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HSR High Speed Rail

Mar 15, 2016

Why are we still taking East Coast High Speed Rail seriously?

East Coast High Speed Rail is the boondoggle that just won't go away. Yet gunzels, rent-seekers and progressives stand side-by-side in wanting to squander $100 Billion on this folly

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Artist's rendering of a TGV-Type California High-Speed Rail trainset with livery
Artist’s rendering of a TGV-Type California High-Speed Rail trainset with livery

Last week the CEO of Beyond Zero Emissions (BZE), Stephen Bygrave, asked in the pages of The Guardian, Why are we still waiting for high-speed rail between Sydney, Melbourne and Brisbane?

(This) disruptive project is a must for Australia if it wants to join other developed economies in the 21st century. One simply cannot imagine an Australia, with populations in both Sydney and Melbourne of eight million, still relying on air, road and an ageing rail system.

Dr Bygrave’s main arguments for Melbourne-Sydney-Brisbane High Speed Rail (HSR) are:

  • It would only cost $84 Billion according to BZE’s analysis; the Australasian Railway Association (ARA) reckons it can be built for $68 Billion.
  • It would “radically” reduce emissions.
  • The investment community is crying out for infrastructure projects with safe returns.
  • HSR is a commercial proposition; the private sector can meet the majority of the costs.
  • Labor’s Anthony Albanese and the Liberal’s Andrew Robb support the idea.

The only independent expert study of HSR in Australia was the 2013 $20 million AECOM study commissioned by HSR booster Anthony Albanese himself when he was Minister for Transport. It concluded East Coast HSR would cost $114 Billion (P50) to $127 Billion (P90) to build (2012$$).

It could cover its operating costs but virtually all the cost of construction would ultimately have to come from Government. That’s an extraordinary sum of money; it’s five to six times larger than the Rudd Government’s $17 Billion GFC-busting BER program.

BZE and the ARA are both lobby groups so it’s no surprise they insist it could be built for a lot less. BZE is the same organisation that two years ago claimed Melbourne Metro could be built for $3 – 4 Billion when the acknowledged cost at the time was $9 Billion and is now $11 Billion nominal (see What does urban rail really cost to build?).

As Bent Flyvbjerg frequently reminds us, history says all the risk is on the other side; AECOM’s estimate is almost certainly bound to be too low (see Are cost estimates for transport projects reliable?).

If HSR really is a “commercial proposition” as Dr Bygrave contends, then let the investors show what they can do. Interested consortia have had plenty of time to put together a commercially robust proposal; HSR’s been evaluated numerous times over the last 30-40 years and AECOM’s final report was released on 11 April 2013 i.e. three years ago.

There’s nothing unusual about companies lobbying governments about HSR; they’ve been doing it for decades. There’s a huge pot of gold at stake and government – not investors – would likely end up carrying all or most of the considerable commercial risk.

Business knows from sweet experience that governments are suckers when it comes to glamorous infrastructure projects; that’s what a “safe return” means.

The claim that HSR would “radically reduce emissions” is important because it’s the main reason it attracts so much support from progressives. HSR just sounds right; it’s public transport, it looks like the sort of project good people should support.

But here’s the rub: the AECOM study found the total value of negative externalities, including emissions, pollution, noise and traffic congestion that would be avoided by HSR would amount, even at a 4% discount rate, to just $2 Billion over the 50 year life of the project. In fact, externalities only account for a mere 3% of the total estimated benefits.

That’s consistent with other large rail projects. I noted last week that externalities only account for 10% of the estimated benefits of building Melbourne Metro. The corresponding figure for Sydney’s CBD and eastern suburbs light rail project is 8%.

HSR would be such a ridiculously expensive way to reduce emissions compared to other options, it beggars belief that any progressive-minded organisation seriously concerned about climate change could propose it. It’s likely it would crowd out public funding of more cost-effective investments like renewable energy generation.

The overwhelming quantum of benefits from HSR (90%) would come in the form of slightly faster door-to-door trips for inter-capital business travellers and regional leisure travellers journeying to the capital cities. Since these are private benefits it’s reasonable to expect that if these groups value this benefit they – not taxpayers in general – should pay for it.

Look at it this way: if Airbus Industrie produced an expensive new aircraft that could reduce the door-to-door travel time from Brisbane to Melbourne by 5%, would progressives be pushing government to provide upwards of $100 Billion in public subsidies to airlines so they could buy it? Hardly; it would be taken for granted that those who get the benefit should pay for it.

But as I’ve said a number of times before, East Coast HSR is a boondoggle. It would consume vast amounts of public money to replace one form of public transport (airplanes) with another form of public transport (trains).

There are far better and more transformative ways that a progressive organisation like BZE could consider for spending $100 Billion or so of public funds e.g. improving public transport within our major cities, replacing coal-fired power generation with renewable energy, or building social housing.

Anthony Albanese and Andrew Robb are politicians so I don’t expect an objective assessment of East Coast HSR from them; but progressives should look beyond surface appeal when the stakes are this high.

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