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Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University, dean emeritus of the Clemson College of Business and Behavioral Sciences, and a former executive director of the Federal Trade Commission.
“Hey, Jude, don’t make it bad. Take a sad song and make it better.” I could not get the words from the beautiful Beatles song “Hey Jude” from my mind as I read about the crippling cyberattack that shut down the Colonial Pipeline. Federal regulatory constraints have been interfering with the use of alternate ways to move gasoline from refineries along the Gulf of Mexico to American consumers in the Northeast. I wondered if, once again, some sort of positive regulatory reform might be inspired by a bout of unfortunate economic adversity.
The Colonial Pipeline carries 45 percent of the gasoline consumed in the nation’s Northeast. There is storage at terminals along the way, to ensure that brief service interruptions do not have serious economic consequences. But in this case, pipeline executives have warned that getting things fully up and running again may take days or longer.
With that in mind, gasoline buyers and sellers immediately and quite sensibly began exploring alternatives, such as shipping fuel from refineries to customers by other means or connecting to other refinery locations. Unfortunately, shifting to refineries in other regions is not an option. For one thing, there aren’t many options, because there has not been a new refinery built in the United States since the 1970s, largely because of environmental constraints.
What about shipping by rail and truck? Yes, there is some relief available, but not enough. Or what about using tanker ships to move the fuel from the Gulf, along the coast, to New Jersey? Sorry, that option is limited by the capacity-constraining Jones Act, which requires that all coastal shipping be done in American-made vessels.
Gasoline prices are headed north, which was already the case before the pipeline shutdown. This is partly because of the federal regulation requiring ethanol blends of gasoline across the nation. That requirement, plus the increased world demand for food, has caused the price of corn to rise by 50 percent this year.
It’s a sad song, and it looks as though consumers in the Northeast are stuck, at least temporarily. But can’t we make it better?
Regulatory reform sometimes occurs when proactive leaders take the long view and recognize that old regulations, sometimes from a bygone era, are lingering in our legal code and need to be updated. But it also comes when regulatory constraints become so binding in a specific situation that something simply has to be done.
This second situation has been visible over the past year-plus. Coronavirus emergencies have led to a relaxation of state laws limiting the ability of medical doctors to practice across state lines. Medicare reimbursement rules were changed so that doctors could expand the use of telemedicine, thereby limiting the use of face-to-face diagnosis during the shutdown. And because telehealth was already a viable option, its expanded use may be largely here to stay.
Looking back at history, we know that state usury laws capping interest rates that could be charged on mortgages and other consumer loans had to be wiped off the books when inflation pushed rates up and shut lending down. Indeed, inflation led to thorough-going financial deregulation.
Why not take this opportunity to revisit the Jones Act and to reassess the permitting process that sharply limits the expansion of refinery capacity, particularly in an era when we could conceivably build more modern, cleaner facilities? And perhaps we should ask again whether it makes sense to require ethanol additives when there are serious questions regarding how much good they actually do for our air quality outcomes?
Yes, it’s a sad song. Maybe this is one of those times when we can make it better.