History of Offshore Wind in America
In the grand scheme of energy sources, offshore wind is a toddler. The first functional offshore wind farm in the world was not completed until 2011. America’s first offshore wind farm came five years later, in 2016. Nevertheless, America has been working towards cleaner energy sources for decades. In 1978, President Carter signed the Public Utility Regulatory Policies Act (PURPA), which “laid the foundations for today’s renewable energy […] policies”. Despite incorrect assumptions at the time, PURPA’s main reason was to diversify America’s energy sources: it requires companies to purchase a minimum amount of electricity from renewable energy sources, including wind. Then in 1992, Energy Policy Act became law, creating a tax credit for wind-generated electrical power, and in 1993, the National Wind Technology Center was created. There are reasons that wind energy seemed to take a back seat to oil and gas for so long: building a wind turbine on land is more manageable than putting one in the ocean. Offshore turbines must withstand wildly variable conditions, including the wind and waves, currents at different water depths, and corrosive salt water. These turbines, spanning up to 500 feet across the blades, with areas the size of a football field, are anchored by two-hundred-foot-deep foundations and have special coatings and positive internal pressure to help them survive such a harsh environment. Until recently, it was prohibitively expensive and time-consuming to develop the technology and designs and construct something this specialized. But with 80% of America’s power demand comes from its coastal states and the Biden administration's big push towards renewable energy, the country is poised to barrel full steam ahead on making a booming offshore wind market a reality soon.
The Jones Act and Offshore Wind Before the Garamendi Amendment
Aside from providing its well-known remedies for American mariners, the Jones Act’s economic regulations protect the American merchant fleet by restricting the transport of cargo between two U.S. ports to only American flagged, American built, and American crewed vessels. This statute and its “Build American, Hire American” rules are the bread and butter of the American Merchant Marine's coastwise and oil field trade. However, the loopholes that existed for offshore renewable energy before the Garamendi Amendment became law seemed to go against its very purpose: protecting the American Merchant Marine. Before the Garamendi Amendment's passing, it was unclear if the Jones Act applied to offshore renewable energy projects and installations. With no clear statutory guidance before now, U.S. Customs and Border Protection ("CBP") was interpreting the application of laws to offshore wind farms independently from oil rigs and drillships. Parties needing clarification of Jones Act enforcement concerning offshore wind had to rely solely on CBP responses to Jones Act Ruling Requests, which are considered binding interpretations of the law until overruled by a change in law or by CBP itself.
Before January 2021, offshore renewable energy installations existed in a grey area: they were within the United States' EEZ but were not a U.S. port, coastwise point, or in place to harvest fossil fuels from the seabed. In fact, until its January 2021 opinion following the passing of the Garamendi Amendment, CBP’s longstanding position was that the Jones Act did not apply to the seabed of the OCS. Even though this position went against the very reasoning and legislative intent behind the Jones Act, CBP upheld its stance for years. In 2012, CBP ruled that a non-Jones Act qualified vessel could install seismic sensors into the seabed within the U.S. EEZ without violating the Jones Act. The Offshore Marine Service Association (OMSA) pushed back on this ruling and petitioned CBP to correct it, arguing what is now clarified by the law: "that under the plain language of OCSLA any location in the subsoil or on the seabed of the OCS. is a coastwise point'." CBP interpreted the law to state that there must be a "device or installation on the seabed for there to be a coastwise point." This interpretation meant that offshore wind projects could use non-Jones Act vessels for construction beyond the initial stages of construction. It was also in direct conflict with how CBP applies the Jones Act to offshore oil exploration and construction.
Finally, in 2017, CBP began cracking down on Jones Act enforcement in the OCS, although questionable allowances and loopholes existed. In a general notice, CBP corrected the holding of HQ 101925, an opinion issued in 1976 that stated the transportation and unloading of pipe and other construction materials by a non-Jones Act vessel was not a violation of U.S. law. The Jones Act was recodified and updated after the issuing of HQ 101925, meaning a lot of prior CBP rulings were invalid and based on outdated laws. Offshore companies pushed back significantly and demanded reversals, wanting the cost benefits of using foreign-built, foreign crewed vessels. This ruling had taken away the ability to use foreign vessels in the actual construction of an offshore wind farm. This change, intended to bring enforcement of the Jones Act in line with the updated legislation, did not fully address the offshore renewable energy sector issues where construction was just beginning.
