[Federal Register Volume 64, Number 122 (Friday, June 25, 1999)]
[Rules and Regulations]
[Pages 34126-34133]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-16228]


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

[[Page 34130]]

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