Our Coal Conundrum

GRANT DEXTER December 15 1927

Our Coal Conundrum

GRANT DEXTER December 15 1927

Our Coal Conundrum

What is it worth to Canada to be independent of U. S. coal?


IF THE United States cut off Canada's coal supply to-morrow, what would happen?

Three-fourths of the Canadian people would be exposed to the rigor of winter, without enough fuel to keep life in their bodies. Human suffering upon an unimaginable scale would follow, inevitably.

But, you say, the best answer to that question is that the United States never would do such a thing. Of course it is not suggested that the United States Government would so act, deliberately.

The United States Government, however, does not control coal production.

Is the average Canadian aware that twice within recent years the government of this Dominion has been confronted, without warning, by the terrible prospect of coal famine, caused each time by a general strike of mine workers? Is he aware that no longer ago than December, 1925, when an industrial upheaval threat ened, the Canadian Government commanded the railways to hold themselves in instant readiness to mobilize freight cars, at strategic points, to rush coal to Ontario from Alberta and Nova Scotia?

The day when coal consumers of central Canada can look with certainty to the United States for fuel is past. This certain knowledge is the motive force behind the efforts of all political parties, federal and provincial, to solve Canada’s coal problem.

The need for an early solution is all the greater because Canada has little or no right to claim coal from the United States on compassionate grounds in the event of a sudden stoppage. Indeed, if the very worst happened and Canada, suddenly, was denied United States coal, this Dominion would not have cause for complaint.

Several times in recent years the Canadian Governmenthasbeen informed by the United States Bureau of Mines, that, owing to the limited life of anthracite coal fields,

Canada must find other sources of supply, and the sooner the better. More than that, there have been several bills, in recent years, introduced in the United States congress seeking to prohibit exports of coal to Canada. None of them has become law, but they are a very significant indication of the growing uneasiness in the United States concerning

the whole matter of coal supplies for the future.

Those in Canada who would await a more favorable occasion to grapple with this problem are simply ignoring reality. The coal problem of Ontario and Quebec—of two-thirds of the population of the Dominion—must be solved within the next few generations at the latest, because in that time the anthracite fields of the United States will be exhausted. Meantime, every passing year bringing, as it does, the inevitable nearer, increases the risk of a sudden stoppage.

The coal problem, like many others, is more easily stated than solved. Leaders of public opinion have been discussing it constantly for five years, ever since a general strike cut off supplies with the suddenness of an axe stroke. Solutions have been offered with a rapidity

which overtaxed the capacity of the public to weigh and consider. Orators have appealed to the patriotism of the people, as if there were something shameful in dependence upon another country for coal.

The tax-payers, however, will consider the problem in the cold, bright light of one tremendous factor. If coal importation from the United States is stopped, and the needs of Canada are supplied from Canadian coal fields, the additional fuel bill which this country must pay is $56,000,000 per annum. It is not one penny less, and

probably much more. The figure is taken from a report of the Dominion Fuel Board, a highly efficient government organization which has been studying the problem for five years.

And this does not include a loss of $7,000,000 per annum in customs duties.

The loss is computed in a simple manner. If Canada had to look to her own resources for coal, the eastern provinces, including Quebec, would draw from Nova Scotia. This territory would absorb all the coal available from the Maritimes and the change from United States to Canadian coal could be brought about without additional cost to the public. As a matter of fact, with water transportation available, the Fuel Board estimates a gain to the public of $1,300,000 per year. At the Quebec-Ontario boundary the region in which Maritime coal can be made available ends. West thereof, the cheapest available coal supply is in Alberta.

Irresponsible Mines

TN REGARD to Alberta coal there are two important factors to be borne in mind. Production costs are high in Alberta because the mines are operated inefficiently. This is not to say that Alberta operators do not know their business. Far from it. Inefficient operation seems to be a condition fastened upon Alberta by the very nature of the coal deposits. Everywhere in the coal-bearing areas one can see the coal seams, often protruding from the earth, just asking to be mined. Not infrequently seams occur on the sides of mountains— the old Bankhead mine near Banff is an example —and the fuel needs only to be pushed over to fall by gravity on to improvised loading platforms. This accessibility of coal makes for easy operation and the history of Alberta production is that whenever mining is prosperous, a large number of new mines are brought in. These mines work at low production costs, cut prices, disorganize the entire industry, and go out of business as soon as the first pinch comes. They have no heavy investment, they do not equip their mines with proper machinery, they are merely fly-by-night mines. Nevertheless, they prevent the soundly founded mines from enjoying prosperous conditions and working at capacity production. It long has been recognized that before coal mining in Alberta could be placed upon a solid foundation some authority over sudden expansion must be exercised. No doubt this could be done by refusing to grant leases, but there are now outstanding sufficient leases to bring about disturbing conditions at any time a wave of prosperity might come. It is a difficult feature of the problem to solve, and parliament frequently has discussed it without hitting

upon a method of improvement. No doubt the administration of these natural resources will soon be turned over to the provincial government, and possibly, with closer supervision, the fly-by-night mines may be eliminated.

