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Fairfax’s on-line publication, The National Times, posted a feature on High Speed Rail (HSR) on the weekend under the heading, Is Australia too big for a high-speed rail network? The paper gives space to four viewpoints: Peter Moore and Stephen Byron are unashamed HSR boosters, Gary Johns is sceptical and Saul Eslake sits on the fence.

I’ve written about HSR before (see the Categories list in the side pane) and, with the Federal Government’s feasibility study due shortly, it’s timely to take a look at the issue of a Sydney-Melbourne HSR service again.

As usual, all sorts of benefits are claimed for HSR, such as greater comfort, quicker check-in times and the ability to use laptops and mobile phones in-journey. Saul Eslake brings a new perspective — he reckons the conventional wisdom that HSR only works over short to medium distances is outdated. He cites the Barcelona-Madrid-Sevilla AVE system which runs over 900 km, considerably further than the 700 km airline distance between Sydney and Melbourne.

As I’ve pointed out before, most of these sorts of claims are exaggerated or misapply foreign examples — and Saul Eslake’s argument is no exception. Spain’s AVE system is in effect two medium-distance services, not one long one.

The airline distance between Barcelona and Madrid is 506 km and thence from Madrid to Sevilla is 391 km. The population of metropolitan Barcelona is 4.2 million and Sevilla 1.5 million. But most importantly, Madrid is in between these two and has a population of 5.8 million. The prospects for HSR in the Sydney-Melbourne corridor would be a lot more attractive if Canberra or Albury/Wodonga were the same size as Madrid!

But these sorts of arguments are beside the point. Notwithstanding all the claimed advantages and suitabilities of HSR, travellers in the Sydney-Melbourne corridor are simply not prepared to pay enough to make HSR viable – or even remotely competitive with air – without a subsidy. This is not unusual in the world of fast trains as the great majority of HSR systems throughout the world operate with public assistance.

That might make sense in some countries where there isn’t an alternative form of public transport for inter-city travel, or if HSR provides a significant advantage in travel time. However the key to understanding the relevance of HSR in Australia is recognising that we already have an efficient and competitive airline industry providing transport for people and high value freight between Sydney and Melbourne. This is an industry that provides a fast service and pays its (financial) way.

HSR, on the other hand, is unthinkable in this corridor without government assistance to meet revenue shortfalls and to compulsorily acquire land and obtain various planning and environmental approvals. Nor does it offer a significant time saving over air. That’s why the market hasn’t just gone ahead and built a very fast train.

There have to be very, very good reasons why taxpayers should be called on to help replace a highly competitive industry with one that (a) would require a significant financial and in-kind subsidy, and (b) would very probably be run by a monopoly operator. There would also have to be good reasons to replace one form of public transport with another – and for promoting it to the top of the transport infrastructure priority list.

Putting aside political convenience, the only rational basis for subsidising HSR between Sydney and Melbourne would be to deal with the unpaid external costs of air travel.  Public funding might be justified if the benefits of HSR in terms of factors like reduced carbon emissions, noise and traffic congestion, exceed the cost of the subsidy.

It is also sometimes argued that the difficulty of expanding airport capacity in Sydney is a valid justification for building an HSR system along the eastern seaboard. The problem with that argument is that it is a political, not a practical, constraint. The fact is there is still an option to locate a second airport within 60-100 km of Sydney. There could well be a case for providing HSR to such an airport but political failure is not a good reason for building an entire HSR system along the eastern seaboard.

Are the net social benefits enough to justify HSR? It is likely the saving in carbon emissions would be very modest. I’ve previously estimated that even if half of all current air passengers trips between Sydney and Melbourne had instead been taken by HSR, the value of the GHG savings at $100/tonne (around five times the initial figure mooted for the carbon tax) would be only $38.5 million p.a. Given probable costs for HSR of anywhere from $40 billion to $60 billion, that would be a very expensive way to reduce carbon emissions. Then there’re the massive emissions associated with construction. As I pointed out before:

a British study by Booz Allen estimates that a fast rail line from London to Manchester would emit more GHG than it could recover from lower air travel over the 60 year time horizon adopted for the analysis……. Booz Allen also analysed a longer line proposed to link London and Glasgow. They found that parity of GHG emissions between air and rail from construction and operations combined would only be achieved if rail could capture a 62% market share

The argument that HSR would reduce traffic congestion in Sydney and Melbourne is also a furphy. Any road space liberated by reduced airport traffic would eventually be consumed by latent demand as other drivers learn speeds have increased. HSR probably has a smaller noise footprint than air travel, but based on the standard methodologies used to calculate the value of avoided noise, this would be pretty small beer (notwithstanding that aircraft noise is a significant political issue in Sydney).

The prospect of significantly higher oil prices is perhaps the key reason to think seriously about HSR, as there are few substitutes for aviation gas. Yet this is hardly an argument for public subsidy – higher avgas prices should increase HSR’s competitiveness relative to air and therefore make it better able to stand on its own.

Of course how high oil prices will go is uncertain, not least because some sectors, such as road transport, can shift to more efficient vehicles and substitute fuels and thereby lessen aggregate demand for oil. It should also be noted that avgas is only one component of aviation costs – airlines also have other costs that are only weakly linked to oil prices e.g. planes, staff and landing charges.

Hopefully the Federal Government’s forthcoming study will give us better information about the relative external costs of air and HSR. On the face of it, the arguments don’t look compelling. However there is one project where HSR looks promising — if the Federal and NSW governments can be the first in generations to make a decision about the location of a second Sydney airport, connecting what will unavoidably be a remote location with downtown Sydney should be tailor made for HSR (although it might well be at the non-glamorous 250 kph end of the fast rail spectrum).