FRASER RIVER DREDGING GUIDELINES: A BENEFIT-COST ANALYSIS FINP..L REPORT

FRASER RIVER DREDGING GUIDELINES: A BENEFIT-COST ANALYSIS FINP..L REPORT

f FRASER RIVER DREDGING GUIDELINES: A BENEFIT-COST ANALYSIS FINP...L REPORT Prepared for : Department of Fisheries and Oceans Habitat Protection Prepared by: DPA Consulting Limited Vancouver, BC September, 1981.

Table of Contents Executive Summary i 1.0 Introduction 1.1 Historical Background 1.2 Benefit-Cost Analysis 2.0 Methodology 2.1 Benefits 2.1.1 2.1. 2 2.2 Costs 3.0 Results Optirnistic Case Base Case 3.1 Operation of the Guidelines frorn 1975 through 1979 3.2 Projected Operation of the Guidelines frorn 1980 through 2010 1 1 3 6 6 9 10 12 15 15 17 Appendix: Derivation of the Estirnates of the Nurnbers of Salmon Fry Saved and to be Saved by the Enforcernent of the Fraser River Dredging Guidelines

List of Tables Table S-1: Benefits and Costs of the Operation of the Fraser River Dredging Guidelines i11 from 1975 through 1979 Table S-2: Projected Benefits and Costs of the iv Operation of the Fraser River Dredging Guidelines from 1980 through 2010 Table 1: Numbers of Salmon Fry Saved and to be Saved as a Result of "Fraser River 8 Dredging Guidelines" Table 2: Historical and Predicted Future Costs 13 of Application of "Fraser River Dredging Guidelines" Table 3: Benefits and Costs of the Operation of 16 the Fraser River Dredging Guidelines from 1975 through 1979 Table 4: Projected Benefits and Costs of the 18 Operation of the Fraser River Dredging Guidelines from 1980 through 2010 Table A-1: Sceptre Dredging at North Arm A-2 Table A-2: Proportions of the Migrations Being A-4 Caught Just Prior to Requests for Shutdown or Relocation Table A-3: Peak Migration Periods and Days A-5 Table A-4: Numbers of Salmon Fry Saved and to be A-7 Saved as a Result of "Fraser River Dredging Guidelines"

i EXECUTIVE SUMMARY Starting in 1975, the Federal Department of Fisheries and Oceans (DFO) has enforced a set of guidelines affecting. dredging operations in the Fraser River. This report gives the results of a benefit-cost analysis of these guidelines from the perspective of Canada that was carried out by DPA Consulting Limited. Although the "Fraser River Dredging Guidelines" contain a number of provisions, this analysis deals with their impact on the entrainment by suction dredges of salmon fry during Spring migration. The benefits of the "Guidelines" were measured by the value of the salmon saved, and their costs included the administrative costs to DFO, the costs of monitoring the numbers of fry being entrained, and the costs of shutdowns or relocations of the dredges required under the "Guidelines." Separate benefit-cost analyses were conducted for the "historical" application of the "Guidelines" (1975-1979) and for their "projected future" application (1980-2010). The historical analysis, however, should be regarded as incomplete, since it omits the benfits and costs of the total shutdown of the private dredging industry in the Fraser River for a period of four years (1975-1978). The benfits of the "Guidelines" for bath the historical and future periods were measured under two alternative sets of assumptions. In the "base case", all relevant prices are assumed to remain constant in real terms through time, landed values and incremental harvesting costs are used to determine the salmon's value, and the availability of greater numbers of salmon is assumed to stimulate capital investment in the fishing industry. In the "optimisii:.ic case" the real prices of fish and related goods are assumed to rise slightly over time, wholesale values and incremental processing plus harvesting costs are used to determine the salrnon's value, and no new capital investment in the fishing industry is

ii assumed to take place. base case and the optimistic case. Costs are the same under bath the Tables S-1 and S-2 show the results of the: benefit-cost analyses of the historical and projected future periods respectively. As noted above, Table S-1 is incomplete since it does not include any of the consequences, either positive or negative, of the total prohibition of commercial dredging operations in the Fraser River from 1975 through 1978. Table S-2 indicates that the "Guidelines" will have a positive impact on Canada society as a whole under the optimistic case, but a negative impact under the base case. The major difference between the two cases is the difference in assumptions about future capital investment. If present policies continue, it is our opinion that the base case presents the more accurate picture of the value of the "Guidelines." If, however, the gov~rnment can and does effectively restrict investment in additional capital equipment by the fishing industry, then the full benefits shown in the optimistic case may be realized.

