM<INF>2.5</INF>--see 
Subsection H: New National Ambient Air Quality Standards.)
    However, costs would arise from either segregated shipping, storage 
and distribution for the diesel fuel intended for highway use during 
the summer season, or refining costs associated with producing 
unsegregated low-sulfur distillate for all distillate uses, except 
possibly for jet fuel, in Alaska during the summer season. This cost is 
not well defined, but based on the limited available information, seems 
to range from zero to significant depending on the specific location 
within Alaska. (See Section IV.C: Economic Factors and Section V.C: 
Costs of Storing and Distributing Low-Sulfur Diesel Fuel.) Also, there 
are non-economic barriers to expanding storage capacity (see Subsection 
V.C: Costs of Storing and Distributing Low-Sulfur Diesel Fuel).
    The cost of expanded storage capacity would have to be borne not 
only by distributors and wholesalers, but also retailers, individual 
businesses that store distillate fuels for their own use, and 
individuals that store distillate fuels for their own use. Alaska's 
unique climate and geographical conditions cause supply disruptions, 
especially during the winter season. To account for the supply 
disruptions, communities, businesses, and individuals in Alaska, 
perhaps except in Southeast Alaska,

[[Page 23249]]

need to stock winter supplies during the summer and transition season. 
Consequently, they are taking delivery of summer and winter supplies at 
the same time during part of the year. Additional storage would be 
needed to segregate the regulated low-sulfur fuel used in the summer 
season from the unregulated higher-sulfur fuel needed for the winter 
season. As noted earlier in this proposed rule, low-sulfur diesel fuel 
as currently produced does not meet the ``cloud point'' specification 
required for Alaska's cold temperatures, and if used during the winter 
season, would significantly affect engine start-up and operation.
    Other existing seasonally driven fuels programs (particularly in 
the lower 48 states) such as oxygenated gasoline for control of carbon 
monoxide (CO) during winter seasons and low-volatility gasoline for 
control of volatile organic compounds (VOCs) during summer seasons, 
rely on refineries and distribution systems that are oriented 
primarily, or in large part, to supplying gasoline for motor vehicles. 
This distribution system has adequate storage for transitioning between 
seasons, and since supply disruptions generally do not occur in the 
lower 48 states, there is no need to supply and stock fuel for the 
winter season.
    Another confounding factor in Alaska is only less than five percent 
of Alaska's refining and distribution systems are oriented to supplying 
highway diesel fuel, and Alaska's highway diesel fuel is not segregated 
from distillates intended for other uses, such as heating and power 
generation. Assuming that distributors would supply low-sulfur diesel 
only for motor vehicle use under this alternative, the distribution and 
storage costs would be spread out among only one to two percent of the 
distillate flowing through the system. <SUP>10</SUP> Assuming that 
distributors would supply low-sulfur diesel for all distillate uses in 
the summer season under this alternative, except possibly jet fuel, the 
higher cost of the low-sulfur diesel fuel would be forced on the non-
highway users of the distillate, as well as the additional cost of 
segregating that fuel from the winter supplies.
---------------------------------------------------------------------------

    \10\  The summer season in Alaska is approximately three to four 
months duration. Since motor vehicle use of distillate is less than 
five percent, only one to two percent of the distillate would then 
be used for motor vehicles during the summer season.
---------------------------------------------------------------------------

    Another consideration is the administrative and enforcement burden 
of such a seasonal program. The need to stock winter fuel during the 
summer and transition seasons might conflict with a regulatory 
requirement that only low-sulfur diesel be sold for highway use during 
the summer season. Any regulatory accommodation to allow for stocking 
of fuel for the winter would complicate enforcement of the summer-time 
requirement. For an enforcement agency to determine whether a violation 
has occurred and to subsequently prosecute the violator, the agency 
would have to determine and subsequently prove that a summer-time sale 
or distribution of non-complying distillate is intended for highway use 
rather than for other uses such as heating or power generation, and 
that it is intended for use during the summer season.
    For all of the above reasons, EPA rejects the alternative of 
requiring low-sulfur highway diesel fuel only in the summer. However, 
EPA may revisit this alternative in the future if the exemption that is 
promulgated subsequent to this proposal is no longer appropriate under 
Sec. 325 based on consideration of the factors relevant under that 
section.
Alternative 3: Require ``Winter Diesel'' Year-Round
    This alternative is intended to take advantage of the generally 
lower sulfur content of Jet-A kerosene and its ability to serve as an 
arctic-grade motor vehicle diesel fuel during the winter season. The 
staff report of the Low-Sulfur Diesel Task Force states that Jet-A 
kerosene has a sulfur content specification of 0.3 percent. It tends to 
have lower sulfur content than standard diesel fuel, but generally does 
not meet the regulatory requirement for low-sulfur highway diesel of 
0.05 percent maximum. For example from the high-sulfur North Slope 
crude, Mapco produces Jet-A kerosene with 0.09 percent sulfur. As the 
North Slope crude supplies dwindle over time, the sulfur content of 
that crude is expected to increase. Chevron imports Jet-A kerosene with 
0.03 percent sulfur.
    EPA previously concluded in Section IV.B. of this proposed rule 
that requiring low-sulfur highway diesel fuel in Alaska is not expected 
to have a significant impact on ambient PM<INF>10</INF> or CO levels in 
Alaska, or Alaska's prospects for attainment with the national ambient 
air quality standards. Since Jet-A kerosene has a sulfur content 
requirement that is less stringent than that of motor vehicle diesel 
fuel, requiring Jet-A kerosene in Alaska would also have little or no 
impact on Alaska meeting the national ambient air quality standards.
    Another disadvantage to this alternative is the potential for 
higher costs of fuel for heating and power generation in areas not 
served by jet traffic. EPA believes that jet fuel generally costs more 
than regular diesel fuel. <SUP>11</SUP> Except when used during the 
winter for general distillate fuel uses, Jet-A kerosene may be 
segregated from regular diesel fuel in some areas served by jet traffic 
because of the unique requirements for jet fuel and its higher cost.
---------------------------------------------------------------------------

