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A benefit-cost analysis of the coal development of Kaiser Resources Ltd. Mohr, Patricia M. 1969

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A BENEFIT-COST ANALYSIS OF THE COAL DEVELOPMENT OF KAISER RESOURCES LTD., by PATRICIA M. MOHR; B.A., University of B r i t i s h Columbia, 1968 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS i n the Department of Economics We accept t h i s thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA October, 1969 In presenting th i s thes is in pa r t i a l fu l f i lment o f the requirements fo an advanced degree at the Un ivers i ty of B r i t i s h Columbia, I agree that the L ibrary shal l make it f r ee l y a va i I ab l e ' f o r reference and. study. I fur ther agree tha permission for extensive copying of th i s thes is fo r scho la r l y purposes may be granted by the Head of my Department or by h is representat ives . It is understood that copying or pub l i ca t ion . o f th is thes is fo r f inanc ia l gain sha l l not be allowed without my wr i t ten permiss ion. Department of Economics The Univers i ty of B r i t i s h Columbia Vancouver 8, Canada D a t e i If A 9 ABSTRACT This paper i s a benefit-cost analysis of the coal de- velopment undertaken by Kaiser Resources Ltd. i n the Crows- nest area of B r i t i s h Columbia. The benefit-cost analysis i s undertaken from the "point of view" of residents l i v i n g i n the East Kootenay p r i o r to the development. The analysis seeks to examine the production e f f i c i e n c y of the a l l o c a - t i o n of resources r e s u l t i n g from the project from the point of view of East Kootenay residents. The project w i l l provide primary gross benefits i n the form of p a y r o l l income to l o c a l labour. The s o c i a l oppor- tunity cost of the use of t h i s l o c a l labour must be sub- tracted from;?payroll income to obtain the net primary bene- f i t . The s o c i a l opportunity cost of labour i s the value of the marginal product of the labour i n al t e r n a t i v e employment. A secondary benefit w i l l accrue to l o c a l factors i n the form of an increase i n l o c a l income through an expansion of serv- ice and r e t a i l industries. The expansion w i l l r e s u l t from the regional m u l t i p l i e r e f f e c t of the increase i n p a y r o l l i n - come i n the East Kootenay. The general l e v e l of unemployment was high i n the East Kootenay p r i o r to the development, and I assume that s u f f i c i e n t l o c a l labour and f a c i l i t i e s exist to supply the increase i n demand f o r services without requir- ing importation of labour or c a p i t a l . Income generated by the regional m u l t i p l i e r w i l l therefore accrue to l o c a l fac- tors, located i n the East Kootenay p r i o r to the development. Intangible benefits i n the form of t r a i n i n g i n coal mining i i and an increase i n the c u l t u r a l a c t i v i t i e s of the community- w i l l also occur. The costs a t t r i b u t a b l e to the project include the nega- t i v e e x t e r n a l i t y effect on w i l d l i f e and the d e t e r i o r a t i o n of the q u a l i t y of the environment i n the East Kootenay. A decline of w i l d l i f e w i l l decrease the value added by l o c a l labour i n supplying services to non-resident and residents hunters. The consumers* surplus obtained by residents from hunting w i l l decline, since greater expenditures w i l l be incurred elsewhere f o r the same or a lower qu a l i t y of hunt- ing. The t o u r i s t industry w i l l also decline i n the East Kootenay. The decrease i n l o c a l value added due to a decline i n the q u a l i t y of hunting and tourism can be estimated. How- ever, the cost to residents of the East Kootenay from d e t e r i - oration of the q u a l i t y of the environment cannot be estimated and the e f f e c t i s denoted as an unmeasurable intangible cost*. The cumulative present value of net measurable benefits at 9% i s $l*r,717 .983. A decision concerning the d e s i r a b i l i t y of the project cannot be made on the basis of t h i s c a l c u l a - t i o n alone. The unmeasurable intangible costs and benefits must also be taken into account. The community, using the r e l a t i v e valuations placed on increased regional income versus the q u a l i t y of the environment as expressed i n a p o l i t i c a l consensus, must decide how large the unmeasurable intangible costs and benefits are. The project i s desirable when only measurable benefits and costs are considered. However, i f the cumulative present value of net unmeasurable intangibles i s i i i negative and exceeds i n magnitude the cumulative present value of net measurable benefits, the Kaiser project should be terminated. i v TABLE OF CONTENTS Page ABSTRACT.....*-.* i TABLE OF CONTENTS i v LIST OF TABLES v i ACKNOWLEDGEMENT .7 v i i CHAPTER I INTRODUCTION 1 II BENEFIT-COST ANALYSIS AS AN EVALUATION PROCEDURE 8 III BENEFIT-COST ANALYSIS OF THE COAL DEVELOPMENT OF KAISER RESOURCES LTD. FROM THE "POINT OF VIEW"OF RESIDENTS LIVING IN THE EAST KOOTENAY PRIOR TO THE COAL DEVELOPMENT Ik (a) Primary Income Benefits and Costs Ik ( i ) Primary Income Benefits and Costs from the Operating Phase.. Ik ( i i ) Primary Income Benefits and Costs from Construction Phase 19 ( i i i ) Prismary Income Benefits and Costs from production of Mine Operating Supplies 20 (t>) Secondary Income Benefits and Costs 21 (i ) The M u l t i p l i e r E f f e c t 21 ( i i ) Appreciation of Land Values 2k (c) Intangible Benefits and Costs and E x t e r n a l i t i e s 2k ( i ) Negative E x t e r n a l i t y E f f e c t on Tourism, W i l d l i f e and the Sport Fishery 25 V TABLE OF CONTENTS (Continued) Page ( i i ) Summary of Benefits and Costs including Intangibles 31 (d) Benefit-Cost Analysis 39 IV SUMMARY AND CONCLUSIONS k6 FOOTNOTES . . 50 BIBLIOGRAPHY 6 2 APPENDIX • , I (A) A Description of the S t r i p Mining to be carried out by Kaiser Resources Ltd......... .>. 6 ? (B) Factors Leading to the R e v i t a l i z a t i o n of the Coal Mining Industry i n the East Kootenay ?0 (C) The Technology of Unit Trains and the Roberts Bank Port 73 II (A) The History of Coal Mining i n the East Kootenay and Reasons f o r i t s Decline. ? 6 (B) Description of the East Kootenay Economy p r i o r to the project - Unemployment and per capita Income. 80 FOOTNOTES TO APPENDICES ................ 9^ v i LIST OP TABLES Page I The So c i a l Opportunity Cost of Local Labour employed i n Operating Phase of Kaiser Project.... 17 II Income accruing to Residents of the East Kootenay from Annual Expenditures by Local Hunters on East Kootenay Hunting 28 III Income accruing to Residents of the East Kootenay from Annual Expenditures by - Non-resident Hunters on East Kootenay Hunting... 29 IV Projected Annual Loss of Local Income from decline of Hunting and Tourism i n the East Kootenay...., 32 V Sources of Benefits and Costs from the "point of view" of Residents of the East Kootenay due to -the coal-project of Kaiser Resources Ltd 33 VI Cumulative Present Value of Net Benefits from "point of view" of Residents, L i v i n g i n the East Kootenay p r i o r to the development, due to the coal project of Kaiser Resources Ltd kl VII Comparison of c . i . f . P r i c e of East Kootenay Coal before and a f t e r Cost Reducing . . . Transportation Improvements. 72 VIII Unemployment Rates f o r the East Kootenay', West Kootenay and B r i t i s h Columbia, I 9 6 5 - I 9 6 8 . . . . 83 IX Unemployment by Occupation f o r the East Kootenay, I 9 6 5 - I 9 6 9 86 XXBreakdown of Unemployment by Occupation f o r East Kootenay, 1 9 6 7 , 1 9 6 8 , 1 9 6 9 . . 88 XI Comparison Between East and West Kootenay of Unemployment by Occupation, I 9 6 5 - I 9 6 8 (Absolute Numbers) 89 XII I n d u s t r i a l Mix I 9 6 I % D i s t r i b u t i o n of Labour Force by Industry.. 92 v i i ACKNOWLEDGMENTS Mrs. Wiskin, Mr. Jack Smith, Mr. S.L. Young and special thanks to Mr. D.M. Roussel of the Department of Manpower and Immigration. Mr. L.C. Reed, formerly of Hedlin-Menzies & Associates Ltd. Drs. C. Eaton and M. Kell y , Department of Economics, U.B.C CHAPTER I Introduction This paper examines by means of a benefit-cost analysis the economic impact on the East Kootenay of the contract by which Kaiser Resources Ltd. i s to supply 'ierhntf^tiveuJ.inllMi.on long tons of coal over a f i f t e e n year period to Japanese st e e l firms. Production of the coal w i l l take place i n the Crowsnest area of the East Kootenay near the communities of Fernie, Natal and Michel. Public controversy over the project arose due to fear that" the East Kootenay would be subjected to the same fate that b e f e l l the mountainous beauty of East Kentucky when s t r i p mining was introduced. East Kentucky now contains miles of devastated t e r r a i n and mountain val l e y s polluted with pools of sulphuric a c i d caused by contour s t r i p - ping.''" This mining technique involves excavating the earth from the mountain and pushing i t over the side to reach the coal seam. L e g l i s l a t i o n requiring reclamation of s t r i p mined land was at f i r s t absent and then i n e f f e c t i v e i n preventing d e t e r i o r a t i o n of the East Kentucky environment. The Province of B r i t i s h Columbia has i n s t i t u t e d l e g i s - l a t i o n requiring r e s t o r a t i o n of s t r i p mined land. Kaiser Resources Ltd. w i l l i n i t i a l l y s t r i p mine 2.k square miles. However, the possible extent of s t r i p mining by Kaiser could be great, since the firm holds 108,000 acres, purchased from Crows Nest Industries Ltd., and an additional 7,657 acres i n 2 coal licences. 2 The annual volume of coal production and sales i n the East Kootenay had been d e c l i n i n g since 1950 due to a decrease i n demand i n B r i t i s h Columbia f o r locomotive consumption and f o r heating homes and commercial buildings. Crows Nest In- dustries Ltd. had been unable to compete i n the expanding Eastern Canadian and world markets f o r metallurgical coal. High transportation costs increased the delivered price of Crowsnest coal above that of other producers supplying metal- l u r g i c a l markets.-^ The transportation cost of coal represented 53% of the t o t a l delivered cost of Crowsnest coal i n Japan i n 1965 and 1966.̂  In order to lower transportation costs and to obtain the coal contract with expanding Japanese s t e e l firms, Kaiser persuaded the federal and p r o v i n c i a l governments to construct the Roberts Bank Port and railway access f a c i l i t i e s across the Lower Mainland to the port. The port w i l l lower bulk loading costs and w i l l provide berths of s u f f i c i e n t depth to accommodate the largest sea going bulk c a r r i e r s . A unit t r a i n operation undertaken by the Canadian P a c i f i c Railway w i l l run from the coal mines at Fernie to the port and w i l l a l s o reduce the transportation cost of coal. P r i o r to the Kaiser project, the federal gov- ernment had supplied a subvention of approximately $3»00 per ton to be subtracted from the c . i . f . p r i c e of coal, so that the delivered price could be reduced.^ The subvention rep- resented a subsidy to the coal mining industry i n the East Kootenay, and w i l l be discontinued i n 19?0 since i t i s no longer required. It i s the reduction of transportation 3 costs, rather than production costs, which has l e d to the economic r e v i t a l i z a t i o n of the coal mining industry i n the 7 East Kootenay. A controversy arose due to the l o c a t i o n of the railway access f a c i l i t i e s to the port. Rather than using the e x i s t - ing railway corridor along the Fraser River, the B.C. Hydro and Power Authority reached agreement with the Canadian P a c i f i c Railway, the Canadian National Railway and the Great Northern Railway, on the construction of tracks from Matsqui across the farming and r e s i d e n t i a l areas of Langley, Surrey and Delta m u n i c i p a l i t i e s , and thence along the northern o shore of Boundary Bay to Roberts Bank. Construction of the tracks across farming and r e s i d e n t i a l areas w i l l necessitate r e l o c a t i o n of farmers and home owners. The proximity of the railway to Boundary Bay w i l l be to the detriment of w i l d l i f e i n a unique habitat and w i l l retard development of a potential recreational area. Running of a high speed coal t r a i n w i l l a l s o be detrimental.to the q u a l i t y of the environment of the r e s i d e n t i a l area through which the t r a i n passes. The above costs represent negative e x t e r n a l i t i e s , a t t r i b u t a b l e to the coal project, imposed on residents of the Lower Mainland. In analyzing the project, I s h a l l be concerned with i t s e ffect on both the quantity and the q u a l i t y of the standard of l i v i n g achieved, or i n more descriptive terms, the per capita r e a l income and condition of the environment respectively. The Kaiser coal development i s expected to have an e f f e c t on both the per capita income of B r i t i s h Columbia and East Kootenay residents and on the q u a l i t y of the environment. The East Kootenay economy has i n the past exhibited a low average per capita income and a high average unemployment rate. High unemployment has persisted i n c l e r - i c a l , r e t a i l trade, service, construction and forest occupa- o tions from 1965 t o 1968 i n c l u s i v e . The coal development w i l l permanently a l l e v i a t e a substantial amount of unemploy- ment i n c l e r i c a l , r e t a i l trade and service occupations. Unemployment i n construction and f o r e s t r y w i l l also decline during the construction period. The rationale behind objections to the coal development l i e s i n doubts over whether the benefits of t h i s i n d u s t r i a l operation w i l l exceed the costs when degradation of the qual- i t y of the environment i s considered. Behind any i n d u s t r i a l development there i s always a trade-off between the benefits of increased economic a c t i v i t y and increased environmental p o l l u t i o n , whether water, s o i l or a i r p o l l u t i o n , or a change i n the appearance of the landscape detrimental to i t s aes- t h e t i c q u a l i t i e s . Increased coal mining i n the East Kootenay w i l l also have a detrimental e f f e c t on w i l d l i f e and the q u a l i t y of hunting i n the area. The East Kootenay and p a r t i c u l a r l y the Elk and Flathead River Valleys are noted f o r the e x i s t - ence of an abundant and varied supply of w i l d l i f e.^Revenue obtained from non-resident hunters' expenditures i n the area w i l l decline due to expanded coal mining. I s h a l l evaluate the project by means of a benefit-cost analysis from the "point of view" of residents l i v i n g i n the 5 East Kootenay p r i o r to the coal development. The e f f e c t of the project from the "point of view" of B r i t i s h Columbia residents i s not examined, but I expect that the cumulative present value of the net benefits w i l l be small.^The gross primary benefit to B r i t i s h Columbia residents w i l l not be the value of the increased coal output a t t r i b u t a b l e to 12 Kaiser, since most of the increase w i l l be exported. A gross primary benefit w i l l occur i n the form of f a c t o r i n - come from construction and operation of the Roberts Bank Port, the railway access f a c i l i t i e s and the CPR unit t r a i n operation. Factor income w i l l also stem from production i n B r i t i s h Columbia of equipment and operating supplies f o r the Kaiser mines. However, the s o c i a l opportunity cost of the factors w i l l approximate the f a c t o r income. The net primary benefit, from the point of view of residents l i v i n g i n the East Kootenay p r i o r to the development, i n the form of i n - creased p a y r o l l income to East Kootenay labo u r 1 ^ w i l l also represent a net primary benefit to B r i t i s h Columbia as a whole, i f i t i s assumed that East Kootenay labour i s geo- graphically immobile. Even i f the East Kootenay labour were geographically mobile, the return on labour and the value of the marginal product might s t i l l be higher i n the coal opera- tions than i n a l t e r n a t i v e employment i n other parts of B r i t i s h Columbia and a net benefit w i l l s t i l l occur. A net primary benefit w i l l a l s o accrue to the Province of B r i t i s h Columbia i n the form of taxes from the operation and construction of l4 the mine. The province w i l l receive approximately $552,500 6 annually from the mining tax on property owned by Kaiser and the royalty payments on property under coal licence. 1-' Twenty per cent of the corporation income tax paid by Kaiser Re- sources Ltd. w i l l also accrue to B r i t i s h Columbia. Welfare payments made to East Kootenay residents w i l l decline due to the employment provided by the Kaiser project. On the cost side, i n ad d i t i o n to the s o c i a l opportunity cost of resources, negative ex t e r n a l i t y e f f e c t s w i l l also be at t r i b u t a b l e to the project. The port w i l l adversely a f f e c t waterfowl and per- haps the salmon f i s h e r y i n the area. The l o c a t i o n of the railway access f a c i l i t i e s w i l l cause the negative s p i l l o v e r e f f e c t s mentioned above. The det e r i o r a t i o n of the q u a l i t y of hunting i n the East Kootenay w i l l probably reduce the revenue obtained from B r i t i s h Columbia licenc e fees and from service expenditures i n B r i t i s h Columbia by non-resident hunters. The enjoyment of the area by B r i t i s h Columbia hunters w i l l decline and future expenditures incurred by res- idents on hunting elsewhere f o r the same or a lower q u a l i t y of hunting experience may increase. In the benefit-cost analysis to be performed from the point of view of residents l i v i n g i n the East Kootenay p r i o r to the development, I s h a l l be concerned with the extent and form of primary, secondary and intangible benefits and with the s o c i a l cost, i n terms of the s o c i a l opportunity cost of resources and the negative externality e f f e c t s a t t r i b u t a b l e to the project. Data problems exist i n placing d o l l a r values \ on intangible benefits and costs and i n determining the mag- nitude of the p o s i t i v e opportunity cost of resources. A benefit-cost analysis w i l l c l a r i f y the production e f f i c i e n c y , from the point of view of East Kootenay residents, of the a l - l o c a t i o n o f resources r e s u l t i n g from the project. In the following chapter, I s h a l l describe the tech- nique of benefit-cost analysis. In Chapter III I s h a l l pres- ent a benefit-cost analysis of the coal development from the point of view of residents l i v i n g i n the East Kootenay p r i o r to the development. Chapter IV w i l l contain a summary and conclusions. CHAPTER II Benefit-Cost Analysis as an Evaluation Procedure Benefit-cost analysis i s an evaluation procedure f o r examining the production e f f i c i e n c y of the a l l o c a t i o n of re- sources r e s u l t i n g from a project or investment. 