State of Alaska Petition for Exemption From Diesel Fuel Sulfur Requirement; Final Rule

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[FRL-4853-2]

State of Alaska Petition for Exemption From Diesel Fuel Sulfur

Requirement

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of final decision.

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

SUMMARY: On February 12, 1993, the Governor of Alaska submitted a

petition requesting that the State of Alaska be considered for certain

exemptions from the diesel fuel sulfur requirements of section 211(i)

of the Clean Air Act, as amended. Alaska did not request an exemption

from the minimum cetane requirement for motor vehicle diesel fuel as

set forth in section 211(i) of the Act.

Today's final decision grants the exemptions requested by the State

of Alaska from the diesel fuel sulfur content requirement of section

211(i) of the Act and related provisions in section 211(g). The

exemptions are based on the finding that it is unreasonable to require

persons in Alaska who are located in remote communities not served by

the Federal Aid Highway System (FAHS), and, at this time, for persons

served by the FAHS in Alaska, to comply with the sulfur requirement of

section 211(i) and those related portions of EPA's motor vehicle diesel

fuel regulations, 40 CFR part 80, due to Alaska's unique geographical,

meteorological and economic factors, as well as significant local

factors.

DATES: The exemptions are effective on March 22, 1994, pursuant to 5

U.S.C. 553(d)(1), which allows publication of a rule less than 30 days

before its effective date, where, as here, such rule grants or

recognizes an exemption or relieves a restriction.

ADDRESSES: Copies of information relevant to this final decision notice

are available for inspection in public docket A-93-14 at the Air Docket

(LE-131) of the EPA, room M-1500, 401 M Street SW., Washington, DC

20460, (202) 260-7548, between the hours of 8:30 a.m. to noon and 1:30

p.m. to 3:30 p.m. on Monday through Friday. A duplicate public docket,

AK1-1993-1, has been established at U.S. EPA Region X, 1200 Sixth

Avenue (AT-082), Seattle, WA 98101, (206) 553-0180, and is available

between the hours of 8 a.m. to 11:30 a.m. and 12:30 p.m. to 4:30 p.m.

on Monday through Friday. As provided in 40 CFR part 2, a reasonable

fee may be charged for copying services.

FOR FURTHER INFORMATION CONTACT: Ms. Whitney Trulove-Cranor,

Environmental Protection Specialist, Field Operations and Support

Division (6406J), 401 M Street SW., Washington, DC 20460, (202) 233-

9036.

SUPPLEMENTARY INFORMATION:

I. Background

Section 211(i)(1) of the Act makes it unlawful, effective October

1, 1993, for any person to manufacture, sell, supply, offer for sale or

supply, dispense, transport, or introduce into commerce 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. Section 211(i)(3) establishes the sulfur content for fuel used in

the certification of heavy-duty diesel vehicles and engines. Section

211(i)(4) provides that the States of Alaska and Hawaii may seek

exemption from the requirements of this subsection in the same manner

as provided in section 3251 of the Act, and requires the

Administrator to take final action on any petition filed under this

section, 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''), while the proper reference is to

section 325. 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 in such territory from various requirements

of the Act, including section 211(i). An exemption may be granted if

the Administrator finds that compliance with such requirements is not

feasible or is unreasonable due to unique geographical, meteorological,

or economic factors of such territory, or other local factors as the

Administrator deems significant.

II. Petition for Exemption

On February 12, 1993, the Honorable Walter J. Hickel, Governor of

the State of Alaska, submitted a petition to exempt motor vehicle

diesel fuel in Alaska from all of the requirements of section 211(i)

except the minimum cetane index requirement of 40. The petition

requested a short-term exemption for areas accessible by the FAHS and a

permanent exemption for areas not accessible by the FAHS. The short-

term exemption would exempt motor vehicle diesel fuel manufactured for

sale, sold, supplied, or transported within the FAHS from meeting the

sulfur content requirement specified in section 211(i) until October 1,

1996. Those areas of Alaska not reachable by the FAHS would be

permanently exempt from the sulfur content requirement of section

211(i). The petition was based on geographical, meteorological, air

quality, and economic factors unique to the State of Alaska.

