Summary

Under Federal Regulation (40 CFR Part 80), Alaska may develop and submit for EPA approval an alternative transition plan for implementing the ultra-low sulfur standard. The deadline for submitting an alternative plan is April 1, 2002. The State of Alaska, Department of Environmental Conservation, asks for the incorporation into the federal register of the following components of a transition plan to 15 ppm sulfur diesel for Alaska.

Alaska is a large and expansive state. For this particular issue, Alaskans would be best served by categorizing Alaskan communities into two groups:

1. communities on the road contiguous with Canada and the Lower 48, and communities regularly serviced by the Alaska Marine Highway System ferry system
2. communities not on the contiguous road or receive limited ferry service

• The portions of Alaska serviced by the contiguous road system connected to Canada and the Lower 48 states, and portions of the Alaska Marine Highway System with regular drive-on, drive-off vehicle service on ferries (i.e. Kodiak, Ketchikan, Juneau, Sitka, Haines, Skagway, Petersburg, Wrangell, and Cordova) will be subject to the National Plan.
• For areas not covered by the above description, preliminary indications favor a market-based approach. We are still in the process of gathering input from rural and Tribal communities. We request an extension to June 13, 2003 to consider Tribal and rural recommendations and develop all the components of a rural plan.
• We recommend EPA allow PetroStar refinery fall under the general flexibilities listed in 40 CFR 80.552. We recommend modifications of 40 CFR 80.550 to qualify PetroStar as a small refiner.
• Additionally, we request EPA provide an additional 75 days for Alaska, refiners, and others, to explore flexibilities offered in 40 CFR 80.540.

Urban Program – National Plan

At this time, Alaska is submitting a plan for the communities of Alaska serviced directly by the road system connected to Canada (and the rest of the US), and the Alaska Marine Highway (i.e. Kodiak, Ketchikan, Juneau, Sitka, Haines, Skagway, Petersburg, Wrangell, and Cordova). The State of Alaska recommends those communities on the connected road system or served by the Alaska State ferry system as identified above will follow the nationwide requirements as laid out in 66 FR 5002.

Rural Program – Unique Challenges

The communities not on the contiguous road system or with periodic and minimal ferry service not identified above may be subject to an alternative plan. This is still under discussion with rural communities.

This past summer the State of Alaska held three public workgroup meetings in Anchorage to discuss transitioning to 15 ppm sulfur diesel. Involvement from Tribes and rural Alaska was low. Our entreaties to join the workshops were not successful. Tribe members and rural Alaskans live a true subsistence lifestyle. The summer is dedicated to harvesting traditional foods, which make up the bulk of Tribal diets. These activities are necessary for survival in terms of nourishment and culture.

To increase involvement of tribal members and rural Alaskans, the State embarked on a series of fall and winter meetings to inform and solicit recommendations about the 15 ppm sulfur diesel requirements and its potential impacts on rural Alaska. The first step occurred at the Bureau of Indian Affairs Providers conference in Anchorage, in October 2001, and at the Forum for the Environment, also in Anchorage, during the week of February 4, 2002. Through these meetings, we established necessary contacts to make travel to the Tribes and rural Alaska a reality.

At this time, we have held meetings with community members in six hub communities in rural Alaska, including Kotzebue, Unalakleet, Nome, Barrow, Kodiak, and Dutch Harbor/Unalaska. Where possible we are tying in smaller villages by teleconference. It is anticipated that those who participate in these hub community meetings will spread the word to additional rural communities. Ideally, we would have the time and budget to establish communications and travel to smaller villages.

Rural Alaska posed unique challenges. It is impossible to address mobile sources in rural Alaska without addressing stationary sources. The two sources share a fuel distribution system that has evolved to be as cost effective and efficient as possible. For non-aviation uses, one grade of fuel is distributed to rural Alaska, once or twice a year when weather allows. Village residents use fuel from the same tank to run their power generators, to heat their homes, as well as to run their trucks. There are few diesel trucks in rural Alaska. Some villages do not even have diesel trucks. Modifying the distribution system to accommodate a small amount of 15 ppm sulfur diesel for highway purposes may impact fuel costs for all uses.

Most of the community members express concern with the cost impacts from converting to 15 ppm sulfur diesel. Fuel costs in rural Alaska are already the highest in the country and many believed costs will increase significantly due to distribution logistics. Specific concerns follow:

• increased costs for fuel segregation - river barges, fuel planes, fuel retailers, and tank farm operators may have to dedicate a tank for 15 ppm sulfur diesel separate from those used to store fuel for home heating and electrical generation
• a full conversion to 15 ppm sulfur diesel, to avoid fuel segregation costs, may cause operational problems, and may increase costs with home heating and power generation sources because of the price of the fuel and the fact that the ultra-low sulfur fuel produces less energy
• there are very few diesel trucks and buses in rural Alaska. The health risks and exposures from diesel use in power generation is not known and needs to be evaluated. Without that data, it is impossible to compare the potential cost impacts with the potential health risk from diesel vehicles, which this rule addresses, or from power generation sources