1 By produc- t i o n e f f i c i e n c y i s meant an a l l o c a t i o n of resources which w i l l produce the maximum value of goods and services from those resources. The technique may be applied to both public and private' projects. The procedure involves spec- i f y i n g the benefits and costs a t t r i b u t a b l e to the project i n money terms, f i n d i n g the annual net benefits and d i s - counting by an appropriate rate to f i n d the cumulative present value of net benefits over the l i f e of the project. If the cumulative present value of net benefits i s p o s i t i v e , then the project may be termed e f f i c i e n t . However, i f bene- f i t - c o s t analysis i s being used to choose among competing projects, then i n order f o r t h i s project to be most d e s i r - able, i t s cumulative p o s i t i v e present value of net benefits must be greater than that produced by al t e r n a t i v e projects. Other decision r u l e s , such as the r a t i o of the cumulative present value of benefits to the cumulative present value of costs, may be used to determine the d e s i r a b i l i t y of a project or to choose among al t e r n a t i v e projects. However, I s h a l l use the cumulative present value of net benefits to examine the Kaiser development. Benefit-cost analysis with accurate data provides a meas- ure of the production e f f i c i e n c y of a project, but does not evaluate changes i n the d i s t r i b u t i o n of income which may oc- cur due to the project. Benefit-cost analysis takes as given the d i s t r i b u t i o n of income which exists at the time of a project. Many government investments, however,, are not under- taken f o r provision of a good i n the most e f f i c i e n t manner, but rather as a form of inter-regional income r e d i s t r i b u t i o n . The economic development and population of a region may be the goal of a public project. If t h i s i s the case, then a benefit-cost analysis must be q u a l i f i e d by considering the success of the project i n achieving the above goals. In order to undertake a benefit-cost analysis the r e l - evant "point of view" must be stated. The e f f i c i e n c y of the r e s u l t i n g a l l o c a t i o n of resources from the "point.of view" of residents of a region may be d i f f e r e n t from the ef- f i c i e n c y from the "point of view" of a l a r g e r region,, f o r 2 example B r i t i s h Columbia. The cumulative present value of net benefits w i l l change as the reference group varies. The l a r g e r the size of the reference group, the l e s s impor- tant are secondary benefits and costs. For example, the project may induce a f i r m to locate i n a region. The value of output of the f i r m may be described as a gross secondary 3 benefit from the point of view of the region. However, from the point of view of the l a r g e r area, the value of the output of the f i r m does not represent a gross secondary benefit, i f the f i r m would have located elsewhere i n the l a r g e r area i n the absence of the project. 10. . The benefits and costs are described as primary i f they r e s u l t d i r e c t l y from the project. In the case of a govern- ment Investment to produce hydroelectric power, the gross primary income benefit w i l l be the value of power produced. The gross primary income cost w i l l be the value of the goods or services foregone by the use of resources i n hydroelec- t r i c power production. The s o c i a l opportunity cost of the use of resources i s the value of the good or service for e - gone by the use of inputs i n the production of another good or service. If f u l l employment of factors of production i s assumed, then the s o c i a l opportunity cost of the factors i s measured by the money outlay spent on the factors. .The gross primary Income cost i s therefore the money outlay on factors of production, i f f u l l employment of factors i s as- sumed. The benefits and costs are described as secondary i f they r e s u l t i n d i r e c t l y from the project. A gross secondary income benefit may be i n the form of the value of a good or service produced, which would not have been produced i n the absence of the project. The gross secondary income cost i s the money outlay on factors of production, i f f u l l employ- ment of the inputs i s assumed. Benefits and costs are described as intangible, i f t h e i r value i s not usually measured i n money terms i n the market. While i t i s possible to place a money value on some intan- g i b l e benefits and costs, many intangibles cannot be evalu- L ated and may be denoted as unmeasurable. Scenic beauty i s an example of an unmeasurable intangible. The value of 1 1 wilderness preserved f o r recreation and hunting may be es- timated by measuring the expenditures incurred by users to partake of the resource. Many Investment projects involve externality or s p i l l - over e f f e c t s , which may be benefits and/or costs. These ex- t e r n a l i t i e s must be considered i n a benefit-cost analysis. A technological externality stemming from an investment project a l t e r s the production decisions of another decision maker and therefore the a l l o c a t i o n of resources. E x t e r n a l i t y e f f e c t s are not considered i n the revenue or cost considera- tions of the organization undertaking the project. For ex- ample, Kaiser Resources Ltd. has not considered the detrimen- t a l e f f e c t which s t r i p mining w i l l have on the w i l d l i f e of the Crowsnest area. Revenue to l o c a l residents, who l i v e d i n the area p r i o r to the coal development, from hunters' ex- penditures on services and food and lodging w i l l decrease due to the decline i n the q u a l i t y of hunting. The l a t t e r cost i s a negative ex t e r n a l i t y which must be taken into ac- count i n a benefit-cost analysis from the point of view of East Kootenay residents l i v i n g i n the area p r i o r to the Kaiser project. Most benefit-cost analyses assume f u l l employment of the factors of production used i n the project. The.- analysis presented i n Chapter III does not assume f u l l employment. - High unemployment has persisted f o r a number of years i n c e r t a i n occupations i n the East Kootenay. The money outlay on labour and other production factors -will therefore not 1 2 v always represent the true s o c i a l opportunity cost. The following statements may be applied to examine the rel a t i o n s h i p between the s o c i a l opportunity cost of labour and the money outlay or wage expended on t h i s labour.^ The s o c i a l opportunity cost of labour i s zero, i f the labour had been unemployed and had no prospective means of employment i n the same or i n another occupation. In t h i s case the money outlay or wage represents a net gain to the worker. The s o c i a l opportunity cost of labour i s po s i t i v e but les s than the money outlay, i f the labour had been employed p r i o r to the project, but i f the value of i t s marginal product had been lower. In the absence of i n f l a t i o n the s o c i a l oppor- tunity cost of labour approximates the money outlay on labour, i f the labour had been employed previously and i f the value of i t s marginal product had approximated that i n the new employment. The same analysis may be applied to examine the rela t i o n s h i p between the s o c i a l opportunity cost of other factors of production and the money outlay expended on these factors. The primary gross income benefits from the point of view of East Kootenay residents from the Kaiser project w i l l 6 accrue i n the form of p a y r o l l income to l o c a l labour. The East Kootenay residents referred to are those resident i n the area p r i o r to the Kaiser project. The s o c i a l opportunity cost of l o c a l labour, i n the form of a previous wage rate, must be subtracted from the wage rate paid by Kaiser to ob- t a i n the net primary income benefit. 13. The benefit-cost analysis presented i n Chapter III w i l l produce the cumulative present value of measurable benefits le s s measurable costs. However, many of the costs which have been the source of public controversy are intangible and unmeasurable. The r e s u l t of the analysis must therefore be q u a l i f i e d i n order to reach a conclusion on the d e s i r - a b i l i t y of the project. I f the cumulative present value of net unmeasurable intangibles i s negative and i f the cumula- t i v e present value of measurable benefits l e s s measurable costs i s p o s i t i v e , the project should only be continued i f the cumulative present value of net measurable benefits ex- ceeds the magnitude of the cumulative present value of net 7 unmeasurable intangibles.' The project should be discontinued i f the /- cumulative PV of net unmeasurable intangibles/ >/ + cumulative PV of net measurable benefits/. The government 8 using a p o l i t i c a l consensus can decide i f t h i s i s so. CHAPTER III Benefit-Cost Analysis of the coal development of Kaiser Resources Ltd. from the "point of view" of Residents l i v i n g In the East Kootenay p r i o r to the Coal Development The East Kootenay i s Census D i v i s i o n One and contains the c i t i e s of Cranbrook, Kimberley, Golden, Invermere and Fernie. The analysis w i l l be undertaken from the point of view of residents l i v i n g i n the East Kootenay p r i o r to the development. For the purpose of t h i s analysis, l o c a l labour i s therefore defined as labour located i n the East Kootenay p r i o r to the development. Windfall gains and losses w i l l be included i n benefits and costs, (a) Primary Income Benefits and Costs The gross primary income benefits stemming from the project w i l l occur i n the form of p a y r o l l income or wages accruing to l o c a l labour from the operating phase and the construction phase. Income w i l l also accrue to other l o c a l f actors of production used i n producing operating supplies and f i x e d plant and equipment f o r the Kaiser project. ( i ) Primary Income Benefits and Costs from the Operating Phase Before commencement of the project, Grows Nest Indus- t r i e s Ltd. had employed 500 people i n i t s coal mining opera- t i o n s . 1 Of these approximately 220 had been employed i n underground mining, 165 i n surface mining and 115 i n engi- neering, c l e r i c a l duties, processing and materials handling and truck and t r a c t o r d r i v i n g . In i t s operating phase Kaiser 15. Resources Ltd. w i l l employ a t o t a l of nine hundred workers consisting of 4-00 underground miners, 300 surface miners and 200 workers employed i n engineering, c l e r i c a l services, proc- 2 essing and materials handling and truck and t r a c t o r d r i v i n g . The t o t a l increase i n employment of coal miners w i l l there- fore be 315. I assume that one-half of t h i s labour w i l l be imported into the area from Alberta. The remainder, 157» w i l l be supplied from the East Kootenay. Kaiser i s undertak- ing a training program f o r inexperienced l o c a l workers having 3 a grade twelve education. -^ The increase i n employment i n engineering, c l e r i c a l services, processing and materials handling and truck and t r a c t o r d r i v i n g i s 85. I assume that one-half of t h i s labour w i l l be imported and that one-half w i l l be supplied l o c a l l y . S k i l l e d r e p a i r mechanics, truck and t r a c t o r drivers and Japanese engineers w i l l be imported. The annual wages which would have been:earned i n a l t e r - native occupations represent the s o c i a l opportunity costs of the 500 workers previously employed by Crows Nest Industries Ltd. and of the a d d i t i o n a l 200 l o c a l workers. A net benefit w i l l accrue to the l o c a l labour i f the wages of the 500 workers increase due to the Kaiser project and/ or i f the wages of the 200 extra workers are greater than the wages foregone i n a l t e r n a t i v e employment. A summary of the mag- nitude of the s o c i a l opportunity cost of the 700 l o c a l workers i s provided i n Table I, where I have examined the amount of past unemployment i n the East Kootenay i n those occupations i n which the a d d i t i o n a l 200 jobs are being of- 16. fered. A portion of the 200 extra workers may have been un- employed. However, i n order to assign a zero opportunity cost to t h i s labour, i t must be shown not only that the labour had been unemployed i n that occupation i n which i t had experience, but also that i t had been occupationally immobile and so had no prospective means of a l t e r n a t i v e em- ployment. The r e l a t i o n s h i p between .the money outlay on - labour and the s o c i a l opportunity cost of labour was ex- amined i n Chapter I I . The t o t a l annual p a y r o l l income accruing to both l o c a l and imported labour from the operating phase i s $6,000,000. Total employment i s 900 of which 700 i s provided by l o c a l labour. An estimate of the p a y r o l l income or gross: primary benefit accruing to l o c a l labour from the operating-phase i s $4,666,662 or 700 times $6,000,000, assuming that each - 900 worker obtains the same annual wage. I assume that the s o c i a l opportunity cost of the 500 l o c a l workers previously employed i s 500 times $6,000,000 or $3,333,330. I assume 900 that the opportunity cost of the a d d i t i o n a l 200 l o c a l workers i s zero. I s h a l l discuss t h i s assumption below. The net primary benefit accruing to l o c a l labour from the operating phase i s therefore $1,333,332. The net benefit assumes that the annual wages of the- 500 workers, previously employed, did not change a f t e r commencement of the Kaiser project. The opportunity cost i s therefore probably 17. TABLE I The S o c i a l Opportunity Cost of Local Labour employed In Operating Phase of Kaiser Project Local Labour employed In Operating Phase 500 workers previously employed by Crows Nest In- dustries Ltd. i n coal mining, processing and materials handling, truck and t r a c t o r d r i v i n g , cler- i c a l duties and engineer- ing services. Increase of 200 l o c a l workers to be employed by Kaiser consisting of: 157 coal miners Value Of S o c i a l Opportunity Cost of Local Labour The value of the s o c i a l op- portunity cost i s large, but w i l l be below the p a y r o l l in- come from Kaiser Resources Ltd. i f wages r i s e . A maximum of 21 of these po s i - tions could have been taken up i n 1968 by unemployed labour experienced i n mineral extrac- t i o n . " If t h i s labour had been occupationally immobile and had no prospective means of employment i n other mining ventures, then the value of the opportunity cost of the labour i s low. The remaining 136 workers w i l l be obtained from labour pre- viously employed i n other oc- cupations. Some of the labour may be recruited from workers previously employed as coal miners who had entered other occupations when the coal min- ing industry declined i n the 1950*s. Kaiser i s providing t r a i n i n g f o r inexperienced workers having a grade twelve education. Average unemploy- ment i s high i n the East Kootenay. However, coal miners w i l l not be obtained from the hard core unemployed i n construction and f o r e s t r y , since t h i s labour has a low educational l e v e l . ' A s c a r c i t y 18 TABLE I (Continued) Looal Labour employed i n Operating Phase M-3 workers employed i n materials handling and processing, c l e r i c a l duties and services and truck and t r a c t o r d r i v - ing. Value of S o c i a l Opportunity Cost of Local Labour of suitably q u a l i f i e d labour f o r coal mining may exist i n the East Kootenay. Local labour drawn into coal mining w i l l have a p o s i t i v e oppor- tunity cost i n the form of a l t e r n a t i v e wages i n other oc- cupations. However, the value of the s o c i a l opportunity cost may be lower than p a y r o l l i n - come, i f wages i n coal mining are higher. The value of the s o c i a l oppor- tunity cost i s low, because the positions w i l l be taken up by unemployed labour. The av- erage monthly unemployment of c l e r i c a l workers i n the East Kootenay i n 196? was 113, while a monthly average of 65 truck and t r a c t o r drivers were un- employed i n 1968. The p e r s i s - tent high l e v e l of unemployment i n the above occupations be- tween 196,5 and 1968 i s i n d i c a - t i v e of the occupational and/or geographical immobility of the workers.° 19. overstated. Data i s not avail a b l e on changes i n the wage rates of these workers. It i s reported that s t r i p miners employed by Kaiser 9 are paid the highest s t r i p mining wage rates i n Canada. The rates are between $3.01 and $4.15 an hour. Wage rates f o r s t r i p miners may have increased over those paid by Crows Nest Industries Ltd. due to an increase i n labour productivity i n a c a p i t a l intensive operation. The average annual wage of $6,600 f o r the 900 workers to be employed i n the operating phase compares favourably with the average wage of $4,363 earned by East Kootenay residents i n 1966.1^ The above net benefit of $1,333,332 assumes that the opportunity cost of the addit i o n a l 200 l o c a l workers em- ployed i s zero. As Table I indicates, the s o c i a l oppor- tun i t y cost of approximately three-quarters of t h i s labour i s p o s i t i v e and should be subtracted from the p a y r o l l i n - come to obtain the net benefit accruing to the 200 workers. I have not adequately taken into account the p o s i t i v e opportunity costs of l o c a l labour induced into coal mining or the increase of wage rates to the 500 l o c a l workers previously employed because of data i n s u f f i c i e n c i e s . The two factors tend to offset each other, since one would de- crease the income benefits, while the other would increase the income benefits. ( i i ) Primary Income Benefits and Costs from Construction Phase The t o t a l construction employment provided i s 800."'""'' 20 I assume that 180 of the 800 workers are l o c a l with zero opportunity cost. The .average monthly unemployment i n con- s t r u c t i o n occupations i n the East Kootenay i n 196? and 1968 was 180 and 3^0 workers respectively. Unemployment has been high i n construction occupations i n the East Kootenay from 1965 to 1968 i n c l u s i v e . 1 2 , The t o t a l annual construction p a y r o l l to be expended i n the f i r s t and second years of the project i s $8,500,000.1 I have assumed that the portion of t h i s p a y r o l l accruing to l o c a l labour with n e g l i g i b l e opportunity cost i s 180 times "500 #8,500,000 or $1,912,500. An i n f l u x of transient construc- t i o n workers occurred i n the spring of 1969* These workers w i l l compete with l o c a l construction labour f o r employment. I have not included i n the net benefit, the possible increase i n wages of l o c a l construction workers, now employed by Kaiser, who were employed previously i n other construction work at a lower wage. ( i i i ) Primary Income Benefits and Costs from Production of Mine Operating Supplies Kaiser Resources Ltd. may purchase operating supplies and f i x e d plant and equipment from firms located i n the East Kootenay p r i o r to the development. An increase i n f a c t o r income may accrue to l o c a l labour and other l o c a l inputs employed by the firms. I assume that the increase i n i n - come, which would represent a net primary Income benefit, w i l l be low, because most operating supplies and equipment w i l l be obtained from other parts of Canada and the United States. 21. (b) Secondary Income Benefits and Costs ( i ) The M u l t i p l i e r A regional m u l t i p l i e r e f f e c t , stemming from the i n - creased p a y r o l l income of l o c a l labour and the p a y r o l l i n - come of imported labour, w i l l produce a gross secondary income benefit i n the form of income accruing to l o c a l l a - bour and l o c a l c a p i t a l from an expansion of the service, r e t a i l and other l o c a l industries. The East Kootenay has exhibited a high general l e v e l of unemployment from 19̂5 to 1968.^ Average unemployment i n the East Kootenay i n 1967 and I968 was 7.0% and 8.5% respectively. I assume that both the capacity of service f a c i l i t i e s , located i n the East Kootenay p r i o r to the development and owned by residents, and the supply of suitably q u a l i f i e d l o c a l labour w i l l be s u f f i c i e n t to supply the increase i n the demand f o r services. I therefore assume that l o c a l service f a c i l i t i e s were characterized by excess capacity p r i o r to the develop- ment. The service f a c i l i t i e s owned by residents could also be expanded. If the above two conditions do not hold, an increase i n the regional income due to an expansion of service industries i n the East Kootenay would s t i l l occur, i f c a p i t a l and l a - bour were imported into the area. However, the income would accrue to the imported c a p i t a l and labour and not to l o c a l inputs. The benefits accruing to residents l i v i n g i n the East Kootenay p r i o r to the development from industry attracted from other regions would be low, i f the labour employed by the f i r m was also imported. Local wages might r i s e , however, i f 22. the labour imported into the area increased the demand f o r the services or goods produced by l o c a l labour. The average monthly unemployment i n the East Kootenay of male workers experienced i n the service industries i n i960 was 105, out of a labour force of approximately 15,000. A persistent high l e v e l of unemployment of labour experienced i n the service industries;has existed from 1965 to 1968 i n - clu s i v e . Unemployed labour might also be drawn into the serv- ice industries from forest and construction occupations. How- ever, t h i s i s u n l i k e l y because the l a t t e r labour has been oc- cupationally immobile and would have d i f f i c u l t y i n adapting to some service occupations, because of inexperience and a 17 low educational l e v e l . Local labour previously employed i n the service industries could be u t i l i z e d more intensively. I also assume that s u f f i c i e n t excess capacity of f a c i l i t i e s and l o c a l labour exists to handle the increased volume of r e t a i l sales i n the area. Unemployment i n r e t a i l sales i n July 1967 was 56. A regional income m u l t i p l i e r of 1.3 i s applied to the increase i n p a y r o l l income accruing to both l o c a l and im- 18 ported labour from the operating phase. I have excluded the m u l t i p l i e r e f f e c t of the increase i n construction income, because the income i n j e c t i o n into the economy w i l l not be permanent, and therefore w i l l not r e s u l t i n an increase i n equilibrium regional income. The increase i n employment of 23 l o c a l and imported labour i n coal mining operations i s 4 0 0 ( 9 0 0 - 500) and the annual p a y r o l l income accruing to . t h i s labour i s 4 0 0 times $ 6 , 0 0 0 , 0 0 0 or $ 2 , 6 6 6 , 6 6 4 . The 900 t o t a l annual income generated i n the region from the oper- ating phase i s therefore 1 . 