The following discussion summarizes the contents of the petition.

A. Geography and Location of the State of Alaska

At 586,000 square miles in area, 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, no other state

relies on barges to deliver petroleum products to the extent Alaska

does. Only 35% of Alaska's communities are served by the FAHS which is

a combination of road and marine highways. Communities accessible by

the FAHS account for 69% of the total State population. The remaining

65% of Alaska's communities are served by barge lines and are referred

to as ``remote'' communities. Although barge lines can directly access

some remote communities, those communities that are not located on a

navigable river are served by a two-stage delivery system: over water

by barge line and then over land to reach the community. Remote

communities with populations over 100 account for 13% of the total

State population. The remaining 18% of the population consists of

remote communities with populations less than 100 persons. In 1990, the

State's total population was only 550,043.

Because of the State's high latitude, it experiences seasonal

extremes in the amount of daily sunlight, which in turn affects the

cost of construction in Alaska. For example, the city of Anchorage,

located at 61 deg. latitude, receives approximately 19 hours of

sunlight on a summer day, and approximately 5.5 hours of sunlight on a

winter day; whereas, the community of Point Barrow, located at 71 deg.

latitude, receives approximately 24 hours of sunlight on a summer day,

and approximately zero hours of sunlight on a winter day. Alaska's

petition states that this limitation on the amount of winter-time

daylight is one reason why construction costs in the State are high

compared to the lower 48 states.

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% 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-A fuel produced by local refiners, which decreases the 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 5% of total distillate fuel

consumption.

B. Climate, Meteorology and Air Quality

Alaska's climate is colder than that of the other 48 states. The

extremely low temperatures experienced in Alaska during the winter

impose a unique fuel composition requirement for diesel fuel in Alaska,

known as a ``cloud point'' specification.2 Although all highway

diesel fuels, which are governed by the American Society of Testing and

Materials (ASTM) product specifications, are required to meet a cloud

point specification, the cloud point varies from one area to another

since it is based on the tenth percentile minimum ambient temperature

for the area in which the fuel will be used.3 Alaska has the most

severe cloud point specification for diesel fuel in the U.S. at -56

deg.F. For this reason, all diesel fuel used in the State of 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 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 is

allowed a maximum sulfur content of 0.3%, the new diesel fuel sulfur

requirement of 0.05% would prohibit using jet-A and No. 1 diesel fuel

interchangeably.

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

\2\The cloud point defines the temperature at which a cloud or

haze of wax crystals appears in the oil. Its purpose is to ensure a

minimum temperature above which fuel lines and other engine parts

are not plugged by solids that form in the fuel.

\3\Annual Book of ASTM Standards, Designation D975-89 ``Standard

Specification for Diesel Fuel Oils,'' Current edition approved March

31, 1989.

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

Ice formation during the winter months restricts fuel delivery to

remote 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 remote communities.

The only violations of ambient air quality standards in Alaska are

for carbon monoxide (CO) and particulate matter (PM10). CO

violations have only been recorded in the State's two largest

communities: Anchorage and Fairbanks. PM10 violations have only

been recorded in two rural communities, Mendenhall Valley of Juneau and

Eagle River, a community within the boundaries of Anchorage. The most

recent PM10 inventories for these two communities show that these

violations are the result of fugitive dust from paved and unpaved

roads, and that motor vehicle exhaust is responsible for less than one

percent of the overall PM10 being emitted within the borders of

each of these areas.4 Moreover, Eagle River has not had a

violation of the PM10 standard since 1986 and plans to apply for a

change in its attainment status. Mendenhall Valley has plans for

extensive road paving to be implemented to control road dust. The

sulfur content of diesel fuel is not expected to have any significant

impact on ambient PM10 or CO levels in any of these areas because

of the minimal contribution by motor vehicles to PM10 in these

areas and because diesel fuel sulfur content has no direct effect on

vehicle CO emissions.5

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

\4\``PM10 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.