The other factor is that ail Alberta coal must be transported by rail. No matter how close to anthracite the Alberta product may approach, it has one failing. This failing, apparently, has been imposed by nature upon all the coal in the province.

It vi,ill not stand handling. If loaded or unloaded often it breaks up, deteriorates, and is reduced to dust. Consequently it must be carried by box car from Alberta to Ontario. Under no circumstances could it be brought east by the lake and rail route. Last session the Federal parliament voted $13,000 to help defray any losses that might occur in bringing east a shipment of Alberta coal by rail to Fort William and thence by boat to the Georgian Bay ports, and on to Toronto. The Alberta operators, however, declined to make a shipment in this way, for the very good reason that the coal would be ruined before it reached its destination. This is one disadvantage which Alberta fuel labors under in comparison with United States anthracite. Fortunately it is not a fatal one. Trial shipments have shown that Alberta coal, properly handled by the all-rail route, arrives in Ontario in excellent shape for domestic uses.

Now to the cost of replacing imported coal in the Ontario market.

BITUMINOUS coal from the United States is laid down in Ontario at $5 to $7 per ton. Alberta coal of a corresponding quality costs $10.. 5 to $11. Ontario imports 11,600,000 tons of bituminous coal per annum. On each ton. if imported coal is to be replaced, someone must make up the present difference in price of about $4.50. The increased cost of this replacement, irrespective of who is to pay it, is about $53,000,000 per annum. This calculation is based on the supposition that the freight rate on coal will be $7 per ton.

Anthracite from across the border is laid down in Ontario at between $11 and $12 per ton, and the Alberta coal which would be substituted can be brought east at about the same cost. Anthracite, however, is at least twenty per cent, more efficient as a heating fuel. In other words it would require six tons of Alberta coal to produce as much heat as five tons of anthracite. This variation, of course, would be reflected in price, and Alberta coal must sell at least $2 per ton cheaper than anthracite to compete upon even terms Ontario imports 2,500,000 tons of this fuel, so that someone is going to pay the additional $2 if the change is to be made, or a total of $5,000,000. This also, it should be said, is figured on a $7 freight rate per ton from Alberta to Ontario.

The weak point in this calculation is the freight rate. ’'A ill the government succeed in establishing a $7 rate? A few

weeks ago it was thought that $7 would be the maximum. To-day it is most uncertain. The uncertainty has been caused by the Board of Railway Commissioners. This body was asked by the federal government to find out what it costs to bring a trainload of Alberta coal to Ontario. The commission has reported that the out-ofpocket expense to the railways—that is the actual cost of moving a trainload of coal, regardless of roadbed maintenance, upkeep of equipment, and profit—is $7.22 per ton. If allowance is made for maintenance of roadbed and equipment, the rate is $10.07 per ton, and if a fair profit is to be permitted the rate is $12.20 per ton. At once it is evident that $56,000,000 is, indeed, a low estimate.

Obviously, the cost of making Canada self sustaining depends entirely on this freight rate. At $7 per ton the cost would be $56,000,000. At $10 per ton, it would be $100,000,000.

From past experience, notably the freight rate reductions in the Maritime provinces last session, it seems scarcely probable that parliament would compel the railways to carry coal at unprofitable rates. Therefore the higher estimate is more accurate.

One hundred millions per annum is a colossal sum of money, but it is the price which Canada must pay for coal independence.

What of the advantages of coal independence?

Foremost is the sense of security which would be achieved. Central Canada would no longer live in the shadow of a possible coal famine. There would be no recurrence of the 1922 crisis when coal was rationed to householders one-half ton at a time.

With independence would come the further advantage of diverting upwards of $100,000,000 annually, from United States to Canadian trade channels. The provinces of Alberta and Nova Scotia would experience unprecedented prosperity. The mining industry would expandAcute periods of unemployment, to which the industry has been subject, would not recur.

So much for gains and losses. The Canadian fuel

problem must, sooner or later, be solved. There is no argument on that point. The real question now facing the taxpayers, however, is not whether it will be solved, but how it will be solved.

There are three ways in which the desired end could be attained, and all of them have been widely discussed. .

(1) The Canadian customs tariff on coal could be increased by $6 per ton, or as much as is necessary to exclude imports.

(2) Parliament could fix a freight rate by statute which would give possession of Canadian markets to Canadian operators, regardless of whether the rate was profitable to the railways.

(3) Parliament could fix a rate by statute and pay the railways a sufficient bonus per ton to make the carriage of coal profitable or self-sustaining.

The King government definitely has discarded the tariff as a possible solution, because it would increase the cost of coal to the consumer. Hon. Charles Stewart, Minister of Interior, has stated that the government will consider no policy which enhances coal costs. At the same time, however, the government has been careful not to commit itself in favor of either the second or third policy.

