State of Alaska Petition for Exemption From Diesel Fuel Sulfur Requirement

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 69 and 80

[FRL-6159-1]

State of Alaska Petition for Exemption From Diesel Fuel Sulfur

Requirement

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: On December 12, 1995, the Governor of Alaska petitioned EPA to

permanently exempt the areas of Alaska served by the Federal Aid

Highway System from the requirements of EPA's low-sulfur diesel fuel

program for motor vehicles. On August 19, 1996, EPA extended the

existing temporary exemption until October 1, 1998, and on April 28,

1998, EPA proposed to grant a permanent exemption (63 FR 23241). EPA

has received significant public comments and new information concerning

EPA's proposal and needs additional time to further evaluate the issues

concerning a permanent exemption. Consequently, EPA is

[[Page 49460]]

granting a temporary exemption to Alaska for a period of nine months

(i.e., until July 1, 1999) so that EPA and the State of Alaska have

ample time to consider and evaluate the public comments and new

information before EPA makes a final decision on the petition.

This decision 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.

DATES: This final rule is effective on October 1, 1998.

ADDRESSES: Copies of information relevant to this final rule 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 SW,

Washington, DC 20460, (202) 260-7548, between the hours of 8 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 a.m. to 5 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 SW, Washington, DC 20460, Telephone (202) 564-9473,

Telefax 202-565-2085, Internet address [email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Regulated Entities

II. Electronic Copies of Rulemaking Documents

III. Statutory Background

IV. Petition for Exemption

V. Decision for Temporary Exemption

VI. Judicial Review

VII. Public Participation

VIII. Statutory Authority

IX. Administrative Requirements

A. Executive Order 12866: Administrative Designation and

Regulatory Analysis

B. Regulatory Flexibility Act

C. Paperwork Reduction Act

D. Congressional Review Act

E. Unfunded Mandates Act

F. Executive Order 12875: Enhancing Intergovernmental

Partnerships

G. Executive Order 13084: Consultation and Coordination with

Indian Tribal Governments

H. Executive Order 13045: Children's Health Protection

I. National Technology Transfer and Advancement Act of 1995

(NTTAA)

I. Regulated Entities

Entities potentially regulated by this action are refiners,

marketers, distributors, retailers and wholesale purchaser-consumers of

diesel fuel for 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.

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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 Sec. 69.51, Sec. 80.29, and Sec. 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 Government Printing Office Web sites. This

service is free of charge, except for any cost you already incur for

Internet connectivity. The electronic Federal Register version is made

available on the day of publication on the Web site listed below.

http://www.access.gpo.gov/nara/cfr/

(either select desired date or use Search feature)

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. Statutory 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

Sec. 324 of the Act (``Vapor Recovery for Small Business Marketers

of Petroleum Products''). The proper reference is to Sec. 325, and

Congress clearly intended to refer to Sec. 325, as shown by the

language used in Sec. 211(i)(4), and the United States Code citation

used in Sec. 806 of the Clean Air Act Amendments of 1990, Public Law

No. 101-549. Section 806 of the Amendments, which added paragraph

(i) to Sec. 211 of the Act, used 42 U.S.C. 7625-1 as the United

States Code designation, the proper designation for Sec. 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. Paragraph (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. Paragraph (2) requires the Administrator to

promulgate regulations to implement

[[Page 49461]]

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 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.

EPA's decision on the petition was published 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

exempted 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 exempted 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 (Petition) for all areas of the state served by the Federal

Aid Highway System, that is, those areas covered only by the temporary

exemption. On August 19, 1996, EPA published an extension to the

temporary exemption until October 1, 1998 (61 FR 42812), to give ample

time for the agency to consider comments to that petition that were

subsequently submitted. On April 28, 1998 (63 FR 23241) EPA published a

proposal to grant the petition for a permanent exemption for all areas

of the state served by the Federal Aid Highway System. Substantial

public comments and substantive new information was submitted in

response to the proposal.

V. Decision for Temporary Exemption

In this document, the Agency is granting a temporary exemption for

nine months (until July 1, 1999) 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 granting a temporary exemption for nine months from those

provisions of section 211(g)(2) 2 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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\2\ 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

Sec. 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 during the temporary

exemption 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.

