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Infrastructure

Mar 27, 2013

Does this freeway make any sense?

Tony Abbott and Dennis Napthine have effectively committed to Melbourne's proposed East-West Link "sight unseen", but it's likely the costs of this new freeway would well and truly exceed the benefits

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Diminishing marginal returns to new roads due to diminishing distance reductions as the network is increasingly complete (source: David Levinson)

Melbourne’s proposed 18 km East-West road link is the highest infrastructure priority for the Napthine Government and is on Infrastructure Australia’s priority list. Tony Abbott likes it too – he’s promised to contribute $1.5 billion if the Coalition wins government in September.

There’s a lot of concern about the impact construction of the tunnel would have on Royal Park. It seems parts of it would be closed for years while the tunnel is constructed (using ‘cut and cover’, the road engineer’s version of open-cut mining with remediation).

That’s a substantial and real cost but it’s short term. The parkland can be reinstated and returned to public use when the project’s completed. It’s a price worth paying for good infrastructure that will deliver benefits for decades.

But that’s where we come to the real problem with the East-West Link. The government hasn’t said what the benefits would be.

The only credible guide is a 2008 study led by Sir Rod Eddington, Chairman of Infrastructure Australia.

His work suggests the benefit-to-cost ratio for the East-West Link is in the region of only 0.5. In other words, the costs would be double the benefits.

No doubt the government has a team of wonks working hard to find ways of improving the ratio, but that’s a big gap.

It might seem surprising because drivers of trucks and cars ought to get substantial time savings from a freeway.

But as I’ve discussed before, there’s good evidence that contemporary transport projects in Australia generally offer modest economic pay-offs.

A key reason is the extraordinarily high cost. Contrary to the meme that it’s cheaper to develop within established areas, it’s actually usually more expensive.

The East-West Link is expected to cost in the region of $10 billion, largely because most of it will either be in tunnel or elevated. That’s necessary to avoid existing developments.

The Age’s economic editor, Tim Colebatch, reckons it will cost more. The “footy ground” figure he cites in this very good piece advising governments to borrow and build is a whopping $15 billion.

But it’s not just costs. The benefits are also more limited than is often assumed. Partly that’s because induced demand eats up time savings promised by a new road.

Another reason is politics. The projects with the highest economic returns don’t always, or even often, get the green light from politicians.

Or maybe it’s simpler than that. Transport academic David Levinson offers a structural explanation.

In a city that already has a well-developed road network, adding another link only provides a relatively small improvement.

Back in the 1950s, he says, countries like the US were growing quickly but had relatively poor connectivity. Almost any road project would give a high benefit/cost ratio.

However as the network grew, the relative productivity of new investments declined. He explains the proposition with this simple example (see exhibit):

Imagine you have a network with a 1 mile grid (typical for much of the US). With development of farms, you add roads in between, say at 1/2 mile spacing, this reduces travel costs some, as people don’t need to back-track as much, and this might be a significant share of the distance for short trips. At most, you are saving someone 1 mile (1/2 mile at the beginning of the trip, and 1/2 mile at the end of the trip). Now add additional links to diminish spacing to 1/4, This requires twice as many links, but only reduces travel costs by at most 1/4 mile at each end of the trip (1/2 mile total). New links do less and less to reduce distances. Distances, along with speed, determine travel time.

Other things being equal, the best returns are likely to come from relatively sparse or immature networks. That might be one reason why public transport projects in Australia often yield superior benefit-cost ratios.

It’s unfortunate though that rail-based projects, in particular, seem especially vulnerable to politicking, too often leading to under-performing projects winning funding ahead of better ones.

The politics are evidently too hard at this time, but rather than building the East-West Link, what the government should really be doing as a first step is implementing congestion charging on the entire freeway system.

It would discourage discretionary travellers who have the option of making trips at another time – only one in three AM peak travellers are going to work and 17% are travelling for shopping and recreation purposes.

That would “create” capacity for higher value trips, thus obviating or delaying the need to build new freeways.

Both Tony Abbott and the Victorian government have committed to build the East-West Link without demonstrating how it would make Melburnians better off or more likely, it seems, make them worse off.

As an aside, I’m sometimes criticised for allegedly overstating the cost of infrastructure projects, as if I have a civic duty to pretend they’re cheaper. Well Tim Colebatch makes me look timid. He says eliminating Melbourne’s 175 level crossings would cost in the region of $30 billion (my figure is $17 billion). He estimates the Melbourne Metro would cost circa $15 billion ($8 billion) and a rail link to the airport around $3.5 billion ($2 billion).

Another aside: The total of Mr Colebatch’s estimates for major transport projects in Melbourne is well north of the $50 billion for transport infrastructure across the US President Obama thought was large enough to highlight in his State of the Union address. That $50 billion is for refurbishment, but it does put the scale of the infrastructure challenges of our cities in perspective. Even on my estimates, the total cost of mooted projects for Melbourne is heading towards $50 billion.

