Because of a law called the Jones Act, goods being shipped from one U.S. port to another must be carried by U.S. made, owned and operated ships. The petroleum market is just one industry affected by this policy, with the large demand centers of the East Coast getting much of their fuel from across the Atlantic because doing so is cheaper than using U.S. ships to import fuel from the Gulf Coast. Much of the Gulf’s fuel instead gets exported to places as far away as Asia. A new study finds lifting the Jones Act’s restrictions would bring savings on average for U.S. consumers.
“Our study shows that the Jones Act hurts consumers, benefits producers, and leads to inefficiencies within the oil market,” says study co-author Ryan Kellogg, an EPIC scholar and professor at the Harris School of Public Policy at the University of Chicago. “Understanding who would win and who would lose if the Jones Act were repealed sheds some light on why this policy still exists.”
Kellogg, along with his co-author Richard Sweeney from Boston College, collected data from 2018-2019 on U.S. Gulf Coast and East Coast fuel prices, movements and consumption and modeled counterfactual prices and product movements absent the Jones Act. They found that lifting the Jones Act’s restrictions would increase the amount of Gulf Coast oil products sent to the East Coast—eliminating nearly all jet fuel and diesel fuel foreign imports and more than a third of gasoline and light crude imports.
With more oil products coming from the Gulf, East Coast consumers would save $0.63 per barrel on gasoline and about $0.80 per barrel on jet and diesel fuel. Consumers in the Southeast would see the largest price drops because of the short distance the products would need to travel, with prices for gasoline dropping by $0.76 per barrel, jet fuel by $1.60 and diesel fuel by $1.12. Meanwhile, consumers in the Gulf would be paying slightly more—$0.30 per barrel—for their gasoline because the locally-produced gasoline would meet East Coast prices less the coast-to-coast movement cost.
Altogether, U.S. consumers would gain $769 million per year if the Jones Act were repealed. Producers would see their profits decline on average because the lower East Coast prices would reduce their revenues. But the consumers’ gain would be more than double the producers’ losses of $367 million per year. Balancing the gains and losses, lifting the Jones Act restrictions would improve the efficiency of the U.S. oil market by $403 million per year.
“Consumers, namely those on the East Coast, would save a lot in aggregate. But those savings would be spread out, amounting to just a few dollars a year for each person,” says Sweeney, an associate professor at Boston College. “Producers who would take in less revenue, however, would see their profits decline, providing them with little reason to advocate for a Jones Act repeal.”