Justification for Temporary Exemption

Section 325 of the Clean Air Act Amendments of 1990 provide that an

exemption may be granted due to ``such other local factors as the

Administrator deems significant.'' Alaska has operated under temporary

exemptions for the past several years. EPA has indicated to Alaska that

EPA would make a final decision on whether to grant a permanent

exemption from the low sulfur diesel fuel requirements. EPA will not

have made a final decision on a permanent exemption prior to the

expiration of the current temporary exemption. EPA believes that

requiring compliance in Alaska with diesel fuel sulfur requirements

during the nine months before such a final decision is published is

unreasonable, given the unique circumstances associated with this prior

history of exemptions, and EPA's need for additional time to make a

final decision on Alaska's request for a permanent exemption. These

significant local factors are the basis for granting Alaska this

extension to the current temporary exemption.

In response to the February 12, 1993 petition for a temporary

exemption from diesel fuel sulfur requirements for areas served by the

FAHS, EPA granted Alaska the temporary exemption until October 1, 1996.

Because the state of Alaska planned to establish a Task Force (in which

an EPA representative participated) to evaluate the need for an

exemption, EPA provided Alaska with ``adequate time to prepare and

submit another exemption request'' (59 FR 13613, March 22, 1994). ``If

a new exemption request is submitted, EPA will publish another notice

in the Federal Register and re-examine the issue of an exemption.'' Id.

In response to the December 12, 1995, petition for a permanent

exemption from the diesel sulfur requirements for the areas served by

the FAHS, EPA ``reserv[ed] the decision on the state's request for a

permanent exemption, so the agency may consider possible alternatives

for a longer period'' than the two years granted (61 FR 42814, August

19, 1996). EPA extended for another period of 24 months ``or until such

time as a decision is made on the permanent exemption, whichever is

shorter'' (61 FR 42816, August 19, 1996). EPA also stated that ``areas

in Alaska served by the Federal Aid Highway System are also exempt from

the related 211(g)(2) provisions until such time as a decision has been

made on the state's petition for a permanent exemption.'' Id. The

Agency stated it would propose a decision on Alaska's request for a

permanent waiver. Id.

EPA did not intend that Alaska would be required to comply with the

low-sulfur diesel requirements before reaching a final decision.

Unfortunately, a decision will not be reached before the current

temporary exemption expires. EPA proposed to permanently exempt Alaska

(63 FR 23241, April 28, 1998), and received significant comments on

several issues and new information during this notice and comment

period critical to the question of whether Alaska should be granted an

exemption to the low-sulfur diesel fuel requirements.

One issue that will require additional time for EPA to evaluate

involves the

[[Page 49462]]

use of high-sulfur diesel fuel in engines manufactured to meet future

more stringent emissions standards. In their comments to the proposal,

the Engine Manufacturers Association (EMA) asserted in part, that the

use of high-sulfur diesel fuel in advanced technology engines,

especially those engines that will be in the marketplace to meet 2004

emission standards, will result in excessive engine wear, poor

durability, substantially increased maintenance costs, substandard

performance, and in some cases, engine failure. EMA indicated that

these advanced technologies are expected to be introduced before 2004,

and are only feasible if operated on low-sulfur fuel. EPA believes some

manufacturers may implement these advanced technologies as early as

2002.

The technology of most concern is the cooled exhaust gas

recirculation (EGR) system. In an EGR system, exhaust gas is

recirculated back into the cylinders to reduce the amount of fresh

charge air or oxygen that is available for combustion during certain

operating conditions. Combustion temperatures, and thus nitrogen oxides

(NOX) formation, are reduced. In order to maximize the

effectiveness of the EGR system, the exhaust gas is cooled before it

enters the fresh air stream. According to the EMA, when the engine is

operated on high-sulfur diesel fuel, sulfur in the exhaust gas stream

is condensed by the EGR cooler and forms sulfuric acid deposits in the

cooler and any surfaces through which the cooled exhaust gas passes.

