Whither the Wind? The Jones Act and Its Evolving Impact on the U.S. Offshore Wind Energy Industry
At the conclusion of World War I, Congress intended to develop a merchant marine for reasons of national defense and growth of foreign and domestic commerce. As stated by Senator Wesley Jones, then Chairman of the Senate Commerce Committee, the Merchant Marine Act of 1920 was “an earnest effort to lay the foundation of a policy that will build up and maintain an adequate American merchant marine in competition with the shipping of the world.”[1] The U.S. Congress passed the Merchant Marine Act in early June 1920 and it was signed into law on June 5, 1920, by President Woodrow Wilson.
Section 27 of the Merchant Marine Act, better known as the Jones Act,[2] requires, with certain exceptions, that all merchandise transported between points in the United States (often described as “coastwise points”)[3] be carried on vessels (often described as “coastwise-qualified vessels”) that have been built in the United States, that fly the U.S. flag, that are owned by U.S. citizens,[4] and that are crewed by U.S. citizens and U.S. permanent residents. The Jones Act’s existence was meant to ensure a ready supply of ships and mariners in case of war, and similar requirements apply to the transportation of passengers pursuant to the Passenger Vessel Services Act.[5]
The Jones Act is enforced by U.S. Customs and Border Protection (CBP), which is part of the U.S. Department of Homeland Security. The penalties for violating the Jones Act can be severe. Merchandise transported in violation of the Jones Act is subject to seizure by and forfeiture to the U.S. government. Alternatively, an amount equal to the value of the merchandise or the actual cost of transportation, whichever is greater, may be recovered from the person transporting the merchandise or causing the merchandise to be transported. As of June 28, 2024, the penalty for transporting passengers in violation of the Passenger Vessel Services Act is US$971 for each passenger transported and landed.[6]
Offshore Wind Power Projects
In 2016, the U.S. Department of Energy and the U.S. Department of the Interior initiated the National Offshore Wind Strategy. The 2022 Offshore Wind Resource Assessment conducted by the Department of Energy’s National Renewable Energy Laboratory (NREL) estimates that fixed-bottom offshore wind farms in the country could theoretically generate some 1.5 terawatts of power.[7] Offshore wind farms are massive projects, with up to 100 or more wind turbines standing hundreds of feet above the ocean. They typically take decades to plan and get approved. As this industry has worked to get off the ground in the United States, companies have wrestled with how to deal with the Jones Act.
Typically, wind turbine installation vessels (WTIVs) play a critical role in the construction of offshore wind farms. Featuring a giant crane, deployable legs, and a dynamic positioning system, these vessels typically transport turbine components such as the tower, blades, and nacelles from a port to the installation site and set them into place. There is not a single WTIV that currently complies with the requirements of the Jones Act, barring them from transporting wind turbine components to installation sites in the U.S. territorial sea and the U.S. Outer Continental Shelf (OCS) from nearby U.S. ports.
Implications of the Jones Act on Development and Maintenance of Offshore Wind Power Projects in the United States
Offshore wind power projects require vessels for the transportation of merchandise (such as turbines, towers, foundations, blades, and mechanical parts) and passengers (such as contractors, inspectors, engineers, and field personnel) in connection with foundation installation; tower installation; turbine, nacelle and blade installation; service platform construction; testing and inspection; maintenance and repair; and security.
The U.S. Outer Continental Shelf Lands Act of 1953, as amended (OCSLA), extends U.S. law to certain installations and other devices permanently or temporarily attached to the seabed of the OCS. Prior to 2021, the wording of the OCSLA was unclear as to whether the Jones Act applied to wind power installations on the OCS, but in 2021, an amendment to the OCSLA was enacted. The amendment provided that devices fixed to the seabed for the purpose of “developing non-mineral energy resources” fall within U.S. federal jurisdiction, thus making it clear that wind energy installations attached to the seabed of the OCS constitute points in the United States for the purposes of the Jones Act.