\5\Some reduction of vehicle CO and hydrocarbon (HC) emissions

may occur as an indirect result of the use of aftertreatment devices

which may be used by engine manufacturers to comply with the more

stringent 1994 particulate standards (55 FR 34121, August 21, 1990).

Although it is possible that the use of high-sulfur diesel fuel will

have an adverse effect on the function of such aftertreatment

devices, negating the benefit of CO reduction, engine out emissions

of CO will not be affected by the use of high-sulfur diesel.

Furthermore, diesel powered vehicles are inherently low CO emitters

and do not contribute significantly to ambient CO levels.

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

C. Economic Factors

Alaska states in its petition that local refineries have limited

refining capabilities. Demand for jet-A kerosene, which is sold as No.

1 diesel fuel because it meets Alaska's winter cloud point

specification, accounts for almost fifty percent (50%) of 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 0.05% sulfur diesel fuel to meet the

demand for highway diesel fuel. Among the reasons for the high cost

include the construction costs in Alaska, which range from 25% to 65%

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; and without an exemption from having to meet

this requirement, most refiners would choose to exit the market for

highway diesel fuel. Although one refiner has discovered a low-cost

approach to producing 0.05% sulfur diesel fuel, information provided to

EPA subsequent to the receipt of this petition revealed that this fuel

is a custom Arctic Heating Fuel that has its own unique specifications

and does not meet all ASTM standards for highway diesel fuels such as

No. 1 and No. 2 diesel. Therefore, this low-sulfur diesel fuel would

not be marketed for commercial use, but only for internal use in fleet

vehicles on the North Slope.6

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

\6\Letter from Robert G. Kratsas, Manager, Environment, Health

and Safety, ARCO Alaska, Inc. to Commissioner John A. Sandor of the

Alaska Department of Environmental Conservation (DEC), March 10,

1992, and letter from George R. Snodgrass, Staff Engineer, Air

Sciences, ARCO Alaska, Inc. to Ronald G. King of the Alaska DEC,

April 9, 1993.

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

Currently, barge shipments of diesel fuel to remote communities do

not require segregation of diesel fuel used in motor vehicles from

diesel fuel used for off-highway purposes. It would be costly to create

separate storage facilities and tankage for transportation of low-

sulfur highway diesel fuel to remote communities, where motor vehicle

diesel fuel consumption represents less than 5% of total distillate

consumption. Since the majority of diesel fuel consumption in these

communities is for off-highway purposes (generation of electricity,

heat, non-road vehicles) the cost associated with converting the entire

diesel fuel supply to low-sulfur diesel would be prohibitive,

increasing the overall cost of living in these communities. Currently,

it is not uncommon for the cost of electricity to exceed 50 cents/kwh

in remote communities, as opposed to the cost of electricity for

communities on the FAHS, which ranges from 6.6 cents/kwh to 11.25

cents/kwh. In comparison, the national average cost of electricity in

1992 was 6.8 cents/kwh for all sources (i.e., residential, commercial,

industrial, and other).7

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

\7\``Monthly Energy Review,'' Energy Information Administration,

U.S. Department of Energy, March 1993.

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

The Alaska Department of Environmental Conservation (ADEC) has

estimated that refiners would have to charge an additional 28 to 46

cents per gallon of highway diesel fuel to recover the cost of the

investment to produce low-sulfur diesel fuel, compared to an estimated

3 to 5 cents per gallon increase for the lower 48 states. Currently,

the price of diesel fuel marketed on the FAHS in Alaska ranges from

$1.09 to $1.21 per gallon. Prices of diesel fuel in remote communities

currently range from $1.45 to $2.65 per gallon.