After this "clarification and correction" in 2017, what was and was not allowed in wind farm construction became more unclear and subjective. CBP required the use of a U.S. vessel to transport certain construction materials offshore. It then allowed the use of a foreign-flagged construction vessel to unload these materials from the U.S. flagged vessel by crane that was subsequently used in the construction of the U.S.'s first offshore wind farm. A foreign-flagged, heavy lift, jack-up vessel carried the wind turbine bodies (technically known as nacelles) from France and constructed the wind farm. The foreign vessel used Jones Act compliant feeder vessels and lift boats for support, but its 800-ton crane did the heavy lifting. While this hodge-podge strategy worked for the small wind farm, companies looked at how to bypass any required use of Jones Act vessels or how to make their use more affordable. Continuing to use the feeder barge strategy would be insufficient for long-term, more extensive projects. There was talk of repurposing existing Jones Act vessels or building new ones; to some, those plans seemed prohibitively expensive and sure to delay development. Interested parties began to push for amendments to OCSLA or for more decisive clarification from CBP that it did not apply to their projects. They ultimately got both an amendment and clarification from CBP, but that clarification was not the answer they were seeking.
The Garamendi Amendment
What Does the Garamendi Amendment Do?
The Garamendi Amendment, an amendment to the National Defense Authorization Act for the fiscal year 2021, applies the Outer Continental Shelf Lands Act ("OCSLA") to all offshore mineral and energy development which means that all federal labor, environmental, and antitrust regulations apply to those installations (such as wind farms) that previously avoided regulation. In layman's terms, it applies OCSLA to the lease sales for all renewable energy sources such as wind power, hydrokinetic, and ocean thermal energy. Since OCSLA extends federal law to any offshore installations and operations under its scope, it is most significant for American companies, shipbuilders, and mariners because this extension means that the Jones Act applies to all offshore wind farm projects.
OCSLA, which became law in 1953, was meant to apply to offshore oil and gas exploration and applied the regulations of the Jones Act to those lease sales. The previous wording of the law left loopholes for offshore wind farms and other renewable energy leases. Some people might try to argue that the original legislative intent of OCSLA was to only apply to fossil fuel-based installations and that the exclusion of renewable energy leases was intentional. That is a stretch when renewable energy was not even on the radar when it became law. The Garamendi Amendment voids the previously used argument that wind farms harness a resource above the water and not a resource on the seabed itself and therefore were not subject to OCSLA. This likely unintentional loophole needed to be closed. The certainty that the Amendment brings is welcome and will serve to level the playing field by eliminating some of the advantages foreign companies may have held over American companies.
Subsequent Application of the Jones Act
This brand new, short and concise amendment left questions in the offshore and shipping world about how exactly it would apply. CBP wasted no time in issuing a ruling following the passing of the Garamendi Amendment. CBP Ruling HQ H309186, the first one regarding offshore wind since the Garamendi Amendment's passing, came in late January 2021. The agency addressed the Jones Act's application under the new Amendment, specifically how it applied to the transportation of construction materials. CBP strictly interpreted the Amendment's language, finding that construction materials loaded in a U.S. port and destined for an offshore point in the U.S. EEZ on a non-coastwise qualified vessel (even if the project was just beginning and there was no physical installation yet) would violate the Jones Act. The parties requesting the rulings, involved in the construction of the Vineyard Wind Project, wanted to use a Netherlands-flagged vessel or a foreign-flagged barge to transport and install scour materials. CBP wrongfully concluded that the only way that this would be legal was if the scour material was loaded in a Canadian port and not a U.S. port. This ruling was a shocking departure from CBP's previous stance. Before HQ H309186, CBP consistently stated that there must be an installation on the seabed for a coastwise point to exist in the EEZ because the pristine seabed was outside of their jurisdiction. This ruling stood to make a "significant impact on the methodologies employed by operators of non-coastwise qualified vessels involved in pre-construction OCS. activities in the offshore wind and oil and gas industries.” The ruling also pointed out the most glaring loophole for companies wishing to bypass the Jones Act: a company can just ship their construction materials offshore from a Canadian port.