    \11\  EPA looked at the weeks of August 1 thru August 29, 1997 
of ``The Oil Daily'' and calculated the difference between the 
average price of low-sulfur diesel fuel and the average price of Jet 
fuel. For this time period, jet fuel cost more than low-sulfur 
diesel fuel by 2.55, 2.78, and 2.00 cents per gallon for the Gulf 
Coast, New York, and Los Angeles areas, respectively.
---------------------------------------------------------------------------

    However, in areas not served by jet traffic, EPA assumes that the 
higher cost Jet-A kerosene is not typically used, except possibly 
during the winter season as an arctic-grade distillate. This 
alternative of requiring Jet-A kerosene for motor vehicles would result 
in either the higher cost of segregated shipping, storage and 
distribution, which would be passed on to the consumers of the Jet-A 
kerosene for use in motor vehicles, or the higher cost of the Jet-A 
kerosene for unsegregated shipping and storage, which would be passed 
on to consumers of the fuel for all distillate uses, including heating 
and power generation. As previously addressed, the increased cost of 
segregated shipping, storage and distribution varies widely depending 
on the specific location within the state. Based on some estimates by 
the Alaska Department of Environmental Conservation, the costs of 
segregated shipping, storage and distribution for non-road use could be 
significant.
    For all of the above reasons, EPA rejects the alternative of 
requiring Jet-A kerosene year-round.

E. Local Environmental Effects

    In a letter to the Alaska Department of Environmental Conservation 
of July 20, 1995, the Alaska Clean Air Coalition stated that Anchorage 
has a significant problem with a wintertime ``brown cloud'' when snow 
covers the ground, although it indicated that it hadn't yet studied the 
components of that ``brown cloud.'' It also pointed out that the 
proportion of total particulates that are caused by diesel engines are 
expected to rise over the next 20 years as other sources of pollution 
decline, and that diesel particulate emissions from motor vehicle 
engines increase to twice the federal standard for motor vehicle 
engines if high-sulfur fuel is used with engines that are equipped with 
catalytic converters.
    The Alaska Clean Air Coalition indicates it is concerned not only 
with the local health impacts of PM<INF>10</INF>, but also that of 
PM<INF>2.5</INF>, at levels below the national air quality standards. 
It

[[Page 23250]]

submitted a copy of a 1996 study <SUP>12</SUP> showing correlation 
between respiratory health effects in Anchorage and CO and 
PM<INF>10</INF> at ambient levels below the national ambient air 
quality standards. This study showed that winter concentrations of CO 
were significantly associated with bronchitis and upper respiratory 
illness, and with automobile exhaust emissions. In a March 11, 1997 
letter to EPA, the Alaska Clean Air Coalition references the above 
study and indicated that ``local officials'' have found a highly 
significant correlation between CO and PM<INF>2.5</INF>, but no 
significant relationship between PM<INF>10</INF> and PM<INF>2.5</INF>. 
Besides the health problems associated with PM<INF>10</INF>, which in 
Anchorage typically comes from reentrained road materials, ``healthy'' 
Anchorage workers and their families have more bronchitis and upper 
respiratory infection during carbon monoxide ``episodes'', which are 
linked to vehicle exhaust during the winter.
---------------------------------------------------------------------------

    \12\  ``Particulate Air Pollution and Respiratory Disease in 
Anchorage, Alaska'', Gordian, Ozkaynak, Sue, Morris, and Spengler, 
Environmental Health Perspectives, vol. 104, number 3, March 1996.
---------------------------------------------------------------------------