iii TABLE S-1: BENEFITSl AND COSTSl OF THE OPERATION OF THE FRASER RIVER DREDGING GUIDELINES FROM 1975 THROUGH 1979 (all values in thousands of 1979 dollars, discounted to "present value" as of 1980) Discount Rate 5% 10% 15% Base Case Benefits 517 527 538 Costs 226 263 306 Net Benefits +291 +264 +232 Optimistic Case Benefits 1,306 1,276 1,258 Costs 226 263 306 Net Benefits +l,078 +1,013 +952 1 See accompanying text for discussion of omitted benefits and costs.

iv TABLE S-2: PROJECTED BENEFITS AND COSTS OF THE OPERATION OF THE FRASER RIVER DREDGING GUIDELINES FROM 1980 THROUGH 2010 (all values in thousands of 1979 dollars, discounted to "present value" as of 1980) Discount Rate 5 % 10% 15% Base Case Benefits 762 455 295 Costs 1,489 940 675 Net Benefits -727-485 -380 Optimistic Case Benefits 4,705 2,846 1,866 Costs 1;489 940 675 Net Benefits +3,216 +l,906 +1,191

1 1.0 INTRODUCTION 1.1 Historical Background In 1973 the Departrnent of Fisheries and Oceans (DFO) developed a set of guidelines limiting dredging operations in the Fraser River. 1 These guidelines were specifically intended to reduce the detrimental impacts of dredging operations on the Fraser River's salmon resource. Such impacts include the destruction of salmon habitat and spawning grounds, the loss of elements of the food chain vital to the survival of salmon, the delay of upstream migration, and the capture of salmon fry migrating downstream in the spring. The last of these impacts has been the subject of particular concern by DFO. The salmon fry migrating downstream every year (every even-numbered year, in the case of Pink) can easily be entrained by suction dredges. Passing through a suction dredge is nearly always fatal to salmon fry. In 1974 through 1976 DFO conducted a series of experiments designed to f ind out how many fry were killed by dredging in the Fraser River. These experiments, together with the process of monitoring dredging activity that DFO began in 1972, resulted in the enforcement of the present "Guidelines" beginning in 1975. Before the enforcement of the "Fraser River Dredging Guidelines" began, two public and five commercial dredges operated in the Fraser River area. The two public dredges, operated by the Department of Public Works (DPW), were and are primarily engaged in the dredging of navigational channels. One of them, DPW 322, a stationary dredge, operates largely in the Fraser-Surrey docks area. The other, DPW 312, a mobile, happer dredge, operates wherever required, but mostly in the Main Arm of the Fraser from Sanheads to Steveston 1 "Fraser River Dredging Guide", Technical Report Series No. PAC/T-75-2.

2 and in the Annacis Channel. The five private dredges were owned and operated by Sceptre Dredging Ltd., Centennial Dredging and Sands Ltd., Dillingham Corporation of Canada Ltd., Island Sand Sales Ltd., and Riparian Dredging Ltd. These commercial dredges are generally hired by either private or public customers to provide landfill for use in new facilities for transport, storage, docking, and related activities. From 1975 through 1978, the "Guidelines" prohibited the operation of the commercial dredges. Beginning in 1979, the private dredges were allowed to resume operations provided they undertook adequate monitoring activities as set forth in the "Guidelines." The dredges owned by Sceptre Dredging Ltd., Centennial Dredging and Sand Ltd., and the Dillingham Corporation of Canada Ltd. have resumed operations, and a new small dredge was added in 1979 by Fort Langley Recreation. At present, then, two publicly owned and four privately owned dredges operate on the Fraser River. Although the "Fraser River Dredging Guidelines" contain a number of provisions, this report is concerned with the provisions that permit dredging during the fry migration period (generally March 15 to June 1) under specified conditions. The "Guidelines" require that the dredging equipment owner monitor the number of salmon fry being entrained by the suction dredging process and cease operations whenever the number being entrained is signif icant. As part of an attempt to assess the value of the "Guidelines" as applied over the past several years and to predict their future value, DFO commissioned DPA Consulting Limited to conduct a benefit-cost analysis of these "Guidelines" covering bath of these periods.