Thus, the combination of high-sulfur and cooled EGR systems will

promote corrosion in the EGR cooler and control valve, power cylinder

and induction system, will cause wear and tear on the power cylinder,

and will result in the formation of deposits on the EGR cooler and

induction system. The EMA indicates that while more frequent

replacement of the EGR and air intake components may reduce the

sulfuric acid damage to the EGR system, it is not possible to eliminate

the damage.

EPA has determined that an additional nine months is necessary to

evaluate the information to determine whether Alaska should be granted

a permanent exemption to the low-sulfur diesel fuel requirements. EPA

believes that requiring Alaska to incur the cost and burden associated

with compliance until EPA reaches a final decision is unreasonable,

given the expectation that EPA will make a final decision in the next

several months, and the possibility that EPA may then decide to grant

the exemption. In addition, EPA believes that in this situation lead-

time considerations are also a significant local factor as provided

under section 325. Requiring Alaska to comply with low-sulfur diesel

fuel requirements as of October 1998 is unreasonable due to lead-time

considerations. Because of the temporary status of the previous and

current exemptions, EPA did not intend that Alaska would be required to

comply prior to a final decision on a permanent exemption. Therefore,

the affected parties in Alaska are not in a position to reasonably

comply prior to such a final decision. Alaska has recently indicated to

EPA that at least three years would be needed to implement any new

requirements once a final decision has been reached by EPA. Requiring

compliance by refiners and distributors and consumers of diesel fuel by

October 1998 would not be reasonable under these circumstances.

Further, any expiration of the low-sulfur exemption has

implications under the Internal Revenue Code. Section 4081 of the

Internal Revenue Code (26 U.S.C. 4081) imposes a tax on the removal of

diesel fuel from a terminal at the terminal rack. However, a tax is not

imposed if, among other conditions, the diesel fuel is indelibly dyed

in accordance with Treasury regulations. Dyed diesel fuel can be used

legally (for tax purposes) in nontaxable uses such as for heating oil,

fuel in stationary engines, or fuel in non-highway vehicles. A

substantial penalty applies if dyed diesel fuel is used for taxable

purposes such as in registered highway vehicles.

In 1996, Congress enacted an exception to the dyeing requirement so

that undyed diesel fuel could be removed from a terminal tax free if,

among other requirements, the fuel is removed for ultimate sale or use

in an area of Alaska during the period the area is exempt from EPA's

sulfur content and fuel dyeing requirements under section 211(i)(4) of

the Clean Air Act. Treasury regulations (26 CFR 46.4082-5) generally

establish a system for collecting the federal diesel fuel tax at the

wholesale level in Alaska. This system is similar to the system used by

the state of Alaska for state fuel tax. The person liable for the

federal tax generally is the person who is licensed by Alaska as a

qualified dealer or a retailer that has been registered by the Internal

Revenue Service (IRS).

If EPA's temporary exemption for the FAHS areas of Alaska were to

expire, then under Treasury regulations, the federal fuel tax would be

imposed on all undyed diesel fuel that is removed from any terminal in

the FAHS areas, regardless of the use that is later made of the fuel.

Removals from these terminals would be exempt from the tax only if the

fuel contains a dye of a prescribed color and composition.

Consequently, Alaska would be required by the Treasury regulations to

either dye the non-road tax-exempt fuel or pay the on-road tax at the

current rate of 24.4 cents per gallon.

According to an attachment to the comments submitted by the

Trustees for Alaska, Alaska used approximately 600 million gallons of

distillate each year (excluding fuel used for aviation) for the fiscal

years ending June 30, 1996 and June 30, 1997. If none of that fuel were

dyed and the sulfur exemption were to expire, the tax liability for

Alaska (at 24.4 cents per gallon) would be approximately $146.4 million

per year, compared to only $19.4 million per year if only that fuel

used for highway purposes were taxed. The taxed parties could later

file for refunds for the fuel they could show was not used in motor

vehicles. Alternatively, Alaska could comply with the Treasury

regulations by dyeing the approximately 86 percent of that fuel

intended for non-highway use. However, to do so would be a significant

and unreasonable burden for refiners, distributors and consumers of

diesel fuel, especially if the lapse in the EPA exemption were only for

a few months. Comments received in response to the proposal indicated

that each additional storage tank needed to segregate the dyed and

undyed fuels with supporting infrastructure may cost $600,000, and

there are over 80 tank farms in Alaska that would require additional

tankage. Similarly each additional tanker truck required to avoid

cross-contamination of dyed and undyed fuels costs approximately

$250,000. Finally, those comments indicated that significant lead-time

would be needed.