    In a June 19, 1996 letter to the EPA, the Alaska Clean Air 
Coalition stated that it believes some neighborhoods have much higher 
diesel exposure than the existing emissions inventory indicates. 
Attached to this letter were April 25, 1994 and August 11, 1995 letters 
to the Alaska Department of Environmental Conservation, and a written 
version of an oral testimony at the Anchorage School District Budget 
Hearing Meeting of January 19, 1995, in which the University Area 
Community Council of Anchorage stated that it had received complaints 
about diesel fumes. Residents near a transportation facility, at which 
diesel buses are started early in the mornings and warmed up for 
lengthy periods of time, complained of diesel fumes entering their 
homes prior to 6:00 am during clear, cold temperature inversion days.
    EPA has concluded that low-sulfur diesel fuel would not 
significantly mitigate localized impacts in Alaska, and therefore, has 
determined that the issue of localized impacts does not form a basis 
for denying Alaska's Petition for exemption. Considering localized 
impacts on the scale of a town or city, EPA already concluded in 
Section IV.B. of this Proposed rule that the sulfur content of diesel 
fuel is not expected to have a significant impact on ambient 
PM<INF>10</INF> or CO levels in Alaska, or Alaska's prospects for 
attainment with the national ambient air quality standards for 
PM<INF>10</INF> or CO. This is because of the minimal contribution by 
motor vehicles, and likely insignificant contribution of petroleum fuel 
combustion by non-motor vehicle sources, to PM<INF>10</INF> in areas 
with PM<INF>10</INF> attainment problems, and the insignificant effect 
of diesel fuel sulfur content on CO emissions.
    Considering localized impacts on the micro-scale level of one 
intersection or several blocks, EPA believes there could be some 
impacts, such as the example presented by the Alaska Clean Air 
Coalition. While EPA believes that such impacts might range from 
minimal to significant in these micro scale areas, EPA also believes 
that requiring low-sulfur diesel will not effectively mitigate the 
exposure risk to the elevated ambient levels of diesel exhaust in these 
areas.
    Even if EPA decided to require low-sulfur diesel fuel for motor 
vehicles (that is, to deny Alaska's Petition for Exemption), any 
existing micro-scale hot spot and its associated total health impact 
would substantially be unaffected. While the localized ambient 
PM<INF>10</INF> and PM<INF>2.5</INF> levels might be mitigated to some 
extent by the use of low-sulfur diesel fuel, the remaining levels of 
localized ambient PM<INF>10</INF> and PM<INF>2.5</INF> would still be a 
health concern. Further, the localized ambient levels of CO and other 
toxics would not be mitigated by the use of low-sulfur diesel fuel. 
Alternatively, reducing the amount of total diesel exhaust in these 
micro-scale areas would significantly reduce the total health impact.
    Localized hot spots typically result from high rates of emissions 
concentrated in a small area, such as emissions from a large number of 
vehicles in one intersection or parking area, over a time frame that is 
short enough to not allow for effective dispersal of those emissions 
under the prevailing meteorological conditions. This underlying problem 
can be most effectively addressed by reducing the number of vehicles 
(or number of vehicles running) in the localized area, or by reducing 
the amount of time the vehicles spend (or the time the vehicles spend 
running) in the localized area. Such mitigation measures might include 
traffic control measures to limit, or bans to eliminate, vehicle 
traffic in those areas, or restrictions on engine idling while parked.
    Such measures are most effectively addressed at the local level by 
the communities, businesses and local and state governments. In the 
example provided by the Alaska Clean Air Coalition, the October 13, 
1997 letter to EPA from the Alaska Department of Environmental 
Conservation indicates that the Municipality of Anchorage is working on 
addressing this issue.
    It has located monitors in the vicinity and it is working with 
local agencies to explore options to help alleviate or resolve the 
problem. In addition, some changes were made to the ventilation system 
of the building that had the greatest number of complaints.

F. Year 2004 and Later Engines

    On October 21, 1997 (62 FR 54693), EPA promulgated new combined 
emission standards for HC and NO<INF>X</INF> for 2004 and later heavy-
duty diesel motor vehicle engines. These standards are more stringent 
than the 1998 to 2003 individual emissions standards for HC and 
NO<INF>X</INF>, and are expected to achieve a 50 percent reduction in 
NO<INF>X</INF> emissions. A secondary effect of these standards may be 
a decrease in particulate emission levels. As with engines currently 
marketed, the engine manufacturers are expected to design their future 
engines and emission control systems considering the diesel fuel sulfur 
content requirement that became effective in 1993 (no greater than 0.05 
percent sulfur by weight). However, EPA subsequently permanently 
exempted that requirement in Alaska for areas not served by the Federal 
Aid Highway System (FAHS), and temporarily exempted that requirement 
for areas served by the FAHS until October 1, 1998; thus, old and 
current technology engines have been, and are now, operating in Alaska 
using higher sulfur diesel fuel. New technology (low NO<INF>X</INF>) 
engines will be operated using higher sulfur diesel fuel in the areas 
not served by the FAHS, because of the existing permanent exemption. If 
EPA now grants Alaska a permanent exemption from the diesel fuel low-
sulfur requirement in the areas served by the FAHS, the new technology 
(low NO<INF>X</INF>) engines in Alaska would be operated on diesel fuel 
with a higher sulfur content throughout the state. One engine 
manufacturer cited three concerns if this situation were to occur.
    The first concern of operating the new technology (low 
NO<INF>X</INF>) engines using high-sulfur fuel is the same concern as 
operating current technology engines on high-sulfur fuel: condensation 
of sulfuric acids on the cylinder walls of the engine, thereby causing 
increased piston ring and cylinder liner wear. This increased wear 
would require more frequent replacement of the piston rings and 
cylinder liners, and more frequent oil change intervals. If the piston 
rings and cylinder liners are not replaced often enough, the sulfuric 
acids could migrate past the piston rings into the crankcase. This 
would cause increased wear of other critical engine