3 1.2 Benefit-Cost Analysis Benefit-cost analysis is a technique frequently used in the evaluation of public projects. It organizes information so that the benefits and costs of one or more projects can be compared. This comparison takes place from the perspective of a given society. In this case, the project to be evaluated is the application of the "Fraser River Dredging Guidelines", and the adopted perspective is that of Canada. Benefit-cost analysis requires that the economic impacts of a given project on the subject society be measured by comparing two scenarios of future events: the "with-the-project" scenario and the "without-the-project'' scenario. One measures both the positive impacts of the project (the benefits) and its negative impacts (the costs) by comparing the predicted future si tua'tion "wi th-the' proj ect" versus the predicted future situation "without-the-project." In general, benefit-cost analysis involves an attempt to express as many impacts as possible in monetary terms. A project's benefits are measured by the dollar value gained by the project's beneficiaries, and its costs are measured by the dollar value lost by those who bear the project's costs. The gains and losses thus expressed in terms of dollars are then compared; if gains exceed losses, the project is said to have positive net benefits for the society, whereas the opposite conclusion obtains if losses exceed gains. Two important limitations on the effectiveness of benefit-cost analysis as a technique for project evaluation follow from the above discussion. The necessity of assigning dollar values to the impacts to be measured in a benefit-cost analysis excludes impacts that are difficult to quantify or to translate into monetary terms. Project impacts that may be very important might be totally ignored in a benefit-cost analysis.

4 The "net-value-to-society-as-a-whole'' approach used in benefitcost analysis also ignores project consequences on the distribution of incarne within the society. The rationale for this is that those who benefit from the project could fully compensate those who sustain lasses and still retain some positive value. In fact, such compensation is rarely, if ever, carried out. Almost every project that produces a net gain to society as a whole will result in some individuals sustaining lasses. DFO recognized these limitations on benefit-cost analysis in adopting a multiple-account framework for the evaluation of its Salmonid Enhancement Program. The following elements are included in this evaluation tool: national incarne, regional development, impact on Native people, employment, and resources. and environmental protection. Benefit-cost analysis is used to determine the impacts on national incarne, and the other accounts capture the values considered important to decisionmakers that would be missed by a benefit-cost analysis. Budgetary constraints have necessitated the elimination from this study of all considerations outside the scope of a benefitcost analysis. Any benefits or costs excluded from our analysis because of the difficulty of translating them into monetary terms are stated, as are the broad outlines of the distributional consequences of the ''Guidelines." Nevertheless, our focus is on determining whether the "Guidelines'' are costeffective, from the point-of-view of the people of Canada. In the course of admitting the weaknesses of benefit-cost analysis as an evaluation technique, we should net forget its strengths. It is a tool that can bring together vast amounts of information about a project and answer the question of whether society will be richer or poorer as a result of the project. The application of this technique in this study is something of a pioneering effort for Habitat Protection; the

5 sarne type of analysis rnight be used by Habitat Protection to assist in the evaluation of many actual or potential prograrns that use public funds.

6 2.0 METHODOLOGY 2.1 Benefits As mentioned earlier, the "Fraser River Dredging Guidelines" were intended to reduce the detrimental impacts of dredging operations on the Fraser River's salmon resource. In other words, the "Guidelines" are a salmonid enhancement program, and their ultimate goal is to increase the number of salmon available to Canadians. The intended project benefit, an increase in the salmon population, is obviously quantifiable and can be translated into monetary terms if the value of a salmon can be ascertained. Project benefits thus lend themselves easily to a benefit-cost analysis. Although the concept of benefits is quite straightforward, their measurement is a different story. The "Guidelines" are aimed at reducing a whole series of negative impacts of dredging on the salmon resource. For most of these impacts no data are available concerning the number of salmon saved. For example, the "Guidelines" may help prevent the loss of elements of the food chain vital to the survival of salmon, but we have no way of measuring the number of salmon saved thereby. The only impact for which such data are available is the capture by the dredges of salrron fry migrating downstream. Since our measure of benefits excludes all impacts except this one, our benefits may be substantially understated. Two separate time periods were used for the evaluation. The first period, 1975-1979, measures the historical value of the "Guidelines" for their first five years of operation. The second period, 1980-2010, measures the predicted future value of the "Guidelines" in operation. The calculations used in estimating the number of fry saved by the Guidelines are explained in an Appendix. Table l shows the results of these calculations for every year from 1975 through 2010.