Alan Davies — Editor of The Urbanist

Alan Davies

Editor of The Urbanist

The Urbanist is edited by Dr Alan Davies, a principal of Melbourne-based economic and planning consultancy, Pollard Davies Consulting.

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11 comments

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11 thoughts on “Does this freeway make any sense?

  1. Russ

    IkaInk, your logic is faulty here. If option A presents some set of benefits Ba at cost Ca, and option B presents some benefits Bb at cost Cb. Then while it follows that doing A and B will have costs close to Ca+Cb, many of the benefits will potentially overlap (or have declining marginal value) and will be less than Ba+Bb.

    A roads-only option would need to be analysed independently before you can actually claim a negative CBR.

  2. IkaInk

    @David Duncan – Check out Page 5 of the “Meyrick and Associates – Economic Benefits and Costs Analysis” document. It was listed on the page Alan linked to, but here’s the link directly:
    http://www.transport.vic.gov.au/__data/assets/pdf_file/0015/34260/EWLNA-MeyrickandAssociates-Economic_Benefits_and_Costs_Analysis.pdf

    You’ll notice that there are CBR shown for the combined ‘Road and PT’ option and another for the ‘PT only’ option. There is no CBR shown for just the ‘road only’ option, because as can be demonstrated by the higher CBR for the ‘PT only option’ than the ‘Road and PT’ option, the road only option has a negative CBR.

    I disagree however that the freeway tunnel entering in the park will only be a “temporary problem”, there is the possibility that some sections of the park would become on and off ramps.

  3. David Duncan

    Thanks Alan,

    I think the instinctive backing of the east-west road tunnel by Napthine, Abbott, and the News Ltd press (admittedly the last time i looked was the morning after Ted stepped aside and the Ed was adamant it was the thing Napthine MUST do) is lamentable indeed. I was interested to follow your link to the Eddington report after you said that their cost-benefit evaluation was unfavourable. Can you please suggest a more specific reference? I may need it for some upcoming correspondence. I couldn’t find that flavour in the documents at the linked page, only reference to an earlier NCCC report.

    I like that you’ve touched on a clichéd form of opposition to the east-west road project, in the temporary loss of access and disturbance to Royal Park. Yes one can imagine that it will be ugly, dusty, muddy and brutal at the time but it would only be a temporary problem. As you and the commenters have pointed out, there are far more problematic and longer term reasons to think the road tunnel project is a bad idea.

  4. Socrates

    An excellent post Alan. You are right about the costs. When I worked in a highway planning agency we used to assume construction of new greenfield roads was two thirds of the cost per km compared to building a road in a developed corridor, worse in urban areas. Tunnels were five times worse. So no wonder our new toll road tunnels cannot pay for themselves.

    Regarding benefits, I think there are further reasons to be suspicious of the East West road tunnel. These days a lot of attention in transport economics and benefit analysis is looking at wider economic benefits, such as impacts on property value and employment. This is a good thing, as these impacts are often large in urban areas, and may exceed the value of transport benefits. See reports on London Crossrail for detailed discussion.

    The trouble is, urban property impacts are usually positive for rail projects, but negative for roads. Even employment impacts for roads are only positive for manufacturing, which is actually a very small component of total urban employment, and may be negligible or negative for the rest. Rail access improvements are much better for generating productivity and employment benefits in urban areas. So the answer for the road tunnel gets even worse when you consider the total picture.

  5. Dudley Horscroft

    The only quibble I have with ‘hk’ is that congestion pricing should be applied not only to the freeway network, but also to the entire main road network. That plus tolls to cover all road construction and maintenance costs.

    Before any large project is started there needs to be a sound business case, a good engineering cost assessment, and a rigorous benefit/cost examination done. Only when all three show a positive return should any politician worth his pay think of supporting it. And there should be some reasonable degree of prioritization, perhaps but not necessarily on the basis of positive BCRs.

    And No, I don’t think this project is worth going ahead with, any more than WasteConnex in Sydney. Both are graniose projects which seem to be more to tickle the vanity of road builders and politicians than resonable attempts at improving the lives of city dwellers.

    There is one thing in their favour, while waiting for business cases and BCR examinations that will satisfy Treasury (Laugh!) there is time for them to be canned, and while we are waiting the money is not being spent from the Budget.

    Denis Napthine could do a lot better for Victorians, Melbournians in particular, but going ahead with all proposed tram extensions which each would cost less than $10M. And he should update the MMTB plans for light rail to Doncaster, arguably far cheaper and probably of more benefit than the proposed railway.

    Cheaper in Cities? No way, the Darwin Alice Springs Railway cost about $1M per km. Try this in Sydney or Melbourne!

