State of Alaska Petition for Exemption From Diesel Fuel Sulfur Requirements

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 69

[FRL-6367-1]

State of Alaska Petition for Exemption From Diesel Fuel Sulfur

Requirements

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: In this action, the Environmental Protection Agency (EPA) is

granting areas of Alaska served by the Federal Aid Highway System a

temporary exemption from EPA's sulfur and dye requirements for highway

diesel fuel until January 1, 2004. EPA is not making a final decision

at this time

[[Page 34127]]

on Alaska's request for a permanent exemption. Additional time is

needed to consider Alaska's request for a permanent exemption because

of the need to coordinate the decision with an upcoming nationwide rule

on diesel fuel quality, lead-time considerations, and fuel dyeing

requirements of another federal agency.

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 or particulate matter, due to the

limited contribution of emissions from diesel highway vehicles in those

areas and the sulfur level currently found in highway vehicle diesel

fuel used in Alaska.

DATES: This final rule is effective on July 1, 1999.

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, 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 SW., Washington, D.C. 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 for Alaska Exemption

IV. Petition by Alaska for Exemption

V. Decision to Grant Alaska Temporary Exemption

A. Description of Temporary Exemption

B. Justification for Temporary Exemption

C. Guidance Regarding Compliance Under Temporary Exemption

D. Impact of Exemption on Engine Warranty, Recall and Tampering

VI. Judicial Review of Today's Decision

VII. Public Participation in Today's Decision

VIII. Statutory Authority for Today's Decision

IX. Administrative Requirements for Today's Decision

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 potentially regulated

Category NAICS codes SIC codes entities

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Industry...................................... 32411 2911 Petroleum distributors, marketers,

48691 4613 retailers (service station owners and

42271 5171 operators), wholesale purchaser

42272 5172 consumers (fleet managers who operate

48422 4212 a refueling facility to refuel

48423 4213 highway vehicles).

44711 5541

44719

Individuals................................... ........... ........... Any owner or operator of a diesel

highway 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, company, business organization, etc., 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 the person 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 for Alaska Exemption

Section 211(i)(1) of the Clean Air Act prohibits the manufacture,

sale, supply, offering for sale or supply, dispensing, transport, or

introduction into commerce of motor (highway) 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 highway vehicles be dyed in order to segregate that fuel

from highway 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

[[Page 34128]]

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 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 section 211 of the Act,

used 42 U.S.C. 7625-1 as the United States Code designation, 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 by Alaska for Exemption

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

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

diesel fuel in Alaska from paragraphs (1) and (2) of section 211(i),

except the minimum cetane index requirement of 40. Paragraph (1)

prohibits highway 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 and enforce the requirements of

paragraph (1), and authorizes the Administrator to require that diesel

fuel not intended for highway vehicles be dyed in order to segregate

that diesel fuel from highway vehicle diesel fuel. The petition

requested that the Environmental Protection Agency (EPA) temporarily

exempt highway 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 highway 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, highway

vehicle diesel fuel. Alaska's exemptions do not apply to the minimum

cetane requirement for highway 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 EPA 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. On September 16, 1998 (63 FR 49459) EPA

extended the temporary exemption for another nine months until July 1,

1999, to give ample time for EPA to consider and evaluate that new

information and to promulgate a final decision.

V. Decision To Grant Alaska Temporary Exemption

A. Description of Temporary Exemption

In this action, the Agency is granting a temporary exemption until

January 1, 2004 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 until January 1, 2004 from those provisions of

section 211(g)(2) 2 of the Act that prohibit the fueling of

highway vehicles with high-sulfur diesel fuel. Sections 211(g) and

211(i) restrict the use of high-sulfur diesel fuel in highway vehicles.

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\2\ This subsection makes it unlawful for any person to

introduce or cause or allow the introduction into any highway

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 highway vehicles. The final action of this document includes an

exemption from this prohibition, but does not include an exemption

from the prohibitions in Section 211(g)(2) relating to the minimum

cetane index or alternative aromatic level.

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Further, consistent with the March 22, 1994 Notice of Final

Decision (59 FR 13610), and September 15, 1998 Notice of Final Decision

(63 FR 49459), dyeing diesel fuel to be used in applications other than

highway vehicles will be unnecessary in Alaska during the exemption

period as long as that diesel fuel has a minimum cetane index of 40.