[[Page 23251]]

components, such as the main bearings. This situation would require 
more frequent major engine overhauls.
    The second concern of operating new technology (low NO<INF>X</INF>) 
engines using high-sulfur diesel fuel is its impact on exhaust gas 
recirculation (EGR) systems. EGR systems are likely to be extensively 
used on the engines designed to meet the 2004 and later NO<INF>X</INF> 
requirement. Without EGR, sulfur in the exhaust is not a significant 
problem because the temperature of the exhaust system is typically high 
enough to prevent condensation of the sulfuric acids. However, if some 
of the exhaust is directed back into the engine intake, which is the 
strategy of EGR systems, condensation of the sulfuric acids could occur 
on the walls of the EGR components and the air intake system. It may be 
possible to prevent sulfuric acid damage to the EGR system through the 
use of exotic materials in the EGR components, which can withstand the 
sulfuric acids. Alternatively, increased maintenance could mitigate the 
impact of the sulfuric acids by periodically replacing the components 
of the EGR and air intake system most susceptible to acid damage.
    The third concern of operating new (low NO<INF>X</INF>) technology 
engines using high-sulfur fuel is its impact on exhaust after-treatment 
emission control devices, such as catalytic converters. Sulfur in fuel 
can render the catalyst ineffective, allowing exhaust pollutants to 
pass through the catalyst.
    Catalytic converters may be used for NO<INF>X</INF> control on some 
engines designed to meet the 2004 and later emission standards, 
although such catalysts have not yet been perfected for use on heavy-
duty diesel engines. If they are perfected and used, and if EPA grants 
Alaska an exemption to the low-sulfur diesel fuel requirement, they 
would likely be rendered ineffective on those engines operated in 
Alaska using high-sulfur diesel fuel. This would impact the 
NO<INF>X</INF> and particulate emission levels produced by those 
engines in Alaska, but would not likely affect the operation or 
durability of those engines. Increased NO<INF>X</INF> emissions are not 
an issue in Alaska, since Alaska has no areas in non-attainment with 
the NAAQS for ozone. While Alaska does have two designated non-
attainment areas for PM<INF>10</INF>, diesel-fueled motor vehicles 
contribute less than one percent to the PM<INF>10</INF> emissions in 
those areas.
    In conclusion, while using higher-sulfur diesel fuel in new 
technology (low-NO<INF>X</INF>) diesel engines may increase certain 
maintenance costs for owners and operators of those engines, depending 
on the engine-specific technology and materials used, EPA believes that 
those potential costs would be mitigated to some extent by the lower 
cost of the higher-sulfur diesel fuel and would be much less than the 
total potential costs of requiring low-sulfur diesel fuel in Alaska. 
Further, EPA believes that the potential air quality benefits that 
would be forgone by allowing the use of higher-sulfur diesel fuel in 
new technology (low NO<INF>X</INF>) engines are insignificant in 
Alaska. Therefore, based on the concerns about operating new technology 
(low NO<INF>X</INF>) engines on higher sulfur diesel fuel, EPA 
concludes that granting Alaska's petition is appropriate under section 
325.

