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What are the benefits of east coast High Speed Rail?

The Greens released a report this week claiming an east coast High Speed Rail line would deliver benefits of $48 billion. Trouble is, it would cost much more than this to build and would mainly benefit regional leisure travellers

Estimated benefits of HSR over 30 years, discounted at 7% p.a. (source data: Australian Greens)

A new “independent” report on High Speed Rail (HSR) by the Australian Greens claims the benefits of an east coast line from Melbourne to Brisbane would total $48 billion over 30 years.

This compares with an estimated cost of construction of around $80 billion. It seems bizarre that the Greens, who’re committed HSR boosters, would trumpet a report showing the cost of building it well and truly exceeds the benefits.

Trying to pass off a report prepared for a political party as “independent” is pretty bizarre too. This is a nakedly political document – Bob Brown committed the party to HSR before the last election – so it’s not surprising the construction cost estimate is in any event ridiculously low.

The Federal Government’s Phase 1 study estimated the risk-adjusted cost of building east coast HSR, with 10% risk of being wrong, as $108 billion. To that has to be added another 15% for management and procurement costs, plus rolling stock and more. None of it would be recovered from HSR fares (then there are operating and financing costs too….).

On the other hand, the Phase 1 Study assigned a confidence estimate to $80 billion of only 50%. In other words, $80 billion is a rubbish figure.

There are a number of questionable assumptions in the report in relation to the benefits of HSR too. For example, Robert Merkel argues the report over-estimates the benefits from fewer motor vehicle accidents and lower emissions.

I can’t find any reference in the report to the massive emissions that would be associated with construction. A British study by Booz Allen estimates a fast rail line from London to Manchester would emit more GHG during construction than it could recover from lower air travel over the 60 year time horizon adopted for the analysis.

Nor is there any allowance for the environmental impact of nearly 2,000 km of high speed track.

There are other convenient but arguable assumptions and omissions that undermine the credibility of the report, but that’s no surprise in an overtly political document. In any event, fiddling the numbers is not the main issue.

It’s clear from the Greens report that most of the benefits from HSR would come from savings in travel time (see exhibit). Moreover, those savings would mostly accrue to regional trip makers i.e. travellers journeying between major cities and regional areas.

The Phase 1 study forecast that regional travellers would make up 60% of all HSR passengers. Regional travellers who swap their cars for HSR or are induced to make additional trips by HSR would account for the great bulk of time savings. They’d mostly be leisure travellers.

In fact the Greens’ report quite properly counts no time savings from those inter-capital trip makers (who comprise the great bulk of high value business travellers) who’re assumed to transfer from air to HSR. That’s because HSR would be no faster than air between major cities.

The $48 billion in aggregate benefits over 30 years looks impressive, but that’s not surprising. Any large expenditure on infrastructure will produce benefits for some groups.

What matters is how those benefits compare against the costs.

In this case, as already noted, the construction costs exceed the benefits by a factor of at least two. That’s in the same ball park as the Baillieu Government’s proposed east-west road link in Melbourne.

What matters even more is whether there are better ways to spend the money.

Even if the benefit/cost ratio were positive, how important is it to the nation that regional leisure travellers should be able to travel faster to and from capital cities? Is that the best way to spend more than $120 billion?

On the basis of this study, the Greens call east coast HSR a “nation-building” project.  But it’s nothing of the sort – there’s no stand-out productivity benefit here.

Investing an additional $5 billion p.a. in education as Gonski proposed might qualify as a nation-building project. Investing an extra $120 billion plus in urban public transport, or in greening the nation’s power stations, might qualify as nation-building.

HSR looks more like (non means-tested) regional welfare.

One useful aspect of the Greens’ report is it puts the likely (operating) emissions savings from HSR in perspective. It estimates them at $2 billion over 30 years, assuming a carbon price of $34 per tonne rising to $107 per tonne by 2036. That makes it clear they’re modest relative to the cost of constructing HSR.