7 According to Table 1, more than 84 million salrnon fry will have been saved frorn death by dredging under the Guidelines in the thirty six year period frorn 1975-2010. This cornes to an average of about two and one-third million fry per year. Salmon fry are not valued in thernselves as a comrnodity. Instead, they are valued as a rneans to an end: by saving the lives of fry, the "Guidelines" create the potential for a larger population of adult salrnon. The benefit-cost rnodel used in the evaluation of the Salmonid Enhancement Program can be used to translate nurnbers of f ry saved into the increase in the adult population and to translate the latter into a value figure, in dollars and cents. We used this benefit-cost rnodel as the starting point for the evaluation of benefits resulting from saving salrnon fry. The SEP benefit-cost rnodel begins by applying survival rates to the fry population in order to get numbers of adult salmon. It then predicts the pattern of ultirnate fates of the adult salmon based on historical data. Sorne adults are caught by Americans, others are caught by the Canadian commercial fishery, the Canadian sport fishery, or the Canadian Native food fishery, and still others get back to the spawning grounds and reproduce. The model also assigns monetary values to these various categories. f One change we made in applying the SEP rnodel was to elirninate the possibility that any of the incrernental fish saved by the "Guidelines" would reach the spawning grounds. This was done because the salrnon saved by the "Guidelines" are marginal rather than average fish. The prirnary mandate of DFO is to preserve the fishery resource. No one should be perrnitted to catch fish in violation of that mandate. Since fishing is in fact permitted, marginal increases in the fish population should not be required to rnaintain the resource but should be available for catching. Our assumption, then, is that all the adult salrnon saved were caught, either by Americans or Canadians.

8 TABLE 1: NUMBERS OF SALMON FRY SAVED AND TO BE SAVED AS A RESULT OF "FRASER RIVER DREDGING GUIDELINES" (all entries in thousands of fry saved) Year Chinook Chum Pink Total 1975 387 369 756 1976 134 275 842 1,251 1977 202 1,636 1,838 1978 175 398 2,202 2,775 1979 252 735 987 1980 252 735 1, 670 2, 657 1981 358 993 1,351 1982 358 993 2,260 3, 611 1983 358 993 1,351 1984 358 993 2,260 3,611 1985 358 993 1,351 1986 358 993 2,260 3,611 subsequent, odd-numbered years through 2009 358 993 1,351 subsequent, even-numbered years through 2010 358 993 2, 260 3,611 Total 12, 142 33,938 38, 614 84,694

9 A second adjustment to the SEP model was made to eliminate the higher values per fish used for the sport and Indian food fisheries relative to the corrunercial fishery. Instead, all the values used came out of the corrunercial fishery. Presumably, DFO would already have allocated as many fish to both the Indian food and sport fisheries as are justified by the differences in value. Since the salmon saved from the dredges are marginal fish, they should be valued at the lowest (commercial) value. Having made these two adjustments to the SEP benefit-cost model, we used the model for the calculation of benefits under two alternative sets of assumptions, which we have named the "optimistic case" and the "base case." The assumptions involved in each of these cases will be examined in turn. 2.1.1 Optimistic Case Under the optimistic case, all of the assumptions of the SEP model except those just discussed have been applied. Fish values are determined by wholesale prices less marginal costs of getting the fish to wholesale. The real wholesale price of the various species of salmon are assumed to increase modestly through time. A complete statement of the assumptions used in this model can be found in a DFO paper titled "Estimation of Commercial Fishery Benefits and Associated Costs for the National Incarne Account." One reason for labelling this case "optimistic'' is its use of wholesale prices and costs, rather than landed prices and costs, to measure the value of incremental salmon. The usual rule in benefit-cost analysis is to value a product by looking at the first market it passes through. In the case of salmon, this is the sale by fishennen to processors (landed value), not the sale by processors to retailers (wholesale value). The SEP benefit-cost model does not follow this rule because the