D. Environmental Factors

Information provided to EPA by the State of Alaska subsequent to

receipt of the petition indicates that the current sulfur content for

diesel fuel in Alaska averages approximately 0.1% by weight for nine

months of the year, and 0.25% by weight for the remaining three months

of the year. Thus, the current level of sulfur in motor vehicle diesel

fuel used in Alaska is well below the current ASTM sulfur specification

of 0.5% (by weight).8

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

\8\American Society for Testing and Materials Standard D975.

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

III. Public Participation

Following the August 27, 1993 publication of EPA's proposed

decision to grant the exemptions 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 in support of EPA's

proposal to grant the exemptions were received from Kodiak Oil Sales,

Inc., BP Exploration (Alaska), Inc., and BP Pipeline (Alaska), Inc. The

Engine Manufacturers Association (EMA) submitted comments expressing

concern about engine manufacturer's warranty and recall liability for

diesel vehicles in Alaska fueled with high sulfur diesel fuel. The

Alaska Department of Environmental Conservation (DEC) submitted a

request to the Agency that this final decision notice address the issue

of dyeing diesel fuel not intended for use in motor vehicles. In light

of their petition for exemption from the diesel sulfur requirements,

the Alaska DEC requested a waiver from having to dye noncomplying

diesel fuel.

Manufacturer's Emissions Warranty

The Agency acknowledges that vehicles which were certified with low

sulfur diesel fuel may be unable to meet federal emissions standards if

they are fueled with high sulfur diesel fuel. However, EPA believes

that waiving engine manufacturers' liability from the general warranty

provisions of section 207 is not necessary to protect manufacturers

from unreasonable warranty recoveries by purchasers. The emission

defect warranty requirements under section 207(a) of the Act require an

engine manufacturer to warrant that the engine shall conform at the

time of sale to applicable emission regulations and that the engine is

free from defects which cause the engine to fail to conform with

applicable regulations for its useful life. In practice, this warranty

is applicable to a specific list of emissions and emissions related

engine components.

It has been consistent EPA policy that misuse and/or improper

maintenance of a vehicle or engine by the purchaser, including

misfueling, may create a reasonable basis for denying warranty coverage

for the specific emissions and emissions related engine components

affected by this misuse. In this case, while use of fuel exempted from

the sulfur content limitation cannot be considered ``misfueling,'' it

will have the same adverse effect on emissions control components.

Thus, EPA believes that where the use of high sulfur diesel fuel will

have an adverse impact on the emissions durability of specific engine

parts or systems, such as a trap oxidizer or other aftertreatment

devices, the manufacturer will have a reasonable basis for denying

warranty coverage on that part or other related parts. However, as has

consistently been EPA's policy, those components not adversely affected

by the use of high sulfur diesel should continue to receive full

emissions warranty coverage.

Recall Liability

Heavy-duty engine manufacturers are responsible for recalling and

repairing engines that do not comply with emission requirements for

their useful lives. EPA tests engine classes to determine whether

engines comply with applicable emission standards when properly used

and maintained. Under section 207(c), if a substantial number of

engines in a specific engine class do not comply when tested, that

entire class can be recalled. If a situation arose in which an engine

fueled with exempted diesel fuel were included in an EPA in-use

compliance test program, EPA would determine, on a case-by-case basis,

if the noncompliance were the result of the use of the exempted diesel

fuel. If it were determined that the exempted fuel was the cause of the

engine's failure to meet the applicable emission standards, that fact

would be considered before seeking a recall of the class. Given the

fact that high sulfur diesel fuel will be used in vehicles in Alaska

until at least October 1, 1996, the Agency does not intend to use test

results (emissions levels) from these vehicles to show noncompliance by

those engines for the purpose of recalling an engine class.9 In

cases in which it was determined that the overall class was subject to

recall, however, individual engines would not be excluded from repair

on the basis of the fuel used. Manufacturers are responsible for

repairing any engine in the recalled class regardless of its history of

tampering or malmaintenance. The situation that would occur in Alaska

is no different and, thus, the manufacturers should remain liable for

performing recall repairs on these engines when required.