G. Manufacturers Emissions Warranty and Recall Liability

    The Engine Manufacturers Association (EMA) submitted comments on 
April 10, 1996, to the docket for previous Federal Register Notices 
related to Alaska's Petition for Exemption (this Proposed rule uses 
that same docket), and to EPA concerning warranty and recall liability. 
The EMA stated that 1994 and later heavy-duty diesel engines that are 
designed to meet the 1994 emissions standards with the use of low-
sulfur diesel fuel, and which are operated on high sulfur diesel fuel, 
will not comply with those 1994 emission standards. Consequently, if 
EPA grants Alaska an exemption from meeting the sulfur requirement for 
highway diesel fuel, EPA should also include a corresponding exemption 
for heavy-duty diesel engine manufacturers and the users of the 
vehicles in which these engines are placed. The heavy-duty diesel 
engine manufacturers should be exempted from any liability for ensuring 
that their 1994 and later model year product lines meet the 1994 and 
later model year emission standards for engines sold and used in 
Alaska. They should also be exempted from the warranty requirements of 
secton 207 of the Clean Air Act, and from liability (including fines 
and recalls) for any engine affected by the fuel exemption. Users of 
vehicles in which 1994 and later model year heavy-duty engines are 
placed should be exempted from tampering liability in the exempted 
territory. Finally, the exemption should allow either the continued use 
of 1991 type heavy-duty diesel engine technology or the use of 1994 
type heavy-duty diesel engines with the after-treatment device removed.
    In support of its position, the EMA offered the following 
explanation. In promulgating the 1994 and later heavy duty engine 
emission standards, EPA recognized that, for several reasons, a 
reduction in diesel fuel sulfur content was required by the engine 
manufacturers in order to enable their engines to meet the 1994 0.10 g/
bhp-hr particulate emission standard. First, fuel sulfur contributes to 
diesel engine emissions. Approximately two percent of the sulfur in the 
fuel is directly emitted as sulfate particulates, which cannot be 
controlled by engine modifications since the combustion process does 
not remove any sulfur or change its form into a non-particulate 
substance. Second, catalyzed after-treatment devices are much more 
effective in the removal of the soluble organic fraction of 
particulates than non-catalyzed devices. However, some catalysts react 
with the SO<INF>2</INF> in the exhaust and form additional sulfates, 
such that total particulates have been found to be higher with an 
oxidation catalyst or a catalyzed trap than without such after-
treatment device when high-sulfur diesel fuel is used. Third, prolonged 
use of high-sulfur diesel fuel in vehicles equipped with oxidation 
catalysts will render the catalytic device inoperative, and thus impair 
the emissions control equipment. There is also a concern that using a 
high sulfur content fuel over a long period of time may have a tendency 
to cause plugging of ceramic monolith-type filters, which could lead to 
more serious engine malfunction and warranty claims.
    On October 9, 1996, EPA received a similar comment on behalf of the 
EMA. In this comment, the EMA concerns are reiterated, and EPA is urged 
to provide a corresponding exemption to the Alaska exemption for 
catalyzed engines that would allow the owners to remove the catalysts, 
allow the manufacturers to sell the engines without the catalyst 
installed, and limit the manufacturer's obligation to warrant the 
emissions performance of such engines. The comment states that vehicle 
owners are already experiencing engine failures directly resulting from 
catalyst plugging, and this problem will be worse in cold weather. The 
comment also argues that in areas where high sulfur diesel fuel is 
permitted, the owners of catalyzed engines are not achieving the 
particulate matter reductions for which their engines are designed, and 
it makes no sense for EPA to require the costly emission technology 
that actually has an adverse environmental impact.
    In its August 5, 1997 submittal to EPA, the Alaska Department of 
Environmental Conservation noted that it had recent discussions with 
industry. Those discussions indicated that some vehicles have been 
experiencing problems at extreme cold temperatures on the North Slope, 
but industry

[[Page 23252]]

attributes these problems to temperature and not the sulfur content of 
the fuel.
    Information collected by EPA from several heavy-duty engine 
manufacturers demonstrates that catalyst plugging is mainly a cold 
temperature problem and not a high-sulfur fuel issue. For example, 
Cummins Engine Company attests that plugging is more a function of cold 
temperature operation than it is of fuel sulfur levels. Additionally, 
data from other heavy-duty engine manufacturers further supports this 
statement. The EPA is also aware that the majority of the plugged 
catalyst problems have been eliminated. A letter to EPA of September 
19, 1997, on behalf of the EMA, indicated that the immediate problems 
that led to EMA's request for possible enforcement discretion regarding 
the removal of catalytic converters because of the plugging problem 
have been resolved. However, EMA and its members continue to ``have 
concerns regarding the use of high-sulfur fuel.''
    Accordingly, EPA sees no need for an exemption that allows the 
removal of catalysts in the field, or that permits manufacturers to 
introduce into commerce catalyzed-engines without catalysts, or that 
limits a manufacturer's obligation to warrant the emissions performance 
of an engine.

H. New National Ambient Air Quality Standards

    EPA has recently promulgated more stringent national ambient air 
quality standards (NAAQS) for ozone and particulate matter. However, 
EPA has not yet published guidance for implementation of those 
standards, and EPA does not have the air quality monitoring data for 
Alaska by which to base its likely attainment status, especially for 
PM<INF>2.5</INF>. Consequently, it is not possible for EPA to address 
the impact of today's proposed rule on the ability of Alaska to attain 
the new NAAQS. EPA is therefore setting aside the issue of attainment 
with the new NAAQS in today's rule. EPA reserves the right to revisit 
this issue in the future, after public notice and comment, if the 
exemption is no longer appropriate under section 325 based on 
consideration of the factors relevant under that section.