10 oligopolistic structure of the fish processing industry (especially canning) has created an alleged tendency toward monopsony in relation to the fishermen. In other words, the market power enjoyed by the fish processors allows thern to pay less than the competitive price for salmon. To use the price paid by the processors (minus the incremental harvesting costs) as the measure of the value of salmon would, according to this argument, understate the value. To correct for this tendency, it is then necessary to use prices and costs at the point of the next market on the vertical chain, the wholesale market. 2.1.2 Base Case The base case differs from the Optimistic case in three respects: (1) the real prices of salmon and salmon products and the real costs associated with the salmon industry are assumed to remain constant through time, ( 2) prices paid by wholesalers to fishennen (landed value) and incremental harvesting costs are used as the bases for determining value instead of wholesale prices and incremental processing plus harvesting costs, and (3) new investment in capital equipment by fishennen in response to increases in the size of catches is predicted to take place. The first two of these assumptions were made out of a desire to avoid the possibility of overstating project benefits. While it is certainly possible that the real price of salmon will increase over time or that the prices paid by processors for salmon are less than the competitive prices or both, it is better, for the purposes of this study, to make conservative assumptions on these issues.

11 The third of these assurnptions probably carries the most serious consequences. Both the SEP benefit-cost model and the "optimistic case" discussed above assurned that, for any year, the value of the salmon saved was the difference between a market price for salmon and the incremental costs of getting the salmon to the market. Capital investment was assumed to remain constant, since present "excess capacity'' could handle the increase in numbers of salmon. Historically speaking, however, this assurnption has not held true. Whenever the catch increases and profits go up, more investment takes place, as each person tries for a larger share of the catch, and profits go back down. The SEP model assumption about no new investment requires government action to limit such investment, either directly or indirectly. The present licensing program can be seen as a step in this direction. Although not a direct limitation on investment, it has probably hindered investment somewhat, thereby resulting in the potential retention of some of the gains in salmon population. Based on conversations with officials at DFO, we have set the potential long-term gains from the licensing program at 15 percent of the landed value of the incremental salmon. It takes time for the fishing industry to respond to gains in the salmon population by new capital investment. In the f irst year of salmon population increase, no investment will have taken place, so that the benefits can be measured by subtracting incremental harvesting costs from landed value. We assume that new capital investment will be phased in over a three year period in equal annual increments, so that, by the fourth year, and for all years beyond that, benefits will equal 15 percent of landed value. 2 2 Thus, benefits in the second year will equal 72 percent of landed value minus 67 percent of incremental harvesting costs, and benefits in the third year will equal 43 percent of landed value minus 33 percent of harvesting costs.

12 In surnmary, the base case uses realistic assumptions about the impact of present government policy upon the value of increasing the Fraser River salmon population together with conservative assumptions about the structure of the industry and future relative prices. 2.2 Costs While the benefits from the application of the ''Fraser River Dredging Guidelines" have accrued and will accrue to fishermen (in the base case) or to fishennen and processors (in the optirnistic case), the costs have been and will be borne by DFO, DPW, and the private dredging companies. DFO's costs have included costs of monitoring, fry burial tests, report writing, and other costs related to the development and implernentation of the "Guidelines. " Costs to DPW and to the dredging companies include monitoring costs and the costs of shutdowns. Table 2 provides a year-byyear statement of the costs, by source. The numbers shown in Table 2 were used in the computations of net benefits for both the base case and the optirnistic case. The dividing line between the benefit-cost evaluation of the history of the "Guidelines" and the benefit-cost analysis of their future application is between 1979 and 1980. The earlier period, frorn 1971 through 1979, includes DFO's expenditures in establishing and irnplementing the "Guidelines" (1971-1975), DFO's supervisory expenditures and DPW's expenditures in complying with the "Guidelines" during the period when private dredges did not operate (1976-1978), and the first year of private operation under the "Guidelines" (1979). The later period, from 1980 through 2010, encompasses subsequent years of private, as well as public, dredging under the "Guidelines." Two dredging companies, Centennial and Fort Langley Recreation, purchased capital equipment for monitoring purposes

13 TABLE 2: HISTORICAL AND PREDICTED FUTURE COSTS OF APPLICATION OF "FRASER RIVER DREDGING GU IDELINES" (values expressed in 1979 dollars) Costs to: Priva te Dredging Year DFO DPW Companies Total 1971 382 382 1972 2, 359 2,359 1973 1,016 1,016 1974 1 6,503 16, 503 1975 25' 119 25' 119 1976 6, 217 25,000 31, 217 1977 3,597 25, 000 28,597 1978 3,339 25,000 28,339 1979 3,600 25, 000 32,311 60,911 1980 3, 600 25,000 23, 651 52,251 1981 3,600 25,000 83,651 112,251 1982 3,600 25, 000 63,651 92,251 1983-2010, per year 3,600 25,000 63,651 92,251 Total 173,732 875,000 1,985,492 3,034,224

