[Federal Register Volume 63, Number 179 (Wednesday, September 16, 1998)]
[Rules and Regulations]
[Pages 49459-49465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-24734]


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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:

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

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

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

    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