I. Status of Certain Marine Highway Communities

    In granting both a permanent and a temporary exemption in its March 
22, 1994 Notice, EPA distinguished between those areas served by the 
Federal Aid Highway System and those not served by the Federal Aid 
Highway System. Areas not served by the Federal Aid Highway System were 
deemed to be remote areas and qualified for the permanent exemption. 
Areas served by the Federal Aid Highway System, including the Marine 
Highway System, were qualified only for the temporary exemption. In 
letters of February 9, 1995 and April 12, 1995, the Alaska Department 
of Environmental Conservation requested that EPA consider certain 
communities served by the Marine Highway System, and one served only by 
a barge line, on the Alaska Peninsula, Kodiak Island and the Aleutian 
Islands to be remote communities and subject to the permanent 
exemption. It indicated that these communities have few vehicles (all 
but three have an average daily traffic of 499 vehicles or less) and 
highway diesel fuel sales amount to only a small fraction of total 
diesel fuel sales (e.g., only about one percent or less). EPA decided 
to not address this issue in today's proposed rule because today's 
proposed rule to effectively grant a statewide permanent exemption 
makes this issue moot. However, if EPA reconsiders or withdraws its 
decision to grant a permanent exemption for areas served by the Federal 
Aid Highway System, this issue may need to be addressed at that time.

VI. Decision for Permanent Exemption

    In this notice, the Agency is proposing to grant a permanent 
exemption from the diesel fuel sulfur content requirement of 0.05 
percent by weight to those areas in Alaska served by the Federal Aid 
Highway System. For the same reasons, the Agency also is proposing to 
grant a permanent exemption from those provisions of section 211(g)(2) 
<SUP>13</SUP> of the Act that prohibit the fueling of motor vehicles 
with high-sulfur diesel fuel. Sections 211(g) and 211(i) both restrict 
the use of high-sulfur motor vehicle diesel fuel.
---------------------------------------------------------------------------

    \13\ This subsection makes it unlawful for any person to 
introduce or cause or allow the introduction into any motor vehicle 
of diesel fuel which they know or should know contains a 
concentration of sulfur in excess of 0.05 percent (by weight). It 
would clearly be impossible to hold persons liable for misfueling 
with diesel fuel with a sulfur content higher than 0.05 percent by 
weight, when such fuel is permitted to be sold or dispensed for use 
in motor vehicles. The proposed exemptions would include exemptions 
from this prohibition, but not include the prohibitions in section 
211(g)(2) relating to the minimum cetane index or alternative 
aromatic levels.
---------------------------------------------------------------------------

    Further, consistent with the March 22, 1994 Notice of Final 
Decision (59 FR 13610), dyeing diesel fuel to be used in nonroad 
applications will be unnecessary in Alaska as long as the diesel fuel 
has a minimum cetane index of 40. The motor vehicle diesel fuel 
regulations, codified at 40 CFR 80.29, provide that any diesel fuel 
which does not show visible evidence of the dye solvent red 164 shall 
be considered to be available for use in motor vehicles and subject to 
the sulfur and cetane index requirements. The Alaska Department of 
Environmental Conservation and various refiners in Alaska have 
indicated to EPA that all diesel fuel manufactured for sale and 
marketed in Alaska, for use in both motor vehicle and nonroad 
applications, meets the minimum cetane requirement for motor vehicle 
diesel fuel.
    Today's proposed rule would exempt diesel fuel in Alaska from the 
sulfur requirement. Therefore, as long as the diesel fuel in Alaska has 
a minimum cetane index of 40, dyeing diesel fuel to be used in nonroad 
applications will be unnecessary in Alaska. However, in the event high-
sulfur diesel fuel is shipped from Alaska to the lower-48 states, it 
would be necessary for the shipping facility to add dye to the 
noncomplying fuel before it is introduced into commerce in the lower-48 
states. In addition, supporting documentation (e.g., product transfer 
documents) must clearly indicate the fuel may not comply with the 
sulfur standard for motor vehicle diesel fuel and is not to be used as 
a motor vehicle fuel. Conversely, EPA will not require high-sulfur 
diesel fuel to be dyed if it is being shipped from the lower-48 states 
to Alaska, but supporting documentation must substantiate that the fuel 
is only for shipment to Alaska and that it may not comply with the 
sulfur standard for motor vehicle diesel fuel.
    EPA will assume that all diesel fuel found in any state, except in 
the state of Alaska, is intended for sale in any state and subject to 
the diesel fuel standards, unless the supporting documentation clearly 
substantiates the fuel is to be shipped only to Alaska. The 
documentation should further clearly state that the fuel may not comply 
with the Federal diesel fuel standards. If such product enters the 
market of any state, other than Alaska (e.g., is on route to or at a 
dispensing facility in a state other than Alaska), and is found to 
exceed the applicable sulfur content standard, all parties will be 
presumed liable, as set forth in the regulations. However, EPA will 
consider this evidence in determining whether a party caused the 
violation.
    With regard to the storage of diesel fuel in any state other than 
Alaska, a refiner or transporter will not be held liable for diesel 
fuel that does not comply with the applicable sulfur content standard 
and dye requirement if it can show that the diesel fuel is truly