Based on these significant local factors, it is unreasonable to

mandate that low-sulfur motor vehicle diesel fuel be available for use

in Alaska for areas served by the Federal Aid Highway System after the

current temporary exemption expires on October 1, while EPA considers a

final decision on the Petition.

Clarification of Exemption

Since today's rule exempts diesel fuel in Alaska from the sulfur

requirement for nine months (i.e., until July 1, 1999), dyeing diesel

fuel to be used in nonroad applications will be unnecessary in Alaska

for those nine months. However, in the event high-sulfur diesel fuel is

shipped from Alaska to the lower-48 states, it would be necessary for

the producer or shipping facility to add dye to the noncomplying fuel

before it is

[[Page 49463]]

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

specifies 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 the

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 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.

Engine Warranty, Recall and Tampering

EPA previously addressed the impact of an exemption from the low-

sulfur diesel fuel requirements on engine recall liability, warranty

and tampering issues in the American Samoa decision 3, Guam

decision 4, and Alaska decision.5 For this final

rule, EPA is addressing the recall liability and warranty issues in a

manner consistent with those earlier decisions. The tampering issue is

treated in a somewhat different manner.

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\3\ The Agency granted American Samoa's petition for an

exemption from the diesel sulfur requirements on July 20, 1992, 57

FR 32010.

\4\ The Agency granted Guam's petition for an exemption from the

diesel sulfur requirements on September 21, 1993, 58 FR 48968.

\5\ The Agency granted the State of Alaska's petition for a

temporary exemption from the diesel sulfur requirements on March 22,

1994, 59 FR 13610.

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Recall Liability. If EPA determines that a substantial number of

heavy-duty engines do not comply with the federal emission

requirements, the engine manufacturer is responsible for recalling and

repairing the engines. EPA typically determines whether engines comply

with applicable federal emission standards when properly used and

maintained based on testing of in-use engines. If an engine fueled with

noncomplying diesel fuel were included in such testing, EPA will

determine, on a case-by-case basis, if the noncompliance is the result

of the use of noncomplying fuel. If it is determined that the

noncomplying diesel fuel is the cause of the engine's failure to meet

the applicable emission standards, EPA would take that into

consideration before seeking a recall of the class.

For Alaska, as in the Guam and American Samoa decisions, the Agency

does not intend to use test results (emissions levels) from engines

that utilize high-sulfur diesel fuel (over 0.05% by weight) to show

noncompliance by those engines for the purpose of recalling an engine

class. However, in cases in which it is determined that the overall

class is subject to recall for reasons other than noncomplying fuel in

Alaska, individual engines will not be excluded from repair on the

basis of the fuel used. Manufacturers are responsible for repairing any

engine in the recalled class regardless of its history of tampering or

improper maintenance.

Manufacturers Emission Warranty. The Agency acknowledges that

engines that were certified to meet the federal emission standards

using low-sulfur diesel fuel may in some cases be unable to meet those

federal emissions standards if they use high-sulfur diesel fuel.

However, EPA believes an exemption from the general warranty provisions

of section 207 is unnecessary to protect manufacturers from

unreasonable warranty recoveries by purchasers. The emission defect

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

manufacturer to warrant that the engine shall conform at the time of

sale to applicable emission regulations and that the engine is free

from defects that cause the engine to fail to conform with applicable

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

applicable to a specific list of emissions and emissions-related engine

components.

It has been consistent EPA policy that misuse or improper

maintenance of a vehicle or engine by the purchaser, including

misfueling, may create a reasonable basis for denying warranty coverage

for the specific emissions and emissions-related engine components

affected by the misuse. In Alaska, while use of fuel exempted from the

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

have the same adverse effect on emissions control components. Thus, EPA

believes that where the use of noncomplying diesel fuel in fact has an

adverse impact on the emissions durability of specific engine parts or

systems, such as a catalyst, the manufacturer has a reasonable basis

for denying warranty coverage on that part or other related parts. As

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

affected by the use of noncomplying diesel fuel should continue to

receive full emissions warranty coverage.