There’s no merit in spending more than $120 billion of public funds to replace one form of public transport (planes) with another (HSR). It would be an extraordinarily cost-ineffective way of lowering the nation’s production of emissions.

The Federal Government’s Phase 2 report is due any day now (it’s supposed to be released before the end of the year). Among other things, it’s intended to supplement the Phase 1 study’s analysis of the costs of HSR with an assessment of the benefits.

It should be a far more sophisticated and balanced effort than this one. I expect it will provide the evidence to show beyond doubt that HSR is a boondoggle. It’s unlikely mere evidence will be enough to change some minds though.

See ‘HSR’ in Categories list for more articles on High Speed Rail.

P.S. There are pollutions savings from HSR according to the Greens calculations, they’re just too small to show up on the chart ($64 million over 30 years)

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  • 1
    el tel
    Posted November 30, 2012 at 8:40 am | Permalink

    Adam Bandt wants to humour his constituents into believing that they can simply leave their Docklands loft, or jump on a tram at Carlton, and head to Canberra or Sydney with no more effort than it takes to go to work. Did The Age consider this to be a visionary document?

  • 2
    andyb23
    Posted November 30, 2012 at 9:02 am | Permalink

    Alan – we need to prioritise our urban public transport ahead of inter-city HSR. The economics for HSR here simply don’t add up. According to the International Union of Railways, only two HSR routes in the world – between Tokyo and Osaka, and between Paris and Lyon – have broken even.

  • 3
    Last name First name
    Posted November 30, 2012 at 12:02 pm | Permalink

    Parker Alan • OAM,

    If the bike hire scheme is ever to work , as Elliot Fishman points out, in his sensible proposals which are all needed and can be done . However one proposal has been ignored. The police commissioner has the power to exercise a flexible approach and exempt his police from the need to enforce the helmet law for those riding hire public bikes which are easily recognizable.
    Indeed, one police legal exemption was for 3 an 4 wheeled footpath scooters in Sydney by the disabled and partially disabled elderly people. Not only could they ride their scooters on the footpath they did not to wear a helmet.
    Victoria police this happens in Victoria and the comments made in my previous comment about exempting hire bikes from the helmet wearing laws where totally in the later commentators. Perhaps, they did not know about the realities of law enforcement and exceptions that are possible to the Victorian road rules and the National road safety code which reviews minor changes every year or so. The fact that the laws are flawed also applies to electric bicycles, because electric bikes have to be imported and nearly all of them have 250 watt motors which are illegal in all Australian states. Which means that Australians cannot buy the best electric bikes on the world market. What is legal in Australia is 200 watt electric bikes with non standard electric motors.

  • 4
    Dylan Nicholson
    Posted November 30, 2012 at 1:47 pm | Permalink

    Is there any country in the world as spread out and sparsely populated as Australia that has seriously considered HSR? It does seem to be pure populism to keep pushing for it.

  • 5
    gdt
    Posted November 30, 2012 at 1:53 pm | Permalink

    The report assumes that the prices of the alternatives don’t change. (1) the carbon price of fuel used in aircraft remains the same, even though aircraft do more damage to global warming than the same fuel burnt at ground level. (2) There are sufficient landing slots in Sydney and Melbourne airports for the increase in flights.

    The point isn’t the cost, it’s the cost in comparison to the alternatives. A costing of HSR that doesn’t price in a new Sydney airport for the alternative doesn’t really model the choices facing us.

  • 6
    Alan Davies
    Posted November 30, 2012 at 2:00 pm | Permalink

    gdt #5::

    That $11 billion of “Congestion savings” in the Greens’ estimate (see exhibit) includes $10 billion of benefits for avoiding or delaying a second Sydney Airport.

    I don’t know what you mean in your point (1). The Greens’ report assumes a carbon price of $34 per tonne, rising to $107 by 2036 and continuing to rise thereafter. The report explicitly states that flying has a higher carbon impact that rail per passenger km.