The highway vehicle diesel fuel regulations, codified at 40 CFR 80.29,

specifies that any diesel fuel that does not show visible evidence of

the dye solvent red 164 is considered to be available for use in

highway vehicles and subject to the sulfur and cetane index

requirements. The Alaska Department of Environmental Conservation and

refiners in Alaska have indicated to EPA that all diesel fuel produced

for sale and marketed in Alaska meets the minimum cetane requirement

for highway vehicle diesel fuel.

B. Justification for Temporary Exemption

Section 325 of the Clean Air Act provides that an exemption from

the requirements of the Act may be granted upon petition of a governor

of the territories if the Administrator determines 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.''

Section 211(i) of the Act extends this authority to Alaska for purposes

of exemption from the low-sulfur diesel fuel requirements of that

provision.

Parts of Alaska have operated under temporary exemptions from the

low-sulfur diesel fuel requirements since 1993, and the current

exemption expires on July 1, 1999. For the reasons described later in

this section, EPA will not make a final decision on a

[[Page 34129]]

permanent exemption prior to the expiration of the current temporary

exemption. EPA believes that it would be unreasonable to require

compliance in Alaska with the low-sulfur diesel fuel requirements as of

July 1, 1999. The prior history of temporary exemptions for Alaska, the

need to coordinate the decision on Alaska's petition for a permanent

exemption with an upcoming nationwide rule on diesel fuel quality,

lead-time considerations, and fuel dyeing requirements are significant

local factors that are the basis for granting Alaska this extension to

the current temporary exemption.

Prior History of Temporary Exemptions

On February 12, 1993, the Governor of Alaska petitioned EPA under

sections 211(i) and 325 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 a permanent

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.

On December 12, 1995, the Governor petitioned EPA 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 the exemption 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.

On April 28, 1998, EPA published a proposed decision to grant

Alaska a permanent exemption. 63 FR 23241 (April 28, 1998.) On

September 16, 1998, EPA granted another temporary extension until July

1, 1999 to provide EPA and the State of Alaska more time to evaluate

the public comments submitted in response to the proposal, specifically

regarding the use of high-sulfur diesel fuel in engines manufactured to

meet future more stringent emissions standards. 63 FR 49459 (September

16, 1998).

Subsequent to granting the last temporary exemption, EPA issued an

Advance Notice of Proposed Rulemaking summarizing the issues and

inviting comment on whether EPA should set new nationwide requirements

for fuel used in diesel engines under section 211(c) of the Clean Air

Act, in order to bring about large environmental benefits through the

enabling of a new generation of diesel emission control technologies.

64 FR 26142, May 13, 1999. EPA expects that the section 211(c)

rulemaking will also address the issue of the appropriate level of

diesel sulfur in Alaska in the context of the proposed Tier 2 emission

standards for light-duty vehicles and possible future more stringent

emission standards for heavy-duty vehicles and non-road equipment.

Lead-Time Considerations

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 July 1, 1999 when the current temporary exemption expires, 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 as of July 1, 1999, as EPA has not

made a decision on a permanent exemption. 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.

Need To Coordinate Decision With Upcoming Nationwide Rule

The need to coordinate a decision on a permanent exemption with the

upcoming section 211(c) rulemaking presents a significant local factor.

In effect, there are two rulemakings involving almost the same question

of the appropriate level of diesel sulfur in Alaska. EPA believes that

coordination between the final decision on the exemption and the

section 211(c) rulemaking is important, and EPA plans to make a final

decision on Alaska's petition for a permanent exemption in the section

211(c) rulemaking.

Failure to coordinate the petition for exemption from the section

211(i) requirements with the section 211(c) rulemaking could

potentially cause significantly increased costs for regulated parties

in Alaska. For example, if EPA were to deny Alaska's petition for a

permanent exemption, fuel in Alaska would have to meet the 0.05 percent

sulfur requirement. EPA would provide necessary lead-time as part of

setting the termination date for an exemption, and regulated parties in

Alaska would have to make investments to refine, distribute and sell

the low-sulfur diesel fuel. If EPA were to promulgate even lower sulfur

standards in the section 211(c) rulemaking, the regulated parties in

Alaska would be subject to a two-tiered implementation. Because EPA has

not determined what, if any, lower sulfur level would be required,

parties in Alaska are not able to prepare in advance for a possible

second tier. The costs associated with a two-tiered implementation

could be substantially higher than the cost of a single implementation,

based on a single coordinated decision in the section 211(c) rulemaking

about the level of sulfur for diesel fuel in Alaska.