3 times $ 2 , 6 6 6 , 6 6 4 or $ 3 , 4 6 6 , 6 6 3 . The annual secondary benefit i s thus $ 3 , 4 6 6 , 6 6 3 - $ 2 , 6 6 6 , 6 6 4 or approximately $ 8 0 0 , 0 0 0 . As explained above, I assume that a l l of the income generated by the m u l t i p l i e r effect i s received by labour and other inputs located i n the area p r i o r to the development. I assume that the $ 8 0 0 , 0 0 0 an- nual increase i n income due to the m u l t i p l i e r e f f e c t occurs every year from the f i r s t year of production to the f i f - teenth year, when the present sales contract terminates. The opportunity cost of Inputs used i n the expansion of services and r e t a i l trade i s low, because the expansion w i l l absorb previously unemployed labour and because l i t t l e a l t e r n a t i v e production w i l l be foregone by more intensive use of labour already employed i n services and r e t a i l trade. Other coincident coal developments, such as the project of Fording Coal Co., w i l l add to the growth of population and market size of the East Kootenay. F u l l u t i l i z a t i o n of e x i s t i n g l o c a l f a c i l i t i e s and l o c a l labour i n supplying services w i l l be reached i n a shorter period of time. The assumption made above, that the amount of induced industry l o c a t i n g i n the area w i l l be small, must be q u a l i f i e d when the other coal developments are considered. Some induced investment and Importation of labour w i l l occur. 24. I assume that most of the induced investment attracted from other regions would be i n service and r e t a i l outlets. I do not expect that a s i g n i f i c a n t amount of industry pro- ducing consumer durables would be attracted into the area, because of the large c a p i t a l investment involved and large market size required. Induced investment into the East Kootenay would bring i n both c a p i t a l and labour; the i n - crease i n f a c t o r incomes accruing to labour and other i n - puts located i n the area p r i o r to the development would be small. While the t o t a l regional income would increase, the per capita benefit to p r i o r residents would be low. The income e f f e c t of p o t e n t i a l induced Investment from other regions and importation of labour i s not considered i n the benefit-cost c a l c u l a t i o n performed. The main increase i n l o c a l employment stemming from the Kaiser project w i l l occur i n the service and r e t a i l trade occupations. The persistent unemployment of con- s t r u c t i o n and f o r e s t r y workers w i l l only be temporarily a l - l e v i a t e d due to the Kaiser project, ( i i ) Appreciation of land values Residents of the East Kootenay may receive a c a p i t a l gain i n the form of an appreciation of property values dur- ing the f i r s t year of the project. It must be pointed out that while the average value of property i n down-town Fernie w i l l increase, the value of some property w i l l decrease due to p o l l u t i o n and the decline of tourism. - (c) Intangible Benefits and Costs and E x t e r n a l i t i e s Coal mining i n the East Kootenay w i l l produce negative 25 e x t e r n a l i t y e f f e c t s i n the form of p o l l u t i o n and deteriora- t i o n of the environment. Income obtained by l o c a l labour, i n the East Kootenay from tourism and hunting w i l l be ad- versely affected by the development, and the annual l o c a l income foregone should be considered i n the costs a t t r i b u t - able to the project. ( i ) E x t e r n a l i t y E f f e c t on Tourism. W i l d l i f e and the Sport Fishery Cranbrook City obtained a gross revenue of approxi- mately |196,000 from tourism and $4,000 from hunting i n 1968.̂  The gross revenue from tourism i s s i g n i f i c a n t to the economy of Cranbrook, when compared to the value of 20 factory shipments of manufactured goods of $841,000. Gross revenue from tourism i n the Cranbrook, Kimberley, Golden and Invermere areas i s not l i k e l y to be adversely affected by the coal development. However, gross revenue i n the Fernie area could be affected by the de t e r i o r a t i o n of scenery. The annual gross revenue previously obtained from tourism i n Fernie i s not l i k e l y to have exceeded the $196,000 obtained i n Cranbrook, since Cranbrook i s a con- venient stopover f o r highway t r a v e l l e r s . I assume a maxi- mum annual loss of $196,000 i n gross revenue from the e x i s t - ing state of tourism i n Fernie and therefore i n the East Kootenay due to the coal project. However, the $196,000 represents gross revenue or expenditures and not l o c a l value added. 26 The 196l Canadian census figures f o r i n - dustries i n the Province of B.C. indicate the relevant r e t a i l businesses have a l o c a l income component (value-added) of 25 per cent of gross sales, while the comparable 2 i figure f o r services outlets i s 33 per cent. I s h a l l assume that 29 per cent of the $196,000 ($56,840) represents l o c a l income foregone from the e x i s t i n g state of tourism i n the f i r s t year of coal production. The decline of t o u r i s t expenditures w i l l be reduced due to l e g i s l a t i o n requiring r e s t o r a t i o n of s t r i p mined land. The government i s attempting to put the cost of land reclamation into the cost calculations of s t r i p mining firms by requiring them to post a $500 bond with the p r o v i n c i a l 22 Mines Department f o r every acre s t r i p mined. If the f i r m f a i l s to restore land, the government w i l l reclaim the land 23 with the proceeds of the bond. J The s o c i a l cost being con- sidered i s the d e t e r i o r a t i o n of the appearance of the en- vironment. The ranges of the Elk and Flathead River Valleys of the East Kootenay are noted f o r t h e i r v a r i e t y and abundance of w i l d l i f e . The area ig. one of the best big-game hunting d i s - t r i c t s i n B r i t i s h Columbia and abounds with Rocky Mountain Bighorn sheep, moose, elk, mountain goat, deer and g r i z z l y and black bear. The area i s popular with both B r i t i s h Columbia and non-resident hunters from other parts of Canada and the United States. The w i l d l i f e of the area w i l l be adversely affected by a i r and water p o l l u t i o n and the loss of ranges. While l e g - i s l a t i o n requiring restoration and r e f o r e s t a t i o n of s t r i p mined land w i l l tend to reduce the d e t e r i o r a t i o n of the en- 27 vironment caused by s t r i p mining, i t i s debatable whether reclamation and r e f o r e s t a t i o n w i l l be adequate to restore w i l d l i f e ranges. The e f f e c t of the coal mining w i l l depend on the a b i l i t y of w i l d l i f e to migrate and adapt to conditions on other ranges, and on the importance to w i l d l i f e of those 2 4 p a r t i c u l a r ranges s t r i p mined. The problem w i l l increase as s t r i p mining i s extended i n the East Kootenay through the commencement of mining by other coal producers i n the north- ern ranges of the Elk River Valley. The more southerly ranges to be s t r i p mined by Kaiser are not important as winter feed- ing ranges f o r w i l d l i f e . However, ranges i n the north of 2 5 the Elk River Valley are important. The extent and condition of winter ranges i s the major l i m i t i n g f a c t o r of East Kootenay big game populations. The m u l t i p l i c i t y of winter range requirements of bighorn sheep greatly r e s t r i c t s the d i s - t r i b u t i o n and density of t h i s species, and r e s u l t s i n the development of male l o c a l popu- l a t i o n s which are very susceptible to i n t e r - ference from human a c t i v i t i e s . 27 The q u a l i t y of hunting i n terms of the p r o b a b i l i t y of hunter success was very high i n the East Kootenay. Table II provides an estimate of the annual value added by l o c a l l a - bour from the expenditures of resident hunters. Table III provides an estimate of the income obtained by residents from the expenditures of non-resident hunters. TABLE II Income accruing to Residents of the East Kootenay from Annual Expenditures by Local Hunters on East Kootenay Hunting 28 Guides'and Packers' Fees and Horse Hire Travel and Lodging Food and Alcohol Taxidermy and Storage Special Equipment and Miscellaneous Annual Expenditures (1) r 1.565 307,774 153,607 82,263 Annual Value Added by Local Labour (2) r 1.565 101,565 38,402 27,1̂ 7 46.440 #591,649 11.610 #180,289 I assume that 33$ of expenditures on services and 25% on r e t a i l expenditures represent Local Value added. Source: The figures i n column (1) were obtained-from Peter H. Pearse and Gary Bowden, Big Game Hunting i n the East Kootenay, Study Report No. 1 on the Economics of W i l d l i f e and Recreation, sponsored by the F i s h and W i l d l i f e Branch of the Department of Recreation and Conservation, V i c t o r i a , B.C., 1966, p. 26. TABLE III Income accruing to Residents of the East Kootenay from Annual Expenditures by Non- 29 resident Hunters on East Kootenay Hunting Non-resident hunters are hunters from other parts of B.C., Canada and the U.S.A. Guides'and Packers' Pees and Horse Hire Travel and Lodging Food and Alcohol Taxidermy and Storage Special Equipment and Miscellaneous Annual Expenditures incurred i n B.C. (1) $ 396,246 305,707 258,589 35,102 Annual Expenditures " i n c u r r e d i n East Kootenay (2) 3̂96,246 ,229,280 i93.942 26,327 Annual Value Added by Resi- dents of East Kootenay (3) #396,246 75*662 48,486 8,688 §7t7fl> pi, 083,394 k ^ y 8 l 3 tell,608 16^ fW57535 The expenditures i n column (1) were incurred i n B.C. by non-resident hunters on hunting i n the East Kootenay. I assume that J/4 of these expenditures were incurred i n the East Kootenay. ( A l l of the expenditure on guides* and packers' fees and horse h i r e was made i n the East Kootenay.) I assume that 33$ of expenditures incurred i n East Kootenay on services and 25% of expenditures on r e t a i l Items i n the East 'Kootenay represented value added by East Kootenay residents. Source: The figures i n column (1) were obtained from Peter H. Pearse and Gary Bowden, Big Game Hunting In the East Kootenay, Study Report No. 1 on the Economics of W i l d l i f e and Recreation, sponsored by the F i s h and W i l d l i f e Branch of the Department of Recreation and Conservation, V i c t o r i a , B.C., 1966, p. 26. 30. The t o t a l annual revenue accruing to l o c a l labour from the present state of hunting i n the East Kootenay i s therefore $725,824. I assume that h a l f of the acreage i n the East 30 Kootenay containing coal reserves i s held by Kaiser. I f the w i l d l i f e were spread evenly over a l l ranges, the maxi- mum foregone l o c a l income from the hunting industry i n the f i r s t year of the coal development would be $362,912.̂  The future operations of other coal operators i n the East Kootenay w i l l increase the magnitude of foregone revenue. Local i n - come from hunters' expenditures also r e s u l t s i n a m u l t i p l i e r e f f e c t i n the East Kootenay. The above figure of $362,912 does not consider the foregone income from the m u l t i p l i e r . The sport f i s h e r y of the Elk River Valley i s popular with fishermen. The area abounds with Rainbow, Cut-throat and Eastern Brook Trout as well as Dolly Varden and Koka- 32 nee. Sulphuric a c i d forms when water comes into contact with coal. Crows Nest Industries Ltd. had caused water p o l - l u t i o n and destruction of f i s h by l o c a t i n g slag heaps ad- 33 jacent to s t r e a m s . D a t a i s not avai l a b l e on past annual income obtained by residents from expenditures by resident and non-resident sport fishermen. A portion of annual l o c a l income may be foregone i f adequate care i s not taken to pre- vent water p o l l u t i o n and s i l t a t i o n of streams. I assume that i n the absence of coal mining, income ac- cruing to residents from tourism and hunting would have i n - creased cumulatively by 10 per cent during every year of coal production. I assume that a l l of t h i s revenue i s foregone. 31. Table IV presents the annual l o c a l income foregone from hunting and tourism over the f i f t e e n years of coal pro-34 duction. I assume that i n the absence of the coal de- velopment, the annual rate of growth of l o c a l income from / i' tourism and hunting would have been high. Hunting provides an important source of recreation to residents, since over 55 per cent of the hunter-days spent 35 i n the East Kootenay i s a t t r i b u t a b l e to l o c a l hunters. A s i g n i f i c a n t proportion of the l o c a l male population hunts. Hunting expenditures incurred by residents of the East Kootenay do not take into account the consumers1 surplus obtained by l o c a l hunters. Deterioration of the q u a l i t y of hunting i n the East Kootenay w i l l decrease t h i s consumers' surplus. Local hunters may spend more elsewhere f o r the same q u a l i t y of hunting experience. ( i i ) Summary of Benefits and Costs including Intangibles Table V presents a summary of the sources of benefits and costs from the point of view of r e s i d e n t s ? l i v i n g i n the East Kootenay p r i o r to the development. The table includes some intangible benefits and costs not considered i n the above discussion. When considering the negative externality e f f e c t s on the community from a i r and water p o l l u t i o n , i t must be noted that p o l l u t i o n had already been prevalent i n the area due to the operations of Crows Nest Industries Ltd. The benefit-cost table does not include the two hundred homes to be b u i l t by Kaiser f o r the coal miners. These homes w i l l be leased by Kaiser and therefore l a r g e l y paid f o r by t h e i r users. However, construction of the homes w i l l represent 32 TABLE IV Projected Annual Loss of Local Income from decline of Hunting and Tourism i n the East Kootenay Years of Goal Production Loss of Local Income 1 $ 419,752 2 461,727 " 3 507,900 4 558,690 5 614,559 6 676,015 7 743,617 8 817,979 9 899,777 10 989,755 11 1,088,731 12 1,197,604 13 1,317,364 14 1,449,100 15 1,59̂,010 a small amount of benefit to residents, because Kaiser Re- sources Ltd. w i l l lease or s e l l these homes at lower than 36 p r e v a i l i n g interest rates. I assume that expenditure on r e s i d e n t i a l housing i s included i n consumption and there- fore that the income e f f e c t of the construction has already been included i n the m u l t i p l i e r e f f e c t caused by p a y r o l l income. The opportunity cost of construction labour i s as- sumed to be low and a l l labour used i n construction i s ob- tained l o c a l l y . The e f f e c t of the personal income tax has not been taken into account i n the estimates of increased p a y r o l l income and i t s m u l t i p l i e r e f f e c t or i n the estimates of l o c a l income foregone duetto a decline i n tourism and hunt- ing. Since I assume that unemployed labour w i l l be taken up by the coal project, welfare payments to residents w i l l TABLE V Sources of Benefits and Costs from the "point of view" of Residents of the East Kootenay due to the coal project of Kaiser Resources Ltd. (residents are lim i t e d to those who l i v e d i n the East Kootenay p r i o r to the development) Annual Gross Description of Annual Annual Description of Annual Gross Benefits Benefits Gross Costs Gross Costs (A) Primary Income Benefits (A) PrimaryIncome Costs ( 1 ) Annual Payroll Income to accrue to the 500 l o c a l workers pre- vio u s l y employed i n the coal mining operations of Crows Nest Industries Ltd. plus Annual Payroll Income to accrue to the additional 200 l o c a l workers to be employed by Kaiser from the f i r s t to the f i f t e e n t h year of production. (The net benefit to l o c a l labour w i l l occur In the form of the i n - crease i n the wages of the 500 workers previously employed by Crows Nest Industries Ltd. i n coal mining operations plus the i n - creases i n the wages of the ad- d i t i o n a l 200 l o c a l workers to be employed.) ( 1 ) Opportunity cost of the 500 l o c a l workers previously employed i n the coal mining operations of Crows Nest Indus- t r i e s Ltd. r, 666,662 plus the opportunity cost of the ad- d i t i o n a l 200 l o c a l workers to be em- ployed by Kaiser from the f i r s t to the f i f - teenth year of pro- duction. 13,333,330 TABLE V (Continued) Description of Annual Gross Benefits Annual Gross Benefits Description of Annual Gross Costs Annual Gross Costs (2) Annual Construction Income accru- $1,912,500 ing to l o c a l labour during the f i r s t s and the second years of the p r o j - ect. (3) Income to l o c a l c a p i t a l and other l o c a l inputs, employed by firms already established i n the East Kootenay, used i n producing oper- ating supplies and fi x e d plant and equipment f o r the coal de- velopment. (2) Opportunity cost of the l o c a l l a - bour employed i n the construction phase. Data not a v a i l - (3) Opportunity cost Data not able. I assume that the income w i l l be low, be- cause Kaiser w i l l obtain most of i t s operating supplies and e% qulpment from other parts of B.C., Canada and the U.S.A. of the l o c a l i n - puts used i n pro- ducing operating supplies and f i x e d plant and equip- ment f o r the coal development. av a i l a b l e . I assume the oppor- tunity cost w i l l be large. (B) Secondary Income Benefits Secondary Income Costs (4) Annual secondary benefit accru- ing to l o c a l labour from a re- gional income m u l t i p l i e r of 1.3* The income m u l t i p l i e r w i l l re- s u l t i n an expansion of l o c a l service and r e t a i l industries i n which there was excess capacity p r i o r to the development. $ 800,000 Opportunity cost of l o c a l labour. Low TABLE V (Continued) Annual Gross Description of Annual Gross Benefits..., Benefits Description of Annual Gross Costs Annual Gross Costs ( 5 ) Capital gain on property owned by residents i n the East Kootenay. The c a p i t a l gain w i l l occur i n the f i r s t year of the project. Value of property i n down-town Fernie w i l l increase. Data not available. Capital Loss on prop- erty owned by r e s i - dents i n the East Kootenay, due to p o l - l u t i o n and decline of tourism. Data not available. (C) Intangible Benefits and Positive E x t e r n a l i t i e s (C) Iitanglble Costs and Negative E x t e r n a l i t i e s ( 6 ) ( 7 ) (6) Loss of l o c a l income i n $ 5 6 , 8 4 0 the f i r s t year of coal production due to a de- c l i n e i n the l o c a l gross revenue obtained from the e x i s t i n g state of tourism. (?)Decrease i n value added $ 3 6 2 , 9 1 2 by l o c a l labour from resident and non-resi- dent hunters' expendi- tures i n the East Kootenay. Non-resident hunters are from other areas of B.C., Canada and the U.S.A. The ex- TABLE V (Continued) Annual Gross Description of Annual Gross Benefits Benefits (8) ( Description of Annual Annual Gross Costs Gross Costs penditures referred to are incurred on hunting i n the East Kootenay. S t r i p mining and the l o c a t i o n of industry i n the Elk River Valley w i l l r e s u l t i n the loss of winter feeding ranges. Water and a i r p o l l u t i o n w i l l also be detrimental to w i l d l i f e and to the qu a l i t y of hunting. The figure represents for e - gone l o c a l income i n the f i r s t year of coal pro- duction. I assume that i n the ab- Items sence of the coal de- (6) and velopment, l o c a l income (7) are from tourism and hunting added and would have expanded cumu- are i n - l a t i v e l y by 10% each year, creased I assume that a l l of the cumu- increase w i l l be foregone, l a t i v e l y by 10% each year TABLE V (Continued) Description of Annual Gross Benefits Annual Gross Benefits Description of Annual Gross Costs Annual Gross Costs from the 2nd to the 1 5 t h year of produc- t i o n to pro- duce the annual l o s s of revenue from tourism and hunting. (9) (9) Annual l o s s of l o c a l data not income from non-resi- available, dent and resident sport fishermen, due to d e t e r i o r a t i o n of the environment and the sport f i s h e r i e s , caused by water p o l - l u t i o n and s i l t a t i o n . joyment from hunting able, and the outdoors by residents of the East Kootenay. Denser population and the de- t e r i o r a t i o n of the qu a l i t y of the environ- ment may also be a d i s - benefit to residents of the area. (10) (10) Decrease i n the en- non-estim- TABLE V (Continued) Annual Gross Description of Annual Gross Benefits Benefits Description of Annual Annual Gross Costs Gross Costs (11) The c u l t u r a l a c t i v i t i e s available to residents are l i k e l y to i n - crease due to the expansion of population i n the East Kootenay. A greater variety of services and goods i n r e t a i l stores w i l l be available to residents. (12) The s o c i a l benefit due to the t r a i n i n g of inexperienced workers as coal miners. The tr a i n i n g w i l l be provided by Kaiser. non-estimable. non-estimable. ( I D (12) The cost of t r a i n i n g residents as coal miners w i l l be borne by Kaiser and not by the community. There- fore, the s o c i a l op- portunity cost of the t r a i n i n g to the com- munity w i l l be n e g l i - g i b l e . 