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

\9\If the Agency determines that areas on the highway system

will have to comply with the low sulfur diesel fuel requirements

beginning October 1, 1996, any motor vehicle introduced into

commerce on or after that date, which is registered in an area

located on the highway system, would be subject to using low sulfur

diesel fuel. These vehicles would also be subject to EPA's in-use

compliance test program. If such vehicles are found to be in

noncompliance with emissions standards, EPA may use the test results

as a basis for determining the recall of an engine class.

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

Dyeing Noncomplying Diesel Fuel

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 1,4 dialkylamino-anthraquinone shall be considered

to be available for use in motor vehicles, and subject to the sulfur

and cetane index requirements. Although today's action exempts diesel

fuel in Alaska from the sulfur requirement until at least October 1,

1996, it does not exempt diesel fuel in Alaska from the minimum cetane

requirement.

The Alaska DEC 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. Therefore, dyeing

diesel fuel to be used in nonroad vehicles will be unnecessary in

Alaska as long as it has a minimum cetane index of 40.10 However,

in the event that high sulfur diesel fuel is exported from Alaska to

the lower-48 states, it would be necessary for the importer facility to

add dye to the noncomplying fuel before it is introduced into commerce.

At this time, EPA will not require high-sulfur diesel fuel to be dyed

if it is being exported from the lower-48 states to Alaska. However,

the product must be clearly marked as diesel fuel for export only that

does not comply with the sulfur standard for motor vehicle diesel fuel,

and supporting documentation substantiates that it is for export to

Alaska only.

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

\1\0If EPA determines that areas located on the highway system

will be required to use low sulfur diesel fuel beginning October 1,

1996, diesel fuel manufactured for sale and marketed on the highway

system that does not have visible evidence of the dye will be

presumed to be intended for use in motor vehicles and must be in

compliance with the maximum 0.05% sulfur standard, as well as the

minimum cetane standard of 40.

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

IV. Final Decision

Presently, refiners in the State of Alaska are the only source of

highway diesel fuels meeting the arctic cloud point specification. Such

fuels are not currently available in the lower 48 states. Given the

petroleum refining, storage and distribution infrastructure in the

State of Alaska, in-state refiners and residents of remote communities

would be most affected if required to comply with the section 211(i)

diesel fuel sulfur content requirement.

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, fuel for

non-road vehicles). Most of Alaska's refiners indicated that given the

minuscule size of the highway diesel fuel market in Alaska, they could

not justify the investments required to produce low-sulfur diesel fuel

and would choose to exit the market for highway diesel fuel if this

exemption is not granted. Although one refiner appears to have

discovered a low-cost approach to producing a diesel fuel that meets

the section 211(i) sulfur requirement, this fuel does not meet ASTM

viscosity specifications for No. 1 diesel. Another limitation to this

low-cost approach is that the process modifications involved in

producing low-sulfur diesel fuel would result in a substantial decrease

in yield. The refiner indicated to EPA that even if it could produce a

commercial grade low-sulfur diesel fuel, it would primarily be for

internal use only, as the refiner does not have the capacity to supply

Alaska's highway diesel fuel market. In addition, the cost and

logistics of distribution to areas on the highway system would also be

prohibitive due to the location of the refineries.11

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

\1\1Letter from George R. Snodgrass, Staff Engineer, Air

Sciences, ARCO Alaska, Inc., to Ronald G. King of the Alaska DEC,

April 9, 1993.

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

Because compliance with the low-sulfur requirement would, at this

time, create a severe economic burden for refiners, distributors and

consumers of diesel fuel in the State of Alaska, EPA grants a three

year exemption from this requirement to communities served by the

Federal Aid Highway System until October 1, 1996.12 This economic

burden is created by unique meteorological conditions in Alaska and

unique distillate product demands as outlined above. As a result of

these conditions, low-sulfur diesel fuel was not available for

commercial use in Alaska by October 1, 1993, when the section 211(i)

requirement went into effect.