Tampering Liability. Subsequent to the 1995 petition for a

permanent exemption from the diesel fuel sulfur requirements, the

Engine Manufacturers Association (EMA) requested enforcement discretion

regarding the removal of catalytic converters because of an indicated

plugging problem caused by the high-sulfur diesel fuel in Alaska.

However, information subsequently collected by EPA from several heavy-

duty engine manufacturers demonstrates that catalyst plugging is mainly

a cold weather problem and not a high-sulfur fuel issue. EPA is also

aware that the majority of the plugged catalysts have been eliminated.

In a letter to EPA of September 19, 1997, the EMA indicated that the

immediate problems that led to EMA's earlier request have been

resolved. 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.

VI. Judicial Review

Under section 307(b)(1) of the Clean Air Act, EPA hereby finds that

these regulations are of local or regional applicability. Accordingly,

judicial

[[Page 49464]]

review of this action is available only in the United States Court of

Appeals for the circuit applicable to Alaska within 60 days of

publication.

VII. Public Participation

The Agency received Alaska's request for a permanent exemption for

the Federal Aid Highway System areas in December of 1995. Soon

afterwards, 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

those comments 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 published a proposed rule for a permanent exemption to

allow interested parties an additional opportunity to request a hearing

or to submit comments. EPA subsequently received a request for a public

hearing, but that request was soon withdrawn. EPA extended the comment

period until June 12, 1998, and received comments before and after that

date.

EPA's decision to extend the exemption until July 1, 1999 is not a

decision based on the merits of those comments. Instead, EPA's decision

is based on the unreasonableness of imposing the low-sulfur diesel fuel

requirement during the time period needed by EPA to make a final

decision on the merits of the comments submitted. The significant local

factors supporting this decision are described herein.

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 Requirements

A. Executive Order 12866: Administrative Designation and Regulatory

Analysis

Under Executive Order 12866,6 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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\6\ 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.7

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\7\ Id. at section 3(f)(1)-(4).

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It has been determined that this rule is not a ``significant

regulatory action'' under the terms of Executive Order 12866 and is

therefore not subject to OMB review.

B. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) generally requires an agency

to conduct a regulatory flexibility analysis of any rule subject to

notice and comment rulemaking requirements unless the agency certifies

that the rule will not have a significant economic impact on a

substantial number of small entities. Small entities include small

businesses, small not-for-profit enterprises, and small governmental

jurisdictions.

This final rule will not have a significant impact on a substantial

number of small entities because today's action to extend 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 entities, but

instead is continuing an exemption from a requirement, which makes it

less restrictive and less burdensome. Therefore, EPA has determined

that this action will not have a significant economic impact on a

substantial number of small entities.

C. 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.

D. Congressional Review Act

The Congressional Review Act, 5 U.S.C. 801 et seq., as amended by

the Small Business Regulatory Enforcement Fairness Act of 1996,

generally provides that before a rule may take effect, the agency

promulgating the rule must submit a rule report, which includes a copy

of the rule, to each House of the Congress and to the Comptroller

General of the United States. EPA will submit a report containing this

rule and other required information to the U.S. Senate, the U.S. House

of Representatives, and the Comptroller General of the United States

prior to publication of the rule in the Federal Register. A Major rule

cannot take effect until 60 days after it is published in the Federal

Register. This action is not a ``major rule'' as defined by 5 U.S.C.

804(2). This rule will be effective October 1, 1998.

E. 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 final 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 rule does not require a budgetary

impact statement.

F. Executive Order 12875: Enhancing Intergovernmental Partnerships

Under Executive Order 12875, EPA may not issue a regulation that is

not required by statute and that creates a mandate upon a State, local

or tribal government, unless the Federal government provides the funds

necessary to pay the direct compliance costs incurred by those

governments. If the mandate is unfunded, EPA must provide to the Office

of Management and Budget a description of the extent of EPA's prior

consultation with representatives of affected State, local and tribal

governments, the nature of their concerns, copies of any written

communications from the governments, and a statement supporting the

need to issue the regulation. In addition, Executive Order 12875

requires EPA to

[[Page 49465]]

develop an effective process permitting elected officials and other

representatives of State, local and tribal governments ``to provide

meaningful and timely input in the development of regulatory proposals

containing significant unfunded mandates.''