  • 7
    mook schanker
    Posted November 30, 2012 at 3:26 pm | Permalink

    Alan, the graphs spectrum of benefits appears incomplete. Having now breezed through the phase 1 report, it is a more a rail corridor comparator so to speak not a full blown CBA, so things like the environmental cost of 2000km of track and construction economic costs I would think would be in phase 2. No need to drop coin on the detail when the first task is the options analysis.

    Though the Greens spruiking the report is probably a bit early at this stage, however, probably writing it off at the same time is a bit early too.

    P10, P50 and P90 are typical business case risk adjusted intervals, especially this early in the piece where variance is high. You can read them any way you wish.

  • 8
    Alan Davies
    Posted December 1, 2012 at 9:48 am | Permalink

    mook schanker #7:

    Here’s how the Federal Government’s Phase 1 Report defines the risk outputs (page D18):

    P10: the value at which there is a 10% probability that
    the capital costs will not exceed this amount.

    P50: the value at which there is a 50% probability that
    the capital costs will not exceed this amount.

    P90: the value at which there is a 90% probability that
    the capital costs will not exceed this amount

    They cover “a range of physical (quantity) and price (unit cost rate) risks based on confidence levels for the individual cost components for both land acquisition and infrastructure requirements.”

    I’m not sure whether that does or doesn’t take account of optimism bias. The report of the California HSR Peer Review Group to the State Legislature refers to offical “British Government guidance to add 66% to capital cost estimates and 41% to operating cost estimates in order to account for optimism bias.”

    .

  • 9
    Krammer56
    Posted December 1, 2012 at 2:40 pm | Permalink

    The main point is the one you so clearly make Alan – is this the very best way Australia can spend $108B+?? And the answer is clearly no – especially since only a few towns along the route will benefit, while we will all pay for it! Even if the BCR was positive, I am sure we could find lots of smaller projects that in aggregate would deliver much higher total benefits and to many more people and businesses.

    Urban PT, esepcially buses would probably be much more valuable. Even lots of small road projects dealing with all of those annoying local problems in every neighbourhood would be a better spend. $108B = 10,800 x $10m projects (yes, that is over TEN THOUSAND $10m projects).

    Unfortunately, the bankers, builders and lawyers don’t make as much from lots of little projects. And the politicians don’t get their names up in lights! Hence the continuous push for mega-projects that cost heaps and benefits relatively few.

  • 10
    melburnite
    Posted December 1, 2012 at 4:03 pm | Permalink

    Yes I would like to just get on a tram, then a train to get to sydney – though an airport train would be almost as good. But yes the costs do seem to outweigh the probable benefits. Much better to improve urban PT as mentioned above, and / or even faster regional rail links here in Melb – the current project will make them a bit faster, but not really fast; but I am a fan of Mr Guys recent ‘announcement’ – or was it just musings – that we should have many regional centres with fast links to Melb. I dont see why say Gisbourne, Warragul / Drouin, Kilmore and Bacchus Marshm or even some of the tine twons along teh lines, arnt part of Melbourne’s urban planning, with fast regular rail and proper planning to make them nice sattelite communities.

  • 11
    Dylan Nicholson
    Posted December 1, 2012 at 6:26 pm | Permalink

    Perhaps ironically the one thing that would make HSR economical in Australia – massive population growth over the next 20-30 years – is of course not something the Greens generally support (and I say this as someone who generally votes for said party, on the basis that their failings are generally less worrisome than those of the others). I’d suggest though such population growth is going to happen whether we want it or not – Australia is going to continue to offer the best chances for a better life for a significant percentage of the world’s population for many decades to come. Assuming Sydney and Melbourne grow to a joint population of over 15 million, perhaps HSR between at least those two cities might be justifiable…but it depends a lot on whatever technological developments occur too.

  • 12
    Alan Davies
    Posted December 1, 2012 at 7:09 pm | Permalink

    Dylan Nicholson #11:

    Higher population density is favourable for HSR but I don’t think that automatically makes it an “economic” choice for public subsidy, much less “the best” choice. I wouldn’t assume all the HSR lines that’ve been built were wise decisions.