On the other hand the Conservative party, at the Winnipeg convention, declared for the third method—the bonusing of the railways. Here is the text of the platform resolution:

‘The Conservative party pledges itself to a national fuel policy, and to that end parliament should instruct the Railway Commission to fix a fair rate as between the carriers on the one part and the industry and the consumer on the other part; and to determine in addition a rate which will enable the coal industry to compete with imported coal; and that the deficit, if any, be recognized as a national burden and borne by the Dominion as a whole.’

Within the next few months parliament will deal with at least one section of this coal problem, and the policy once laid down undoubtedly will be broadened to meet the needs of the future. The Dominion will be committed, and very soon, to one of the three policies outlined, and it is important that the taxpayers, in their own interest, should do some thinking about it in the interval. The policy adopted will cost an enormous amount of money and they will have to foot the bill.

They must not expect to find a flawless solution. There are objectionable features to all of them. It is a case of selecting the least obnoxious.

The policy of tariff manipulation has received strong support in past years from distinguished Conservatives. Rt. Hon. Arthur Meighen, during his term of leadership, advocated a higher tariff on coal, as well as a freight rate subvention. Hon. Hugh Guthrie, while temporary leader of the [opposition, pronounced unreservedly for a prohibitive tariff. Not until

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Our Coal Conundrum

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the Winnipeg convention was the tariff policy abandoned. To-day, however, no party is advocating an increase in tariff as a solution to the problem. Nevertheless there is a considerable body of opinion in the country which favors this course.

From a national viewpoint there are innumerable disadvantages in raising the tariff. It would create a coal monopoly in both east and west. It would enhance prices to the consumers not only in central Canada but, also, in the other provinces. Instead of costing $56,000,000. it would cost treble that amount.

Then, too, it would have a disastrous effect upon exports of British Columbia coal to the northwestern states of the Union. This British Columbia coal would not be required for home consumption. The United States tariff places coal on the free list but with the proviso that on. coal coming from any country which levies a duty on United States coal, an equal duty will be applied. The result of an increase in the Canadian tariff would be to cut off the markets which now take fifty per cent, of British Columbia’s production.

In regard to the second policy—a statutory freight rate without compensation—it would be a very severe blow to the railway companies, and would mark a new departure in freight rate legislation in the Dominion. If compelled to carry coal at a rate which would enable Alberta to compete in central Canada, the railways would pay the whole cost, and it would be reflected in a drastic reduction, if not the elimination, of net earnings. Both the National and the Canadian Pacific railways have indicated in recent months that they fear the adoption of this policy. Sir Henry Thornton has declared, emphatically, that the government must not require the railway to carry coal at a loss. He has served notice that he will fight such a policy to the limit of his power and resources. Undoubtedly the Canadian Pacific would do likewise.

The Probable Solution

AS TO the third policy, there are strong indications that the government is inclined to embrace it. The provincial governments of Ontario and Alberta would be called upon to assist. Already the Conservative party has approved of it with the further proviso that the cost should be borne entirely by the Dominion government. It is a policy that holds out the double advantage of accomplishing the purpose without increasing the cost of coal to the consumer, and of spreading the cost over the entire population.

In principle, the policy laid down by

the present parliament will be ali important, even if but a small'part of the problem is attacked. The Dominion, fortunately, is in a position where it is vitally necessary to replace but one kind of coal and that is anthracite or domestic fuel. The larger task of replacing bituminous or industrial coal can await the solution of the other.

Of the two, the replacement of domestic coal is infinitely the less difficult. Only 2,500,000 tons are required and the added cost, at most, will scarcely exceed $12,000,000 per annum.

The anthracite fields of the United States will last anywhere from thirty to fifty years; some experts say the former, some the latter period. The bituminous coal fields, however, are not yet within sight of exhaustion, and notwithstanding the fact that Canadian political leaders are advocating complete independence of the United States, no party has yet dared to face the consequences of an immediate replacement of imported bituminous fuel.

Coal is a basic necessity of industry Its cost is of supreme importance to Canadian manufacturers, and any increase not common to competing manufacturers in foreign countries would be ruinous to Canadian industry. Where the immediate urgency is not so great, the King government, with the general approval of all parties, has laid aside the industrial coal problem for the time being.

In essentials both are the same, and if ! one is solved the way will be clear to attack the other. It is all one problem and sooner or later if Canada is to attain to fullest possible development it must be overcome.

To some it may seem that this is not a national problem, but only a sectional one. After all, it is only a matter of finding coal for Ontario. It might be argued that the costs ought not to be spread over the entire population. Why should a British [ Columbian or a Prince Edward Islander pay part of Ontario’s coal bill?

The point is well taken and the only answer is that in a country like Canada it is impossible to frame national policies so that the cost falls with absolute equality upon a population strung out over a territory 3,000 miles in breadth. Canadians long ago recognized that there must be give and take, and it is in this spirit that the solution to this problem is being sought.

Editor's Note—Both Alberta and Maritime authorities take emphatic issue with certain of the statements made by the Do minion Fuel Board and referred to by Mr. Dexter, particularly as to the estimated costs of domestic fuel independence. In MacLean's, January 1, the other side to the question will be presented.