Jones Act a threat to Hawaii security?

by Keli'i Akina, Ph.D., President / CEO, Grassroot Institute of Hawaii

The world is holding its breath as we watch the outbreak of war in Ukraine and wonder what it bodes for the future.

For those of us in Hawaii, there is an extra reason to be concerned, aside from the geopolitical implications and the loss of life: It is very likely that the sanctions against Russia will lead to a dramatic increase in energy prices. That’s because for years, Hawaii has been getting about one-third of its crude oil from Russia.

Why would Hawaii import oil from Russia when we could get it from the U.S. mainland? After all, the U.S. mainland is closer, and both countries are large exporters of the low-sulfur crude oil relied on by Hawaiian Electric for generating electricity. 

As Grassroot Institute of Hawaii research associate Jonathan Helton explained in a recent article, it is a simple matter of economics. It is much cheaper for Hawaii to buy oil from Russia than from the U.S., even though the per-barrel cost of oil from Russia is more expensive than from Texas. 

How is that possible?

Blame the Jones Act. The 1920 federal maritime law requires all goods shipped between American ports to be on vessels that are U.S. flagged, built and mostly owned and crewed by Americans.

The result of more than a century of protectionism has been that U.S. ships are more expensive to build and operate, with the additional costs inevitably passed on to consumers. In other words, the added cost of using American ships makes it more expensive for Hawaii to buy oil from Texas than from Russia. 

According to a study from the Grassroot Institute, the Jones Act costs Hawaii about $1.2 billion a year, including 9,100 fewer jobs, $400 million in lost wages and $150 million in lost tax revenues. Gasoline in the islands costs up to $55.2 million more a year due to the Jones Act, and the average family’s electricity bill is higher by about 14 cents every day. 

That is why Hawaii needs a Jones Act exemption. With the outbreak of war in Ukraine and the sanctions against Russia, it might be the only way to guarantee that we can continue to import oil at a reasonable cost.

In calling for an exemption, we are following the same path as the Hawaii Refinery Task Force. As far back as 2014, the task force warned that a political crisis could lead to increased dependence on domestic oil, accompanied by higher freight costs. 

Its solution? A Jones Act waiver that would let Hawaii import fuel from the mainland at lower prices.

Specifically, the No. 1 recommendation of the task force was: "Explore actions to allow Hawaii fuel supply to utilize foreign flag vessels from domestic ports in lieu of Jones Act vessels in order to expand supply sources into the state at more competitive prices."

Again, that was in 2014, eight years ago. Yet, despite that well-reasoned call for reform, Hawaii’s political leaders generally have done nothing to avert the situation in which we now find ourselves. 

The sad fact is that, when it comes to fuel imports, we have spent years perched between a rock and a hard place, and now we are feeling the squeeze. 

Maybe we should never have been so reliant on Russian oil imports to begin with. But that was a choice based on the high cost of U.S. oil, thanks to the Jones Act.

The best way forward is to obtain a permanent Jones Act exemption for our state that would let Hawaii buy oil from U.S. sources at lower costs. 

After that, we should update the Jones Act in general, to bring it into the 21st century and reduce its burden on all Americans.

E hana kākou! (Let's work together!)