CBP has repeatedly held that installations in the territorial sea of the United States[8] are points and places in the United States for the purposes of the Jones Act. On July 17, 2023, CBP issued a ruling[9] that a foreign vessel could load monopiles in a U.S. port, transport them to an offshore work site where nothing had been previously attached to the seabed and install such structures. The Jones Act applies to “transportation” of “merchandise” “between points in the United States.” CBP had already determined that work sites on the OCS beyond three nautical miles from the U.S. coast do not constitute U.S. points. CBP concluded that the transportation of monopiles[10] from a U.S. port to a place that is not a U.S. point can be undertaken with a foreign vessel.
CBP modified this July ruling on September 14, 2023,[11] and confirmed that it considers “the location for monopile installation to be a pristine site prior to the installation of the monopile.” Therefore, the “transportation and installation of [monopiles] from a U.S. coastwise point to a pristine seabed site on the OCS by a non-coastwise-qualified, dynamically positioned installation vessel would not violate the Jones Act so long as the installation vessel is not anchored or attached to the installation site” (emphasis added). Further, CBP determined that “transportation and installation of [monopiles] by a non-coastwise-qualified jack-up vessel from a U.S. coastwise point to a pristine seabed site on the OCS where the jack-up vessel attaches itself to the seabed would violate the Jones Act” because a second coastwise point is established once the jack-up vessel attaches itself to the seabed for the purposes of monopile installation (emphasis added). Consequently, merchandise would be laden at one coastwise point (the U.S. port) and unladen at another coastwise point (the jacked-up vessel). Finally, CBP held that the “use of a non-coastwise qualified jack-up vessel to install [monopiles] at a pristine seabed site on the OCS would not violate the Jones Act, so long as the jack-up vessel is not transporting these [monopiles] from another coastwise point” (emphasis added).
Faced with not having a single U.S.-flagged ship that can install the turbines, in late 2020, Dominion Energy, based in Virginia, announced it would have its own WTIV, Charybdis, built at a shipyard in Brownsville, Texas.[12] The price tag for this WTIV is estimated at about US$715 million.[13] But these ships take years to build, and there is no word of any other installation ships being built in the United States. In the meantime, companies that are currently constructing offshore wind projects on the U.S. East Coast have had to come up with workarounds. For example, Dominion put up test turbines off the Virginia coast and had to ferry parts back and forth from Canada just to avoid running afoul of the Jones Act. Other workarounds include using non-Jones Act-qualified vessels to transport components from foreign ports and install them at the installation site, or positioning a foreign-flagged vessel at an installation site and transporting the necessary components from U.S. ports to the foreign-flagged vessel using Jones Act-qualified feeder barges or other vessels.
None of the workarounds are very efficient or cost effective. Canadian ports can be hundreds of miles away from wind turbine installation sites, lengthening project timelines and increasing costs. Feeder vessels, meanwhile, add both complexity and risk to projects. Shipping a monopile across the Atlantic can cost upwards of a million dollars each.
Jones Act and Trump’s First Presidential Term
On September 8, 11, and 28 of 2017, in recognition of the severe impacts from Hurricanes Irma and Maria, the Trump administration Department of Homeland Security approved temporary waivers of the Jones Act to allow refined petroleum products, including gasoline, diesel and jet fuel, as well as other necessary commodities, to be shipped to South Carolina, Georgia, Florida, and Puerto Rico.[14], [15], [16]
Recent Developments
The Biden administration had set a goal to deploy offshore wind turbines capable of generating 30 gigawatts of power by 2030.[17], [18] With the change in administration, and the presumed shift in focus from renewable energy back to traditional oil and gas energy sources, it is unclear what will befall this goal.
In the midst of a tumultuous election cycle, through the halls of Congress, there has been growing attention to proposals to reinvigorate the U.S.-flag shipping sector. Senator Mark Kelly (D-AZ) and Congressman Michael Waltz (R-FL) recently proposed a signature initiative, the Ships for America Act, which is expected to be formally introduced as a bill before to the U.S. Congress in short order.[19] While most of the country is highly polarized on key topics, U.S. shipping and shipbuilding are rare topics that cross party lines. Because the initiative is both bipartisan and involves both the U.S. Senate and U.S. House of Representatives, the proposed Ships for America Act is likely to survive to the next Congress. The Act would create a maritime czar in the White House as well as a Maritime Advisory Board that would include shipbuilders, vessel operators, unions and other stakeholders.
