An obscure 1920 law is costing Americans billions of dollars a year in higher fuel costs.
The Jones Act requires that cargo shipped from one US port to another be carried on a US-registered vessel, built, owned and crewed by Americans. This protectionist law was designed to support a shipbuilding industry that no longer existsbut inertia and labor-union muscle keep it on the books.
The law mainly makes the news in time of crisis. It delayed shipment of road salt to New Jersey during a shortage last winterhappily, without incident, as the weather moderated before the Garden State had to shut down its highways for lack of salt.
In some crises, the president grants a waiver to allow emergency relief. President George W. Bush waived the Jones Act for a short time in 2005 after Hurricane Katrina hit the Gulf Coast; President Obama granted waivers to speed the release of strategic oil reserves (to counterbalance the loss of Libyan oil) in 2011 and most recently to get more gasoline into East Coast markets in the aftermath of Hurricane Sandy.
But every day the law adds to energy bills because it stops foreign-flagged tankers and barges from shipping among US ports. They cant help move crude from Gulf Coast ports to East Coast refineries, or supply Florida with oil from Louisiana and Texas ports or ship oil between West Coast and Alaskan ports.
Without the Jones Act, in short, wed have significantly greater domestic oil production.
The vast majority of Jones-compliant tankers are tied up in long-term charters. That leaves little tanker capacity available to, for example, ship the huge amounts of unconventional tight oil now being produced by fracking in North Dakota and south Texas. Only one pipeline supplies critically important refineries in the mid-Atlantic region, and the US rail-freight industry lacks the capacity to make much of a difference.
So Gulf Coast ports are saddled with a glut of sweet crudeparticularly oil from Texas Eagle Ford Shale, which accounts for more than 1.3 million barrels of sweet crude per day.
This dislocation is holding down the effective supply of domestic oil, and does so when stepped-up production would enhance Americas geopolitical position. For one thing, a larger supply could be used as a strategic weapon in the global oil market to counteract any Russian aggression in Ukraine.
Repealing the Jones Act would generate multiple benefits. It would energize the production of shale oil, creating thousands of jobs and boosting the US economy. It would reduce US reliance on imported oil from problematic OPEC countries like Saudi Arabia and Venezuela, shaving billions from our trade deficit and enhancing US energy security.
And it would cut the price consumers pay at the pump.
Over the years, efforts to repeal the Jones Act have been blocked by labor unions, which claim that repeal would cost thousands of shipyard and maritime jobs. The near-disappearance of the US shipbuilding industry renders that argument moot.
If Congress wont act, President Obama could issue a blanket Jones waiver for transporting oil between US ports.
Leaving the Jones Act in full force condemns millions of Americans on the East and West Coasts to needlessly inflated energy prices, and also weakens us internationally. Rather than keep this bad law afloat, our leaders should scuttle this costly relic of the past.
|William F. Shughart II is a Research Director and Senior Fellow at The Independent Institute, J. Fish Smith Professor in Public Choice in the Jon M. Huntsman School of Business at Utah State University, and editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.|