39. also decline. This effect i s also not taken into account i n the benefit-cost table. I have also not included the user cost of coal i n the table. The.marginal user cost i s "the present value of the future p r o f i t foregone by a decision to produce a unit of output today."37 I do not expect the price of high q u a l i t y coking coal to increase i n the world market i n the future. World supply of coal i s abundant r e l a t i v e to demand, and I do not expect t h i s s i t u a t i o n to c h a n g e . T h e coal contract with Mitsubishi Shoji Kaisha was obtained because Kaiser was able to lower the delivered price of coal i n Japan by apply- ing cost reducing technology. It would not be i n the i n t e r - est of the East Kootenay to decrease the rate at which coal w i l l be mined by Kaiser, since increases i n future coal prices are u n l i k e l y . I assume that Kaiser has chosen a rate of output which i s e f f i c i e n t . It must also be pointed out that user cost i s a relevant consideration to East Kootenay residents only i f the possible increased present value of net p r o f i t s by delaying production were i n part d i s t r i b u t e d to them. However, user cost i s an important consideration from the point of view of B.C. and Canada, since increased f a c t o r income (including retained earnings) would be f o r t h - coming i f the marginal user cost exceeded the marginal p r o f i t from production today. The marginal user cost would be zero i f the interest rate were i n f i n i t e l y large or i f a delay i n coal production would mean discontinuation of future production. Whether m 39a another f i r m would have r e v i t a l i z e d coal mining i n the area, i n the absence of Kaiser Resources Ltd., i s uncertain. I t i s conceivable that a Canadian producer might have increased coal production i n the East Kootenay i n the future. The present value of income accruing to Canadian factors might have been higher than that produced by Kaiser, which i s a subsidiary of a United States firm. While the present value of net revenue accruing to B.C. and Canada might have i n - creased, East Kootenay residents might not have gained by a delay i n production. A crown corporation might also have been established by the federal government to increase coal production. (d) Benefit-Cost Analysis Table VI provides the annual gross benefits and costs a t t r i b u t a b l e to the coal project, the annual net benefits and the present value of the annual net benefits f o r each year of project l i f e . Table VI includes only those bene- f i t s and costs on which money values have been placed. Un- measurable intangible benefits and costs are not included i n Table VI or i n the c a l c u l a t i o n of the cumulative present value of net benefits. 40 Under the present contract the project w i l l produce coal f o r fifteen-years. While continued coal production i s l i k e l y beyond t h i s date, I assume that the project ends a f t e r the present sales contract i s completed. I assume that the length of project l i f e w i l l be 16 years, since the f i r s t year w i l l be devoted to construction and no production w i l l oc- cur. In the second year both construction and coal produc- t i o n w i l l take place. I assume that revenue foregone from tourism and hunting commences i n the second year of the project. Several discount rates are used to show the e f f e c t of d i f f e r e n t rates on the cumulative present value of net meas- urable benefits. Interest rates of 8% and 9% are used to re- f l e c t the opportunity cost of c a p i t a l to a public agency i n 1 9 6 9 , as determined by present economic conditions. Inter- est rates of 16% and 18% are used to r e f l e c t the opportunity cost of c a p i t a l to a private firm i n 1 9 6 9 . The corporation income tax i s considered i n the l a s t two int e r e s t rates. I assume that the f i r s t year of the project takes place In the present. Therefore I begin discounting annual net measurable benefits i n the second year. The cumulative present values of net measurable benefits are $ 1 5 , 3 1 2 , 2 8 4 ; $14,71? ,983; $11,606,882 and $ 1 1 , 0 1 0 , 5 9 6 when intere s t rates of 8%,< 9%, 16% and 18%. are used respec- t i v e l y . Changing the int e r e s t rate has not affected the con- c l u s i o n to be drawn from the analysis, when only measurable benefits and costs are considered, which i s that the project TABLE VI Cumulative Present Value of Net Benefits from "point of view" of Residents, l i v i n g In the East Kootenay p r i o r to the development, due to the coal project of Kaiser Resources Ltd* Year of Project Annual Gross. Benefits Annual Gross Costs Annual Net Benefits 1 $1,912,500 0 $1,93/2,500 2 7,379,162 $3,753,082 3,626,080 3 5,466,662 3,795,057 1,671,605 4 ,. 5,466.662 3,841,230 1,625,432 5 5 ,466,662 3,892,020 1,574,642 6 5,466,662 3,947,889 1,518,773 7 5,466,662 4,009,345 1,457,317 8 5,466,662 4,076,947 1,389,715 9 5,466,662 4,151,309 1,315.353 10 5,466,662 4,233,107 1,233.555 11 5,466,662 4,323,085 1.143.577 12 5,466,662 4,422,061 4,530,934 1,044,601 13 5,466,662 935.728 1 4 5,466,662 4,650,694 815,968 15 5,466,662 4,782,430 684,232 16 5,466,662 4,927,340 539,322 The benefits and costs are those which are measurable i n money values. TABLE VI (Continued) Year of PV of Net PV of Net PV of Net PV of Net Project Benefits Benefits Benefits Benefits ® 8% @ 16% @ 18% 1 11,912,500 $1,912,500 $1,912,500 $1,912,500 2 3,372,254 3,335.99̂  3.118,429 3,082,168 3 1,437,580 1,404,148 1,236,988 1,203.556 4 1,284,091 1.251,583 1,040,277 991,514 5 1,165,235 1,117,996 866,053 818,814 6 1,032,766 987,203 729.011 668,260 7 918,110 874,390 597,500 539,207 8 806,035 764,343 486,400 430,812 9 710,291 657*677 407,759 355.145 10 616,778 567,435 320,724 283,718 11 526,045 480,302 263,023 217,280 12 449,178 407,394 198,474 167.136 13 374,291 336,862 159,074 131,002 14 301,908 269,269 122,395 97.916 15 232,639 205,270 88,950 68,423 16 172,583 145,617. 59,325 43,146 Cumulative Present Value of Net Benefits= $15312,284 • $14,717,983 $11,606,882 $11,010,596 43. i s e f f i c i e n t and should be continued. However, the length of project l i f e assumed i n t h i s analysis may have, a s i g n i f - icant e f f e c t on the cumulative present value of net meas- urable benefits. If the project l i f e were extended by per- haps another f i f t e e n years, the present value of measurable costs, due; to increased foregone revenue from hunting and tourism, might have exceeded the present'. value of the meas- urable benefits. I have assumed a very rapid rate of rev- enue growth from hunting and tourism i n the absence of the coal project. The 10 per cent cumulative annual increase i n foregone revenue would not continue, i n d e f i n i t e l y , be- cause there are l i m i t s on the maximum a b i l i t y of the area to sustain w i l d l i f e . The q u a l i t y of hunting i s also severely reduced by overcrowding. A f t e r a number of years, the rate of increase i n foregone revenue w i l l decrease and a con- stant annual foregone revenue w i l l p r e v a i l . If the existence of economically exploitable coal reserves were the only con- sideration f o r continued coal production by Kaiser, then coal production could continue f o r a substantial period a f t e r 39 the present contract. It must also be pointed out that I assumed that a l l of the l o c a l income presently obtained from tourism and hunting w i l l be foregone due to the project. Taking t h i s into con- sideration, the cumulative present values of net measurable benefits are l i k e l y to be understated. I overstated the magnitude of t h i s negative externality e f f e c t , because the magnitude i s uncertain and I wished to subject the project 4 4 . to a severe t e s t . The cumulative present values of net measurable bene- f i t s obtained do not take into account the intangible costs due to p o l l u t i o n , d e t e r i o r a t i o n of the environment, and de- c l i n e of the enjoyment obtained by l o c a l residents from hunting and f i s h i n g . The calculations also do not take into account the l o s s of l o c a l revenue from the sport f i s h e r y . . From t h i s point of view, the cumulative present values of net measurable benefits are overstatements of the worth of the project. The unmeasurable intangible benefits are also not considered i n the cumulative present values calculated. In order to reach a decision on the d e s i r a b i l i t y of the project, the cumulative present value of net unmeasurable intangibles must be compared with the cumulative present value of net measurable benefits. The project should be discontinued i f the cumulative present value of net unmeas- urable intangibles i s negative and exceeds i n magnitude the cumulative present value of net measurable benefits. At 9% the cumulative present value of net unmeasurable intan- gibles would have to be - $ 1 4 , 7 1 7 , 9 8 3 to require termination 40 of the project. However, i f the measurable negative ex- t e r n a l i t y e f f e c t s on hunting and tourism have been overes- timated, then a s t i l l greater negative cumulative present . value of net unmeasurable intangibles could be borne by the community without requiring termination of the project. The measurable benefits and costs must be good estimates i n or- der to determine what cumulative present value of net un- measurable intangibles would require discontinuation of the 45. project. It i s the r e s p o n s i b i l i t y of the community or l o c a l gov- ernment to evaluate the net unmeasurable intangibles over the l i f e of the project. An evaluation can only be accom- plished by r e f e r r i n g to the value judgments sp e c i f i e d i n a p o l i t i c a l consensus ,or by designating whose values are to count. Only i n t h i s way can a decision be made concerning the r e l a t i v e d e s i r a b i l i t y of increased regional income to residents l i v i n g i n the East Kootenay before the project versus the q u a l i t y of the environment. CHAPTER IV Summary and Conclusions The cumulative present values of net measurable bene- f i t s from the Kaiser project are $15,312,284; $14,717,983; $11,606,882 and $11,010,596 when interest rates of 8%, 9%* 16% and 18% are used respectively. The coal development w i l l produce negative externality e f f e c t s i n the East Kootenay i n the form of p o l l u t i o n , d e t e r i o r a t i o n of the environment and a decline i n the enjoyment of residents from hunting and the outdoors. These externality e f f e c t s are unmeasurable intangible costs, which are not taken into account i n the present value calculations. In addition to the above e x t e r n a l i t i e s , l o c a l value added from the expend- it u r e s of resident and non-resident hunters and from tour- ism w i l l decline. These measurable e x t e r n a l i t i e s have been taken into account i n the present value calculations. I assume that i n the absence of the coal development, l o c a l value added from hunting and tourism would have increased rapid l y . The above cumulative present values of net meas- urable benefits are understatements, i f the magnitude of foregone l o c a l income i s overstated. The unmeasurable i n - tangible benefits due to t r a i n i n g and a pot e n t i a l increase i n the c u l t u r a l a c t i v i t i e s of the community are also not considered i n the calculations. The cumulative present values of net measurable bene- f i t s were calculated from the point of view of residents 4?. l i v i n g i n the East Kootenay p r i o r to the development. The benefits and costs do not necessarily represent those a t - t r i b u t a b l e to the project from the point of view of a l l B r i t i s h Columbia residents. The Kaiser project may also have an interregional i n - come r e d i s t r i b u t i o n effect which has not "been examined. While benefits w i l l accrue to residents i n other regions of B r i t i s h Columbia from p r o v i n c i a l tax revenues^" and a decrease i n welfare payments to the East Kootenay, costs w i l l also be borne i n the form of the negative externality effects on residents of the Lower Mainland due to the railway access f a c i l i t i e s and the port. A decrease i n the revenue obtained from B r i t i s h Columbia licence fees from non-resident hunters and i n the q u a l i t y of hunting obtained by residents f o r the same expenditure w i l l also be costs a t t r i b u t a b l e to the p r o j - ect. From the point of view of residents i n other regions of B r i t i s h Columbia, the cumulative present value of a l l costs may exceed the cumulative present value of a l l bene- f i t s . If t h i s i s the case, an i m p l i c i t transfer of income i s taking place between other regions of B r i t i s h Columbia and the East Kootenay. This may be deemed desirable, be- cause of the depressed state of the East Kootenay economy. However, the Kaiser project w i l l only be j u s t i f i e d on income r e d i s t r i b u t i o n grounds, i f the p o s i t i v e cumulative present 2 value of a l l benefits less a l l costs from the,point of view of East Kootenay residents exceeds the negative cumulative present value of a l l benefits l e s s a l l costs to the rest of B r i t i s h Columbia. Otherwise, the residents of other regions 48. could r e d i s t r i b u t e income by a simple transfer to the East Kootenay at l e s s cost than they would incur due to the Kaiser project. , , Coal production w i l l probably continue i n the East Kootenay f o r a substantial period of time a f t e r the termina- of the present coal contract. The long-run effect of the Kaiser project may be disadvantageous with regard to both the l e v e l of per capita income and the s o c i a l welfare of residents i f the coal development encourages l o c a l labour to r e l y heavily on coal mining f o r economic support and i f r e s i - dents are not occupationally and/or geographically adaptable 3 i n the future when the coal industry declines. If other staple production expands or develops i n the East Kootenay i n the future, the requirement f o r labour emigration a f t e r the decline of coal mining may be reduced. East Kentucky i s an example of an area which experienced high average unemployment and a low per capita income, be- cause l o c a l labour was unable to adapt i n other areas a f t e r the decline of coal mining. The educational l e v e l of East Kentucky labour was low. The industry of the region had not been able to absorb the l o c a l labour released from coal min- ing. ̂ In conclusion, while the Kaiser project i s desirable on the b a s i s : o f the cumulative present value of net measur- able benefits,fche unmeasurable intangible benefits and costs must also be taken into account. If the community decides that the cumulative present value of net unmeasurable intan- 49. gibles i s negative and exceeds i n magnitude the cumulative present value of net measurable benefits, the Kaiser p r o j - ect should be terminated, provided that the measurable bene- f i t s and costs are good estimates. It i s possible that the cumulative present value of net intangibles may be p o s i t i v e , i n which case the project xrould d e f i n i t e l y be desirable from the point of view of the East Kootenay. Intangibles are l i k e l y to be an important deciding factor, since the per capita present value of net measurable benefits i s low. FOOTNOTES Chapter I 1 Bryce Williams, "Time f o r S t r i p Mine Law Is Right Now, Says Expert," The Vancouver Sun, Vancouver, Monday, 27 January, 1 9 6 9 , pp. 1 - 2 . 2 Bob McMurray, Business Editor, "The Coal C o n f l i c t , " The Province. Vancouver, Wednesday, 29 January, 1 9 6 9 , p. 13. A de s c r i p t i o n of the s t r i p mining to be undertaken by Kaiser Resources Ltd. i s provided i n (A) of Appendix I. 3 Crows Nest Industries Ltd. had employed a costly form of r a i l transportation and materials handling techniques. Other competitors were closer to metallurgical markets than Crows Nest Industries Ltd. The importance of lowering transportation costs f o r Crows Nest was therefore greater than f o r other competitors. 4 I.S. Ross, President,. Swan Wooster Engineering Co. Ltd., Coal at Roberts Bank - Now a Reality, paper presented at the Twentieth Dominion - P r o v i n c i a l Conference on Coal, Quebec City, Quebec, 12 and 13 September, I 9 6 8 , p. 4 . 5 "Roberts Bank i n step with superport trend," The Province, Vancouver, Tuesday, 3 June, 1 9 6 9 , p. 17A. 6 Canada, Fuels and Mining Practice D i v i s i o n , Mines Branch, Department of Energy, Mines and Resources, T.E.^Tibbetts and J.C. Botham, "Coal and Coke," Canadian Minerals Yearbook: 1 9 6 6 . preprints, no. 15, Queen's P r i n t e r , Ottawa, 1 9 6 5 , 1 9 6 6 , 1 9 6 7 , P. 5. 7 Part (A) of Appendix II and parts (B) and (C) of Appen- dix I contain a more detailed discussion of the history of coal mining i n the East Kootenay, the reasons f o r "its de- c l i n e and the cost reducing technology and other factors which have l e d to i t s r e v i t a l i z a t i o n . 8 Executive Director and Technical S t a f f of the B.C. Lower Mainland Regional Planning Board, " R a i l Service to the . Roberts Bank Port F a c i l i t y , " 5, Submissions to the Aug. 28 public hearing on the proposed B.C. Hydro r a i l route from Matsqul to Roberts Bank, 28 August, 1 9 6 8 , pp. 11-15. 9 For a discussion of the i n d u s t r i a l structure and p r i o r condition of the East Kootenay economy r e f e r to part (B) of Appendix I I . 51. 10 Peter H. Pearse and Gary Bowden, Big Game Hunting In the East Kootenay, Study Report No. 1 on the Economics of W i l d l i f e and Recreation, sponsored by the Pish and W i l d l i f e Branch of the Department of Recreation and Conservation, V i c t o r i a , B.C., 1966, p. 10. 11 The following discussion of benefits and costs a t - t r i b u t a b l e to the Kaiser project from the point of view of B r i t i s h Columbia residents i d e n t i f i e s the most impor- tant benefits and costs, but i s not an attempt to enumerate every benefit and cost. 12 Markets i n B r i t i s h Columbia f o r metallurgical coal have been small. Approximately 450,000 tons have been sold annually to B r i t i s h Columbia producers. Kaiser Resources Ltd. i s not concentrating on increasing coal sales i n B r i t i s h Columbia or other parts of Canada. Refer to part (A) of Appendix II f o r a discussion of past East Kootenay coal sales i n Canadian markets. However, a small benefit from the Kaiser operation may accrue to B r i t i s h Columbia producers i f the transportation cost of coal to B r i t i s h Columbia users represents a s i g n i f i c a n t portion of the t o t a l delivered cost, since the transportation costs of Crowsnest coal have been reduced. However, the reduction i n the cost per ton of coal to these users i s also l i k e l y to be low, because the transportation system was designed s p e c i f i c a l l y f o r export coal to be shipped through the Roberts Bank Port. It must be pointed out that i f the value of increased coal production had represented a p r i - mary gross benefit, f a c t o r income could not also be taken as a gross benefit, since double counting would have occurred. 