Waltz has now been named as Trump’s nominee for National Security Advisor. In addition to proposing the Ships for America Act, Waltz co-wrote with Senators Kelly and Marco Rubio (Trump’s nominee for Secretary of State) and alongside Congressman John Garamendi (D-CA) the Congressional Guidance for a National Maritime Strategy,[20] which sets forth strategic objectives for investment in U.S. shipping and shipbuilding capacity to achieve maritime prosperity and ensure maritime security.
Further, in 2016, while a member of Congress, Trump’s nominee for Secretary of Transportation, Sean Duffy, considered proposing a suspension of the Jones Act for Puerto Rico as part of a congressional task force on the island territory’s economy. The proposal was not included in the final report.
Conclusion
Over the past decade, the Jones Act has been an impediment, although many argue a justifiable impediment, to the implementation of an aggressive program for offshore wind development in the United States. The Biden administration pushed for more offshore wind, and it appeared that Congress was ready to take action to support more aggressive offshore wind energy development. Further, many presumed members of the Trump administration have shown an inclination toward relaxing the requirements of the Jones Act. However, since the introduction of the Jones Act more than a century ago, the need for the United States to maintain a strong merchant fleet in times of conflict and meet strategic needs for the growth of both foreign and domestic commerce has not abated. Only time will tell the direction the new administration will take.
Please follow Vedder Price for updates and new developments.
[1] Jones, Wesley L. (1922). “The Merchant Marine Act of 1920.” Proceedings of the Academy of Political Science. New York: Columbia University, p. 233.
[2] The Jones Act, as subsequently amended, is now codified as part of Title 46 of the United States Code.
[3] “Points in the United States” are considered to include U.S. ports, installed offshore wind towers, and jack-up installation vessels fixed to the sea floor. The transportation of a wind turbine component from a staging area in a U.S. port – one point in the United States – to an offshore wind tower – a second point in the United States – must be performed using a Jones Act-qualified vessel.
[4] No less than 75% of the ownership stake must be held by citizens of the United States.
[5] Although the Jones Act and the Passenger Vessel Services Act are very similar in their restrictions and impact on U.S. offshore wind energy development and maintenance, this article will focus primarily on the Jones Act and its effect on U.S. offshore wind.
[6] https://www.federalregister.gov/documents/2024/06/28/2024-14121/civil-monetary-penalty-adjustments-for-inflation.
[8] The territorial sea, also referred to as “state waters,” is defined as a belt three nautical miles wide seaward of the territorial sea baseline and to points located in international waters.
[10] A monopile is the large, open-ended, steel cylinder that is driven into the seabed to support the weight and wind loads of an offshore wind turbine.
[12] When finished, the 144-meter-long Charybdis will boast over 5,000 square meters of main deck area and accommodate up to 119 people, supported by on-board cabins, mess rooms and shops, as well as a cinema, gym and hospital. While originally planned for completion in 2023, the vessel officially hit the water at Seatrium AmFELS shipyard in Brownsville, Texas, on April 15, 2024. Completion of vessel construction and sea trials are anticipated in late 2024 and early 2025.
[13] The initial cost projection was close to US$500 million.
[17]https://www.whitehouse.gov/briefing-room/statements-releases/2021/03/29/fact-sheet-biden-administration-jumpstarts-offshore-wind-energy-projects-to-create-jobs/.
[18]https://www.energy.gov/articles/energy-secretary-granholm-announces-ambitious-new-30gw-offshore-wind-deployment-target.
[19] On September 25, 2024, during an event hosted by the Center for Strategic and International Studies, Waltz and Kelly indicated they were planning on introducing the Ships for America Act after the U.S. presidential election this past November.
