🔒CT officials seek exemption from archaic federal law to help lower energy prices, support manufacturing growth

Daniel O’Keefe, commissioner of the Department of Economic and Community Development, is so concerned about New England’s high energy rates that he considers them “an existential threat to our continuing economic progression.”

One of the culprits amplifying the state’s energy costs, O’Keefe and others say, is the Jones Act, a century-old federal law that blocks foreign-flagged ships from moving goods between U.S. ports.

The Jones Act has long been criticized for the significant costs it imposes on the U.S. economy, but recently came to the forefront as one of the factors driving up New England’s energy costs.

Experts believe the Jones Act, which was originally created to protect the U.S. shipping industry, increases the costs of foreign-imported liquified natural gas (LNG) by 10% to 30%, O’Keefe said.

During Gov. Ned Lamont’s State of the State Address on Jan. 8, he highlighted the need for Connecticut to import more natural gas. Also, he said LNG delivered by foreign ships is too expensive, and releases too much pollution.

Lamont was referring to the roundabout trips foreign vessels make to comply with the Jones Act, which prohibits non-U.S. ships from delivering LNG to U.S. ports.

“Hey Congress, rethink the Jones Act,” Lamont said during his speech.

The Jones Act applies to all cargo shipped between U.S. ports.

“Whether you’re talking about bananas or coal, or oil and gas, if you’re transporting any cargo from one U.S. port to another U.S. port, like from New Haven to New York, that ship has to be built in the U.S.,” said attorney Peter Knight, a partner at law firm Robinson+Cole. “It has to have a U.S. crew. It has to be owned by a U.S. entity, and it has to be registered under the U.S. flag.”

For example, a vessel shipping products from the Gulf of Mexico to New England would have to travel to a port in a foreign country, such as Canada, and then to New England in a U.S.-flagged ship manned by an American crew.

That wastes time and money. According to the Yankee Institute, a conservative think tank, the Jones Act has effectively eliminated maritime as an option for shipping goods to or from Connecticut.

The effects of the Jones Act are even more detrimental to the energy industry because there are no U.S. vessels large enough to carry the massive tankers in which LNG is transported, Knight explained.

“Even if there were Jones Act-compliant ships available, the cost to ship LNG domestically is about three-and-a-half times what it costs to import that from overseas,” Knight said. “And the real problem is: even if it made economic sense, there simply are no LNG tankers that exist on the planet that meet Jones Act requirements.”

The landscape

According to the U.S. Energy Information Administration, liquified natural gas (LNG) is natural gas that gets cooled to a liquid state (-260° Fahrenheit) so it can be stored or transported across distances where pipelines don’t exist or lack capacity.

The volume of natural gas as a liquid is about 600 times smaller than its volume in a gaseous state, according to EIA, making it much more efficient to store or transport.

Most LNG is transported by tanker ships across oceans and other large waterways; after delivery, it’s converted back to a gaseous state for use by consumers.

LNG makes up only a tiny fraction — 1%, or 15.24 billion cubic feet — of the natural gas imported by the U.S. each year, according to EIA data. Most natural gas is imported via pipeline from Canada.

In 2023, the Everett LNG regasification terminal near Boston received the vast majority (87%) of U.S. LNG imports, all by carriers from Trinidad and Tobago and Jamaica, EIA said.

Connecticut is still reliant on natural gas — it provides about 65% of the state’s energy, according to the EIA. The vast majority of it, according to the state Department of Energy and Environmental Protection, comes through a network of regional pipelines: the Algonquin Gas Transmission line (starts in New Jersey); Iroquois Gas Transmission System (starts at the Canadian border); and Tennessee Gas Transmission (starts in the Gulf Coast).

Unique problem

Connecticut could apply for a Jones Act waiver specifically for maritime LNG shipments, due to the energy crisis it’s facing, experts said. Waivers can be granted by the Department of Homeland Security (DHS).

According to EIA data, Connecticut currently ranks third for the highest electricity rates in America, behind Hawaii and Rhode Island.

While the state’s economy has “accelerated” since the COVID-19 pandemic, O’Keefe said much of that growth — more than 12% — is in the manufacturing sector, which requires copious amounts of energy to power machines.

“We have to solve comparative energy prices for our economy and our constituents now, and if I look at some of these innovations in the future, artificial intelligence, quantum computing, these are energy-centric innovations,” O’Keefe said. “So, it’s not only a problem for our economy now. It is, in my view, a problem for our economy in the future.”

O’Keefe said the state should continue to invest in renewable energy, which now represents about 10% of Connecticut’s wholesale market, in addition to nuclear energy, which represents about 22%.

But until those sources comprise a greater percentage of the state’s energy supply, Connecticut needs to obtain more natural gas to reduce energy costs, experts say.

O’Keefe said the state can increase its supply of natural gas in the longer-term by building pipelines to natural gas-rich regions such as the Marcellus Shale in Pennsylvania.

Shorter-term cost savings could be achieved simply by importing LNG less expensively.

Although it’s rare for the DHS to grant states a waiver, O’Keefe believes Connecticut could support its case based on its major role in the nation’s defense industry.

“I would argue this is an emergency for our national defense, because our national defense, which is a significant portion of the Connecticut economy, is paying a significantly higher rate for energy,” O’Keefe said.

The issue has gotten the attention of the state legislature. State Rep. Chris Rosario (D-Bridgeport) has proposed legislation that requests Congress to amend the Jones Act, which could include easing LNG restrictions, or making it easier for states to obtain waivers.

Rosario, former chair of the legislative Black and Puerto Rican Caucus, said the bill would be particularly beneficial to trade relations between New England and Puerto Rico, which could serve as a hub for foreign maritime shipping.

Focusing on reality

O’Keefe, who describes himself as an environmentalist, said the reality is that Connecticut can’t grow its renewable energy sources fast enough to keep up with demand — or to keep prices from increasing.

Lamont recently embraced natural gas and nuclear power, despite state initiatives that prioritize carbon-free energy. Compared to other fossil fuels, natural gas is considered a relatively low emission fuel, even though it releases methane.

Seven of the state’s 10 largest power plants by annual generation are natural gas-fired, according to the EIA.

“My view is we should continue to invest in renewables while we work through this transition, but we have to also keep an eye on relative energy prices,” O’Keefe said. “In other words, we can’t just buy renewable energy regardless of price.”

O’Keefe noted that China releases more emissions every day than New England does in a year.

“What Connecticut does, or does not do, will have zero impact on global warming,” O’Keefe said. “So, we just have to start to focus on reality.”