14 in 1979, and it is assumed that two others, Sceptre and Dillingham, will do the same in 1981. These purchases account for the pattern of values through time shown in Table 2. One major omission from the benefit-cost analysis for the historical period (pre-1980) should be noted. It was not possible to estimate the lasses sustained by Canadian society as a result of the total closing down of private dredging operations from 1975 through 1978. Nor was any attempt made to include the benefits from these shutdowns. Yet no impact of the "Guidelines" during this period was more important than these shutdowns. As a consequence, the results of the historical benefit-cost analysis, given in section three of this report, do not necessarily indicate the true benefits and costs of the application of the "Guidelines" during this period. Determination of the cost figures that make up Table 2 was largely straightforward. Out-of-pocket expenditures were used to measure the costs to DFO and the costs of monitoring equipment and personnel. The costs of temporary shutdowns (necessitated by fry capture exceeding permitted levels) were based on the average "historical" temporary shutdown. We assumed each shutdown would be eight hours long, and that the only extra cost resulting from it would be eight hours worth of "variable" costs (mostly salaries). A downward adjustment was made to this figure to reflect the use of part of the shutdown time for maintenance work. Based on historical data, three shutdowns per future year were predicted for each dredge in operation.

15 3.0 RESULTS 3.1 Operation of the Guidelines from 1975 through 1979 Table 3 presents the benefits, costs, and net benefits to Canada from the historical operation of the "Fraser River Dredging Guidelines" in the years 1975 through 1979. Three different discount rates (5, 10, and 15 percent) were used to show the results under a variety of assumptions about the relationship between the present and future values of money (apart from inflation). The benefits stated in Table 3 were derived from the increase in salmon population caused by the enforcement of the "Guidelines" from 1975 through 1979. The costs shown in that table are those incurred by Canadian society from 1971 through 1979 in connection with the development and enforcement of the "Guidelines." Table 3 shows substantial positive net benefits under all three discount rates for both the base case and the optimistic case. For example, at a 10% rate of discount, Canada's benefits exceeded her costs by $1,013,000 under the optimistic case and by $264,000 under the base case. These benefits are understated to some degree, since no attempt was made to capture either the benefits to the salmon habitat and spawning grounds or the benefits to the food chain that resulted from the operation of the "Guidelines." On the other hand, we must keep in mind that a potentially major cost item, the cost of the shutdown of the private, commercial dredges for a four year period, was ignored in the calculation of the entries in Table 3. This omission prevents us from concluding that the "Guidelines" were economically efficient in their historical operation. We shall instead have to rely on the benefit-cost analysis of their predicted future operation.

l6 TABLE 3: BENEFITS 1 AND COSTSl OF THE OPERATION OF THE FRASER RIVER DREDGING GUIDELINES FROM 1975 THROUGH 1979 (all values in thousands of 1979 dollars, discounted ta "present value" as of 1980) Discount Rate 5% 10% 15% Base Case Benefits 517 527 538 Costs 226 263 306 Net Benefits +291 +264 +232 Optimistic Case Benefits 1,304 1,276 1,258 Costs 226 263 306 Net Benefits +1,078 +1,013 + 952 1 See accompanying text for discussion of omitted benefits and costs.

17 3.2 Projected Operation of the Guidelines from 1980 through 2010 Table 4 presents the predicted benefits, costs, and net benefits to Canada from the future operation of the "Fraser River Dredging Guidelines" spanning the years 1980 through 2010. The same discount rates are used here as for Table 3. The benefits shown in Table 4 were dervied from the increase in salmon population to be caused by the enforcement of the "Guidelines" from 1980 through 2010, except that no benefits after 2010 were counted. Just as for Table 3, no attempt was made to quantify benefits other than those arising from the saving of salmon fry from entrainment by the dredges. The costs shown in Table 4 are those to be incurred by Canadian society from 1980 through 2010 in connection with the continuing enforcement of the "Guidelines." These costs include administrative costs, the costs of monitoring equipment and personnel, and the costs of temporary shutdowns. The results shown in Table 4 indicate that under the "base case" assumptions, the "Guidelines" will result in a substantial net loss to Canadian socièty, while under the "optimistic case" assumptions, the "Guidelines" will result in an even more substantial net gain to Canadian society. What accounts for the wide gap between the results for the base case and those for the optimistic case? In Section 2 we identified the three differences in assumptions between the two cases. The Base Case uses constant real prices and landed values and incremental harvesting costs, and it assumes that additional capital investment will dissipate most of the resource rent. The Optimistic Case uses slightly increasing real prices of salmon and wholesale values and incremental costs through wholesaling, and it assumes that no new capital investment will take place so that the full resource rent can be captured.

