The Cost of Politics The Jones Act illustrates the silent tax of special interests on the energy sector.
The Cost of Politics
The Jones Act illustrates the silent tax of special interests on the energy sector.
JAN 12
“The reason Silicon Valley’s been so successful is because it’s so fucking far away from Washington DC.” - Bill Gurley
On May 24th, 1883, the opening of the Brooklyn Bridge was marked by a celebration with thousands of attendees and fireworks lighting up the night sky. The bridge's completion transformed life in New York City, linking Manhattan and Brooklyn like never before.
Tragically, the bridge came at a steep cost as 20 workers died during construction. The working conditions during the 14-year project were harsh, especially during the construction of the bridge's massive towers. Workers faced grueling hours in caissons (pressurized chambers used in underwater construction) and often battled “the bends” when ascending from the depths of the East River.
Such is a small flavor of the working conditions that were present during the bridge’s construction, and, more broadly across New York at the time. To combat these unsafe environments and better protect workers, New York passed Labor Law 240 in 1885.
Today, this infamous law is colloquially referred to as the “Scaffold Law” and places absolute liability on property owners and contractors if a worker sustains an injury due to a fall or falling object. This means they can be held responsible for the injuries suffered by the worker, regardless of any negligence (eg intoxication) on the part of the worker.
The natural consequence of the Scaffold Law is sky-high insurance and litigation costs. Despite repeated challenges and being the only state in the US with such an onerous law, special interests and lobbyists have managed to keep it on the books. It serves as a prime example of the unidirectional nature of government bureaucracy and of the ease at which special interests can manipulate the puppets they put into office.
No part of the US economy is immune to such rent-seeking politicians, but it’s hard to imagine an industry that has it worse than the energy sector. Given the size of the $$ prize, lobbyists and PR-spinners are highly motivated to convince politicians that up is down and down is up. Unfortunately they often succeed, resulting in a hidden tax of illogical-yet-unchangeable laws and regulations that buttress political careers at the expense of the American people.
The Merchant Marine Act of 1920, aka the Jones Act, demonstrates exactly what we mean. Passed shortly after WWI, its main purpose was to promote and protect the American maritime industry for national security reasons. Now, like a virus, its main purpose is to protect and promote its own survival with no regard for the health of its host.
The law requires that goods transported between U.S. ports, aka cabotage, be carried on ships that are built, owned, and operated by U.S. citizens or permanent residents.
By eliminating the number of ships available for cabotage, the price of shipping is high. Because the price of ocean shipping is high, companies favor ground shipping. The result of this nonsense is a US maritime industry in decline, the exact opposite of what the Jones Act was supposedly protecting against. Still, it somehow maintains strong bipartisan support in Washington. Yayy democracy!
The negative impacts of this unnecessary constraint on our domestic maritime industry can be seen across the energy sector. For example, because of untenable costs, there are exactly zero Jones Act-compliant vessels capable of transporting liquified natural gas (LNG). When combined with an unwillingness to build new pipelines, New England relies on LNG shipments from places like Trinidad & Tobago and even Russia to keep the lights on and the heat flowing. We are stupid enough to make New England get natural gas from Russia instead of West Virginia or Louisiana. And to be clear, we’re not advocating for a ban on imports of LNG. We’re saying we should unban the ban on shipping ourselves LNG.
The situation in the market for refined products is similar to that of LNG. The US has more refining capacity than it needs to meet domestic demand, but nearly all refineries are concentrated in the US Gulf Coast. We end up having to import diesel, gasoline, and jet fuel simply because we can’t serve ourselves. It’s like cooking yourself dinner and then throwing away the silverware. Here’s how Doombergrecently put it:
The US Northeast has no refining and we don’t have any pipelines to the refiners in the south and because of the Jones Act we can’t supply them with product we make domestically and so they’re forced to import diesel that is refined in India using Russian crude.
The Jones Act also casts a shadow over the U.S. offshore wind industry, particularly impacting the deployment of specialized vessels crucial for wind turbine installation. The limited availability of Jones Act-compliant turbine installation vessels constrains the industry's ability to efficiently carry out large-scale projects. Albeit one aspect of the issues facing the offshore wind industry (h/t Eigen Values ), the financial burden of adhering to the Jones Act is real. A real pain in the ass. Here’s how the Cato Institute describes it:
No existing [wind turbine installation vessels] comply with [the Jones Act], barring them from transporting wind turbine components to installation sites from nearby US ports.
Instead, these vessels must use a workaround. One method is operating out of a foreign port, such as in Canada. Another is for the vessel to position itself at the installation site and have the needed components transported to it by Jones Act‐compliant “feeder barges.”
Both bring with them significant disadvantages. Canadian ports can be hundreds of miles away from wind turbine installation sites, lengthening project timelines and adding costs. Feeder vessels, meanwhile, add complexity and risk to projects.
Political choices like the Jones Act cause an inefficient flow of life-nourishing energy, raising costs and emissions unnecessarily. This political tax-of-doing-business grows unabated, year after year, like weeds in a neglected garden.
Isn’t it crazy that we still manage to keep the lights on? Too bad we could be doing it cheaper and cleaner.