Companies should not panic over HQ H309186 and its extreme, unprecedented interpretation just yet. On Mar. 25, 2021, CBP issued HQ H317289, which significantly modified its previous position. This clarification, more in line with prior CBP rulings, states that the pristine seabed does not fall under the Jones Act's scope, and it establishes a new precedent for America's offshore wind development. The ruling stated:
CBP holds that the Jones Act does not apply to activity occurring at the pristine seabed on the OCS, which has been CBP's longstanding position on the issue. Once a coastwise point exists on the seabed of the OCS, the Jones Act applies to transportation activity involving that coastwise point to the extent jurisdiction is extended to it by the [OCSLA].
HQ H317289, much more in-depth than the ruling it corrects, states that its jurisdiction over the OCS is limited in scope and fails to reach activity on the pristine seabed because there is no coastwise point for the purpose of the Jones Act. "[T]he pristine seabed on the OCS. is not a coastwise point, but, with the placement of scour protection material or a monopile there, the seabed location becomes a coastwise point." The ruling also states that the construction of an installation or structure does not have to be complete for that point to come under OCSLA's jurisdictional reach. This means that a non-Jones Act compliant vessel could only transport materials to a location with "no existing scour protection material, monopile, or other device or installation attached to the seabed” if the voyage originated in a U.S. port. When the first layer of scour material or construction materials are placed on the seabed, the location becomes a coastwise point per OCSLA and subsequently the Jones Act, meaning that every subsequent delivery of materials originating from a U.S. port will be a coastwise voyage. Materials going to these offshore points including a monopile or its scour protection must be transported on Jones Act qualified vessels or from foreign ports. Transportation between two offshore installations or monopile sites or between a coastwise point and a vessel anchored on the OCS. is also considered a coastwise voyage. The final significant clarification made in the ruling is that a foreign-flag installation barge may transport materials to the pristine seabed, but it may not transport construction materials (which are considered merchandise) between coastwise points, even if towed by a Jones Act compliant tug. This ruling provides much-needed clarity and specificity that was lacking in the first CBP ruling following the Garamendi Amendment's passing and corrects a glaring mistake in the prior ruling.
CBP also issued a ruling in February 2021 when Maersk Supply Services wanted permission to use a foreign jack-up vessel to lift WTG components onto a fixed turbine foundation. Maersk wanted to use a foreign-flagged jack-up vessel to function as a crane. No merchandise is intended to be transported by the jack-up vessel, and it will only function as a crane. CBP ruled that under precisely the following scenario, no Jones Act violation would occur:
In the facts you present, the components for each WTG will be laden onboard a coastwise-qualified barge and transported to the Jack-Up Vessel, which will be affixed to the seafloor via its legs. The Jack-Up Vessel will then raise the WTG components to its deck and, using its crane, and unlade the WTG onto the pre-installed foundation. The Jack-Up Vessel will remain stationary for the duration of this process.
The allowed use of foreign-flagged Jack-Up vessels for installation of materials, as long as the jack-up vessel stays stationary, is consistent with prior CBP interpretations of the Jones Act. This ruling clarifies that the Garamendi Amendment does not alter the CBP's position regarding foreign vessels' use as cranes (as long as the vessels are stationary and do not transport merchandise or passengers between coastwise points). As more rulings are issued, the CBP's interpretation of OCSLA's recent changes will continue to become more apparent.
Pros and Cons of the Amendment
It is no secret that the Jones Act has many staunch supporters and just as many naysayers. It stayed under regular attack from the late Senator John McCain while he was in office. It is costly to the taxpayers and goes against the American sense of freedom and free market. It also protects America’s national security and defense interests by ensuring a strong merchant marine ready is ready to serve the military's needs if we go to war. It keeps U.S. shipyards working when not building warships. It prevents the U.S. from being dependent on foreign ships and companies for domestic shipping.