18 TABLE 4: PROJECTED BENEFITS AND COSTS OF THE OPERATION OF THE FRASER RIVER DREDGING GUIDELINES FROM 1980 THROUGH 2010 (all values in thousands of 1979 dollars, discounted to "present value" as of 1980) Discount Rate 5% 10% 15% Base Case Benefits 762 455 295 Costs 1,489 940 675 Net Benefits -727-485 -380 Optimistic Case Benefits 4,705 2,846 1,866 Costs 1,489 940 675 --- Net Benefits +3,216 +l,906 +1,191

19 The most important of these differences between the two cases is the issue of whether additional capital investrnent will take place. We conclude that without an effective cornrnitrnent by governrnent to prevent capital investrnent in response to an increase in the salmon catch, the enforcement of the Fraser River Dredging Guidelines is not economically efficient from the Canadian perspective. With such a cornrnitment, however, the enforcernent of the guidelines would be highly efficient. The continuing absence of effective restrictions on this sort of investrnent lowers the benefits not only of these guidelines, but also of all salmonid enhancement programs. The above analysis is limited to the guidelines as presently structured. Subjects for further research include the consequences of changing the guidelines in one way or another. For example, what would be the benefits and costs of changing the present monitoring system to one in which dredging is prohibited during the downstream migration season? This and other similar questions woùld arise if the focus of inquiry shifted from whether the present "Guidelines" are efficient to the development of the most efficient set of guidelines possible.

APPENDIX DERIVATION OF THE ESTIMATES OF THE NUMBERS OF SALMON FRY SAVED AND TO BE SAVED BY THE ENFORCEMENT OF THE FRASER RIVER DREDGING GUIDELINES

A-1 This appendix describes the manner in which the estimated numbers of fry saved by shutting down the dredges operating in the Fraser River were derived and the sources of information used. Data on salmon fry migration (for Chum, Chinook, and Pink) were obtained from Paul Star of DFO. The nurnbers of fry caught by the dredges were obtained frorn two technical reports published by DFO: "A Review of Suction Dredge Monitoring in the Lower Fraser River 1971-75", Technical Report Series No. PAC/T-75-27. Pp. vii, 19-90. "Dredge Monitoring Capture Data and Entra.inrnent Estimates During the 1976 Juvenile Salmonid Migration in the Lower Fraser River", Technical Report Series No. PAC/T-76-21. Especially pp. 3-37. The data on the average number of shutdowns for DPW 312 and DPW 322 were obtained frorn Paul Sookachoff of DFO. The first step was to correlate, for each day between 1972 and 1978 for which data were available, the nurnber of salmon fry caught by the dredges prior to shutdown with the number of fry migrating in that area on that day. Table A-1 shows an example of this calculation process. The monitored dredges were requested to shutdown operations by DFO when fry capture became excessive. From 1972 through 1974, the monitoring technician's judgement defined "excessive''; starting with 1975, eut-off numbers were established. The first entry in Table A-1 is the estimated number of fry captured on that day by that dredge. This number was obtained from one of the two technical reports cited earlier. The second entry presents total fry migration on that day based on information supplied by DFO. The third entry, the proportion of the total migration passing through the given area on that day, was calculated under the assumption that the local proportion of the total migration was the same as the local 1 1

A-2 TABLE A-1: SCEPTRE DREDGING AT NORTH ARM: MAY 10, 1972 Estirnated Pink Fry Capture, all day: Total Pink Fry Migration, all day: Pink Fry Migration through North Arm, all day: Percentage of Available Migration Caught by Dredge: 16,800 2,944,679 382,808 4.4%

