State of Alaska Petition for Exemption From Diesel Fuel Sulfur Requirement

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.

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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

[email protected]. 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:

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Examples of regulated

Category entities

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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.

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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

1 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.

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\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).

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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.2

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\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.

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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 3 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.

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\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.

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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

(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 in Anchorage. The most recent

PM10 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 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.

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 PM10 or

CO levels in any of these areas because of the minimal contribution by

diesel motor vehicles to PM10 in these areas and the

insignificant

[[Page 23244]]

effect of diesel fuel sulfur content on CO emissions.

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\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.

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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

(SO2) 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

PM10 levels in Alaska since current diesel motor vehicle

contributions to PM10 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 SO2

national ambient air quality standards, there is currently no concern

for reducing HC or SO2 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 (PM10); however, diesel motor vehicle

exhaust is responsible for less than one percent of the overall

PM10 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,

1995.5 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.''

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\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.

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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.6

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\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.

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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.7 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.

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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

PM10, where diesel truck exhaust, brake wear and tire wear

combined contribute less than one percent to the PM10

inventory.8 By contrast, the largest sources of

PM10 in Mendenhall Valley are fugitive and windblown dust

which account for 89 percent of the annual inventory. This means that

the maximum reduction in PM10 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 PM2.5, in

this proposed rule--see Subsection H: New National Ambient Air Quality

Standards).

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\8\ ``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.

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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 PM10 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 PM10

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,9 this overall cost to homeowners and businesses could

be significant.

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\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.

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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 PM10 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 PM10 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 PM2.5--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. 10 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.

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\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 PM10 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. 11 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.

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\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 PM10, but also that of

PM2.5, at levels below the national air quality standards.

It

[[Page 23250]]

submitted a copy of a 1996 study 12 showing correlation

between respiratory health effects in Anchorage and CO and

PM10 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 PM2.5, but no

significant relationship between PM10 and PM2.5.

Besides the health problems associated with PM10, 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.

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\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.

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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

PM10 or CO levels in Alaska, or Alaska's prospects for

attainment with the national ambient air quality standards for

PM10 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 PM10 in areas

with PM10 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

PM10 and PM2.5 levels might be mitigated to some

extent by the use of low-sulfur diesel fuel, the remaining levels of

localized ambient PM10 and PM2.5 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 NOX 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

NOX, and are expected to achieve a 50 percent reduction in

NOX 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 NOX)

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 NOX) 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

NOX) 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 NOX)

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 NOX

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 NOX) 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 NOX 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

NOX and particulate emission levels produced by those

engines in Alaska, but would not likely affect the operation or

durability of those engines. Increased NOX 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 PM10, diesel-fueled motor vehicles

contribute less than one percent to the PM10 emissions in

those areas.

In conclusion, while using higher-sulfur diesel fuel in new

technology (low-NOX) 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 NOX) engines are insignificant in

Alaska. Therefore, based on the concerns about operating new technology

(low NOX) 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 SO2 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

PM2.5. 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)

13 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.

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\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.

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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 14, 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:

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

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(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. 15

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

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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