Vedder Thinking | Articles Whither the Wind? The Jones Act and Its Evolving Impact on the U.S. Offshore Wind Energy Industry
December 18, 2024
At the conclusion of World War I, Congress intended to develop a merchant marine for reasons of national defense and growth of foreign and domestic commerce. As stated by Senator Wesley Jones, then Chairman of the Senate Commerce Committee, the Merchant Marine Act of 1920 was “an earnest effort to lay the foundation of a policy that will build up and maintain an adequate American merchant marine in competition with the shipping of the world.”[1] The U.S. Congress passed the Merchant Marine Act in early June 1920 and it was signed into law on June 5, 1920, by President Woodrow Wilson.
Section 27 of the Merchant Marine Act, better known as the Jones Act,[2] requires, with certain exceptions, that all merchandise transported between points in the United States (often described as “coastwise points”)[3] be carried on vessels (often described as “coastwise-qualified vessels”) that have been built in the United States, that fly the U.S. flag, that are owned by U.S. citizens,[4] and that are crewed by U.S. citizens and U.S. permanent residents. The Jones Act’s existence was meant to ensure a ready supply of ships and mariners in case of war, and similar requirements apply to the transportation of passengers pursuant to the Passenger Vessel Services Act.[5]
The Jones Act is enforced by U.S. Customs and Border Protection (CBP), which is part of the U.S. Department of Homeland Security. The penalties for violating the Jones Act can be severe. Merchandise transported in violation of the Jones Act is subject to seizure by and forfeiture to the U.S. government. Alternatively, an amount equal to the value of the merchandise or the actual cost of transportation, whichever is greater, may be recovered from the person transporting the merchandise or causing the merchandise to be transported. As of June 28, 2024, the penalty for transporting passengers in violation of the Passenger Vessel Services Act is US$971 for each passenger transported and landed.[6]
Offshore Wind Power Projects
In 2016, the U.S. Department of Energy and the U.S. Department of the Interior initiated the National Offshore Wind Strategy. The 2022 Offshore Wind Resource Assessment conducted by the Department of Energy’s National Renewable Energy Laboratory (NREL) estimates that fixed-bottom offshore wind farms in the country could theoretically generate some 1.5 terawatts of power.[7] Offshore wind farms are massive projects, with up to 100 or more wind turbines standing hundreds of feet above the ocean. They typically take decades to plan and get approved. As this industry has worked to get off the ground in the United States, companies have wrestled with how to deal with the Jones Act.
Typically, wind turbine installation vessels (WTIVs) play a critical role in the construction of offshore wind farms. Featuring a giant crane, deployable legs, and a dynamic positioning system, these vessels typically transport turbine components such as the tower, blades, and nacelles from a port to the installation site and set them into place. There is not a single WTIV that currently complies with the requirements of the Jones Act, barring them from transporting wind turbine components to installation sites in the U.S. territorial sea and the U.S. Outer Continental Shelf (OCS) from nearby U.S. ports.
Implications of the Jones Act on Development and Maintenance of Offshore Wind Power Projects in the United States
Offshore wind power projects require vessels for the transportation of merchandise (such as turbines, towers, foundations, blades, and mechanical parts) and passengers (such as contractors, inspectors, engineers, and field personnel) in connection with foundation installation; tower installation; turbine, nacelle and blade installation; service platform construction; testing and inspection; maintenance and repair; and security.
The U.S. Outer Continental Shelf Lands Act of 1953, as amended (OCSLA), extends U.S. law to certain installations and other devices permanently or temporarily attached to the seabed of the OCS. Prior to 2021, the wording of the OCSLA was unclear as to whether the Jones Act applied to wind power installations on the OCS, but in 2021, an amendment to the OCSLA was enacted. The amendment provided that devices fixed to the seabed for the purpose of “developing non-mineral energy resources” fall within U.S. federal jurisdiction, thus making it clear that wind energy installations attached to the seabed of the OCS constitute points in the United States for the purposes of the Jones Act.