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

\1\2EPA will consider a community to be served by the Federal

Aid Highway System if it can be reached by an on-road vehicle from

the contiguous road system or by barge on the marine highway system.

All other communities not accessible by the contiguous road or

marine highway system will be considered remote communities.

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

EPA believes that a three year exemption from the diesel fuel

sulfur content requirement is a reasonable time period for areas served

by the FAHS. During the exemption period, the State of Alaska plans to

establish a Task Force (in which an EPA representative will

participate) to evaluate further 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. If the Task Force's evaluation

provides adequate proof that it is not economically feasible to produce

or import an arctic-grade diesel fuel that meets the 0.05% sulfur

requirement, and that it would not be feasible for EPA to impose an

intermediate sulfur content standard for motor vehicle diesel fuel used

in areas served by the highway system, and no other alternatives are

discovered, the State will have adequate time to prepare and submit

another exemption request. If a new exemption request is submitted, EPA

will publish another notice in the Federal Register and re-examine the

issue of an exemption.

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 fuels does not directly affect CO emissions as

explained above. Two rural communities are designated nonattainment

areas with respect to PM10; however, motor vehicle exhaust is

responsible for less than one percent of the overall PM10 being

emitted within the borders of these two areas, where the PM10

violations are attributable to fugitive dust. Consequently, EPA

believes that granting a three year exemption to communities served by

the highway system will not have any significant impact on the

attainment prospects of either of these communities.

Whether low-sulfur diesel fuel is produced in Alaska or imported

from the lower 48 states or Canada,\13\ there remains the problem of

segregating the two fuels for transport to communities located off the

highway system and storage of the fuels thereafter. Fuel is delivered

to these communities by barge lines and off-road transport 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 the ice has melted

and 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 to

remote communities is prohibitive. This is largely due to the high cost

of construction in Alaska and the constraints inherent in distributing

fuel to Alaska's remote communities as outlined above. 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 approximately 95% of distillate consumption

in these communities is for nonroad uses, such as operating diesel

powered electrical generators.

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

\13\Although low-sulfur diesel fuel is not currently available

in Canada, Environment Canada is working with diesel fuel refiners

in Canada and manufacturers of diesel vehicles to create Memoranda

of Understanding, whereby 0.05% sulfur diesel fuel, which also meets

the cetane index requirement of 40, is expected to be available in

some parts of Canada by October 1, 1994. The availability and cost

of low-sulfur diesel fuel from Canada will be a consideration in

future exemption requests, if any, from Alaska for areas served by

the FAHS.

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

Given that highway diesel fuel consumption represents less than 5%

of total distillate consumption in remote communities, that many

villages have a total of only one or two vehicles, and that these

communities are currently in attainment with all air quality standards,

EPA believes that the cost of using low-sulfur diesel fuel in remote

communities far outweighs the benefits. Because the Agency believes

that requiring remote communities to comply with the section 211(i)

sulfur requirement would create a severe economic burden on

distributors of diesel fuel to these communities and the residents of

these communities themselves, and because the Agency believes the

unique conditions faced by remote communities are not likely to change

in the future, the Agency has decided to permanently exempt communities

that are not served by the contiguous road or marine highway system

from the 0.05% (by weight) sulfur requirement of section 211(i) of the

Act.

For the same reasons, the Agency is also exempting Alaska from

those provisions of section 211(g)(2) of the Act that prohibit the

fueling of motor vehicles with high-sulfur diesel fuel.\14\ Although

Alaska did not explicitly request an exemption from this provision in

its petition, it is reasonable to read the petition as including such a

request. Sections 211(g) and 211(i) both restrict the use of high-

sulfur motor vehicle diesel fuel, and exempting Alaska from section

211(i)'s sulfur content requirement but not from section 211(g)'s

related prohibition would provide no relief from the problems Alaska

presented in their petition. Therefore, areas in Alaska served by the

FAHS are exempt from the related 211(g)(2) provisions until October 1,

1996, and remote areas, not accessible by the FAHS, are permanently

exempt from these related provisions.

