The US may only recently have completed its first offshore windfarm but is already seen as a large potential market – however, building windfarms in US waters will require familiarity with a sometimes controversial piece of marine legislation, the Jones Act
When developers talk about offshore wind in the US, the subject of the Jones Act inevitably comes up. That is because the Jones Act restricts certain activities in US waters to qualified, US-built, US-flagged vessels. The only problem is that, for the time being, there are very few US-flagged vessels of the type that will be required. This often leads to a discussion of workaround approaches – of which there are several – but even these may be made more difficult with recently announced Jones Act enforcement efforts.
Although earlier iterations of the Jones Act can be traced to 1789, the law is effectively a section of the Merchant Marine Act of 1920, credited to the work of Senator Wesley Livsey Jones. The law restricts the transportation of ‘merchandise’ between two ‘points’ in the US to qualified US-flagged vessels. Similar laws – often lumped together with the Jones Act – restrict the transportation of passengers between US points as well as dredging, fishing and towing in US waters.
The Jones Act extends offshore beyond three nautical miles from the US coast by virtue of the Outer Continental Shelf Lands Act (OCSLA), which was originally enacted in 1953 to deal with the budding offshore oil industry. OCSLA generally extends federal laws – including the Jones Act – to any man-made device permanently or temporarily affixed to the seabed on the OCS out to 200 nautical miles from the coast.
OCSLA, however, arguably only extends laws like the Jones Act in the case of devices used for the exploration, development and production of seabed natural resources. Offshore wind can be argued to be not such a seabed natural resource. To date, the US offshore wind market has assumed that this argument is incorrect and has proceeded as if the Jones Act applies to offshore wind projects on the US OCS. Even if the argument were correct, Congress could change the law at any time to make it clear that the Jones Act also applies to offshore wind projects.
For purposes of how to apply the Jones Act to offshore projects in general, there is ample guidance from the offshore oil and gas industry. If there is no transportation of merchandise between two points, then the Jones Act does not apply. So drilling, for example, or the driving of a pile or piles into the seabed, in and of themselves, are not Jones Act activities and can be accomplished with foreign-flagged vessels.
Similarly, many offshore research and survey activities are exempt from the Jones Act, although in those cases, particular care should be paid to the related passenger law. As a general rule, anyone on board a vessel not needed for the functioning of the vessel might be considered a passenger, and only a qualified Jones Act vessel can transport such a person between two points in the US.
Even when a non-US-flagged vessel can be used in US waters legally, careful attention should be paid to other US laws that may affect vessel operations, particularly when a vessel (like an installation or construction vessel) might remain in US waters for an extended period of time. US tax, employment, safety, environmental and other laws all have potential application to any vessel in US waters even if it is under foreign registry.
Although only a handful of ruling requests have been submitted to the US Government to date expressly on offshore wind, they confirm that driving of piles and the assembly of the tower components offshore can be done with a stationary foreign-flagged vessel. However, once anything is temporarily or permanently attached to the US OCS, then anything brought to that point from a US port (such as the pedestal, nacelle, blades and other components) would have to be brought to the construction site by qualified US-flagged vessels.
Even this relatively straightforward formulation presents a number of potential complications. For example, once the first point is established in a multi-unit project by the driving of a pile into the seabed or installation of another type of foundation, it is not altogether clear whether that first construction site is an individual ‘point’ or a ‘point’ that includes nearby work sites as well. The answer to this question affects operational issues of whether tower components can be placed on a foreign-flagged vessel, which then may shift from work site to work site within the same windfarm.
In addition, highly technical issues have arisen in the oil and gas arena about whether a foreign-flagged construction vessel can move even a very short distance (such as 50m) once it has onboard merchandise brought from a US port to be installed offshore. The harsh answer so far from the US Government is it cannot make such a movement with such merchandise onboard and then offload the merchandise on a US point – although movements purely by crane are exempt.
Understandably, industry participants have observed that such a harsh result could present safety risks. In fact, the lack of certain heavy-lift equipment among Jones Act vessels has led to the consideration of tandem lifts and other measures that may lead to safety issues.
In September 2015, the US Coast Guard and the US Bureau of Safety, Environment and Enforcement (BSEE) wrote to US Customs and Border Protection (CBP) requesting that safety should be taken into account in Jones Act rulings issued by CBP. CBP responded that the language of the Jones Act statute “does not allow CBP to exercise discretion to take into account factors such as safety or commercial practicalities”,
The path to using any foreign-flagged vessels in US waters by virtue of waiver is similarly narrow. For the US Government to issue a waiver of the Jones Act, there must be a national defence reason and a finding must be made to the effect that no qualified US-flagged vessel is available. In the latter instance, cost is not a relevant waiver consideration. For these reasons, individual project waivers have very rarely been given.
Non-US-flagged vessel owners should also know before working in US waters that CBP has set up a new office to deal with Jones Act issues. That CBP office – the National Jones Act Division of Enforcement (JADE) – was formed in New Orleans in July 2016. JADE was probably formed in response to complaints by Jones Act owners that foreign-flagged vessels were working the Gulf of Mexico illegally, so the formation of JADE may lead to stepped-up Jones Act enforcement.
Informally, JADE has indicated that it is available as a resource to anyone seeking Jones Act guidance. The long-standing alternative is to seek a ruling from CBP’s national headquarters in Washington DC, and those rulings have legal effect (although limited to the facts presented for such effect).
All in all, the US offshore wind market remains a viable commercial opportunity for foreign-flagged vessels – particularly foreign-flagged construction vessels – although great care must be undertaken to be sure that all of the activities of the foreign-flagged vessel are lawful in US waters and properly authorised where applicable.
Charlie Papavizas, chair, maritime practice and partner, Winston & Strawn LLP, Washington, DC