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.