[Rushtalk] Antiquated law adds billions to fuel costs

Carl William Spitzer IV cwsiv at copper.net
Tue May 13 10:00:14 MDT 2014

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 exists — but 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 winter — happily, 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

But every day the law adds to energy bills because it stops
foreign-flagged tankers and barges from shipping among US ports. They
can’t 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, we’d 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 crude —
particularly 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 America’s
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 won’t 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, research director and senior fellow of the
Independent Institute is J. Fish Smith Professor in Public Choice at
Utah State University’s Huntsman School of Business.


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