Can’t fix 1970s energy policy without overhauling 1920s shipping policy

It’s 1920. Warren G. Harding was nominated by the Republican Party for president. We were five years from the sinking of the Lusitania and two years from WWI. The country was about as removed from Teddy Roosevelt’s Great White Fleet and Henry Ford’s Model T as it is currently removed from the terrorist attacks of Sept. 11, 2001. 

At the time, influenced by an 1887 book written by Capt. Alfred Thayer Mahan, naval supremacy was viewed as the key to the modern world. In response and to facilitate domestic shipbuilding, the Jones Act was signed into law in 1920 and remains the law of the land. It requires that cargo shipped between two U.S. ports be transported on a ship built in the United States, owned by U.S. citizens, and crewed by at least 75 percent U.S. citizens.

{mosads}This historical context is important as we begin a debate over whether the 1970’s-era crude oil export ban should be lifted. The fact that we can have this conversation is an incredible achievement for the U.S. oil and gas industry. But it also calls into question the impacts of lifting the ban if we do not also revise our archaic shipping rules. 

Here’s why. The Jones Act is driving up shipping costs for all manner of goods, including crude oil and gasoline. In fact, it is now cheaper to ship crude oil from the Gulf Coast to Canada (which can receive U.S. crude oil today), refine it into gasoline, and ship it back to the East Coast rather than simply ship the crude from the Gulf Coast to our East Coast refiners. In the last year, the cost of shipping crude on Jones Act tankers has continued to increase as demand outpaces supply. This makes little economic sense and only serves to weaken U.S. manufacturing. 

Nor does the national security argument make sense any longer. The United States allows allies and international companies to build and operate military equipment and civilian aircraft. The shipbuilding industry should not be treated differently.   

Recently Tom Allegretti, ‎president & CEO at American Waterways Operators, attacked my position on this anachronistic law. He accused me of trying to “replace all American workers with foreign workers” and suggested we should do the same to U.S. refineries.  

To be clear, I’ve never suggested that we replace U.S. workers with foreign workers. Americans can compete with anyone in a free market, rather than hiding under the guise of a protectionist statute that actually inhibits greater growth of American manufacturing.

A 2013 report from the World Economic Forum (along with Bain & Co and the World Bank) described the Jones Act as “the most restrictive of global cabotage laws and an anomaly in an otherwise open market like the United States.”

Allegretti is looking out for the interests of his members, and fears global competition against nations with less stringent federal regulation. It’s a frustration the refining industry shares. In the spirit of bringing down artificial barriers for all, the American Fuel & Petrochemical Manufacturers (AFPM) stands willing to work with him to address anti-competitive policies affecting his membership if he’ll work with us on Jones Act reforms. I’m hopeful that Congress will realize that this Model T legislation has run its course.

The U.S. has an opportunity to become the world’s top energy producer and to foster the return of manufacturing jobs. If we’re taking a hard look at the energy policy of the 1970s, surely we can also take a hard look at the shipping policy of the 1920s.

Drevna is president of the American Fuel & Petrochemical Manufacturers (AFPM), the national trade association that represents 98 percent of refining capacity in the United States.