These cons include increased construction costs, construction delays, increased crewing costs, and American mariners who are not yet trained for these jobs. Depending on whom you ask, the cost of building a vessel in an American shipyard can be 50-100% or 60-200% more expensive than construction in an Asian yard. Like the builder of the crew change vessel for the Block Island development, companies could seek MARAD subsidies for constructing their vessels. While these subsidies will not fully offset the cost of U.S. construction, they can help. There will be delays from vessel construction since none of the fifteen wind turbine installation vessels (W.T.I.V.s) in the world are Jones Act compliant. To build a W.T.I.V., a company must get the design approved by a class society, source and import specialty materials, and find a shipyard available to start new construction of a vessel, which is unlikely at the moment given how busy American shipyards are. Along with the increased construction costs, most of the expertise for offshore wind farm construction lies with European companies, whose employees cannot crew U.S. flagged vessels, which means paying to train Americans for the jobs.
To try to reduce the delays from new vessel construction, companies could elect to attempt to retrofit existing Jones Act vessels to speed up the process. However, they would still need to find space in an American shipyard and would begin their venture with an older hull and issues caused by a vessel not explicitly constructed for its purpose. The construction of the first American-built W.T.I.V. was announced in May of 2020 by Dominion Energy, and the keel was laid in December of 2020. The vessel is not expected to be delivered and placed into service until 2023. Even after this one W.T.I.V. is delivered, it can only serve one location at a time. Are years of delays worth having American-built vessels do this work? Congress could have easily granted a waiver to the American built requirement while still requiring the vessels to be American flagged and crewed. Increased crewing costs will also be a reality. It costs a company about 4.5 to 7 times as much to pay an American crew instead of a foreign crew. For example, an able-seaman on an American flagged ship will have a base salary of $40,000 for 6-8 months of work (but could easily make more with overtime and penalty pay) while American officers typically start with a salary in the six figures for six months of work a year. A mariner from the Philippines starts at around $435 a month. Ultimately, the cost of operating an American-built, American flagged, American crewed ship is higher. In 2010, the cost of operating an American flagged vessel was 2.7 times that of operating a foreign flag vessel for the year, and that number has likely risen since then. This difference can be as much as $4 million per year for identical ships in the Jones Act and foreign trades.
While the cost of the Garamendi Amendment is high, so are the benefits to the American economy. In 2018, a new offshore wind farm was estimated to bring over $600 million in economic benefits to the state where it is constructed. It is estimated to bring $3.6 billion in economic benefits in New York, New Jersey, Virginia, North Carolina, and South Carolina combined, bolstered by the Garamendi Amendment’s requirements. The offshore wind industry will invest $28 to $57 billion in the U.S. economy by 2030, will create 19,00 to 45,000 jobs by 2025 and 45,000 to 83,000 by 2030, and is expected to contribute at least $12.5 billion in economic output by 2030, with the possibility for that amount to reach $25.4 billion. The Garamendi Amendment will ensure that those jobs and economic output stay in America.
This economic boost will not be limited to the offshore industry alone. Coastal port towns could see increased airport traffic because of crew changes, increased dock usage, increased stevedoring and line-handling jobs, increased chandler orders, increased employment rates, and tax revenue from shipyards, all along with cheaper and more stable power supplies. Companies are expecting this increase and are preparing “beefed up” onshore supply chains, including the manufacturing of offshore wind turbines, for the increased usage of coastal towns. This increase in business for coastal towns that typically get most of their revenue from tourism and leisure activities should bring a much-needed economic boost when towns are struggling because of the pandemic.
The requirement for American flagged and crewed vessels will also have benefits for the mariners that will crew the vessels involved, such as saving them from working on vessels operating under flags of convenience. Mariners who work on those ships have to deal with many issues that are not likely to be faced by a Jones Act seaman, including “lower standards of working conditions, no proper definition of basic rights, manipulation of records facilitating illegal trade, no proper pay scale, no proper protection during accidents and incidents, violation of compulsory rest periods and premature termination resulting in a lack of future prospects.” Ships operating under the U.S. flag are subject to regular U.S. Coast Guard and class inspections, unlike many vessels operating under flags of convenience. This helps crew members avoid safety problems that come with the lack of regulations and governmental oversight.
