Biden misses opportunity to cut fuel costs via Jones Act waiver
Even supporters of the 102-year-old federal shipping law admit that its restrictions on competition add to the cost of our fuels
by Jonathan Helton, Grassroot Institute, July 21, 2022
With inflation at a 40-year high and per-gallon gasoline prices averaging $4.44 a gallon nationally and $5.60 in Hawaii, politicians, business owners and the public are all clamoring for a solution.
In the past month, President Joe Biden signed the Ocean Shipping Reform Act to combat high international shipping rates, and he called for a waiver of the 18.4 cents-a-gallon federal gas tax.
However, his administration continues to publicly support the Jones Act, which limits shipping competition by requiring that all goods shipped between U.S. ports be on ships that are U.S. flagged and built, and mostly owned and crewed by Americans.
The administration’s position is unfortunate because waiving or permanently reforming the Jones Act is one of many strategies the federal government could use to bring down the cost of fuels for American businesses and consumers.
In 2020, 33.05 billion short tons of gasoline moved between U.S. ports under the Jones Act. This is equal to 10.64 billion gallons of gas. If each gallon of gas was 1 cent higher due to the Jones Act, the result would be a cost of $106.4 million.
According to a Bloomberg news report last month, moving a barrel of oil from the Gulf Coast to New England — a route protected by the Jones Act — costs about $4.66. With 42 gallons in each barrel, that equates to 11 cents a gallon in transportation costs. A barrel of oil can be moved on a similar foreign route for about $1 less, or 8.7 cents per gallon, leaving a price difference of just above 2 cents a gallon.
This is close to the estimate of the Jones Act lobby, which in a letter sent to President Joe Biden in March said the law was costing Americans only “a few cents a gallon.” Depending on how you define “a few cents a gallon,” that suggests a savings of anywhere from $212 million, at 2 cents a gallon, to perhaps almost half a billion dollars, at 4 cents a gallon.
Other sources have suggested much larger costs. On July 13, CNBC’s Kayla Tausche reported that business executives meeting with the U.S. Department of Energy said a Jones Act waiver could reduce the cost of gas by 8 cents a gallon, which would be closer to $1 billion a year.
Financial services giant J.P. Morgan last month pegged the cost of the Jones Act for drivers in the East Coast region at 10 cents a gallon.
No matter how you slice it, the law is adding to the energy costs of U.S. businesses and consumers. And the public has noticed. Calls to reform the Jones Act have been growing louder for months.
Much of the momentum began in March after Russia invaded Ukraine. Biden banned Russian fuel imports in response, which wasn’t so perilous for the rest of the U.S. but definitely called into question Hawaii’s energy security, since the Aloha State had relied for years on Russia for up to one-third of its crude oil imports.
That same month, the Grassroot Institute of Hawaii wrote a letter to Biden asking that he grant Hawaii a one-year Jones Act waiver for fuel imports. U.S. Rep. Ed Case of Hawaii wrote Biden shortly after, seeking “a limited, targeted waiver of the Jones Act for domestic supply shipping to Hawaii.”
“Jones Act-required shipping carries a huge cost increase premium over non-Jones Act shipping,” Case said in his letter.
Also in March, the Maui County Council unanimously approved a resolution requesting a Hawaii Jones Act waiver for oil imports.
Elsewhere in the United States, North Dakota Gov. Doug Burgum called for “an immediate waiver to the Jones Act to reduce shipping costs and ensure that all U.S. refiners have access to the SPR [Strategic Petroleum Reserve] releases.”
Since then, many other groups have called on the Biden administration to reform the law in some form or fashion, including the Cato Institute, the Bloomberg editorial board, the Heritage Foundation and The Wall Street Journal.
Five weeks ago, ExxonMobil, one of the world’s largest energy companies, called for the federal government to “enact measures often used in emergencies following hurricanes or other supply disruptions.” The company advocated “waivers of Jones Act provisions” as one policy option.
A week later, Gunvor SA, a commodities trading company, formally requested a waiver to bring in 13 million gallons of gasoline from Europe. This request was not granted.
As the calls for reform grow louder, the evidence against the Jones Act is piling up. In addition to the recent information provided by Bloomberg and others:
>> In 2020, the Grassroot Institute of Hawaii found the law raises gas prices in Hawaii by between $19 million and $55 million a year.
>> In 2020, Vincent Smith and Philip Hoxie from the American Enterprise Institute compared tanker lanes covered by the Jones Act to international lanes and found that “Jones Act routes are substantially less competitive than routes open to international competition.”
>> In 2019, a study from Rice University’s Baker Institute of Public Policy found that the law hikes transportation costs, siphoning $760 million from oil tanker owners and fuel consumers each year.
>> In 2014, the Congressional Research Service documented that it costs $2 a barrel to ship oil from the Gulf Coast to Canada, while shipping a barrel from the Gulf to the Northeast – a route covered by the Jones Act – costs between $5 and $6 a barrel.
>> In 2014, Gulf Oil CEO Joe Petrowski told CNBC: “If foreign owned and flag ships were able to carry gasoline in U.S. waters, the price of gasoline in the Northeast and in Florida could be 20 to 30 cents lower.”
>> A 1998 U.S. Government Accountability Office study showed that the law imposed a substantial economic burden on Alaska. Oil tankers lost between $119.7 million and $142.9 million each year due to the law.
It was in response to all this mounting evidence that the pro-Jones Act American Maritime Partnership claimed in its letter to the president in March that the Jones Act adds only “a few cents a gallon” to the cost of transporting fuel.
Coincidentally, at the same time it was telling Biden that, it also was promoting a graphic on its website alleging the law adds “less than $0.01” (1 cent) a gallon to what drivers pay at the pump.
It is an allegation the AMP has been making for years, despite the many market changes, including inflation. Below is a graphic it published in April of this year. Below that is the same graphic from 2014, featuring a lower gas price but the same amount attributed to the Jones Act.
AMP graphic: April 2022
AMP graphic: July 2014
Both graphics are based on a 2013 study conducted for the Transportation Institute, another pro-Jones Act group. The Grassroot Institute of Hawaii reached out to inquire about the methodology of those findings, but the Transportation Institute has not responded.
In any case, the AMP’s letter to Biden contradicted the graphic on its website that ocean transportation adds “less than 1 cent a gallon” to the price of gasoline.
As for the AMP’s dubious statistic of “less than 1 cent a gallon,” that still could add to at least $106 million a year that Americans are having to pay because of the Jones Act.
Moreover, that is measuring the law’s impact on only refined gasoline, not crude oil, liquefied natural gas or propane. There’s no doubt the Jones Act adds to the price of those fuels as well.
Ironically, no matter which AMP statistic you choose, it is an admission by Jones Act supporters that their pet law affects the price of gasoline, even if they think the amounts are not anything anyone should be complaining about.
Perhaps the overwhelming evidence that the Jones Act raises the cost of fuel and continued calls for reform will encourage a change of heart in Congress and the White House. Until that happens, Americans nationwide will have to keep shelling out for this outdated law and its privileged few beneficiaries.