  6. Krammer56

    While I have no faith in the EW Tunnel ever delivering benefits commensurate with its massive cost (especially the eastern section), I suggest it needs to be dumped for a completely different reason: sending $15B (or whatever) on one risky project to possibly benefit probably less than 1% of travelers is nuts. We won’t have any money to spend on any other transport (or non-transport) projects in Victoria for years and years.

    There are lots of small projects out there of all sorts that will simultaneously:
    * generate much higher benefits for a much larger group of travelers,
    * be simpler to get done,
    * spread the much lower risk of failure and cost overruns; and
    * employ a lot more people from many small design and construction companies.

    Works such as intersection improvements, bus services, new train stations, tram extensions, missing road links in the arterial network, bottleneck relief, backlogs in the outer suburbs, etc, etc would be involved.

    Say 500+ of these small projects (i.e. averaging say $30m??) would deliver a much better outcome and benefit a lot more people going about their everyday travel. The EW Tunnel would mainly benefit a relatively few people who want us to subsidize them being able to drive across Melbourne for a slightly better job.

    But of course the big project advocates (i.e. the big construction companies and banks) wouldn’t like this approach.

  7. Jim Wright

    Is it not time we had a fundamental rethink on the nature of our transport infrastructure. Roads are necessary, but as roads get bigger, the benefits are often more than offset by more noise, greater pollution, pressure on public space and so forth. I would like to suggest that some attention be given to elevated railways. Here are some of the advantages.
    1. Location of the railway is much more flexible than for roads, due to the wider range of space reservation available. Major roads, parks, farmland can all be used, as these areas all remain available for the original use after construction. New uses (e.g. storage) could also be found for the space under the railway.
    2. A nation-wide standardised deck would consist of two troughs with rails welded to the floor. This track could be used by conventional trains and by rubber-tyred variants such as the Monocab. If desired, a space could be left in the middle for a VFT (very fast train) such as a Maglev or Vacuum Tube. The deck could also carry other services, such as power, NBN, water and so forth.
    3. Only the supporting structure is variable according to the terrain and the surrounding urban development (if any). Once this has been constructed, the deck is put in place by assembling it from prefabricated units carried on wagons parked on the existing deck and pushed forward till they land on the next supporting structure. Disruption of existing activity on the site is therefore minimised.
    4. The standardised prefabricated elements in the deck and most of the supporting structure would be constructed by manufacturing companies all round the nation according to design details provided by the government or a transport agency. This would have a very significant beneficial effect on the local iron ore and steel industries.
    5. Because of the standadised nature of the design and construction processes, elaborate financing artefacts such as PPPs would not be necessary and the old-style methods such as bonds could be used. Also, because the construction is carried out by advancing along the final route, parts of the track already constructed can be brought into service early and start paying back the costs.
    6. A given train could use multiple sources of power which could vary along the route. For instance, diesel electric or solar panels feeding into batteries could be used in remote areas, but overhead or third-line grid power can be used where available, likewise feeding into the batteries.
    See my blog reengineeringaustralia.com for a more detailed discussion.
    I would like to thank the huge Meccano set which I played with as a small boy for fostering these ideas!

  8. Dylan Nicholson

    What meme says it’s “cheaper to develop within established areas”? I mean, sure it’s cheaper to develop at least somewhere close to ready sources of equipment and labour than way out in the middle of nowhere, but I can’t imagine anybody seriously believing it would be cheaper to build a freeway through the dense central part of a city than on its outskirts.

    As far as the total amount we need to spend on transport infrastructure projects – one stat to keep in mind is that countries/regions where the mode share of private car use is lowest also tend to spend the least on infrastructure. i.e. not unexpectedly you get much better bang for your buck building efficient transportation networks (PT/bike networks) than you do add roads that are primarily used by single-occupant motorised vehicles.

  9. Russ

    A lot of the devil is in the details in this project. As hk says, there could be substantial benefits if:
    – Alexandra Parade and Princes St were narrowed to reduce traffic (noise anyway, although pollution will be confined to exhausts)
    – Part of the existing road space was dedicated to a light-rail connecting Clifton Hill and Melbourne University
    – Hoddle St was similarly narrowed, reflecting the ability of east-west bound traffic to now loop across the city.
    – While the equipment was in place for the road tunnel, a Clifton Hill-Parkville rail tunnel was constructed for later use.

    Conversely, the Eddington report’s low benefit is in part because it proposed no exits into the city (to avoid queue’s in the tunnel). Congestion pricing could make a big dent in that traffic, but given the political landscape it seems likely that the existing traffic on Alexandra Parade will remain for commutes, and there will be no ancillary benefits to the tunnel, as proposed.

  10. hk

    The health and well being benefit of less commercial and truck traffic through the present residential areas also needs to be costed into any analysis. Did the Eddington report quantify health impact?

  11. hk

    The statement “The politics are evidently too hard at this time, but rather than building the East-West Link, what the government should really be doing as a first step is implementing congestion charging on the entire freeway system.” is supported without reservation.

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