Could Non-Availability Waivers be the Workaround Companies Need?
It is no secret that companies are looking for a way around the Garamendi Amendment: for some, the benefits of the Jones Act do not outweigh the increased cost. There is a chance for companies to get around this: a waiver under 46 U.S.C. § 501 or one of the other specialty programs. The “U.S.-owned, built, crewed, registered requirements of the Jones Act” may be waived in very few circumstances. Waivers, provided for under 46 U.S.C. § 501, are rare. They are only allowed for the interest of the U.S.'s national defense. The Secretary of Homeland Security is authorized to grant a waiver under 46 U.S.C.S. § 501(b), still only if in the interest of national defense. There will be an initial screening of any waiver request on only the “interest of national defense” element. If a waiver request makes it past that initial screening, a company might get a waiver until more new construction occurs and specialized American-built and American-flagged vessels are delivered. If companies do seek these non-availability waivers, they will need to be prepared to fight hard: to date, only two non-availability waivers have been granted. While it would be a hard-fought battle to get one of these waivers, it is likely the only realistic way around the Jones Act until U.S. flagged vessels are available.
Conclusion
Including non-mineral energy resources are four words that have changed an entire sector of the maritime industry in the United States. The Garamendi Amendment brings clarity: the differences in applying the Jones Act to renewable energy lease sales and oil and mineral-based lease sales are no longer open to widely varying interpretations. As Congressman Garamendi said, "[i]f it's good enough for the offshore oil and gas industry, then it should be good enough for the offshore wind industry.” Whether you are pro-Jones Act or one of the parties pushing for its repeal, clarity is a good thing. It lets people know the rules of the game and how to operate within them.
Looking forward, companies are getting on board with the new Jones Act application. The requirements for U.S. Flagged vessels are already filling American shipyards. Edison Chouest announced the construction of the first Jones Act compliant Service Operations Vessel (SOV) to be constructed in a combination of shipyards in Florida, Mississippi, and Louisiana. This vessel construction also stands to create over 300 non-construction jobs at and around the shipyards, the steel being purchased from North Carolina and the main engines from Illinois. U.S.-based shipping company Crowley announced that it will be working with Danish company ESVAGT to build its own U.S. flagged SOVs. Crowley will own the vessels while benefitting from ESVAGT's expertise in the design and operation of SOVs.
On Mar. 29, 2021, the White House announced a new priority wind energy area between Long Island and New Jersey. This one priority area is expected to support up to 25,000 development and construction jobs in the next 8-9 years and 7,000 more jobs in supported communities. The administration also announced the goal of producing 30 gigawatts (G.W.) of energy from offshore wind by 2030, bring along with $12 billion of capital investment annually, 44,000 offshore wind jobs, and an additional 33,000 jobs in supported communities, all while meeting the power demand of over 10 million homes. If this plan comes to fruition, it will provide the revenue needed for port and infrastructure upgrades, keep U.S. steel mills busy with the demand for more than 7 million tons of steel, and boost manufacturing needs as windfarm components are produced in the U.S.
The White House predicts that by 2050, offshore wind in the U.S. will produce 77,000 offshore jobs and 57,000 additional jobs in supported communities. The White House is stepping up to the plate to help fund the required infrastructure improvements and offshore wind research to make this happen. If it comes to fruition, the ambitious plan will make the U.S. the world leader in offshore wind power, producing more than 700 times the country's current capacity. Without the Garamendi Amendment and those un-proportionally impactful four words, the U.S. would not realize "just how far reaching the economic impacts of offshore wind can be; offshore wind means massive investments for U.S. companies and jobs for American workers, even those in states without active projects." The American offshore energy market is beginning to step into the future, all thanks to those four little words: including non-mineral energy sources.