A-3 proportion of the total river flow. The final entry, the percentage of the migration caught by the dredge was calculated by dividing the first entry by the third. Table A-2 presents the average proportions of the migrations caught by the dredges in the time just prior to shutdown or relocation. These averages were used in the calculation of the numbers of fry saved. DPW 312 is treated separately from the other dredges because it is a hopper dredge while the others are stationary dredges. An hopper dredge can be relocated in about one hour's time, so that unlike the stationary dredges, it need not be shut down for 8 hours each time that a signif icantly high number of salmon fry are being entrained. Next, the pattern of salmon fry migration for the years 1975 through 1978 was examined to determine peak migration days and periods. 1975 was chosen as the first year because it was the first year of strict enforcement of the "Guidelines." 1978 was chosen as the last year because it was the most recent year for which migration data were available. As can be seen from Table A-3, the pattern of fry migration varies considerably from year to year. In most cases, the requested shutdowns of the dredges occurred in approximately the middle of a peak period. Thus the information provided in Table A-3 is directly useful in estimating the number of salmon fry saved by a shutdown or by a relocation. According to information supplied by DFO, DPW 322 was requested to shutdown for an 8 hour shift about three times per year, on average, while DPW 312 was relocated two to three times per year. The number of fry saved was calculated by combining the informatim~ontained in Tables A-2 and A-3 with that just given. Table A-2 provides information on

A-4 TABLE A-2: PROPORTIONS OF THE MIGRATIONS BEING CAUGHT JUST PRIOR TO REQUESTS FOR SHUTDOWN OR RELOCATION Chum Pink 1 Total A. Each Dredge except for DPW 312 (average). 0060. 0517.0351 B. DPW 312 (average). 0471.0003.0263 1 a weighted average.

A-5 TABLE A-3: PEAK MIGRATION PERIODS AND DAYS A. Total Migration during Peak Periods (thousands of fry) Chum Pink Chinook 1975 1976 1977 1978 62,514 34,234 206,337 46,675 124,078 205,427 46, 962 19,832 28' 080 19,250 B. Average Migration per Peak Period (thousands of fry) Chum Pink Chinook 1975 1976 1977 1978 Annual Average 10,419 8, 558 51,584 11,669 20,558 24,816 68,476 46,646 1 11,740 3,966 5,616 4,812 6,534 C. Average Migration per Peak Day (thousands of fry) Churn Pink Chinook 1975 1976 1977 1978 Annual Average 2, 718 1,426 7,936 2,593 3,668 5,395 11,413 8' 404 1 2,236 862 1,560 1,375 1, 508 1 Average for pinks based only on even-nurnbered years.

A-6 the percentage of the migration to be saved by a shutdown or a relocation, the information just given tells us how long the shutdowns last per year (e.g., 3 X an 8 hour shift = 24 hours = 1 day), and Table A-3 gives us peak day migrations, showing the number of potential candidates for rescue. For the years from 1975 through 1978, only the fry saved by the shutdowns of DPW 322 and by the relocations of DPW 312 are included. The average migration per peak day for each year is used in that year's calculations. Starting with 1979, the annual average peak day migration figures are used (only in even-numbered years in the case of Pinks) in the calculations. For 1979 and 1980, the results for DPW 322 are multiplied by 1.5 to account for the fry saved by shutting down the private dredges owned by Centennial Dredging and Sand and by Fort Langley Recreation. Starting in 1981 and continuing for every year thereafter, the results for DPW 322 are multiplied by 3.5 to account for the fry saved by shutting down all the privately owned dredges. We are assuming, then, that the dredges owned by Centennial Dredging and Sand and by Fort Langley Recreation were the only ones to re-initiate operations before 1981, but that all the other companies will have resumed in that year. Table A-4 shows the results of the calculations of the number of fry saved. It is duplicated in the main body of the report as Table 1.

A-7 TABLE A-4: NUMBERS OF SALMON FRY SAVED AND TO BE SAVED AS A RESULT OF "FRASER RIVER DREDGING GUIDELINES" (All entries in thousands of fry saved) Year Chinook Chum Pink Total 1975 387 369 756 1976 134 275 842 1,251 1977 202 1,636 1,838 1978 175 398 2,202 2,775 1979 252 735 987 1980 252 735 1,670 2,657 1981 358 993 1,351 1982 358 993 2,260 3,611 1983 358 993 1,351 1984 358 993 2,260 3,611 1985 358 993 1,351 subsequent, odd-numbered years through 2009 358 993 1,351 subsequent, even-numbered years through 2010 358 993 2,260 3,611 Total 12,142 33,938 38,614 84,694