13 This net primary benefit from the point of view of res- idents l i v i n g i n the East Kootenay p r i o r to the development i s discussed i n Chapter I I I . Some construction labour may be imported into the East Kootenay from other parts of B r i t i s h Columbia, and a net benefit w i l l occur i f the pay- r o l l income to t h i s labour i s above the s o c i a l opportunity cost of the labour. 14 A net primary benefit w i l l accrue from taxes, since I assume that i n the absence of Kaiser Resources Ltd., i n - creased coal production would not have taken place i n the East Kootenay and since I assume a low tax revenue from a l - ternative production p o s s i b i l i t i e s using the same East Kootenay resources. The taxes designated as net primary benefits should.be l i m i t e d to those payments a t t r i b u t a b l e to increased coal production. The taxes which would have been paid by Crows Nest Industries Ltd. i n the absence of Kaiser should not be included i n the net tax benefit due to Kaiser. Both the Roberts Bank Port and the railway access f a c i l i t i e s across the Lower Mainland w i l l be s e l f - f i n a n c i n g . Only the f i r s t phase of the Roberts Bank Port i s a t t r i b u t a b l e to Kaiser and includes reclamation of 50 acres of land and con- 52 s t r u c t i o n of. a causeway between the Mainland and the re- claimed land. Kaiser Resources Ltd. w i l l lease the f a c i l i - t i e s of the f i r s t phase,from the National Harbours Board. The construction cost of $5.1 m i l l i o n plus accruing i n t e r - est w i l l be.paid back through fees over a 30 year period. Bulk handling f a c i l i t i e s w i l l be I n i t i a l l y constructed and owned by Kaiser Resources Ltd. Refer to part (C) of Appen- dix I f o r a d e s c r i p t i o n of the Roberts Bank Port. The r a i l - way access f a c i l i t i e s w i l l be s e l f - f i n a n c i n g due to user fees paid by the railways. The t o t a l construction cost i s $10 m i l l i o n and $4 m i l l i o n of t h i s w i l l be paid d i r e c t l y by CPR. 15 The B.C. Mining Tax w i l l amount to 10̂  per ton and the royalty on property under coal licence w i l l be 25̂  per ton. See Bob McMurray, Business Editor, "The Coal C o n f l i c t , " The Province, Vancouver, Wednesday, 29 January, 19̂ 9» P« 14. 53. Chapter II 1 The a r t i c l e s to which I have referred are: A.R. Prest and R. Turvey, "Cost-Benefit Analysis: A Survey," Economic Journal. December 1965, pp. 683-735. J u l i u s Margolis, "Secondary Benefits, External Economics and the J u s t i f i c a t i o n of Public Investment," Review of Eco- nomlcs and S t a t i s t i c s , v o l . 39 (August 1957), PP. 284-291. Otto Eckstein, "Survey of the Theory of Public Expenditure C r i t e r i a , " i n NBER, Public Finances: Needs, Sources and U t i l i z a t i o n , Princeton, 1961, pp. 439-504. Robert Haveman and John K r u t i l l a , "Unemployment, Excess Capacity, and Benefit-Cost Investment C r i t e r i a , " The Re- view of Economics and S t a t i s t i c s , v o l . XLIX, no. 3 (August 1967), PP. 382-392. ~~ W.R.D. Sewell, J . Davis, D.W. Ross and A.D. Scott, Guide to Benefit-Cost Analysis, Ottawa, Queen's Pr i n t e r , 1961. 2 The cumulative present value of net benefits from the "point of view" of residents, l i v i n g i n the East Kootenay p r i o r to the Kaiser project, w i l l probably d i f f e r greatly from the cumulative present value of net benefits from the "point of view" of B r i t i s h Columbia residents. 3 For a discussion of secondary benefits see. W.R.D. Sewell, J.Davis, D.W. Ross and A.D. Scott, op. c i t . , p. 5. The net secondary benefit i s the increase i n value added by l o c a l factors i n the region. If a firm i s merely trans- ferred from one region to another, but the l o c a l value added does not increase i n the new region, a net secondary bene- f i t does not occur from the point of view of the region*; 4 For a discussion of measurable and unmeasurable intan- gibles see W.R.D. Sewell, J. Davis, D.W. Ross and A.D. Scott, op. c i t . , pp. 6 and 19. 5 For a discussion of the rel a t i o n s h i p between the oppor- tunity cost of factors and the money outlay expended on them see W.R.D. Sewell, J.Davis, D.W. Ross and A.D. Scott, op. c i t . , pp. 19-21. 6 For a discussion of p a y r o l l income to l o c a l labour and the m u l t i p l i e r e f f e c t of the income as benefits from a re- gional point of view see W.R.D. Sewell, J . Davis, D.W. Ross and A.D. Scott, op. c i t . , pp. 20-21. 7 The annual unmeasurable intangible cost may vary and an unmeasurable intangible cost may extend beyond the l i f e of the project. 54 8 Since values must be placed on unmeasurable intangible costs and on unmeasurable intangible benefits and since the values of d i f f e r e n t individuals vary and cannot be compared, i t i s necessary to decide whose value judgments are to pre- v a i l . A p o l i t i c a l consensus may be used to evaluate the worth of d i f f e r e n t goods and services. It i s i n t e r e s t i n g to note ?that the s o c i a l welfare function of East Kootenay residents may d i f f e r from the s o c i a l welfare function of the majority of B.C. residents. If a benefit-cost analysis were performed from the "point of view" of B.C. residents, the value placed on unmeasurable intangibles might d i f f e r from the value placed on unmeasurable intangibles by East Kootenay residents. , . 55, Chapter III 1 This information was obtained from an interview with Mr. L.C. Reed, formerly of Hedlin-Menzies and Associates Ltd. i n June I 9 6 9 . 2 "Kaiser S t r i p Mine Y i e l d 'Less than Underground 1," The Vancouver Sun, Vancouver, 1 9 6 9 . 3 This information was obtained from Mr. D.M-Roussel, D i s t r i c t Economist, Okanagan-Kootenay D i s t r i c t , Department of Manpower and Immigration by l e t t e r of 14 July, I 9 6 9 . 4 I am excluding the p o s s i b i l i t y of geographical mobility which would be desirable from the "point of view" of l o c a l labour, i f the return from the same occupation were higher i n another region i n which positions were ava i l a b l e . If l o c a l labour were both occupationally and geographically mobile, i t would be desirable f o r l o c a l labour to immigrate to other areas i f higher paid positions i n a l t e r n a t i v e oc- cupations could be obtained. 5 Bob McMurray, Business Editor, "The Coal C o n f l i c t , " The Province, Vancouver, Wednesday, 29 January, 1 9 6 9 . p. 1 3 . 6 Refer to Table X of part (B) of Appendix II. 7 Refer to part (B) of Appendix II f o r a discussion of unemployment i n the East Kootenay. 8 Refer to Tables IX and X of part (B) of Appendix II f o r unemployment figures. 9 "Coal mining resumes i f injunction obeyed," The Province, Vancouver, Friday, 11 July, I 9 6 9 , p. 1 6 . 10 The average wage of $4 ,363 refers to 1966 income tax returns which were taxable. Canada, Department of National Revenue, Taxation D i v i s i o n , Taxation S t a t i s t i c s , Part One - Individuals, Table 6 , Ottawa, 1968, p. 98. 11 This information was obtained from an interview with Mr. L.C. Reed, formerly of Hedlin-Menzies and Associates Ltd. i n June 1 9 6 9 . 12 Refer to Table XI of part (B) of Appendix II f o r unem- ployment figures i n construction occupations. Construction of the railways, roads and plant f o r the Kaiser project and the 200 homes f o r the coal miners i n Sparwood w i l l create a construction boom absorbing unemployed con- s t r u c t i o n and f o r e s t r y labour. Unemployment i n construction and logging and lumber manufacture was higher absolutely i n the East Kootenay than i n the West Kootenay between 1965 and 56; 1 9 6 8 , even though the West Kootenay labour force was approx- imately double that of the East Kootenay. Refer to Table XI of part (B) of Appendix II. The number of forestry workers unemployed i n 1968 i n the East Kootenay was 5 4 . Unemployment In construction and fo r e s t r y was not e n t i r e l y a l l e v i a t e d even during peak c y c l i c a l periods. Occupational immobility was prevented by a low educational l e v e l and i n - experience i n other occupations. The l a t t e r information was obtained from Mr. D.M. Roussel, D i s t r i c t Economist, Okanagan- Kootenay D i s t r i c t , Department of Manpower and Immigration by l e t t e r of 14 July, 1 9 6 9 . Geographical immobility was prevented due-to the uncertainties involved with a reloca- t i o n and due to the absence of employment opportunities i n the same occupation i n adjacent areas. Unemployed construc- t i o n and forestry workers also exist i n the West Kootenay. The construction boom w i l l only a l l e v i a t e the l a t t e r unem- ployment f o r several years. 13 Bob McMurray, Business Editor, "The Coal C o n f l i c t , " The Province, Vancouver, Wednesday, 29 January, 1969» P« 1 3 . 14 This information was obtained from Mr. D.M. Roussel, D i s t r i c t Economist, Okanagan-Kootenay D i s t r i c t , Department of Manpower and Immigration by l e t t e r of 14 July, 1 9 6 9 . 15 Refer to Table VIII of Part (B) of Appendix I I . - 16 Refer to Table IX of part (B) of Appendix I I . 17 That l o c a l construction labour i s occupationally im- mobile and of a low educational l e v e l was c i t e d by Mr. D.M. Roussel, D i s t r i c t Economist, Okanagan-Kootenay D i s t r i c t , Department of Manpower and Immigration by l e t t e r of 14 July, 1 9 6 9 . 18 The regional income m u l t i p l i e r i s : 1 1 - (b - e) b= marginal propensity to spend e= marginal propensity to import See. Hugh 0 . Nourse, Regional Economics, A Study In the Eco- nomic Structure, S t a b i l i t y and Growth of Regions, Seymour E. Harris, Editor, Economics Handbook Series, McGraw-Hill Book Co., New York, New York, I 9 6 8 , p. 1 6 0 . The value of 1 .3 assumed f o r the regional income m u l t i p l i e r i s a conservative estimate. Approximately 58$ of the labour force of the area i s employed i n nonbasic industries, de- fined as those producing goods f o r l o c a l consumption only. The figure of 58$ was obtained from data on the I 9 6 I labour force employed i n d i f f e r e n t industries i n the East Kootenay. See Province of B.C., Bureau of Economics and S t a t i s t i c s , Department of I n d u s t r i a l Development, Trade and Commerce, Regional Index of B r i t i s h Columbia, January, 1 9 6 6 , p. 5* 57. The employment m u l t i p l i e r of an economic base model i s de- fined as the r a t i o of t o t a l employment to basic employment and i n t h i s case equals 2.4. • Basic employment i s the number of workers employed i n producing exports. The employment m u l t i p l i e r of an economic base model serves as a proxy f o r an income m u l t i p l i e r , but i s l i k e l y to be too high. For a discussion of the assumptions behind the m u l t i p l i e r of an economic base model, see Hugh 0. Nourse, op. c i t . , pp. l 6 l - 163. The regional Income m u l t i p l i e r f o r the East Kootenay i s l i k e l y to be between 1.3 and 2.4. 19 This information was obtained from M.L. McFarlane, Secretary Treasurer, Granbrook Chamber of Commerce, Cranbrook, B.C. by l e t t e r of 22 July, 1969. 20 Province of B.C., Bureau of Economics and S t a t i s t i c s , Department of I n d u s t r i a l Development, Trade and Commerce, Regional Index of B r i t i s h Columbia. January, 1966, pp. 10-11. 21 Peter H-. Pearse and Michael E. Laub, The Value of The Kootenay Lake Sport Fishery, Study Report No. 3 on the Eco- nomics of W i l d l i f e and Recreation, sponsored by the F i s h and W i l d l i f e Branch of the Department of Recreation and Conservation, V i c t o r i a , B r i t i s h Columbia, 19&9. P» 58.< 22 Bryce Williams, " W i l d l i f e B r i e f to Government U.S. - Type Control Urged f o r S t r i p Mining i n B.C.," The Vancouver Sun, Vancouver, 19&9. 23 The bonds are to cover actual s t r i p mine s i t e s and areas where rock and earth overburden are placed. Those companies which f a i l to obtain a permit before mining and to deposit the performance bond with the government w i l l be fin e d up to $1,000 a day. I f the offence continues a f t e r written notice from the Mines Department, the firm w i l l be fined a minimum of $100 and a maximum of $1000 a day. The government may also close down the mine i f the offence con- tinues. As of February 10, I969 approximately 240 square miles or 150,000 acres of the Elk River and Flathead River Valleys i n the East Kootenay were under coal licences. An a d d i t i o n a l 50,000 acres are held under coal licences i n other parts of B r i t i s h Columbia. The possible extent of s t r i p mining i n B r i t i s h Columbia Is thus great. The l e g i s l a t i o n does not s p e c i f i c a l l y set out what is., meant by continuous reclamation of s t r i p mined land and the B.C. W i l d l i f e Federation i s concerned that adequate restora- t i o n w i l l not be forthcoming as a r e s u l t of the l e g i s l a t i o n . Forest and grass cover are required to prevent s o i l s l i p - page. The r e a l l y serious problems of surface mining - are those of s i l t a t i o n and land slippage, both during and a f t e r the operation, and...continuous grading and inspection and the quick s t a b i l i z a - t i o n of s o i l by cover crops i s the key to a suc- cess f u l reclamation program. 58. See Bryce Williams, " W i l d l i f e B r i e f to Gov't.U.S. - Type Control Urged f o r S t r i p Mining i n B.C.," The Vancouver Sun, Vancouver, 19̂ 9• ~ 24 Problems have been encountered i n re f o r e s t i n g and i n growing grasses on s t r i p mined land i n the United States. There i s some debate over whether s t r i p mined land can be recovered with the same type of-vegetation which existed p r i o r to coal mining. P a r t i c u l a r ranges are important to w i l d l i f e because of the type of vegetation cover. The wild- l i f e may be l o s t , even i f land i s reclaimed. 2 5 s T h e l e g i s l a t i o n w i l l not be successful i n i n s e r t i n g the s o c i a l cost of l o s t w i l d l i f e into the cost calculations of mining firms. ;Ranges i n the Elk and Flathead River V a l - leys vary s u b s t a n t i a l l y i n t h e i r importance as winter feed- ing grounds f o r w i l d l i f e . See Bob McMurray, Business Editor, "The Coal C o n f l i c t , " The Province, Vancouver, Wednesday, 29 January, 1969, p. 14. Access to p a r t i c u l a r w i l d l i f e ranges has not been-restricted i n the past by a-price mechanism and so the value of land i n t h i s use has not been represented i n the market. The land a l l o c a t i o n decision among the com- peting uses of coal mining and hunting can only be made by a public authority. Each s t r i p mine operation should be considered i n d i v i d u a l l y to take into account the varying marginal s o c i a l opportunity cost of coal mining i n d i f f e r e n t ranges. 26 W.G. Smith, The Status, Requirements, and Management of the East Kootenay Game Resource, A Report to the B.C. Game Commission, January, 1957* P» 5» 27 Ibid.-, p. 9. 28 The annual expenditures r e f e r to 1964. I have assumed that the 1968 figure equals the 1964 figure. 29 The annual expenditures r e f e r to 1964. I have assumed that the 1968 figure equals the 1964 figure. 30 Kaiser Resources Ltd. has purchased 108,000 acres from Crows Nest Industries Ltd. and has obtained an a d d i t i o n a l 7,657 acres i n coal licences. There are 122,894 acres i n the Elk River Valley presently held i n coal licences. Kaiser Resources Ltd. therefore holds a s i g n i f i c a n t proportion of the coal reserves. See Bob McMurray, Business Editor, "The Coal C o n f l i c t , " The Province, Vancouver, Wednesday, 29 January, 1969, P. 13. 31 I assume that i f expenditures by l o c a l hunters decline, the residents do not spend the released income on other forms of recreation i n the East Kootenay. Local hunters are l i k e l y to hunt outside the East Kootenay. I also assume that l o c a l labour employed due to hunting i n the area has no a l t e r n a t i v e income sources. 59 32 Province of B.C., Bureau of Economics and S t a t i s t i c s , Department,of Ind u s t r i a l Development, Trade and Commerce, Regional Index of B r i t i s h Columbia, January, 1966, p. 16. 33 This information was obtained at a seminar on s t r i p mining held by the Faculty of Forestry at U.B.C. i n the spring of 1969. The guest speakers were Dr. Warren, Dr. A.D. Scott, Dr. Thirgood of U.B.C. and Mr. Paish of the B.C. W i l d l i f e Federation. 34 The estimate of foregone income i n the f i r s t year of coal production i s l i b e r a l , since I have assumed that a l l of the present annual l o c a l value added due to tourism and hunting i n the Crowsnest w i l l be foregone. I have also as- sumed that over the f i f t e e n year period there are no a l t e r - native income sources f o r workers who would have been earning income from tourism and hunting. The decline i n value added by l o c a l inputs w i l l therefore not be offset by an increase i n the value added by transfer of the released l o c a l inputs to other industries i n the East Kootenay. The Kaiser project w i l l therefore r e s u l t i n a decline of employment i n those service and r e t a i l industries linked with hunting and tour- ism. I have assumed that l o c a l value added from tourism and hunting would have increased cumulatively by 10%. This i s the same as assuming that t o u r i s t and hunters' expenditures i n the East Kootenay would have increased cumulatively by 10%, i f i t i s also assumed that the proportion of l o c a l value added remains constant. 35 Peter H. Pearse and Gary Bowden, Big Game Hunting i n the East Kootenay, Study Report No. 1 on the Economics of W i l d l i f e and Recreation, sponsored by the F i s h and W i l d l i f e Branch of the Department of Recreation and Conservation, V i c t o r i a , B.C., I 9 6 6 , p. 13. 36 This information was obtained from an interview with Mr. L.C. Reed, formerly of Hedlin-Menzies and Associates Ltd. i n June 196.9. 37 A.D. Scott, "The Theory of the Mine Under Conditions of Certainty," Extractive Resources and Taxation, ed. Mason Gaffney, The University of Wisconsin Press, Madison, 1967» P. 34. 38 Refer to part (A) of Appendix II f o r a description of the world market f o r coal. 39 Total estimated coal reserves i n the Elk River Valley are 15 i & i l l i o n tons. F i f t y per cent of these reserves are economically recoverable by today's mining standards. Kaiser Resources Ltd. holds a s i g n i f i c a n t proportion of the coal reserves. The coal project of Kaiser Resources Ltd. would be expected to continue f o r many years, i f 5 m i l l i o n tons 60. were mined annually and i f the a v a i l a b i l i t y of economically exploitable coal reserves were the only consideration. See McMurray, op. c i t . , p. 13. The negative e x t e r n a l i t i e s from s t r i p mining i n the form of l o s s of w i l d l i f e and l o c a l hunters 1 consumer surplus w i l l continue i n d e f i n i t e l y a f t e r termination of the project. The loss of w i l d l i f e w i l l be i r r e v e r s i b l e . The present value of these negative e x t e r n a l i t i e s a f t e r the 15 years of coal pro- duction have not but should be included i n the c a l c u l a t i o n of the cumulative present value of net measurable benefits. Decline i n welfare payments and the personal income tax have not been taken into account i n the benefits and costs. I assume that per capita welfare payments are #150 per month. The number of workers with low previous opportunity cost employed by Kaiser has been estimated at (180+43+200) or 423. The annual welfare payments foregone would there- fore be #150 x 12 x 423 or |76l,400. The loss of these welfare payments represents a cost which should be sub- tracted from gross income benefits. The expansion of serv- i c e industries would also lead to a decrease i n welfare pay- ments not included i n the above fi g u r e . Personal income tax may be estimated at 10% of income and should be subtracted from p a y r o l l income due to the operating and construction phases and from the m u l t i p l i e r e f f e c t . The foregone income from tourism and hunting should also be ad- justed downwards f o r personal income tax. 40 Assuming an East Kootenay population of 35»000 p r i o r to the development, the per capita negative cumulative pres- ent value of net unmeasurable intangibles would have to be $421 to require termination of the project. The unmeasurable intangible costs are l i k e l y to be high. It was estimated that i n 1964 the weighted average consumer surplus from hunting i n the East Kootenay over a l l income classes was $197 per B.C. hunter. See Peter H. Pearse, "A New Approach to the Evaluation of Non-Priced Recreational Resources," Land Economics, v o l . XLIV, no. 1, February 1968, p. 96. 