Today's rule does not create a mandate on State, local or tribal

governments. The rule does not impose any enforceable duties on these

entities. Accordingly, the requirements of section 1(a) of Executive

Order 12875 do not apply to this rule.

G. Executive Order 13084: Consultation and Coordination With Indian

Tribal Governments

Under Executive Order 13084, EPA may not issue a regulation that is

not required by statute, that significantly or uniquely affects the

communities of Indian tribal governments, and that imposes substantial

direct compliance costs on those communities, unless the Federal

government provides the funds necessary to pay the direct compliance

costs incurred by the tribal governments. If the mandate if unfunded,

EPA must provide to the Office of Management and Budget, in a

separately identified section of the preamble to the rule, a

description of the extent of EPA's prior consultation with

representatives of affected tribal governments, a summary of the nature

of their concerns, and a statement supporting the need to issue the

regulation. In addition, Executive Order 13084 requires EPA to develop

an effective process permitting elected and other representatives of

Indian tribal governments ``to provide meaningful and timely input in

the development of regulatory policies on matters that significantly or

uniquely affect their communities.''

Today's rule does not significantly or uniquely affect the

communities of Indian tribal governments. EPA has determined that this

final rule imposes no new federal requirements, but rather extends an

existing temporary exemption of the low-sulfur diesel fuel requirements

in the State of Alaska. Accordingly, the requirements of section 3(b)

of Executive Order 13084 do not apply to this rule.

H. Executive Order 13045: Children's Health Protection

Executive Order 13045: ``Protection of Children from Environmental

Health Risks and Safety Risks'' (62 FR 19885, April 23, 1997) applies

to any rule that: (1) Is determined to be ``economically significant''

as defined under E.O. 12866, and (2) concerns an environmental health

or safety risk that EPA has reason to believe may have a

disproportionate effect on children. If the regulatory action meets

both criteria, the Agency must evaluate the environmental health or

safety effects of the planned rule on children, and explain why the

planned regulation is preferable to other potentially effective and

reasonably feasible alternatives considered by the Agency.

This rule is not subject to E.O. 13045 because it is not an

economically significant rule as defined by E.O. 12866, and because it

does not involve decisions based on environmental health or safety

risks.

I. National Technology Transfer and Advancement Act of 1995 (NTTAA)

Section 12(d) of the National Technology Transfer and Advancement

Act of 1995 (NTTAA), Pub. L. 104-113, Sec. 12(d) (15 U.S.C. 272 note)

directs EPA to use voluntary consensus standards in its regulatory

activities unless to do so would be inconsistent with applicable law or

otherwise impractical. Voluntary consensus standards are technical

standards (e.g., materials specifications, test methods, sampling

procedures, and business practices) that are developed or adopted by

voluntary consensus standards bodies. The NTTAA directs EPA to provide

Congress, through OMB, explanations when the Agency decides not to use

available and applicable voluntary consensus standards.

This action does not involve technical standards. Therefore, EPA

did not consider the use of any voluntary consensus standards.

List of Subjects

40 CFR Part 69

Environmental protection, Air pollution control, Alaska.

40 CFR Part 80

Environmental protection, Air pollution control, Diesel fuel, Motor

vehicle pollution.

Dated: September 3, 1998.

Carol M. Browner,

Administrator.

For the reasons set out in the preamble title 40 chapter I of the

Code of Federal Regulations is amended as follows:

PART 69--[AMENDED]

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.

(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.

(c) Beginning July 1, 1999, the exemptions provided in paragraphs

(a) and (b) of this section are applicable only to fuel used in those

areas of Alaska that are not served by the Federal Aid Highway System.

PART 80--[AMENDED]

3. 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)).

4. 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. 98-24734 Filed 9-15-98; 8:45 am]

BILLING CODE 6560-50-P