CBP has repeatedly held that installations in the territorial sea of the United States[8] are points and places in the United States for the purposes of the Jones Act. On July 17, 2023, CBP issued a ruling[9] that a foreign vessel could load monopiles in a U.S. port, transport them to an offshore work site where nothing had been previously attached to the seabed and install such structures. The Jones Act applies to “transportation” of “merchandise” “between points in the United States.” CBP had already determined that work sites on the OCS beyond three nautical miles from the U.S. coast do not constitute U.S. points. CBP concluded that the transportation of monopiles[10] from a U.S. port to a place that is not a U.S. point can be undertaken with a foreign vessel.
CBP modified this July ruling on September 14, 2023,[11] and confirmed that it considers “the location for monopile installation to be a pristine site prior to the installation of the monopile.” Therefore, the “transportation and installation of [monopiles] from a U.S. coastwise point to a pristine seabed site on the OCS by a non-coastwise-qualified, dynamically positioned installation vessel would not violate the Jones Act so long as the installation vessel is not anchored or attached to the installation site” (emphasis added). Further, CBP determined that “transportation and installation of [monopiles] by a non-coastwise-qualified jack-up vessel from a U.S. coastwise point to a pristine seabed site on the OCS where the jack-up vessel attaches itself to the seabed would violate the Jones Act” because a second coastwise point is established once the jack-up vessel attaches itself to the seabed for the purposes of monopile installation (emphasis added). Consequently, merchandise would be laden at one coastwise point (the U.S. port) and unladen at another coastwise point (the jacked-up vessel). Finally, CBP held that the “use of a non-coastwise qualified jack-up vessel to install [monopiles] at a pristine seabed site on the OCS would not violate the Jones Act, so long as the jack-up vessel is not transporting these [monopiles] from another coastwise point” (emphasis added).
Faced with not having a single U.S.-flagged ship that can install the turbines, in late 2020, Dominion Energy, based in Virginia, announced it would have its own WTIV, Charybdis, built at a shipyard in Brownsville, Texas.[12] The price tag for this WTIV is estimated at about US$715 million.[13] But these ships take years to build, and there is no word of any other installation ships being built in the United States. In the meantime, companies that are currently constructing offshore wind projects on the U.S. East Coast have had to come up with workarounds. For example, Dominion put up test turbines off the Virginia coast and had to ferry parts back and forth from Canada just to avoid running afoul of the Jones Act. Other workarounds include using non-Jones Act-qualified vessels to transport components from foreign ports and install them at the installation site, or positioning a foreign-flagged vessel at an installation site and transporting the necessary components from U.S. ports to the foreign-flagged vessel using Jones Act-qualified feeder barges or other vessels.
None of the workarounds are very efficient or cost effective. Canadian ports can be hundreds of miles away from wind turbine installation sites, lengthening project timelines and increasing costs. Feeder vessels, meanwhile, add both complexity and risk to projects. Shipping a monopile across the Atlantic can cost upwards of a million dollars each.
Jones Act and Trump’s First Presidential Term
On September 8, 11, and 28 of 2017, in recognition of the severe impacts from Hurricanes Irma and Maria, the Trump administration Department of Homeland Security approved temporary waivers of the Jones Act to allow refined petroleum products, including gasoline, diesel and jet fuel, as well as other necessary commodities, to be shipped to South Carolina, Georgia, Florida, and Puerto Rico.[14], [15], [16]
Recent Developments
The Biden administration had set a goal to deploy offshore wind turbines capable of generating 30 gigawatts of power by 2030.[17], [18] With the change in administration, and the presumed shift in focus from renewable energy back to traditional oil and gas energy sources, it is unclear what will befall this goal.
In the midst of a tumultuous election cycle, through the halls of Congress, there has been growing attention to proposals to reinvigorate the U.S.-flag shipping sector. Senator Mark Kelly (D-AZ) and Congressman Michael Waltz (R-FL) recently proposed a signature initiative, the Ships for America Act, which is expected to be formally introduced as a bill before to the U.S. Congress in short order.[19] While most of the country is highly polarized on key topics, U.S. shipping and shipbuilding are rare topics that cross party lines. Because the initiative is both bipartisan and involves both the U.S. Senate and U.S. House of Representatives, the proposed Ships for America Act is likely to survive to the next Congress. The Act would create a maritime czar in the White House as well as a Maritime Advisory Board that would include shipbuilders, vessel operators, unions and other stakeholders.