61. Chapter IV 1 P r o v i n c i a l tax revenues and revenue from B.C. hunting licence fees are also benefits i n part to residents of the East Kootenay. 2 I assume i n t h i s statement that the cumulative present value of a l l benefits l e s s a l l costs i s p o s i t i v e . 3 The income of both the labour which emigrates to re- gions where production offers a higher rate of return and of the labour which remains i n the dec l i n i n g area w i l l r i s e due to emigration of some of the l o c a l labour. Labour re- maining i n the area becomes scarce and i t s rate of return r i s e s . See A.D. Scott, "Policy f o r Declining Regions: A Theoretical Approach," i n D. Woods, ed., Areas of Economic Stress i n Canada, Queen's University, Kingston, Ontario, 1965, P P . 7 3 - 8 5 . 4 For an e f f i c i e n t a l l o c a t i o n of resources, labour should s t i l l emigrate from the region even i f jobs are available i n the region, i f the rate of return offered these workers would be higher i n other areas. 5 Mary Jean Bowman and W. Warren Haynes, Resources and People i n East Kentucky, Problems and Potentials of a Lag- ging Economy, published f o r Resources f o r the Future, Inc. by the Johns Hopkins Press, Baltimore, Maryland, 1 9 6 3 , P P . 25-35, 204-227, 2 4 3 - 2 6 4 , 2 8 9 - 3 0 8 , 3 3 6 - 3 8 4 , 4 2 0 - 4 3 4 . BIBLIOGRAPHY Baldwin, R.E. "Export Technology and Development from a Subsistence Level." Economic Journal. 73 (March 1963). pp. 80-92. Baldwin, R.E. "Patterns of Development i n Newly Settled Regions." The Manchester School of Economic and So c i a l Studies, v o l . XXIV, no. 2 (May 1 9 5 6 ) , pp. 1 6 1 - 1 7 9 . Balsley, G.E., Vice President and General Manager, Kaiser Coal Ltd. Perspective On Mining. An address to the 57th Annual Meeting of the B r i t i s h Columbia Yukon Chambers of Mines, 1 4 January, 1969. Bator j Francis M. "The Simple Ana l y t i c s of Welfare Maximiza- t i o n . " Readings In Mloroecbnomics. ed. William B r e i t and Harold M. Hochman, Holt, Rinehart and Winston, Inc., 1968, pp. 385-413. Bertram, Gordon W. "Economic Growth i n Canadian Industry, 1 8 7 0 - 1 9 1 5 : The Staple Model and the Take-off Hypothesis." CJEPS, v o l . 29, no. 2 (May I963), PP. 159-184. Blanco, C. "Prospective Unemployment and Interstate Population Movements." Review of Economics and S t a t i s t i c s . 46 (1964), pp. 221-222. Blanco, C. "The Determinants of Interstate Population Move- ments." Journal of Regional Science. 5 (1963), pp. 77- 8 4 . Bodenhofer, H.J. "The Mobility of Labor and the Theory of Human Ca p i t a l . " Journal of Human Resources. F a l l 1967, 2(4), pp. 431-44TE ! Bowman, Mary Jean and Haynes, W. Warren. Resources and People In East Kentucky. Problems and Potentials of a Lagging Economy. Baltimore, Maryland, published f o r Resources f o r the Future, Inc.* by'the Johns Hopkins Press, 1963. Canada, Fuels and Mining Practice D i v i s i o n , Mines Branch, Department of Energy, Mines and Resources, Tibbets, T.E. and Botham, J.C. "Coal and Coke." Canadian Minerals Yearbook: 1 9 6 6 and preprints, no. 15, Ottawa, Queen's Pr i n t e r , 1 9 6 7 , pp. 1-18. Canada, Department of Manpower and Immigration. Unemployment S t a t i s t i c s obtained at the Vancouver O f f i c e , Pender Street, Vancouver, June 1969. 63. Canada, Department of National Revenue, Taxation D i v i s i o n . Taxation S t a t i s t i c s . Part One - Individuals. Table 6, Ottawa, Queen's P r i n t e r , 1968. "105 - car unit t r a i n s f o r coal run. 1 1 The Province, Vancouver, Tuesday, 3 June, 1969. P. 7A. C a u d i l l , Harry M. Night Comes to the Cumberlands, A Biography of a Depressed Area. Toronto, An A t l a n t i c Monthly Press Book, L i t t l e , Brown and Company, 1962. Christenson, C L . Economic Redevelopment i n Bituminous Coal, The Special Case of Technological Advance i n United States Coal Mines, 1930-1960. Cambridge. Harvard Univer- s i t y Press, 1962. Coase, Ronald. "The Problem of S o c i a l Cost." Readings In Microeconomics, ed. William B r e i t and Harold M. Hochman, Holt, Rinehart and Winston, Inc.,1968, pp. 423-456. Eckstein, Otto. "Survey of the Theory of Public Expenditure C r i t e r i a . " i n NBER, Public Finances: Needs. Sources and U t i l i z a t i o n . Princeton, 1961, pp. 439-504. Engerman, Stanley. "Regional Aspects of S t a b i l i z a t i o n P o l i c y . " Essays i n F i s c a l Federalism, ed. A. Musgrave, Studies of Government Finance, Washington, D.C., The Brookings I n s t i t u t i o n , 1965, pp. 7-63. F r i e d l y , P h i l i p . "A Note on the R e t a i l Trade M u l t i p l i e r and Residential M o b i l i t y . " J o u r n a l of Regional Science, v o l . 6, no. 1, 1965, PP. 57-W. ~ Gagnon, Yvan, Acting Director, Research and Development Branch, National Harbours Board, Ottawa. Let t e r to the writer, 17 July 1969. Gallaway, L.E. "Industry Variations i n Geographic Labor Mobility Patterns." Journal of Human Resources. F a l l 1967, 2(4), pp. 461-774"!' ! Haveman, Robert and K r u t i l l a , John. "Unemployment, Excess Capacity, and vBenefit-Cost Investment C r i t e r i a . " The Review of Economics and S t a t i s t i c s , v o l . XLIX, no. 3 (August 1967), PP. 382-392. Japan Economic Year Book '67/ The Oriental Economist. 18 September, 1966. "Kaiser S t r i p Mine Y i e l d 'Less than Underground'." The Vancouver Sun, Vancouver, 1969. 6 4 . Ladinsky, I. "The Geographic Mobility of Professional and Technical Manpower." Journal of Human Resources, F a l l 1967, 2(4), pp. 475-4941 L i t t l e , I.M.D. A Crit i q u e of Welfare Economics. London, Oxford University Press, I 9 6 0 , pp. 117-165. Mackintosh, W.A. "Innis on Canadian Economic Development." Journal of P o l i t i c a l Economy, v o l . 61 (June i953)» PP. 1 8 5 - 1 9 4 . ' Mann, H.A.Chairman, National Harbours Board. Canada 1s Trade Gateways on The P a c i f i c . Address to the Trans- portation Conference of the Canadian Manufacturers' Association at the Royal York Hotel, Toronto, Monday, 2 June, 1969. Margoiis, J u l i u s . "Secondary Benefits, External Economics and the J u s t i f i c a t i o n of Public,Investment." Review of Economics and S t a t i s t i c s , v o l . 39 (August 1 9 5 7 ) , pp. 284-291. ' McDivitt, James F. Minerals and Men An Exploration of the World of Minerals and i t s E f f e c t on the World we Live i n . Baltimore, Maryland, published f o r Resources f o r the Future, Inc. by The Johns Hopkins Press,,1965. McFarlane, M.L., Secretary Treasurer, Cranbrook Chamber of Commerce, Cranbrook. Le t t e r to the writer, 22 July, 1969. McMurray, Bob, Business Editor. "The Coal C o n f l i c t . " The Province. Vancouver, Wednesday, 29January, 1969, p. 14. Misehaikow, Michael K. "Postwar Changes i n the Export Markets f o r American Coal." West V i r g i n i a University Business and Economic Studies, v o l . 9 . no. 3 (January 1 9 6 5 ) . Mishan, Ezra J. The Costs of Economic Growth. New York and Washington, Frederick A. Praeger, 1 9 6 7 . National Harbours Board. Roberts Bank, Port of Vancouver Outer Port Development. Unpublished. 1 9 6 9 . National Harbours Board. Vancouver Outerport at Roberts Bank. Press Release,, 23 June, 1 9 6 9 . Needleman, L. ed. Regional Analysis Selected Readings. Penguin Books, 1968. Nourse, Hugh 0. Regional Economics. A Study i n the Economic Structure, S t a b i l i t y , and Growth of Regions. Seymour E. Harris, E d i t o r , Economics Handbook Series, New York, McGraw-Hill Book Co., 1968. 65 Pearse, Peter H. and Bowden, Gary. Big Game Hunting In the East Kootenay. Study Report No. 1 on the Economics of W i l d l i f e and Recreation, sponsored by the Pish and W i l d l i f e Branch of the Department of Recreation and Conservation, V i c t o r i a , B.C., 1966. Pearse, Peter H. and Laub, Michael E. The Value of the Kootenay Lake Sport Fishery. Study Report No. 3 on the Economics of W i l d l i f e and Recreation, sponsored by the Fi s h and W i l d l i f e Branch of the Department of Recrea- t i o n and Conservation, V i c t o r i a , B.C., 1969. Prest, A.R. and Turvey, R. "Cost-Benefit Analysis: A Survey." Economic Journal. December 1965, PP. 683-735. P r i c e Waterhouse & Co. The Growth and Impact of the Mining Industry i n B r i t i s h Columbia. Study done f o r the Mining Association of B.C., Vancouver, k December, 1968. Province of B.C., Bureau of Economics and S t a t i s t i c s , Department of Indu s t r i a l Development, Trade and Com- merce, Regional Index of B r i t i s h Columbia. January, 1966. Province of B.C., Executive Director and Technical S t a f f of the Lower Mainland Regional Planning Board. R a i l Service to the Roberts Bank Port F a c i l i t y . A proposal presented within the perspective of the o v e r a l l planning f o r the Lower Mainland Region. A B r i e f to the Lower Mainland Regional Planning Board, the Lower Mainland Municipali- t i e s and the Province of B.C. August, 1968. Province -of B.C., Minister of Mines and Petroleum Resources, Annual Report, f o r the year ended 31 December, I962-I967. Province of B.C. Submissions to the Aug. 28 public hearing on the proposed B.C. Hydro r a i l route from Matsqul to Roberts Bank. Hearing held by the Lower Mainland Regional Planning Board, 28 August, 1968. Raybould, V.J., Research Director, Employers 1'Council of B.C. Interview with the writer. August, 1969. Reed, L.C. Interview with the writer. June, 1969. Research Department, The Indu s t r i a l Bank of Japan, Ltd. (Nippon Kogyo Ginko)-. "The Iron and Steel Industry., Basic Problems and P o l i c y Guidelines." Quarterly Survey of Japanese Finance and Industry, v o l . XVIII, no. 4, October-December, 1966. "Roberts Bank i n step with superport trend." The Province, Vancouver, Tuesday, 3 June, 1969, p. 17 A. 6 6 . Ross, I.S., President, Swan Wooster Engineering Co. Ltd. "Coal At Roberts Bank -. now a Reality." Paper'presented to the Twentieth Dominion - P r o v i n c i a l Conference on Coal. Quebec City, Quebec, 12 and 13 September, 1968. Roussel, D.M., D i s t r i c t Economist, Okanagan Kootenay Dis- t r i c t , Department of Manpower and Immigration, L e t t e r to the writer, 14 July, 1969. Schurr, Sam H., Netschert, Bruce C. with Eliasberg, Vera P., Lerner, Joseph, and Lahdsberg, Hans H. Energy i n the American Economy, 1850-1975 an economic study of i t s hist o r y and prospects. Baltimore, Maryland, published f o r Resources f o r the Future, Inc. by the Johns Hopkins Press, I960. Scott, A.D. "Policy f o r Declining Regions.:. A Theoretical Approach." Areas" Of Economic Stress In Canada, ed. D. Woods, Kingston, Ontario, Queen's University, 1965, PP. 73-85. Scott, A.D. "The Theory of the Mine Under Conditions of Certainty." Extractive Resources and Taxation, ed. Mason Gaffney, The University of Wisconsin Press, Madison, 1967, p. 34. Sewell, W.R.D., Davis, J . , Ross, D.W., and Scott, A.D. Guide to Benefit-Cost Analysis. Ottawa, Queen's P r i n t e r , Shearer, R. ed. E x p l o i t i n g Our Economic, Pot e n t i a l Public P o l i c y and the B r i t i s h Columbia Economy. Toronto, Holt, Rinehart and Winston of Canada, Ltd., 1968. Smith, W.G. The Status. Requirements, and Management of the East Kootenay Game Resource. A Report to the B.C. Game Commission, January, 1957. Ursual, Roy, General Manager, Trites-Wood Co. Ltd., Fernie. L e t t e r to the writer. 20 June 1969. Watklns, M.W. "Staple Theory of Economic Growth." CJEPS. 29 "(1963), PP. 141-158. Williams, Bryce. "Time f o r S t r i p Mine Law Is Right Now, Says Expert." The Vancouver Sun, Vancouver, Monday, 27 January 1969, pp. 1-2. Williams, Bryce. " W i l d l i f e B r i e f to Gov't U.S. - Type Control Urged For S t r i p Mining i n B.C." The Vancouver Sun, Vancouver, 1969. APPENDIX I (A) A Description of the S t r i p Mining to be carried out by- Kaiser Resources Ltd. Kaiser Resources Ltd. plans to continue operations of three e x i s t i n g underground mines and to bring into produc- t i o n a fourth underground mine. In addition, Kaiser plans to employ open p i t mining and s t r i p mining, both of which are forms of surface mining. The open p i t mining w i l l i n i t i a l l y be r e s t r i c t e d to 2.4 square miles of land on a mountain top, but the operation w i l l l a t e r be transferred to other mountain tops. The open p i t mining i s expected to y i e l d about 5i m i l l i o n tons per year i n the f i r s t few years of operation. The underground mining i s expected to y i e l d four m i l l i o n tons a year over the same period. However, i n the long run and over the l i f e of the contract, the output from underground mining i s expected to exceed that produced by open p i t mining. 1 Surface mining, including both s t r i p and open p i t min- ing, e n t a i l s s t r i p p i n g off the successive layers of clay, gravelly clay, limestone, gray shale, limestone and black s l a t e to reach the coal seam. A large s t r i p p i n g shovel and wheel, dragline and bulldozer and sometimes bl a s t i n g are used to excavate the overburden. The coal i s then loosened from the seam by use of d r i l l i n g or ripping equipment and i s hauled into trucks by loading shovels. The coal i s then prepared by use of a t i p p l e f o r screening and a clean- 68. 2 ing plant f o r removing impurities. The p a r t i c u l a r form i n which s t r i p mining appears de- pends on the character of the t e r r a i n . For example, con- tour mining augmented by auger mining i s used i n East Kentucky because of the mountainous t e r r a i n . On l e v e l t e r - r a i n , s t r i p mining simply involves moving back and f o r t h over the land producing a series of p a r a l l e l rows of s p o i l 3 banks. Kaiser Resources Ltd. w i l l employ hydraulic mining i n i t s s t r i p mining operations. This involves spraying jets of highly pressurized water on exposed coal seams i n order to cut the coal from the seams. The water w i l l be recycled and re-used. This technique has been employed i n Japanese coal mines but has never before been used i n the operations of the Kaiser Steel Corporation. Japanese engineers have been imported into the Crowsnest area i n order to a s s i s t Kaiser i n the use of t h i s new technique. The assurance of a long-term market f o r coal from Kaiser's properties permitted investment i n development of huge trucks to haul the coal. These trucks are capable of hauling up to 100 and 200 tons of coal, and were developed i n Tulsa, Oklahoma, where the trucks and repair parts w i l l be manufactured. It i s i n t e r e s t i n g to note that contrary to the impres- sion created i n newspaper and other media reports concern- ing the Kaiser project, production by s t r i p mining has i n the past represented a substantial proportion of t o t a l coal 69. output i n both the East Kootenay area and i n Canada. In 1967, 614,590 short tons of coal were mined i n B.C. by underground methods compared to 593»096 short tons by s t r i p mining.^ The r a t i o of production by s t r i p mining to produc- t i o n by underground mining has increased rapi d l y i n the l a s t several years. Kaiser Resources Ltd. i s not introducing s t r i p mining to B r i t i s h Columbia. In 1967 coal production i n Canada by s t r i p mining was 5,911t438 short tons and production by conventional under- ground mining was 5,484,316 short tons.^ Production by s t r i p mining i n Alberta i n a l l three years was more than double production by underground methods. The greater use of s t r i p mining-in Alberta, r e l a t i v e to B r i t i s h Columbia, may indicate a more rapid adjustment to the use of more e f f i c i e n t produc- t i o n methods on the part of Alberta, but differences i n t e r - r a i n with related d i f f i c u l t i e s i n adequately employing s t r i p mining may also have contributed to the .difference i n the r a t i o of output by s t r i p mining to gutput by underground mining.* S t r i p mining i s c a p i t a l intensive and may e n t a i l the use of a smaller amount of labour than conventional underground mining, but the qu a l i t y and therefore the cost of t h i s labour may be much higher. In its- s t r i p mining op- erations, Kaiser w i l l employ s k i l l e d machine repairmen and truck and shovel operators, and intends to o f f e r employment only to those inexperienced miners, who have had a grade 7 twelve education. These standards of labour w i l l also be applied to the employment p o l i c y used i n h i r i n g miners f o r 70. the underground operations. The q u a l i t y of the labour em- ployed by Kaiser Resources Ltd. i s higher than that formerly employed by Crows Nest Industries Ltd. (B) Factors Leading to the R e v i t a l i z a t i o n of the Coal Mining Industry i n the East Kootenay The coal mining industry has been r e v i t a l i z e d due to the a p p l i c a t i o n of the following cost reducing technological improvements, which have lowered the delivered price of coal i n Japan: development and use of high speed unit t r a i n s to carry the coal between Natal and Vancouver; construction of the Roberts Bank Port, capable of accommodating the largest bulk sea c a r r i e r s being developed and to be developed by Japanese trading firms; development of 100 ton and 200 ton trucks to haul the coal and the use of an hydraulic technique i n s t r i p mining. An analysis of renewed p r o f i t a b i l i t y of coal mining i n the Crowsnest area must take into account not only improvements i n supply conditions but also favourable conditions on the demand side. Favourable Japanese s t e e l markets have created a greater induced demand f o r metallur- g i c a l coal. Japanese s t e e l producers experienced a period of great increase dn the rate of growth of exports and Japanese demand 8 between 1958 and 1962. A s i g n i f i c a n t decrease i n the rate of growth of Japanese demand and a slow down i n the rate of growth of exports occurred between 1962 and 1965. Since 1965 the s t e e l industry i n Japan has again been on the up- swing, and t h i s forms part of the reason f o r the Japanese 71. coal contract with Kaiser Resources Ltd. The length of K a i s e r 1 s contract to supply Japanese s t e e l firms has encouraged investment i n a new form of r a i l transportation. The p r o f i t a b i l i t y of such an undertaking was ensured by the existence of a ce r t a i n long-term market f o r the commodity transported. Use of the CPR unit t r a i n and construction of time and cost reducing f a c i l i t i e s f o r loading coal into bulk c a r r i e r s at the port w i l l s u f f i c i e n t l y reduce the transportation costs applicable, to Crowsnest coal to enable s e l l i n g the coal at a competitive c . i . f . price without subvention assistance. Competitors had been able to s e l l coal at $17.00 per ton c . i . f . , while the former pr i c e of Crowsnest coal had been $19.50 without subtraction of the subvention assistance. The price of coal delivered i n Japan w i l l now be reduced to $16.00 per ton. A compari- son of the estimated cost of coal c . i . f . before and a f t e r the transportation improvements has been made by Swan Wooster Engineering Co. Ltd. and i s presented bn ;the following page. Transportation costs have thus been reduced from $10.50 to $7.00 per ton. It has been the reduction of transporta- t i o n costs rather than production costs at the mine, which has made Crowsnest coal competitive. Production costs have remained at $9.00 per ton. While the project may require a smaller amount of labour per ton mined due to s t r i p mining, the reduction i n the required amount of labour w i l l be o f f - set by a r i s e i n productivity and therefore wage rates and/or by a greater amount of c a p i t a l investment per ton mined. TABLE VII Comparison of o . l . f . price of East Kootenay coal before and a f t e r cost reducing transportation Improvements f.o.b. mine price r a i l f r e i g h t to west coast deep sea terminal ocean freight and demurrage f o r a t o t a l of les s the subvention of giving an approximate cost of 12ii $99.00 per ton (U.S) 5.50 1.00 4.00 $19.50 2.50 $17. '00 1970 $ 9.00 per ton (U.S.) 3.50 .50 3.00 $16.00 1̂6.00 per ton Source: I.S. Ross, President, Swan Wooster Engineering Co. Ltd., Coal at Roberts Bank - Now a Reality, paper presented at the Twentieth Dominion - P r o v i n c i a l Conference on Coal, Quebec City, Quebec, 12 and 13 September, 1968, p. 4. 