[[Page 23253]]

being stored and is not being sold, offered for sale, supplied, offered 
for supply, transported or dispensed. However, once diesel fuel leaves 
a refinery or transporter facility, a party can no longer escape 
liability by claiming that the diesel fuel was simply in storage. 
Although diesel fuel may temporarily come to rest at some point after 
leaving a refinery or transporter facility, the intent of the 
regulations is to cover all diesel fuel being distributed in the 
marketplace. Once diesel fuel leaves a refinery or shipping facility it 
is in the marketplace and as such is in the process of being sold, 
supplied, offered for sale or supply, or transported.
    The basis for today's proposed rule is that compliance with the 
motor vehicle sulfur requirement in Alaska for areas served by the 
Federal Aid Highway System is unreasonable because it would create an 
economic burden for refiners, distributors and consumers of diesel 
fuel. This economic burden is created by unique meteorological 
conditions in Alaska and a set of unique distillate product demands in 
the state. As a result of these conditions, it is reasonable to not 
mandate that low-sulfur motor vehicle diesel fuel be available for use 
in Alaska for areas served by the Federal Aid Highway System.
    In the August 19, 1996 Notice of Final Decision (61 FR 42812), the 
EPA believed that a 24-month continuation of the temporary exemption 
for areas served by the Federal Aid Highway System from the diesel fuel 
sulfur content requirement was reasonable and appropriate so that the 
Agency could consider recent comments on the state's petition. A 
permanent exemption was not appropriate at that time because EPA had 
not yet verified all relevant information and comments submitted by 
other interested parties.
    Alaska's December 12, 1995 petition included a compilation of 
information provided by a Task Force (in which an EPA representative 
participated) that was established after the February 12, 1993 petition 
to further evaluate the conditions as described in that earlier 
petition. These conditions included: the availability of arctic-grade 
low-sulfur diesel fuel from out-of-state refiners, the costs associated 
with importing the fuel, and the costs of storing and distributing the 
fuel to areas on the highway system. The conditions and factors that 
were identified in the initial petition were expanded upon in the task 
force review. At that time the Agency believed there were several 
issues that merited further consideration prior to making a final 
decision to act on the state's request for a permanent exemption. These 
issues included consideration of an alternative fuel standard or fuel, 
local environmental effects, manufacturers emissions warranty and 
recall liability, and the impact of EPA possibly tightening motor 
vehicle emission standards for model year 2004 and later heavy-duty 
engines (which EPA subsequently promulgated in 1997).
    The comments and other issues that are summarized in this notice 
were subsequently considered by the Agency, prior to issuing this 
proposed rule on the State's request for a permanent exemption.

VII. Public Participation

    Following the August 27, 1993 publication of EPA's proposed 
decision to grant the first exemption from the low-sulfur diesel fuel 
requirements requested by Alaska, there was a thirty day comment 
period, during which interested parties could request a hearing or 
submit comments on the proposal. The Agency received no request for a 
hearing. Comments were received both in support of the proposal to 
grant the exemption and expressing concerns over the impact of granting 
the exemption. These comments were considered in the Agency's decision 
to grant the initial temporary exemption. The Agency received Alaska's 
request for a permanent exemption for the Federal Aid Highway System 
areas in December of 1995. Since that time, the Agency has received 
comments on the petition from the Alaska Center for the Environment, 
the Alaska Clean Air Coalition, and the Engine Manufacturers of 
America. EPA believed the issues raised by the comments that were 
submitted and possible tightening of heavy-duty motor vehicle engine 
standards in 2004 necessitated further consideration before the Agency 
made a decision on Alaska's request for a permanent waiver.
    The Agency is publishing this action as a proposed rule to allow 
interested parties an additional opportunity to request a hearing or to 
submit comments. The comment period will close May 28, 1998, unless the 
Agency receives a request to testify at a public hearing by May 12, 
1998. If EPA receives a request to testify at a public hearing, the 
comment period will be extended until 30 days after the public hearing. 
Any adverse comments received by the close of the comment period will 
be addressed in a subsequent final rule that will be published in the 
Federal Register.

VIII. Statutory Authority

    Authority for the action in this proposed rule is in sections 211 
(42 U.S.C. 7545) and 325(a)(1) (42 U.S.C. 7625-1(a)(1)) of the Clean 
Air Act, as amended.

IX. Administrative Designation and Regulatory Analysis

    Under Executive Order 12866 <SUP>14</SUP>, the Agency must 
determine whether a regulation is ``significant'' and therefore subject 
to OMB review and the requirements of the Executive Order. The Order 
defines ``significant regulatory action'' as one that is likely to 
result in a rule that may:
---------------------------------------------------------------------------

    \14\  58 FR 51736 (October 4, 1993)
---------------------------------------------------------------------------

    (1) Have an annual effect on the economy of $100 million or more, 
or adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments of communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof, or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
this Executive Order. <SUP>15</SUP>
---------------------------------------------------------------------------

    \15\ Id. at section 3(f)(1)-(4).
---------------------------------------------------------------------------

    It has been determined that this proposed rule is not a 
``significant regulatory action'' under the terms of Executive Order 
12866 and is therefore not subject to OMB review.