  • 13
    rubbo mike
    Posted December 2, 2012 at 3:09 am | Permalink

    Frustratingly, Alan, I cant find your recent article on shopping by bike. I’ve elaborated on what I had on my blog on that topic and which you might have seen, in this movie

    http://youtu.be/442fvIFEgOo

  • 14
    Dylan Nicholson
    Posted December 2, 2012 at 8:15 am | Permalink

    Alan, sure, but it’s hard to imagine that two cities of 7 or 8 million people each are going to be able to exchange passengers efficiently via roads and skies alone, unless there are significant advances in either self-driving vehicle or communications technology (both of which are quite feasible over the time periods we’re talking about). OTOH there may even be significant leaps in HSR technology that bring down costs (think fully automated
    track laying!).

  • 15
    Alan Davies
    Posted December 2, 2012 at 12:23 pm | Permalink

    rubbo mike #13:

    For one horrible moment there I thought the poor prospects for HSR were going to be sheeted home to the mandatory helmet law! Great movie Mike and not even a mention of helmets. The article on cycling to the shops is here – it would be good if you posted the movie there as well.

  • 16
    mook schanker
    Posted December 2, 2012 at 4:21 pm | Permalink

    Alan, there’s a public service infrastructure cost estimating standard nationally for risk adjusted costing (or it’s about to be released very soon). Early versions that derived from NSW I think can be sourced on the net for free. I can’t recall optimism bias in the methodology though. I would think the HSR study followed the same principles.

    The way you take P10, P50 & P90 all depends on the appetite for risk and procurement delivery mechanism.

  • 17
    Aidan Stanger
    Posted December 3, 2012 at 12:25 pm | Permalink

    The Phase 1 study was for a gold plated high speed railway. There are plenty of things that could be done to get the cost down.

  • 18
    Alan Davies
    Posted December 3, 2012 at 12:31 pm | Permalink

    Aidan Stanger #17:

    The obvious non-gold plated option is to have a moderately fast train. But that’ll lower the benefits too.

  • 19
    john2066
    Posted December 3, 2012 at 10:27 pm | Permalink

    Alan, I like this blog, one small quibble, you should consider having more of your qualifications on your bio page, its too short I think….

  • 20
    Aidan Stanger
    Posted December 3, 2012 at 11:56 pm | Permalink

    Alan, there are three factors you should consider more:

    Not all cost saving measures reduce performance. The phase 1 report made some crazy claims about station costs and even went as far as considering building termini in silly places like North Melbourne to avoid the cost. The logical cheaper solution would be to flog a few of the existing platforms in Melbourne Southern Cross and Sydney Central. Admittedly when the track is extended beyond Sydney there would be a requirement for new underground platforms as well, but not many.

    Many high speed railways overseas have opened in stages. Would a train running very fast to Campbelltown NSW and then moderately fast for the final stretch into Sydney be so bad? The expensive last stretch, which would probably require a lot of tunnelling, could wait until demand can be shown to justify it.

    Studies tend to underestimate benefits of such projects because after 30 years (or however long they consider) the infrastructure will not only still be around but will be more valuable than ever. Similarly they tend to overestimate costs by setting the discount rate too high.

  • 21
    Bellistner
    Posted December 4, 2012 at 5:14 pm | Permalink

    I’d love to see Oz embark on a broad HSR policy. A network connecting the major population centres along the East Coast, and maybe Adelaide, too. But I’m dreaming. Even if the number stacked up, indeed, even if the numbers came out overwhelmingly positive, it wouldn’t happen. Just look at the foofaragh over the cost of the NBN, then triple that for a gold-plated HSR (which is the only one we’d build, of course. People must travel in the style to which they want to become accustomed to).