7 3 . Thus the commencement of the coal project of Kaiser Resources Ltd. has entailed the i n s t i t u t i o n of many new cost reducing technological developments and techniques. The v i t a l i t y of the coal staple i n the East Kootenay has been renewed due to these developments. Transportation costs have been and w i l l i n the future be most important i n secur- ing coal markets, because of the distance to coal markets and the absence of large markets i n B.C. (C) The Technology of Unit Trains and the Roberts Bank Port In t h i s section I s h a l l describe the unit t r a i n s to be used by the Canadian P a c i f i c Railway i n transporting the coal and the h i s t o r y of the Roberts Bank Port. The railway system w i l l consist of three 1 0 5-car t r a i n s each of which w i l l make the round t r i p between the"mine s i t e , the Roberts 9 Bank Port and back again i n seventy-two hours. It i s en- visioned that while one t r a i n i s loading i n Natal, the second w i l l be unloading at the dock s i t e and the t h i r d w i l l be back on route to the mine s i t e , a f t e r having delivered i t s coal. At Natal the coal w i l l be loaded while i n motion by an automatic conveyor system, and at the dock an auto* matic dumping system w i l l be used to unload the t r a i n while i n t r a n s i t . The operation w i l l involve a minimum of car de- lay and switching time, and the time required f o r loading and unloading w i l l be minimized. There w i l l thus be no needless tying up of cars while waiting i n the dock to un- load and then to be reconnected together once more. The locomotives w i l l be remotely controlled to improve handling 7 4 . under the severe operating conditions occasionally encoun- tered i n the Rockies. Use of unit t r a i n s , which are de- signed to serve a p a r t i c u l a r shipper and market, also tend to eliminate seasonality, ensure the r e g u l a r i t y of ship- ments, standardize i n - t r a n s i t times and maximize the use of multiple-car handling. This form of railway f r e i g h t opera- t i o n i s becoming most important i n the handling of large amounts of bulk commodities sold i n world markets. Turning now to the Roberts Bank Port, the development was encouraged by Kaiser Resources Ltd. Responsibility f o r port planning and investments f a l l s with the National Har- bours Board of the federal government. In a n t i c i p a t i o n of future increased port t r a f f i c and the need f o r berths able to accommodate the largest bulk load c a r r i e r s , the National Harbours Board i n 1966 expanded the extent of the Port of Vancouver from forty-nine square miles within-Burrard Inlet to two hundred square miles extending from the Cit y of Vancouver to the United States border. """̂  Construction of the f i r s t stage of the Roberts Bank Port was begun i n 1968 and consists of a three mile causeway connecting the Lower Mainland with f i f t y acres of reclaimed land. The cost of t h i s f i r s t stage of the development i s estimated at |5»1 m i l l i o n including the cost of u t i l i t i e s and services. This f i r s t stage has been constructed mainly to serve the needs of Kaiser Resources Ltd., which i s incurring the cost of bulk handling f a c i l i t i e s f o r e f f i c i e n t loading of coal into the ocean c a r r i e r s . Bulk handling f a c i l i t i e s at the port w i l l be owned and operated by t h e i r users. The berth s i t e and as- 75. sociated acreage w i l l be leased to Kaiser Resources Ltd. i n such a way as to "recover the actual cost of the c a p i t a l i n - vestment, including interest accruing during construction, over a period of 30 y e a r s . " 1 1 The lease of land and berth s i t e s to other users w i l l be handled i n a s i m i l a r fashion. The National Harbours Board plans to reclaim approxi- mately 1400 acres i n the next several years as dictated by future demand f o r port f a c i l i t i e s . "Two p r i n c i p a l deepwater channels with a minimum depth of 65 feet w i l l provide almost 12 nine miles of p o t e n t i a l berth face." The Government of B r i t i s h Columbia has i n addition assembled i n d u s t r i a l backup acreage of approximately 3600 acres on the mainland, and the B.C. Hydro and Power Authority i s providing r a i l access from Matsqui to the causeway at Roberts Bank. In addition to construction of the Roberts Bank Port, which w i l l form the outer port f o r Vancouver, the National Harbours Board plans to undertake a program to dredge Burrard Inlet to allow the passage of deep sea bulk c a r r i e r s within the inner port of Vancouver. APPENDIX II (A) The History of Coal Mining In the East Kootenay and • Reasons f o r Its Decline The r i s e and f a l l of the coal mining industry w i l l be analyzed by reference to changing market patterns and trans- portation costs. Settlement of the East Kootenay was l a r g e l y a response to the presence of coal deposits when demand f o r coal f o r domestic heating and railway consumption was high. The Michel C o l l i e r y of the Crow's Nest Pass Coal Co. was opened i n 1888 l a r g e l y to supply the Canadian P a c i f i c R a i l - way. The coal properties of the Crow's Nest Pass Coal Co., which were acquired by Kaiser Resources Ltd. i n 1968, have produced the major portion of coal mined i n B r i t i s h Columbia. The economy of the East Kootenay has d i v e r s i f i e d into the production of other staples of the forest and mining indus- t r i e s . The S u l l i v a n Mine at Kimberley, B r i t i s h Columbia was opened i n I889 and i s one of the world's largest producers of lead and zinc concentrates. Agriculture has never played an important r o l e i n the East Kootenay. Production of coal i n B r i t i s h Columbia and i n the East Kootenay reached a high i n the 1950's and has experienced a secular- decline since then. The demand f o r coal f o r domes- t i c and commercial heating has declined. The sub s t i t u t i o n of o i l and natural gas f o r coal i n domestic heating has oc- curred, because of the lower cost of using substitutes and the greater convenience and cleanliness of natural gas and 7 7 . o i l . Substitution of d i e s e l o i l f o r coal i n locomotive use has occurred, not because of the greater cost of coal per BTU, but because of the greater e f f i c i e n c y i n the use of d i e s e l o i l . "Diesel engines proved so much more e f f i c i e n t and cheaper to maintain than coal-burning steam locomotives that the change to o i l proved more economical despite the fact that i t s cost per BTU i s higher than c o a l . " 1 The r a i l - way market f o r coal has also declined, because of the de- c l i n i n g r e l a t i v e importance of the railways as a form of transportation. Coal i s now used mainly as a raw material i n the production of s t e e l and f o r other metallurgical pur- poses. This s h i f t i n user markets has occurred i n both the Canadian and i n the world market f o r coal.. Coal production i n the East Kootenay has not responded well to the s h i f t f o r a number of d i f f e r e n t reasons. Pro- duction f o r domestic heating and railway purposes had been carr i e d out mainly to serve the B.C. market. The major coal markets i n Canada f o r metallurgical coal and coke are l o - cated i n the east. The market i n B.C. f o r coke to be used i n the blast furnace and f o r metallurgical coal i s small. However, a small foundry market f o r coke has been developed 2 i n western Canada and i n the western United States. A small amount of coke has been sold to the pig i r o n plant located 3 i n Kimberley and operated by COMINCO. Crows Nest Industries Ltd. was the only western producer of coke. These markets have not expanded s u f f i c i e n t l y to offset the decline i n domes- t i c and railway markets. 78. Grows Nest Industries Ltd. thus was faced with the chal- lenge of tapping the metallurgical markets i n Eastern Canada, or of extending sales on the international market through the Port of Vancouver. Crowsnest coal did not penetrate the Eastern Canadian market f o r high grade coal, probably because of p r o h i b i t i v e l y high transportation costs. Substantial i n - vestment i n improving the e f f i c i e n c y of r a i l transportation would have been required. In 1965 "about 12.5 per cent of the coal output of B r i t i s h Columbia was shipped to Manitoba L and 3 per cent went to markets i n Ontario." Alberta coal producers also did not e f f e c t i v e l y penetrate the Ontario or Quebec markets. Between 60 and 70 per cent of the coal consumed i n Canada between 1965 and I967 w a s imported from the United States, with occasionally small amounts imported from the United Kingdom. Approximately one-third of the coal imported was high grade metallurgical coal used by industry i n Ontario and Quebec.-5 The transportation costs of coal imported from the United States were probably sub s t a n t i a l l y below the trans- portation costs which would have been incurred i n moving Crowsnest coal to Ontario. The following figures, r e f e r r i n g to coal mined i n the United States, give the r a t i o of the r a i l charge to the pro- duction cost per unit of coal.^ The figures indicate the im- portance of transportation costs i n determining the delivered cost of coal. 79; Average Value per ton, ffo.b. mine Average Revenue per ton hauled on Class I Railroads ( 2 ) as percentage of (1) Year (1) ( 2 ) (3) 1959 1958 1957 1956 # 4 , 8 6 4 . 8 6 5 . 0 8 4 . 8 2 #3.57 3.58 3.57 3.45 73.4$ 73.7 70.3 71.6 Contracts with the Japanese were also elusive and were made f o r short time periods of three years. Forty-one per cent of coal production i n B.C. i n 1965 was exported to 7 Japan. Approximately ninety per cent of the coal produced i n B.C. was mined i n the East Kootenay. However, the volume of production of coal i n the East Kootenay i n 1965 was only 8 1,058,446 short tons. Subvention assistance was needed to lower the cost of Crowsnest coal and thus to enable i t to compete on a price basis, i n a world market characterized by an abundant supply of high grade coking coal. The l a t t e r can be obtained from such diverse countries as A u s t r a l i a , Poland, the United States, China, Russia and Western Europe. The fact of an abundant supply of metallurgical coal, increasing production e f f i c i e n c y i n the use of metallurgical coal i n s t e e l making, European national p o l i c i e s :of maintaining a minimum annual production of rcoal which has resulted i n stock p i l i n g , the a b i l i t y of natural gas and o i l to be substituted i n thermal e l e c t r i c i t y generation and domestic and commercial heating, the increasing price competitiveness of natural gas and o i l compared to coal and the anticipated glut on the world energy market has l e d to vigorous price competition i n the world 80. coal market. The delivered price of Crowsnest coal has not been com- p e t i t i v e because of high transportation and handling costs. The length of coal contracts which buyers were w i l l i n g to give Crowsnest coal was perhaps shortened by the fear that production and transportation costs would r i s e during the period of the contract or that the government subvention might be discontinued. (B) Description of the East Kootenay Economy p r i o r to the project - Unemployment and Per-capita Income The i n d u s t r i a l mix of an area may be divided into basic 9 and non-basic industries. The basic industry i s the staple or export around which other non-basic industries are b u i l t , i n order to supply producer and consumer goods and services to l o c a l businesses, government and households. The economic base of the East Kootenay economy i s composed e s s e n t i a l l y of the forest and mining Industries. In the forest industry I am Including both logging and lumber manufacture. Employ- ment i n logging, lumber manufacture and mining represented 4 .3$, 11.4$ and 14.7$ of the I 9 6 I labour force r e s p e c t i v e l y . 1 0 The logging and lumber industries compete i n a market i n which demand i s highly price sensitive and income i n e l a s t i c . The lumber market i s primarily a " r a i l " market to the P r a i r i e s and the United States Midwest, and i s sens i t i v e to the condi- 11 t i o n of the economy i n these areas. The lumber industry i s seasonal with demand f o r lumber increasing i n the spring as wholesalers b u i l d up t h e i r stocks and declining i n the f a l l , 81. as buyers do. not wish to carry over large inventories during the winter. In the past there has been an excess supply of labour i n logging and lumber manufacture which has not been completely eliminated even during the peak production season. The Canada Manpower Centre i n Penticton i s hopeful that the s t a b i l i t y of employment i n lumber manufacture w i l l be aided i n the future by the construction of modern lumber manufactur- ing plants and a pulp m i l l and by the a p p l i c a t i o n of new tech- niques i n logging. However, due to the generally lower l e v e l of education i n the area, unemployment i n the forest industry could increase i n the future, because of the requirement f o r labour of a higher q u a l i t y i n the newly automated sawmills, replacing the older conventional m i l l s . The Canada Manpower Centre i s hopeful that t h i s s i t u a t i o n can be avoided through r e t r a i n i n g . While the S u l l i v a n mine at Kimberley, operated by COMINCO, has provided a stable economic base f o r Kimberley, increases i n employment i n i t s f e r t i l i z e r , pig iron and mining opera- tions have been l i m i t e d , due to technological improvements * 12 i n production and increasing productivity of labour. Coal mining, as already mentioned, has been a declining industry f o r many years. With regard to the manufacturing industry, i t represented approximately 19.5$ of the 1961 labour force, compared to 13 29.4$ i n the West Kootenay. The West Kootenay i s an area adjacent to the East Kootenay, but with a much d i f f e r e n t i n - d u s t r i a l mix and employment and income record. Over one-half of the above figure f o r the East Kootenay represents employ- 8 2 . ment i n lumber manufacture. The construction Industry i n the East Kootenay i s characterized by high unemployment of both s k i l l e d and un- s k i l l e d workers. The seasonality of the construction In- dustry, which i s normally also experienced i n other areas, i s heightened by the very severe winter conditions which 14 exist i n the East Kootenay. The construction industry also tends to be c y c l i c a l l y s ensitive, since the demand f o r i t s services tend to be income e l a s t i c . Within the construction industry, high unemployment exists i n materials handling and i n truck and t r a c t o r d r i v i n g . There i s also high unemploy- ment i n the service and t o u r i s t industry and i n c l e r i c a l and sales occupations. The service industry i s seasonal, since i t i s sensitive to the l e v e l of a c t i v i t y i n the t o u r i s t i n - dustry. From the above discussion, i t can be concluded that the i n d u s t r i a l base of the community i s unstable i n terms of both seasonality and c y c l i c a l s e n s i t i v i t y . S i g n i f i c a n t un- employment also exists i n non-basic Industries including'serv- ice- and construction. The unemployment rates f o r the East Kootenay area, the West Kootenay area and B r i t i s h Columbia are provided i n Table VIII. It can be seen that the average unemployment rate i n the East Kootenay has i n the past been comparatively high. The causes of t h i s unemployment have been due.to the unstable market conditions f o r lumber and coal, the high degree of seasonality experienced i n the con- stru c t i o n , service and forest industries and the generally low s k i l l l e v e l and lack of mobility of the labour force. 83. TABLE VIII Unemployment Rates f o r the East Kootenay, West Kootenay and B r i t i s h Columbia, 1965-1968 Quarter West Kootenay (estimated) I East Kootenay (estimated) II B.C. Year 1965 1st 2nd 3rd 4th Year 1966 1st 2nd 3rd 4th Year 1967 1st 2nd 3rd 4th Year 1968 1st 2nd 3rd 4th Year I969 1st 3.9 3.1 1.6 2.1 3.2 2.4 1.6 2.0 2.94 2.29 1.64 3.28 4.6$ 3.17 2.89 2.46 n.a. 8.7 6.1 2,7 4.6 8.59 7.33 4.44 5.85 6.88 7.00 5.92 8.30 9.11 11.05 8.97 5.66 6.7 II 4.2 3.3 3.4 4.4 3.8 4.7 6.2 5.0 3.8 5.6 7.3 6.3 4.9 5.4 6.3 Part time I Unemployment rates are f o r f u l l time workers, workers are not included. II The large unemployment rates w i l l be due to c y c l i c a l f l u c - tuations and to an i n f l u x of workers due to the Kaiser Project. Source: Unemployment rates f o r East and West Kootenay were c a l - culated from data obtained from the Cranbrook and T r a i l Canada Manpower Centres, Department of Manpower and Im- migration, Report of Registered Clients and Vacancies, Form 757, monthly from January 1965 to January, 1969. Labour force s t a t i s t i c s were obtained from D.M. Roussel, D i s t r i c t Economist, Okanagan-Kootenay D i s t r i c t , Depart- ment of Manpower and Immigration by l e t t e r of July 14, I969. Unemployment rates f o r B.C. were taken from DBS, Catalogue No. 71-001 Monthly, Vol. 24, No. 4,7,10, Vol. 25, No. 1 and 4, p. 8. 84 Tables IX and X provide the occupational breakdown i n \ absolute numbers of t h i s unemployment i n the East Kootenay. This data was obtained from monthly reports of the Canada Manpower Centre at Cranbrook, and thus the accuracy of the d i s t r i b u t i o n of unemployment by occupation i s subject to the degree of manpower centre penetration of the labour market. It i s i n t e r e s t i n g to note that unemployment i n coal and other mining does not show up to any great extent i n the figures, although unemployment i n coal mining i n the Fernie area must have been s i g n i f i c a n t i n some years. The population of lEernie declined between 195& and 19&1, which i s i n d i c a t i v e of the 16 d e c l i n i n g condition' of the coal mining industry. Table XI provides a comparison between the East and West Kootenays of unemployment i n c e r t a i n occupations characterized by high unemployment. Even though the absolute labour force of the West Kootenay, during the period being investigated, was approximately double that of the East Kootenay, the amount of unemployment i n absolute numbers i n the East Kootenay often exceeded that i n the West Kootenay. Unemployment i n s k i l l e d and semi-skilled occupations i n lumber and lumber products was much higher i n the East than i n the West Kootenay i n 1965. I966 and 1967. In s k i l l e d and semi-skilled construction oc- cupations, the unemployment i n the East Kootenay exceeded that i n the West Kootenay i n I966 and 19&7. I n 19&5 t n e t w 0 abso- l u t e amounts were almost the same. In transportation occupa- tions ( t a x i , truck and t r a c t o r d r i v e r s ) , unemployment i n the East Kootenay exceeded that i n the West Kootenay from 19&5 t o 1968 i n c l u s i v e . In u n s k i l l e d occupations i n lumber and lumber 85. products,unemployment i n the East Kootenay was also higher between 1965 a n ( i 1968. In u n s k i l l e d construction occupa- tions, unemployment i n absolute numbers was greater i n the West Kootenay i n 1965 and 1966 and approximately equal i n 1967. A comparison among the East Kootenay, West Kootenay and the Lower Mainland of the percentage d i s t r i b u t i o n of the labour force by industry i s provided i n Table XII. 8°" TABLE 'XX UNEMPLOYMENT BY OCCUPATION FOR THE EAST KOOTENAY, 1965-1969 Number of Employe es Registered for F u l l Time Employment Prof-Tech Farm, Fish Machine 1965 T Male Total Managerial C l e r i c a l Sales Services Forestry Processing Trades Bench Structural Miscellaneous January 673 962 7 8 15 61 4 11 72 0 93 110 February 758 1,121 8 10 15 84 5 12 71 0 106 128 March 953 1,333 13 17 17 90 4 15 98 0 89 209 A p r i l 849 1,160 8 14 8 75 1 14 181 0 78 217 May 494 683 5 18 2 48 11 7 51 0 47 109 June 364 569 3 14 5 48 4 4 29 0 45 40 July 213 363 - 12 5 40 - 2 21 1 19 22 August 216 366 - 14 1 45 2 4 22 0 27 24 September 216 355 - 11 4 50 1 5 22 0 36 27 October 222 401 3 12 5 53 1 2 21 0 34 30 November 389 574 5 13 8 69 4 4 33 0 54 61 December 612 849 8 15 12 89 5 3 48 0 85 108 Prof-Tech Farm, Fish Machine 1966 I I Male'- Total Managerial C l e r i c a l Sales Services Forestry Processing Trades Bench Structural Mi see1laneous January 752 1,057 12 99 77 213 27 36 81 0 248 264 February 730 1,071 11 118 85 251 28 22 71 0 240 245 March 955 1,275 11 111 67 230 29 20 98 0 249 460 A p r i l 912 lj211 10 112 58 221 23 15 114 0 214 444 May 658 890 6 99 56 155 10 12 79 0 191 282 June 576 804 5 103 61 122 10 25 57 0 208 213 July 363 551 4 94 39 111 10 12 42 0 131 108 August 319 516 5 94 50 115 6 13 34 0 114 85 September 396 595 7 98 50 125 5 7 45 0 143 115 October 345 514 3 86 41 113 1 10 30 0 124 106 November 5 90 866 6 147 63 149 3 24 78 0 192 204 December 709 939 13 75 46 165 7 20 87 0 277 249 Prof-Tech Farm, Fish Machine 1967 I I I Male Total Managerial C l e r i c a l Sales Services Forestry Processing Trades Bench Structural Miscellaneous January n.a. n.a. February 625 1 860 16 101 50 97 6 6 35 0 72 90 March 700 946 12 107 57 164 12 11 43 0 79 117 A p r i l n.a. n.a. May 926 1,187 8 109 50 173 8 13 75 0 94 205 June 356 1,020 8 133 73 180 4 5 45 0 82 120' July 813 1,007 12 92 56 116 26 4 189 3 338 325 August 530 708 16 75 43 120 12 1 30 2 326 80 September n.a. n.a. October 557 n.a. 9 9 4 57 15 0 54 2 242 139 November 843 n.a. 26 8 8 75 26 9 64 4 372 220 December 1,002 n.a. 24 11 11 84 41 11 91 3 412 291 Unskilled Occ. 242 272 363 292 172 157 79 68 53 56 128 214 U.I.C. (T400's) n.a. n.a. n.a. n .a. n .a. n.a. n .a. n.a. n.a. n.a. n.a. n.a. Unskilled Occup. 