X. Compliance With the Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601-612, requires that 
Federal Agencies examine the impacts of their regulations on small 
entities. The act requires an Agency to prepare a regulatory 
flexibility analysis in conjunction with notice and comment rulemaking, 
unless the Agency head certifies that the rule will not have a 
significant impact on a substantial number of small entities. 5 U.S.C. 
605(b).
    Today's proposed action to make permanent the temporary exemption 
of the low-sulfur diesel fuel requirements in the State of Alaska, will 
not result in any additional economic burden on any of the affected 
parties, including small entities involved in the oil industry, the 
automotive industry and the automotive service industry. EPA is not 
imposing any new requirements on regulated

[[Page 23254]]

entities, but instead is continuing an exemption from a requirement, 
which makes it less restrictive and less burdensome.
    Therefore, the Administrator certifies that this proposed rule will 
not have a significant impact on a substantial number of small 
entities, and that a regulatory flexibility analysis is not necessary 
in connection with this proposed rule.

XI. Paperwork Reduction Act

    The Paperwork Reduction Act of 1980, 544 U.S.C. 3501 et seq., and 
implementing regulations, 5 CFR part 1320, do not apply to this action 
as it does not involve the collection of information as defined 
therein.

XII. Unfunded Mandates Act

    Under section 202 of the Unfunded Mandates Reform Act of 1995, EPA 
must prepare a budgetary impact statement to accompany any proposed or 
final rule that includes a federal mandate with estimated costs to the 
private sector of $100 million or more, or to state, local, or tribal 
governments of $100 million or more in the aggregate. Under section 
205, EPA must select the most cost-effective and least burdensome 
alternative that achieves the objectives of the rule and is consistent 
with statutory requirements. Section 203 requires EPA to establish a 
plan for informing and advising any small governments that may be 
significantly or uniquely impacted by the rule.
    EPA has determined that this proposed rule imposes no new federal 
requirements and does not include any federal mandate with costs to the 
private sector or to state, local, or tribal governments. Therefore, 
the Administrator certifies that this proposed rule does not require a 
budgetary impact statement.

List of Subjects

40 CFR Part 69

    Air pollution control, Alaska.

40 CFR Part 80

    Environmental protection, Diesel fuel, Fuel additives, Gasoline, 
Imports, Labeling, Motor vehicle pollution, Penalties, Reporting and 
recordkeeping requirements.

    Dated: April 14, 1998.
Carol M. Browner,
Administrator.
    For the reasons set out in the preamble, title 40, chapter I of the 
Code of Federal Regulations is proposed to be amended as follows:

PART 69--SPECIAL EXEMPTIONS FROM REQUIREMENTS OF THE CLEAN AIR ACT

    1. The authority citation for part 69 is revised to read as 
follows:

    Authority: 42 U.S.C. 7545(1) and (g), 7625-1.

    2. Subpart E consisting of Sec. 69.51 is added to read as follows:

Subpart E--Alaska

Sec.
69.51  Exemptions.

Subpart E--Alaska


Sec. 69.51  Exemptions.

    (a) Persons in the state of Alaska, including but not limited to, 
refiners, importers, distributors, resellers, carriers, retailers or 
wholesale purchaser-consumers may manufacture, introduce into commerce, 
sell, offer for sale, supply, dispense, offer for supply, or transport 
diesel fuel, which fails to meet the sulfur concentration or dye 
requirements of 40 CFR 80.29, in the state of Alaska if the fuel is 
used only in the state of Alaska.
    (b) Persons outside the state of Alaska, including but not limited 
to, refiners, importers, distributors, resellers, carriers, retailers 
or wholesale purchaser-consumers may manufacture, introduce into 
commerce, sell, offer for sale, supply, offer for supply, or transport 
diesel fuel, which fails to meet the sulfur concentration or dye 
requirements of Sec. 80.29, outside the state of Alaska if the fuel is:
    (1) Used only in the state of Alaska; and
    (2) Accompanied by supporting documentation that clearly 
substantiates the fuel is for use only in the state of Alaska and does 
not comply with the Federal sulfur standard applicable to motor vehicle 
diesel fuel.

PART 80--REGULATION OF FUELS AND FUEL ADDITIVES

    1. The authority citation for part 80 continues to read as follows:

    Authority: Sec. 114, 211, and 301(a) of the Clean Air Act, as 
amended (42 U.S.C. 7414, 7545 and 7601(a)).

    2. Section 80.29 is amended by revising paragraph (a)(1) 
introductory text to read as follows:


Sec. 80.29  Controls and prohibitions on diesel fuel quality.

    (a) Prohibited activities. (1) Beginning October 1, 1993, no 
person, including but not limited to, refiners, importers, 
distributors, resellers, carriers, retailers or wholesale purchaser-
consumers, shall manufacture, introduce into commerce, sell, offer for 
sale, supply, dispense, offer for supply or transport any diesel fuel 
for use in motor vehicles, except as provided in 40 CFR 69.51, unless 
the diesel fuel:
* * * * *
[FR Doc. 98-10710 Filed 4-27-98; 8:45 am]
BILLING CODE 6560-50-U


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>