Fuel Dyeing Requirements

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 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

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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 on July 1, 1999, 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 highway

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 implement such capacity by

July 1, 1999 would be a significant and unreasonable burden for

refiners, distributors and consumers of diesel fuel. 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.

Conclusion That EPA Should Grant Temporary Exemption Until 2004

Based on all of these significant local factors, it is unreasonable

to mandate that low-sulfur highway 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 July 1, 1999. Instead, EPA

is extending the temporary exemption until January 1, 2004.

The section 211(c) rulemaking discussed above will make a

coordinated and final decision on the level of motor vehicle diesel

sulfur that will be required in Alaska. EPA therefore does not expect

that there would be any further extensions of the temporary exemption.

EPA expects final action in the upcoming section 211(c) rulemaking to

be in 2000.

The January 1, 2004 date in today's final rule would provide Alaska

approximately four years lead time, and approximately three years lead

time from the section 211(c) rulemaking. If appropriate, EPA will re-

evaluate the January 1, 2004 date for expiration of the exemption

during the section 211(c) rulemaking, for example when considering in

detail the impacts of any two-tiered implementation for Alaska. EPA

will also evaluate whether it is appropriate to shorten the timeframe

of the exemption, as part of the process of coordinating a final

decision on these matters in that rulemaking.

C. Guidance Regarding Compliance Under Temporary Exemption

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

requirement until January 1, 2004, dyeing diesel fuel under EPA's

regulations to be used in applications other than highway vehicles will

be unnecessary in Alaska until January 1, 2004. 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 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 highway vehicle diesel fuel and is not to be

used as a highway 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 highway vehicle diesel fuel.

EPA will assume that all undyed 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 appropriate 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.

D. Impact of Exemption on 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 initial 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 a permanent

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

FR 32010.

\4\ The Agency granted Guam's petition for a permanent 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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Impact of Exemption on Recall Liability

If EPA determines that a substantial number of any class or

category of heavy-duty engines do not comply with the federal emission

requirements, although properly used and maintained, the engine

manufacturer is responsible for recalling and repairing the engines.

EPA typically determines whether engines comply with applicable federal

emission standards by testing in-use

[[Page 34131]]

engines which have been properly maintained and used. If an engine

fueled with exempted diesel fuel (such as the high-sulfur fuel supplied

in Alaska) was included in such testing, and the testing showed

exceedance of the applicable emission standards, EPA will determine, on

a case-by-case basis, if the exceedance is the result of the use of

exempted fuel. If EPA determines that the use of exempted diesel fuel

is the sole cause why a substantial number of the class or category of

heavy-duty engines fails to meet the applicable emission standards, EPA

would not seek a recall of the class or category of engines based on

these data.

For Alaska, as in the Guam and American Samoa decisions, EPA does

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

operated in Alaska that utilize high-sulfur diesel fuel (over 0.05

percent 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 the use of exempted 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.

Impact of Exemption on the Manufacturers' Emission Warranty and on the

Durability of New Technology Engines

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 of the Act is unnecessary to

protect manufacturers from unreasonable warranty recoveries by

purchasers. The emission defect warranty requirements under section

207(a) 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 exempted 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 exempted diesel fuel should continue to receive

full emissions warranty coverage.

EPA anticipates that many on-highway, heavy-duty diesel engines

will utilize some form of cooled EGR technology in order to meet the

2004 emission standards. Further, the Agency recognizes that under the

recent Consent Decrees entered into by the majority of diesel engine

manufacturers, diesel engines will have to meet the 2004 emission

standards beginning in October of 2002. Finally, the Agency recognizes

that the use of cooled EGR systems with high-sulfur fuel may contribute

to engine durability problems, requiring owners to overhaul their

engines more frequently than the intervals for which they were

designed. EPA believes, however, that within the time frame of this

temporary exemption, engine durability problems will not likely be a

significant problem for heavy-duty engine owners.