    On a cost-benefit viewpoint, it is far better to improve PT in the major cities (including bringing back trams to Brisbane) and performing inceremental improvements to the existing rail corridor. Just straightening Yass to Albury might shave an hour off transit times between Sydney and Melbourne. Semi-High-Speed Rail (like QRs Tilt Train, or what NSWs XPT was intended to be) is doable, at a modest cost, on current alignments. The much-derided ARTC, with some additional funding, could bring forward planned track improvements, instead of the current system of ‘just getting by’ and performing oh-so-gradual repairs to an interstate network left to rot by successive State Governments. Straighten curves and easing grades are a cheap and quick method of improving transit times.

    While many of the spends could be justified as a Public Transport issue, a side-benefit (and in actuality, probably the main one) is improved transit times and access for rail freight, something that would actually measurably reduce emissions and external costs, even more so if the network was electrified and run off renewable power (think hydro rather than wind).

  • 22
    Bellistner
    Posted December 4, 2012 at 5:16 pm | Permalink

    Adian: to support your suggestion about stages, even the TGV runs on standard track at much-reduced speeds as it approaches Paris and other built-up areas with existing trackage. Spending the last half hour or so at 60-80kmh isn’t a big deal in the scheme of things.

  • 23
    Alan Davies
    Posted December 4, 2012 at 5:33 pm | Permalink

    Aidan Stanger #20:

    Research by experts like Bent Flyvjberg shows the reverse: costs of major infrastructure projects tend to be under-estimated and benefits over-estimated. Shareholders in Brisbane’s Airport Link could testify to that.

    Be aware that staging slows the flow of benefits too.

    Bellistner #21:

    As you say, all that foofaragh (brilliant word BTW) over the NBN when, unlike HSR, it’s intended to not only fully cover its operating costs but pay back all its capital costs and return 7% p.a. to the government!

  • 24
    Aidan Stanger
    Posted December 4, 2012 at 9:45 pm | Permalink

    Short term usage of some infrasturcture projects tends to be overestimated – particularly for tollways as the toll rate tends to be set too high before it’s had sufficient time to significantly affect trip distribution. But how many examples can you think of where the long term benefits were overestimated? Aside from projects at were never completed, the only ones I can think of are some of Australia’s rural railways, constructed when our rural population was projected to be much higher than what actually eventuated. I suppose the Channel Tunnel could be included, as it fell victim to the rise of low cost airlines and consequent decline in the status of Paris as a destination. But were the full benefits of the Chunnel even calculated? Its construction relied on the financial case alone, and funded entirely by shareholders (who ended up losing a lot of money).

    IIRC Bent Flyvjberg’s main work was on the construction costs. He correctly identified that costs were greatly underestimated on some projects. But rather than responding by working to bring actual costs down, the most common response seems to have been to inflate cost estimates. And that’s certainly the approach they took with the Phase 1 study.

    As for staging slowing the flow of benefits, of course it does…but not in proportion to the relative cost.

  • 25
    Dudley Horscroft
    Posted December 13, 2012 at 9:46 pm | Permalink

    Re Bellistner 21: “Straighten curves and easing grades are a cheap and quick method of improving transit times.”

    With respect, NO! Straightening curves definitely can improved transit times, which is why HSR tend to have curves around 9 km radius. Easing gradients does not do this. The prime example is the Melbourne Sydney line in NSW, where to ease gradients substantial curves were added. As you travel by train, you see the ends of embankments and cuttings which gave a reasonably straight line, but the curves were added to keep the ruling gradient down – all the weak steam engines could cope with at the time. Now the line should be straightened, use the old route. The Paris Lyon LGV has substantial gradients – easier to go over than around – and at at least one point you can actually feel lighter as the train goes over a summit at 280 km/h.

    In NSW half an hour could be cut off the time if the Hexham-Stroud deviation were built, but at present the BC ratio is shaky.

    Certainly there are better uses for the HSR money – supposing it actually existed. First should be in Sydney, restoring the tram services with modern trams on major travel corridors – Parramatta Road. Anzac Parade, and Military Road, for example. Substantial cost reduction plus time savings should give a substantial positive BC Ratio. Same with the Doncaster Light Rail in Melbourne.

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