Waltz has now been named as Trump’s nominee for National Security Advisor. In addition to proposing the Ships for America Act, Waltz co-wrote with Senators Kelly and Marco Rubio (Trump’s nominee for Secretary of State) and alongside Congressman John Garamendi (D-CA) the Congressional Guidance for a National Maritime Strategy,[20] which sets forth strategic objectives for investment in U.S. shipping and shipbuilding capacity to achieve maritime prosperity and ensure maritime security.
Further, in 2016, while a member of Congress, Trump’s nominee for Secretary of Transportation, Sean Duffy, considered proposing a suspension of the Jones Act for Puerto Rico as part of a congressional task force on the island territory’s economy. The proposal was not included in the final report.
Conclusion
Over the past decade, the Jones Act has been an impediment, although many argue a justifiable impediment, to the implementation of an aggressive program for offshore wind development in the United States. The Biden administration pushed for more offshore wind, and it appeared that Congress was ready to take action to support more aggressive offshore wind energy development. Further, many presumed members of the Trump administration have shown an inclination toward relaxing the requirements of the Jones Act. However, since the introduction of the Jones Act more than a century ago, the need for the United States to maintain a strong merchant fleet in times of conflict and meet strategic needs for the growth of both foreign and domestic commerce has not abated. Only time will tell the direction the new administration will take.
Please follow Vedder Price for updates and new developments.
[1] Jones, Wesley L. (1922). “The Merchant Marine Act of 1920.” Proceedings of the Academy of Political Science. New York: Columbia University, p. 233.
[2] The Jones Act, as subsequently amended, is now codified as part of Title 46 of the United States Code.
[3] “Points in the United States” are considered to include U.S. ports, installed offshore wind towers, and jack-up installation vessels fixed to the sea floor. The transportation of a wind turbine component from a staging area in a U.S. port – one point in the United States – to an offshore wind tower – a second point in the United States – must be performed using a Jones Act-qualified vessel.
[4] No less than 75% of the ownership stake must be held by citizens of the United States.
[5] Although the Jones Act and the Passenger Vessel Services Act are very similar in their restrictions and impact on U.S. offshore wind energy development and maintenance, this article will focus primarily on the Jones Act and its effect on U.S. offshore wind.
[6] https://www.federalregister.gov/documents/2024/06/28/2024-14121/civil-monetary-penalty-adjustments-for-inflation.
[8] The territorial sea, also referred to as “state waters,” is defined as a belt three nautical miles wide seaward of the territorial sea baseline and to points located in international waters.
[10] A monopile is the large, open-ended, steel cylinder that is driven into the seabed to support the weight and wind loads of an offshore wind turbine.
[12] When finished, the 144-meter-long Charybdis will boast over 5,000 square meters of main deck area and accommodate up to 119 people, supported by on-board cabins, mess rooms and shops, as well as a cinema, gym and hospital. While originally planned for completion in 2023, the vessel officially hit the water at Seatrium AmFELS shipyard in Brownsville, Texas, on April 15, 2024. Completion of vessel construction and sea trials are anticipated in late 2024 and early 2025.
[13] The initial cost projection was close to US$500 million.
[17]https://www.whitehouse.gov/briefing-room/statements-releases/2021/03/29/fact-sheet-biden-administration-jumpstarts-offshore-wind-energy-projects-to-create-jobs/.
[18]https://www.energy.gov/articles/energy-secretary-granholm-announces-ambitious-new-30gw-offshore-wind-deployment-target.
[19] On September 25, 2024, during an event hosted by the Center for Strategic and International Studies, Waltz and Kelly indicated they were planning on introducing the Ships for America Act after the U.S. presidential election this past November.
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