Because the new engine technology is not expected to be marketed

until late 2002, and because of the slow turnover rate of new heavy-

duty diesel vehicles in Alaska, EPA estimates that during the temporary

exemption less then five percent of the total Alaska diesel fleet will

incorporate the new engine technology, and only during the last 15

months of the exemption. Additionally, the State of Alaska expects that

during the temporary exemption adequate low-sulfur fuel will be

supplied to the Alaska market to meet the market demands created by

operators of the new technology diesel engines. EPA and the State of

Alaska have been informed that diesel fuel with sulfur levels near or

below the low sulfur limit of 500 ppm currently is being produced at

one refinery in Alaska. Further, the State of Alaska has committed to

work with the petroleum industry in Alaska to make low sulfur fuel

available to truck owners with new technology heavy-duty diesel

engines.

EPA will address the durability issue when making the final

decision on Alaska's section 211(i) petition for permanent exemption as

part of the upcoming nationwide rule on diesel fuel quality. However,

if subsequent to today's document, the Administrator determines that

supplies of low sulfur diesel fuel are inadequate to meet the

requirements of new technology diesel engines and that significant

environmental harm is resulting from adverse impacts of high sulfur

diesel fuel on these vehicles, this exemption may be reconsidered.

Impact of Exemption on 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 of Today's Decision

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

these regulations are of local or regional applicability. Accordingly,

judicial 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 in Today's Decision

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 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 highway vehicle

engine standards in 2004 necessitated further consideration before the

Agency made a decision on

[[Page 34132]]

Alaska's request for a permanent exemption.

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 January 1, 2004 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 as of July 1, 1999, based on the significant

local factors supporting this decision are described herein.

VIII. Statutory Authority For Today's Decision

Authority for the action in this final 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.

The effective date of this rule is July 1, 1999. If the effective

date of this rule were any later, there would be some period of time

when Alaska would lose its current exemption from low-sulfur diesel

fuel and dye requirements because the current exemption expires on July

1, 1999. ``EPA did not intend that parties in Alaska would be required

to comply with low sulfur diesel fuel or dye requirements prior to the

effective date of this final rule. EPA therefore finds that there is

good cause under 5 U.S.C. 553(d) to make this rule effective on July 1,

1999.''

IX. Administrative Requirements for Today's Decision

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 continue the current

temporary exemption of the low-sulfur diesel fuel requirements in the

State of Alaska for four and a half more years, 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 added 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 July 1, 1999.

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 the Intergovernmental Partnership

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, or EPA consults with those governments. If EPA complies by

consulting, Executive Order 12875 requires EPA to 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 develop an effective process permitting

[[Page 34133]]

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. It only extends an existing temporary exemption of the low-

sulfur diesel fuel requirements in the State of Alaska. 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, or EPA consults with those

governments. If EPA complies by consulting, Executive Order 13084

requires EPA to 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 officials 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

``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 State of Alaska Petition from Exemption from Diesel Fuel

Sulfur Requirements rule is not subject to the Executive Order because

it is not economically significant as defined in E.O. 12866, and

because in the circumstances present in this rulemaking, the analysis

required under section 5-501 of the Order would not have the potential

to influence the regulation. The decision to extend the exemption in

this rulemaking is based primarily on factors other than health and

safety, because those factors will be addressed separately in a related

national rulemaking that will address the appropriate level of sulfur

in diesel fuel. EPA has issued an Advanced Notice of Proposed

Rulemaking (64 FR 26142, May 13, 1999) involving the appropriate level

of diesel sulfur nationwide. This national rulemaking will include any

analysis that is required under Executive Order 13045.

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. No. 104-113, section 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 in 40 CFR Part 69

Environmental protection, Air pollution control, Alaska.

Dated: June 18, 1999.

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--SPECIAL EXEMPTIONS FROM REQUIREMENTS OF THE CLEAN AIR ACT

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

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

Subpart E--[Amended]

2. Section 69.51 is amended by revising paragraph (c) to read as

follows:

Sec. 69.51 Exemptions.

* * * * *

(c) Beginning January 1, 2004, 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.

[FR Doc. 99-16228 Filed 6-24-99; 8:45 am]

BILLING CODE 6560-50-P