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

\14\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%, when such

fuel is permitted to be sold or dispensed for use in motor vehicles.

The exemptions granted today would include exemptions from this

prohibition, but not include the prohibitions in Sec. 211(g)(2)

relating to the minimum cetane index or alternative aromatic levels.

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

The exemptions granted today will apply to all persons in Alaska

subject to the prohibitions of sections 211(i) and (g) of the Act and

the diesel fuel requirements in 40 CFR part 80. The exemptions will

apply to all persons who manufacture, sell, supply, offer for sale or

supply, dispense, transport, or introduce into commerce motor vehicle

diesel fuel, or who introduce diesel fuel into motor vehicles, in

Alaska. However, today's action does not exempt Alaska from the minimum

cetane or alternative aromatic content requirement for motor vehicle

diesel fuel. Consequently, diesel fuel intended for use in motor

vehicles remains subject to the cetane or alternative aromatic content

requirement as explained in the ``Public Participation'' section above.

EPA recognizes that the primary purpose of reducing the sulfur

content of diesel fuel is to reduce vehicle particulate emissions.

Additional benefits cited in the diesel final rule (55 FR 34120, August

21, 1990) include a reduction in sulfur dioxide (SO2) emissions

and the ability to use exhaust aftertreatment devices on diesel fueled

vehicles, which would result in some reduction of HC and CO exhaust

emissions. Despite the possibility that the use of high-sulfur diesel

fuel may have an adverse effect on the function of aftertreatment

devices, or cause an increase in particulate sulfate emissions in

diesel vehicles equipped with such devices, any increase in sulfate

particulate emissions would likely be insignificant in Alaska since

current motor vehicle contributions to PM10 emissions are minimal,

as previously discussed in section II, part B. 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,

also discussed in section II, part B. Since Alaska is currently in

attainment with HC and SO2 air quality standards, there is

currently no concern for reducing HC or SO2 emissions.

Additionally, the extent to which exhaust aftertreatment devices will

be used on diesel vehicles, and the extent to which damage would occur

to these devices as a result of using high-sulfur diesel fuel, is

relatively uncertain at this time. Given the limited number of vehicles

that may be affected, EPA plans to handle warranty and recall liability

issues on a case-by-case basis.

The Agency recognizes that granting these exemptions means Alaska

will forego the potential benefits to its air quality resulting from

the use of low-sulfur diesel fuel. The Agency believes that the

potential benefits to Alaska's air quality are minimal and far

outweighed by the increased costs to remote communities, and at this

time, to communities served by the highway system. For this reason, EPA

grants the requested exemptions.

V. Statutory Authority

Authority for the final action in this notice is in sections

211(i)(4) (42 U.S.C. 7545(i)(4)) and 325(a)(1) (42 U.S.C. 7625-1(a)(1))

of the Clean Air Act, as amended.

VI. Administrative Designation and Regulatory Analysis

Under Executive Order (E.O.) 12866, the Agency must judge whether a

regulation is a ``significant regulatory action'' and thus subject to

OMB review and the requirements of the Executive Order. The decision

announced today alleviates any potential adverse economic impacts in

Alaska and is not a significant regulatory action as defined in E.O.

12866.

VII. Impact on Small Entities

Pursuant to the Regulatory Flexibility Act, 5 U.S.C. 605(b), the

Administrator certifies that this rule will not have significant

economic impact on a substantial number of small entities. Today's

final decision will not have an adverse economic impact on small

business entities, as the action eases requirements otherwise

applicable to affected entities. Thus, it will not result in a

significant adverse impact on a substantial number of small business

entities.

VIII. Paperwork Reduction Act

The Paperwork Reduction Act of 1980, 44 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.

Dated: March 14, 1994.

Carol M. Browner,

Administrator.

[FR Doc. 94-6669 Filed 3-21-94; 8:45 am]

BILLING CODE 6560-50-P