Initial comments indicate that rural communities and villages tend to favor a market-based approach, which builds upon local choices. Components of a market based approach include:

• the need to buy 15 ppm sulfur diesel fuel for a vehicle would only occur when a 2007 or later model year diesel truck or bus is introduced to the community
• the goal for the deadline to convert all diesel powered vehicles to 15 ppm sulfur diesel in rural Alaska is 2010
• at some point, enough sources will need 15 ppm sulfur diesel that a demand will be in place allowing distributors to cost effectively bring only the new fuel into the villages
• this option offers maximum flexibility for Tribes and rural communities to comply with the fuel rule as dictated by the communities own priorities, concerns and economics. Villages can be more or less stringent than the national plan as they deem appropriate
• enforcement can occur with chain of custody documents that will follow shipments of 15 ppm fuel to off-road Alaska. Fuel may be tested at all points along the distribution system

However, the rural communities do have other options to choose from when deciding how to best switch over to the 15 ppm sulfur fuel. These include the national plan outlined in 66 FR 5002, or a switch of all sources to 15 ppm sulfur fuel at once. Additional options may be developed if given additional time.

Extended Deadline for Native Alaskan Tribe and Rural Community Comments: We need more time to consult with local residents and tribes

Efforts to consult with and develop a plan for Tribes and rural Alaska communities are still taking place. Distance, inclement weather, and cultural considerations make this a lengthy process.

The villages contacted thus far have expressed an acute need to review the information and further think about the impacts and ramifications of importing 15 ppm sulfur diesel into their community. To date we have received no formal comments on this issue.

For these reasons, we would like additional time to build a solid and appropriate rural transition plan. Under our proposal, the recommendation by the villages will not be requested until May 15, 2003. Therefore, we are requesting an extension to June 13, 2003 to develop and submit to EPA a Rural Plan.

The following subjects should be addressed over the extended submission deadline:

• explore use of alternative power generation to avoid diesel impacts on power generation in terms of cost and operational characteristics
• availability of subsidies to assist in updating village infrastructure to accommodate the new fuel. This may include new tanks, cleaning of existing tanks, barge modifications, engine overhauls, and others
• availability of funding to develop projects running 15 ppm sulfur diesel through power generators and other potentially impacted sources in winter weather to determine operating characteristics
• possibility of incentives for production of Arctic grade ultra-low sulfur fuel to encourage production and price stability
• health studies are necessary to determine if a health threat is present before investing in the new fuel. Rural Alaska residents stated they do realize there are potential health effects from diesel combustion and would like to someday reap the benefits from 15 ppm sulfur diesel, but believe they need more information to evaluate this issue
• explore options for a time-certain conversion to 15 ppm sulfur diesel for all diesel vehicles

Provisions for Small Refiner Flexibility

The DEC supports PetroStar's application to be considered a small refiner, as defined in 40 CFR 80.550. We believe PetroStar should be subject to the provisions given qualified small refiners in the national rule. PetroStar operates small refineries in North Pole and Valdez. Its size puts it at a cost disadvantage to larger refiners in modifying their facilities with current desulfurization technologies. However, under 40 CFR 80.550, PetroStar may not qualify as a small refiner due to the number of employees in its parent company. The parent company is the Arctic Slope Regional Corporation which has diversified holdings, most of which are unrelated to oil refining. PetroStar has taken the initiative to explore less costly desulfurization technologies than those currently available. In consideration of its size and current efforts to advance desulfurization technologies, the DEC believes PetroStar should receive the flexibility available under the national rule for similar operations.

The State of Alaska recommends EPA allow PetroStar the general flexibilities listed in 40 CFR 80.552. We recommend modifications of small refiner qualifications discussed in 66 FR 5074-5075 to allow PetroStar's inclusion into small refiner status:

• extend to December 31, 2002 the deadline to apply for small refiner status
• modify refiner size criteria to consider the size of PetroStar's parent company, or exclude PetroStar's parent company from small refiner size qualifications

Provision for an additional 75 days for Alaska, refiners, and others, to explore the refiner flexibility offered in 40 CFR 80.540

The EPA established the Geographic Phase-in Area (GPA) to allow for less stringent standards for gasoline sold in parts of the Western United States and Alaska (40 CFR 80.215). Alaskan refiners fall within the GPA. There are refiner flexibilities offered in 40 CFR 80.540 that will allow qualified refiners to put off gasoline sulfur standards from 2007 to 2009 if the refiner produces 100% 15 part per million sulfur diesel in June 1, 2006.

As Alaska's transition plan is written, Alaskan refiners indicate there will be no in-state production of diesel for on-highway use. Alaskan refiners have not been able to evaluate the flexibility for GPA qualified refiners due to the development of this Alaskan transition plan. Now that the State of Alaska's transition plan has been determined, Alaska refiners are able to and need to prepare their plans on the basis of this transition plan.

Therefore, we request EPA provide an additional 75 days from April 1, 2002 for Alaska to explore this flexibility with the Alaskan refiners and others. After these additional days, a final decision will be made whether the State of Alaska should incorporate these flexibilities into a final Alaska transition plan.

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