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Monday, July 20, 2020

OPINION:

While this may come as a shock to environmentalists and federal rule makers alike, regulation is not synonymous with cleaner air and water. Regulations protecting business interests are more frequent than environmental protections, and the former can do a lot of environmental damage.

With President Trump and now candidate Joe Biden both endorsing “Buy American” economic policies, it is almost certain that the environment will wind up as collateral damage from regulations intended to further those aims.


One environmentally and economically harmful Buy American relic in need of repeal is the Jones Act. Enacted 100 years ago, the Jones Act prohibits any foreign ship or crew from moving cargo from one U.S. port to another. While seemingly harmless, if not patriotic, this burdensome regulation has all but eliminated domestic coastal shipping.

Instead, cargo is sent by less efficient means, consuming more fuel, congesting roads and increasing air pollution near large population centers. In an extreme case, cattle in Hawaii are shipped by air because that’s cheaper than shipping by them by water — the Jones Act allows carriers to overcharge five to eight times the going international rates. At a time when environmentalists are calling for an end to both air travel and beef consumption, the Jones Act literally has cows flying first class.

Economists have long recognized the Jones Act as an example of rent-seeking regulation, which imposes costs on society to protect the interests of a few. Specifically, consumers pay to line the pockets of qualifying shippers: Citizens pay more in higher shipping charges than the benefits domestic merchant marine workers.

One estimate pegs the cost of each protected job at 2-3 times the (six-figure) average salary. Residents of Alaska, Hawaii and Puerto Rico are aware of the higher prices they pay to support Jones shippers, but consumers across the country are also footing the bill.

Those costs overlook the substantial environmental harms that come along with the Jones Act. These costs amount to another stack of billions of dollars a year, effectively doubling the cost of protecting domestic marine shippers. The costs accrue in two ways: First, less cargo moves by water, which naturally uses less fuel thanks to buoyancy; second, the incentive to invest in new ships is curtailed, meaning that the fleet of Jones-capable vessels is nearly twice as old as foreign equivalents.

Cargo that would move by water instead moves by rail and truck, which means more emissions are generated, and those emissions disproportionately occur in poorer and more disadvantaged neighborhoods. The Jones Act keeps vessels in service that would have gone to the scrapyard years ago, like a fleet of zombie clunker autos that won’t disappear.

Environmental collateral damage is not limited to the Jones Act. Another example of a regulation that protects an entire industry is the Renewable Fuel Standard (RFS), which was enacted in 2005 to increase the domestic share of motor fuel. Through a complicated web of rules and adjustments, the RFS literally injects billions of gallons of ethanol into the U.S. transportation fuel system each year.

This delights ethanol producers and to a lesser extent their primary suppliers, corn farmers. Who bears the cost? Anyone who buys gasoline, and especially anyone who prefers their gasoline without ethanol, like classic car or offroad vehicle enthusiasts. Once in place, the RFS is nearly impossible to remove.

Like the Jones Act, the environment is collateral damage of the rent-seeking regulation of the RFS. Ethanol can be made from a number of different feedstocks, but the most common in the United States is corn. A gallon of ethanol requires about a half bushel of corn (26 pounds), which must be farmed or diverted from other uses. While the price effects ripple through agricultural markets for land and corn, the environmental impacts are not borne by the producers.

Corn is a thirsty crop, demanding water in many growing regions, while farming practices can contribute to water quality issues from agricultural runoff. RFS mandates unambiguously increase farmed acreage, which potentially increases environmental costs. Climate advocates who have latched onto biofuels as a cleaner alternative to fossil fuels have found the benefits elusive and even negative.

Consumer and environmental need to recognize their common interests in eliminating the many regulations that protect business interests, beginning with the RFS and the Jones Act. While policy ideas wrapped in the flag sound good on the campaign stump, the end results are almost always disappointing. It’s time to bring the cows back to earth.

• Timothy Fitzgerald is an associate professor in the Rawls College of Business at Texas Tech University and served at the Council of Economic Advisers. Casey B. Mulligan, professor of Economics at the University of Chicago, served at President Trump’s White House Council of Economic Advisers and is the author of “You’re Hired! Untold Successes and Failures of a Populist President.” 


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