275 297 402 601 0* New Form 0 26 31 23 * The form changed i n July 1967. 87 T A B L E tX, ( C o n t i n u e d ) P r o f - T e c h F a r m , F i s h M a c h i n e 1 9 6 8 I V M a l e T o t a l M a n a g e r i a l C l e r i c a l S a l e s S e r v i c e s F o r e s t r y P r o c e s s i n g T r a d e s J a n u a r y 1 , 1 6 3 1 , 1 9 9 28 9 21 6 6 4 9 13 17 F e b r u a r y 1 , 1 7 0 1 , 6 9 5 25 16 23 1 0 3 4 8 1 4 8 5 M a r c h 8 9 1 1 , 3 2 0 6 17 27 1 0 3 3 6 5 61 A p r i l 1 , 2 4 0 1 , 8 7 7 1 6 26 35 1 6 6 8 0 16 97 M a y 1 , 2 0 1 1 , 7 7 7 1 4 1 6 3 6 1 0 6 6 1 5 74 J u n e 9 8 8 1 , 5 7 7 1 0 1 3 2 9 1 3 2 5 3 7 73 J u l y 1 , 0 0 3 1 , 6 0 2 14 16 20 1 3 3 4 4 13 63 A u g u s t 9 3 5 1 , 4 8 2 13 1 2 19 1 2 9 37 9 6 0 S e p t e m b e r 6 6 0 1 , 0 5 8 2 0 7 19 1 4 7 18 3 61 O c t o b e r 5 1 6 7 8 5 9, 11 1 2 6 8 19 1 4 1 N o v e m b e r 5 4 6 7 5 3 2 2 7 1 4 3 4 20 4 38 D e c e m b e r 7 8 2 1 , 0 8 1 11 11 18 71 20 3 . 5 6 P r o f - T e c h F a r m , F i s h M a c h i n e 1 9 6 9 V M a l e T o t a l M a n a g e r i a l C l e r i c a l S a l e s S e r v i c e s F o r e s t r y P r o c e s s i n g T r a d e s J a n u a r y 8 6 4 1 , 0 3 3 3 2 90 4 3 96 29 2 5 2 I T h e u n e m p l o y m e n t f i g u r e s f o r 1 9 6 5 a r e f o r m a l e w o r k e r s . I I T h e u n e m p l o y m e n t f i g u r e s f o r 1 9 6 6 a r e f o r m a l e a n d f e m a l e w o r k e r s I I I T h e u n e m p l o y m e n t f i g u r e s f o r 1 9 6 7 a r e f o r m a l e a n d f e m a l e w o r k e r s . I V T h e u n e m p l o y m e n t f i g u r e s f o r 1 9 6 8 a r e f o r m a l e w o r k e r s . V T h e u n e m p l o y m e n t f i g u r e s f o r 1 9 6 9 a r e f o r m a l e a n d f e m a l e w o r k e r s . V I T h e f i g u r e s i n c l u d e c l i e n t s r e g i s t e r e d f o r f u l l t i m e e m p l o y m e n t o n l y . V I I S t r u c t u r a l a n d m i s c e l l a n e o u s t r a n s p o r t a t i o n i n d u s t r i e s . o c c u p a t i o n s i n c l u d e p o s i t i o n s i n c o n s t r u c t i o n , f o r e s t r y a n d S o u r c e : T h e f i g u r e s w e r e o b t a i n e d f r o m r e p o r t s o f t h e C r a n b r o o k C a n a d a M a n p o w e r C e n t r e , D e p a r t m e n t o f M a n p o w e r a n d I m m i g r a t i o n , R e p o r t o f R e g i s t e r e d C l i e n t s a n d V a c a n c i e s , F o r m 7 5 7 , m o n t h l y f r o m J a n u a r y 1 9 6 5 t o J a n u a r y 1 9 6 9 . B e n c h S t r u c t u r a l 0 5 3 6 3 5 2 4 1 • 3 0 2 5 3 9 7 3 5 0 5 4 3 7 6 2 3 8 7 1 3 5 2 5 1 9 3 3 2 1 1 1 2 4 1 1 3 8 5 B e n c h S t r u c t u r a l 1 4 4 7 T e m p o r a r y L a y o f f s M i s c e l l a n e o u s U I C ( T 4 0 0 ' s ) 2 8 6 5 3 2 7 1 5 8 2 6 6 6 7 3 9 0 1 2 3 4 1 4 0 2 5 8 3 3 2 4 4 6 7 215 8 8 95 9 2 1 4 1 20 1 6 5 ' 7 2 0 6 13 M i s c e l l a n e o u s 2 4 1 U . I . C . R e g . ( T 4 0 0 ' s ) 2 3 9 8S TABLE y BREAKDOWN O F U N E M P L O Y M E N T B Y O C C U P A T I O N F O R E A S T K O O T E N A Y , 1 9 6 7 , 1 9 6 8 , 1 9 6 9 N u m b e r o f E m p l o y e e s R e g i s t e r e d f o r F u l l - T i m e E m p l o y m e n t a t C r a n b r o o k , E a s t K o o t e n a y C a n a d a M a n p o w e r C e n t r e T o t a l P r o f . - T e c h . C l e r i c a l S a l e s S e r v i c e s F a r m , F i s h P r o c e s s i n g M a c h i n e T r a d e s B e n c h S t r u c t u r a l M i s c e l l a n e o u s A l l o c c u p a t i o n s M a n a - g e r i a l C l a s s i - f i c a t i o n n o . F o r e s t r y W o r k 6 2 0 6 2 6 6 6 0 - 6 2 5 - 6 3 9 6 6 9 T o t a l 8 0 0 8 1 0 8 2 0 8 4 0 8 5 0 9 0 0 9 2 0 - 8 0 9 - 8 1 9 - 8 2 9 - 8 4 9 - 8 5 9 - 8 6 0 8 6 9 T o t a l - ' . 9 0 6 9 1 5 - 9 2 9 930 9 4 0 • 9 3 9 - 9 4 9 T o t a l U I C R e g . T o t a l U I C & F u l l T i m e M a l e & F e m a l e A n n u a l A v e r a g e f o r M a l e W o r k e r s 1 9 6 8 1 3 5 0 16 :.: 13 23 1 0 5 1 9 6 7 9 5 5 15 n a n a n a J a n . 1 9 6 9 M a l e & F e m a l e W o r k e r s 1 0 3 3 3 2 90 I I 4 3 96 4 1 17 2 9 8 "7 n a , . n a n a n a n a 61 n a 6 9 17 1 3 17/ 5 2 3 n a n a n a n a n a n a n a 3 6 7 2 n a n a n a n a n a n a n a 3 1 2 20 5 6 70 2 5 9 4 4 7 65 n a 6 1 n a n a n a n a 20 8 0 21 5 4 2 4 0 n a n a 265 15 4 0 2 4 1 4 6 n a 2 3 9 1 3 9 6 n a 1 2 7 2 C l a s s i f i c a t i o n N u m b e r O c c u p a t i o n T y p e 4 4 1 - 4 4 9 6 2 0 - 6 2 5 6 2 6 - 6 3 9 6 6 0 - 6 6 9 U n d e r S t r u c t u r a l 8 0 0 - 8 0 9 8 1 0 - 8 1 9 8 2 0 - 8 2 9 8 4 0 - 8 4 9 8 5 0 - 8 5 9 8 6 0 8 6 9 F o r e s t r y ( i n c l u d e s o n l y L u m b e r m a n u f a c t u r e ) M o t o r i z e d v e h i c l e r e p a i r M a c h i n e r y m e c h a n i c s & r e p a i r m e n C a b i n e t m a k e r s , p a t t e r n m a k e r s , w o o d , a l l o t h e r - w o o d w o r k i n g R i v e t e r s , F i t t i n g , b o l t i n g , s c r e w i n g a n d r e l . , T i n s m i t h s , c o p ' s m i t h s , s h . m e t a l w o r k a n d b o i l e r m a k e r s , a l l o t h e r - m e t a l f a b r i c a t i n g . W e l d e r s , f l a m e c u t t e r s a n d r e l . E l e c t r i c a l a s s e m b l i n g , i n s t a l l i n g a n d r e p a i r i n g C o n s t r . a n d m a i n t e n a n c e p a i n t e r s a n d p a p e r h a n g e r s , P l a s t e r e r s a n d r e l . o c c u p a t i o n s , w a t e r p r o d f e r s , c o n c r e t e f i n i s h i n g a n d r e l a t e d , a l l o t h e r - p a i n t i n g , p l a s t e r i n g a n d c e m e t i n g . E x c a v a t i n g , g r a d i n g a n d d r a i n a g e , c o n c r e t e a n d a s p h a l t p a v i n g , a l l o t h e r - e x c a v a t i n g , g r a d i n g , p a v i n g a n d r e l a t e d C a r p e n t e r s a n d r e l a t e d A l l o t h e r - c o n s t r u c t i o n U n d e r M i s c e l l a n e o u s 9 0 0 - 9 0 6 915 9 2 0 - 9 2 9 9 3 0 - 9 3 9 9 4 0 - 9 4 9 U I C n a I I I C o n c r e t e m i x i n g a n d dump t r u c k d r i v e r s : A t t e n d a n t s a n d s e r v i c e m e n , p a r k , l o t s a n d s e r . f a c i l i t i e s P a c k a g i n g , h o i s t i n g a n d c o n v e y i n g , m o v i n g a n d s t o r i n g m a t e r i a l s , a l l o t h e r - p a c k a g i n g a n d m a t e r i a l s h a n d l i n g B o r i n g , d r i l l i n g , c u t t i n g a n d r e l a t e d ( m i n e r a l s ) , b l a s t i n g , l o a d i n g a n d c o n v e y i n g , c r u s h i n g , s c r e e n i n g a n d r e l a t e d , a l l o t h e r - E x t r a c t i o n o f m i n e r a l s T i m b e r c u t t i n g a n d r e l a t e d , l o g i n s p e c t i o n , g r a d i n g , s c a l i n g a n d r e l a t e d , l o g s o r t i n g , g a t h e r i n g , s t o r i n g a n d r e l a t e d , a l l o t h e r - l o g g i n g T e m p o r a r y l a y o f f s N o t a v a i l a b l e U n e m p l o y m e n t f i g u r e s f o r 1 9 6 7 a n d 1 9 6 8 f r o m t h e P r o f . - T e c h . - M a n a g e r i a l C l a s s i f i c a t i o n o n a r e f o r m a l e w o r k e r s o n l y . T h e f i g u r e s a r e a n n u a l a v e r a g e s . A l l t h e f i g u r e s f o r J a n u a r y 1 9 6 9 a r e f o r m a l e a n d f e m a l e w o r k e r s . S o u r c e : T h e d a t a w a s o b t a i n e d f r o m r e p o r t s o f t h e C r a n b r o o k C a n a d a M a n p o w e r C e n t r e , D e p a r t m e n t o f M a n p o w e r a n d I m m i g r a t i o n , R e p o r t o f R e g i s t e r e d C l i e n t s a n d V a c a n c i e s , F o r m 7 5 7 , m o n t h l y f r o m J a n u a r y 1 9 6 7 t o J a n u a r y 1 9 6 9 . 6 9 T A B L E ' X I r . . . C O M P A R I S O N B E T W E E N E A S T A N D W E S T K O O T E N A Y O F U N E M P L O Y M E N T B Y O C C U P A T I O N , 1 9 6 5 - 1 9 6 8 ( A B S O L U T E N U M B E R S ) S k i l l e d a n d S e m i - S k i l l e d O c c u p a t i o n s L u m b e r i n g a n d L u m b e r P r o d u c t s W e s t K o o t e n a y C o n s t r u c t i o n J a n . F e b . M a r c h A p r i l M a y J u n e J u l y A u g u s t S e p t . O c t o b e r Nov. D e c . 1 9 6 5 5 5 3 8 5 9 4 5 16 5 5 2 3 6 9 18 1 9 6 6 1 9 6 7 * 3 1 30 36 28 8 2 2 5 4 7 5 7 n . a . 1 9 6 8 1 n . a . n . a . n . a . n . a . n . a . n . a . E a s t K o o t e n a y 1 9 6 5 1 9 6 6 1 9 6 7 * 8 7 8 6 1 3 2 1 6 9 90 3 3 17 17 17 1 9 38 4 3 6 2 5 9 1 2 3 1 3 8 97 5 2 28 16 15 1 1 4 2 5 3 n . a . 3 4 5 9 n . a . 1 1 2 5 7 n . a . n . a . n . a . n . a . n . a . n . a . W e s t K o o t e n a y 1 9 6 5 1 9 6 6 1 9 6 7 * 90 1 0 4 1 1 9 8 8 60 4 9 3 3 25 24 28 4 6 70 99 9 6 9 9 6 8 4 4 2 3 18 3 8 1 9 1 4 3 2 3 4 n . a . 35 4 5 3 7 28 25 n . a . n . a . n . a . n . a . n . a . n . a . E a s t K o o t e n a y 1 9 6 5 1 9 6 6 1 9 6 7 * 8 9 9 9 8 6 74 4 7 37 1 4 2 2 2 9 29 4 6 78 1 0 6 1 0 5 1 0 1 8 6 5 3 4 4 23 37 3 7 38 60 8 2 n . a . 6 6 77 n . a . 8 3 6 9 n . a . n . a . n . a . n . a . n . a . n . a . W e s t K o o t e n a y 1 9 6 5 1 9 6 6 1 9 6 7 * T r a n s p o r t a t i o n ( T a x i , T r u c k a n d T r a c t o r ) D r i v e r s E a s t K o o t e n a y 6 7 65 8 5 6 4 4 3 27 24 21 16 2 4 2 7 3 1 6 6 4 4 3 3 28 25 13 16 34 2 2 17 25 29 n . a . 23 35 26 n . a . 17 n . a . n . a . n . a . n . a . n . a . n . a . 1 9 6 5 1 9 6 6 1 9 6 7 * 6 8 8 3 1 2 9 1 2 9 5 2 2 2 15 17 20 20 4 1 7 2 9 6 9 4 1 6 6 1 5 9 91 4 4 3 3 31 35 3 3 6 8 8 7 n . a . 5 8 72 n . a . 1 1 6 78 n . a . n . a . n . a . n . a . n . a . n . a . * T h e f o r m f r o m w h i c h t h e s e f i g u r e s w e r e t a k e n w a s c h a n g e d i n J u l y 1 9 6 7 . 90 T A B L E X I .. - ( C o n t i n u e d ) U n s k i l l e d O c c u p a t i o n s L u m b e r a n d L u m b e r P r o d u c t s C o n s t r u c t i o n W e s t : K o o t e n a y ' 1965 1 9 6 6 1 9 6 7 J a n . 1 0 9 5 5 n . a . F e b . 6 1 43 6 M a r c h 5 5 3 6 1 4 A p r i l 4 6 22 1 4 May 2 3 1 5 1 8 J u n e 1 0 6 9 J u l y 12 5 n . a . A u g u s t 7 6 . n . a . S e p t . 6 7 n . a . O c t o b e r 4 2 n . a . N o v e m b e r 1 4 5 n . a . D e c e m b e r 3 1 15 n . a . E a s t K o o t e n a y 1 9 6 5 1 9 6 6 1 9 6 7 83 1 0 1 1 2 8 1 3 9 7 0 4 4 2 8 2 0 18 15 5 0 1 0 6 1 1 3 9 9 152 1 4 5 97 1 0 3 4 5 3 6 5 0 4 1 77 1 0 9 n . a . 75 7 0 n . a . 1 0 3 1 1 4 n . a . n . a . n . a . n . a . n . a . n . a . W e s t K o o t e n a y 1 9 6 5 1 9 6 6 1 9 6 7 1 6 9 1 9 3 n . a . 1 8 7 1 6 8 153 1 6 5 1 3 4 2 3 6 1 5 9 1 4 1 2 2 9 199 1 6 6 2 3 6 3 0 9 2 2 2 2 2 4 1 9 0 1 0 6 n . a . 73 119 n . a . 5 1 8 5 n . a . 1 0 2 8 2 n . a . 9 9 1 3 8 n . a . 1 2 3 143 n . a . 1 9 6 5 1 3 3 1 4 0 . 2 0 4 1 1 8 8 6 9 8 4 7 4 2 2 8 .34 6 4 9 0 E a s t K o o t e n a y 1 9 6 6 1 9 6 7 119 125 142 1 2 6 125 143 9 8 67 93 8 0 125 143 n . a . 172 1 9 6 n . a . 2 5 2 4 4 3 n . a . n . a . n . a . n . a . n . a . n . a . T A B L E - X i : : - ( C o n t i n u e d ) 1 9 6 8 ( T h e f i g u r e s f o r 1 9 6 8 a r e l i s t e d s e p a r a t e l y b e c a u s e o f t h e c h a n g e i n f o r m u s e d b y t h e C a n a d a M a n p o w e r C e n t r e s ) C o n c r e t e m i n i n g a n d dump t r u c k B l a s t i n g , l o a d i n g a n d d r i v e r s , t r a c t o r t r a i l o r c o n v e y i n g , c r u s h i n g , , s c r e e n i n g , d r i v e r s , a l l o t h e r m o t o r a l l o t h e r e x t r a c t i o n o f m i n e r a l s ; S t r u c t u r a l W o r k M i s c e l l a n e o u s O c c u p a t i o n s f r e i g h t o c c u p a t i o n s b o r i n g , d r i l l i n g , c u t t i n g a n d r e l a t e d ( m i n e r a l s ) E a s t K o o t e n a y W e s t K o o t e n a y E a s t K o o t e n a y W e s t K o o t e n a y E a s t K o o t e n a y W e s t K o o t e n a y E a s t K o o t e n a y W e s t K o o t e n a y J a n . 5 3 6 6 2 4 2 8 6 157 6 8 67 3 0 15 F e b . 5 2 4 6 7 4 2 7 1 1 0 6 9 3 4 8 2 9 10 M a r c h 3 0 2 6 0 0 2 6 6 1 2 9 92 5 4 2 13 A p r i l 3 9 7 3 2 8 3 9 0 6 5 1 0 8 2 2 4 4 6 M a y 5 0 5 3 5 3 3 4 1 62 8 5 2 1 3 1 5 J u n e 3 7 6 4 7 8 2 5 8 7 8 6 1 2 4 27 6 J u l y 3 8 7 3 9 6 2 4 4 5 8 6 6 19 2 8 3 A u g u s t 3 5 2 3 1 1 2 1 5 4 6 5 5 2 0 2 8 3 S e p t . 1 9 3 2 5 0 9 5 5 2 12 2 0 8 8 O c t o b e r 2 1 1 2 7 3 1 4 1 4 8 4 2 17 5 5 N o v e m b e r 2 4 1 2 7 1 1 6 5 5 8 47 2 1 10 8 D e c e m b e r 3 8 5 2 6 8 2 0 6 4 7 5 6 17 11 2 T i m b e r c u t t i n g a n d r e l a t e d , l o g i n s p e c t i n g , g r a d i n g , s c a l i n g a n d r e l a t e d , l o g s o r t i n g , g a t h e r i n g , s t o r i n g , a n d r e l a t e d , a l l o t h e r l o g g i n g E a s t K o o t e n a y W e s t K o o t e n a y J a n . 76 3 3 F e b . 5 7 1 4 M a r c h 77 18 A p r i l 8 4 17 M a y 6 0 11 J u n e 6 3 12 J u l y 5 4 1 4 S o u r c e : T h e f i g u r e s w e r e o b t a i n e d f r o m r e p o r t s o f t h e C r a n b r o o k a n d A u g u s t 4 6 6 T r a i l , C a n a d a M a n p o w e r C e n t r e s , D e p a r t m e n t o f M a n p o w e r a n d S e p t . 2 2 5 I m m i g r a t i o n , R e p o r t o f R e g i s t e r e d C l i e n t s a n d V a c a n c i e s , O c t o b e r 2 5 6 F o r m 7 5 7 , m o n t h l y f r o m J a n u a r y 1 9 6 5 t o J a n u a r y 1 9 6 9 . N o v e m b e r 3 6 7 D e c e m b e r 47 4 92. TABLE XII Indus t r i a l Mix 1961 % D i s t r i b u t i o n of Labour Force by Industry West East Lower Industry Kootenay Kootenay Mainland Agriculture 2.2$ 2.9$ 2.9$ Forestry (logging) 4.3 4.3 1.5 Fishing and Trapping 0.1 0.1 0.6 Mines, Quarries & O i l WeUJs.:4.3 14.6 0.7 Construction 6.2 7.9 6.8 Wholesale Trade 2.6 2.0 7.2 R e t a i l Trade 10.2 9.4 12.3 Service Industries 37.7 37.0 46.2 Manufacturing 29.4 19.5 18.9 (lumber manufacture) 7.35 11.4 Source: Province of B.C., Bureau of Economics and S t a t i s t i c s , Department of Indu s t r i a l Development, Trade and Com- merce, Regional Index of B r i t i s h Columbia, January, 1966, pp. 5. 41, 155. "~~ The i n d u s t r i a l mix of the West Kootenay i s thus d i f f e r e n t from that of the East Kootenay. There i s les s reliance on lumber manufacture and the construction industry. A stable economic base i s provided i n the form of the smelting opera- tions of COMINCO, which i s included i n the manufacture c l a s s i - f i c a t i o n . The comparison between the East and West Kootenay serves to point out the depressed economic condition of the East kootenay. The difference i n the amount of unemployment i n lumber manufacture, logging, construction and transporta- t i o n which has persisted over a number of years i s also i n - d i c a t i v e of the geographical and occupational Immobility of labour i n these occupations i n the East Kootenay. 93. Average wage rates are also lower i n the East than i n the West Kootenay. The average annual wage computed from a l l tax returns, including those which were nontaxable, i n the East Kootenay i n 1966 was $3,571. while f o r the West 17 Kootenay the figure was $4,218. The percentage of the t o t a l number of a l l returns below $3,000 was greater i n the East , than i n the West Kootenay. The existence of t h i s d i f f e r e n - t i a l i s also i n part i n d i c a t i v e of immobility out of the East Kootenay. Thus the East Kootenay has i n the past been a de- pressed area i n terms of both high unemployment and low aver- age income. FOOTNOTES TO THE APPENDICES AppendixSI (A) , I "Kaiser S t r i p Mine Y i e l d 'Less than Underground 1," The Vancouver Suh, Vancouver, 1969. 2...C...L. Christenson, Economic Redevelopment i n Bituminous Goal, The Special Case of Technological Advance i n United States Coal Mines, 1930-1960, Harvard University Press, Cambridge, 1962, p. 129. 3 Ibid., pp. 129-130. 4 This information was obtained from an interview with Mr. L.C. Reed formerly of Hedlin-Menzies and Associates Ltd. i n June I969. 5 Canada, Fuels and Mining Practice D i v i s i o n , Mines Branch, Department of Energy, Mines and Resources, T.E.. Tibbetts and J.C. Botham, "Coal and Coke," Canadian Minerals Yearbook: 1966, Preprints, no.̂  15» Queen's Pr i n t e r , Ottawa, 1965, 1966, 1967, p. 8. 6 Ibid., p. 8. 7 This information was obtained from D.M. Roussel, D i s t r i c t Economist, Okanagan-Kootenay D i s t r i c t , Department of Manpower and Immigration by l e t t e r of 14 July, 1969. (B) 8 Research Department, The Industrial Bank of Japan Ltd. (Nippon Kogyo Ginko), "The Iron and Steel Industry, Basic Problems and P o l i c y Guidelines," Quarterly Survey of Japanese Finance and Industry, v o l . XVIII, No. 4, October-December, 1966, p. 3. (C> 9 "105-car unit t r a i n s f o r coal run," The Province, Vancouver, Tuesday, 3 June, 1969, p. 7A. 10 National Harbours Board, Vancouver Outerport at Roberts Bank, Press Release, 23 June, 1969, pp. 1-2. II This information was obtained from Mr. Yvan Gagnon, Acting Director, Research & Development Branch, National Har- bours Board, Ottawa, by l e t t e r of July 17, 1969. 12 National Harbours Board, Roberts Bank, Port of Vancouver Outer Port Development, unpublished, 1969, p. 1. 95. Appendix II (A) 1 Sam H. Schurr and Bruce C. Netschert with Vera E. Eliasberg, Joseph Lerner, and Hans H. Landsberg,. Energy, i n the American Economy. 1 8 5 0 - 1 9 7 5 , an economic study of Its hi s t o r y and prospects, published f o r Resources f o r the Future, Inc. by the Johns Hopkins Press, Baltimore, Maryland, I 9 6 0 , pp. 7 7 - 7 8 . 2 Canada, Fuels and Mining Practice D i v i s i o n , Mines Branch, Department of Energy, Mines and Resources,. .T...E. Tibbetts and J.C. Botham, "Coal and Coke," Canadian Minerals Yearbook: 1 9 6 6 , preprints, no. 15, Queen's P r i n t e r , Ottawa, 1 9 6 5 , 1 9 6 6 , 1967, p. 16. 3 P r i c e Waterhouse and Co., The Growth and Impact of the Mining Industry i n B r i t i s h Columbia, study done f o r the Mining Association of B.C., Vancouver, 4 December, I 9 6 8 , p. 30. 4 Canada, Fuels and Mining Practice D i v i s i o n , op. c i t . , p.. 4. 5 Ibid., p. 4. 6 Schurr, Netschert with Eliasberg, Lerner, and Landsberg, op. c i t . , p. 335* 7 Canada, Fuels and Mining Practice D i v i s i o n , op.cit., p. 4. 8 Province of B.C., Minister of Mines and Petroleum Re- sources, Annual Report, f o r the year ending December 31, 1 9 6 5 , pp. 3 8 6 and 401. (B) 9 Hugh 0 . Nourse, Regional Economics, A Study i n the Eco- nomic Structure, S t a b i l i t y and Growth of Regions, Seymour E. Harris, Editor, Economics Handbook Series, McGraw-Hill Book Co., New York, New York, I 9 6 8 , pp. I 6 I - I 6 3 . 1 0 This information was obtained from D.M. Roussel, Dis- t r i c t Economist, Okanagan-Kootenay D i s t r i c t , Department of Manpower and Immigration by l e t t e r of 14, July, 1969. The o r i g i n a l source was the 1961 Census of Canada. 11 This information was obtained from D.M. Roussel, Dis- t r i c t Economist, Okanagan-Kootenay D i s t r i c t , Department of Manpower and Immigration by l e t t e r of 14 July, 1969. 96 12 Province of B.C., Bureau of Economics and S t a t i s t i c s , Department of In d u s t r i a l Development, Trade and Commerce, Regional Index of B r i t i s h Columbia, January 1966, p. 83. 13 Ibid., pp. 5 and 41. 14 D.M. Roussel, op. c i t . , by l e t t e r . 15 D.M. Roussel, op. c i t . , by l e t t e r . 16 Province of,B.C., Bureau of Economics and S t a t i s t i c s , Department of Industrial Development, Trade and Commerce, op. c i t . , p. 17. 17 Canada, Department of National Revenue, Taxation D i v i s i o n , Taxation S t a t i s t i c s , Part One - Individuals, Table 6, Queen's Pr i n t e r , Ottawa, 1968, p. 98."

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