High-speed rail: an expensive hobby

(Cross-posted at shorewalker.com)

I like trains. For a while when I was a kid, I spent Saturdays clambering around Adelaide’s Mile End Railway Museum and most of my pocket money buying items for an elaborate train set. Which may explain how I found myself today reading KPMG’s Phase 2 report in the federal government’s High Speed Rail Study, looking at a high-speed rail line from Melbourne to Sydney and on to Brisbane.

Sadly, the Phase 2 report essentially restates, with arithmetic, everything that most analysts keep concluding about a Melbourne-Sydney-Brisbane High Speed Rail (MSB HSR) project. It would be, like my old train set, a bit of a money pit. It would be very expensive ($114 billion in 2012 dollars), would never earn back its capital costs, would take decades to build, and would not be very green. It would doubtless be a buzz to see shiny locomotives surging through the countryside, but its economics don’t stack up.

It’s useful to have this point repeated. There’s a stream of public commentary that says, essentially, that anyone who opposes high-speed rail is just lacking in vision, because, well, to quote a cringeworthy lead paragraph from The Age’s transport reporter, “High speed rail would be the best“. The low point of this vein of commentary was probably Gordon Weiss’s evidence-free paean to HSR in the Global Mail last year, memorable mostly for a bizarre string of approving references to totalitarian governments: “Benito Mussolini not only made trains run on time, he made them run fast … Unfortunately, Mussolini’s equally manic support for Hitler interrupted HSR technology … the Central Committee changed [China’s rail system] with Mussolini-like bravura.”

When that’s the quality of policy debate, a little realism about costs and benefits should be welcome.

Predictably, HSR boosters are arguing the toss. Their first objection is that the $114 billion estimate is way too high. Hey, another study says we could do the job for a mere $70 billion!

This is an unlikely criticism to anyone who understands the recent trends in major developed-country infrastructure projects. The clear trend is for projects to come in way over their original cost estimates.

Why’s that? We don’t know for sure, but the University of Minnesota’s David Levinson has compiled a list of 39 hypotheses.

[Update 11 May 2013: The paragraph above is wrong. Commenter derrida derider correctly notes that Levinson lists reasons why infrastructure projects are expensive, especially in comparison to Chinese equivalents, but not reasons why they come in over budget. The better source for the nature of budget overruns is Danish economic geographer Bent Flyvbjerg, author of Megaprojects and Risk: An Anatomy of Ambition:

“[The Aalborg study] and other studies of cost development in major transport infrastructure projects reveal the same overall pattern: cost overruns above 40 per cent are common, especially for rail projects, and overruns above 80 per cent are not uncommon … Cost overrun today is the same order of magnitude as it was ten, thirty or seventy years ago.”

The core point remains: $114 billion is not on its face ridiculous.]

The most likely sources of additional and unbudgeted costs (not that I would see them all as important) include:

  • Commitment to tunnelling for road and rail rather than tearing up big chunks of cities, My first guess is that this is the biggest single factor in high costs.
  • High build standards generally (safety, social, environmental, architectural).
  • The one-off nature of the projects. (China, building 20,000 kilometres of HSR lines, will get some economies of scale, as has Europe to a lesser extent. Australia won’t.)
  • High labour costs.
  • High land costs.
  • Process costs to get the power to acquire and use land. (The Chinese government can happily tell 1.3 million people to move when it wants to build a dam; Canberra rightly cannot.)
  • Insufficient commitment to detailed benefit/cost analysis, which in turn leads to a get-it-done-at-any-cost mentality.
  • Lack of competition among construction services providers.
  • Poor government oversight.
  • Political pressure to add extra features (tunnels to protect creeks and forests, extra stops at smallish towns etc)
  • Updated 11 May 2013: Intentional underestimation of costs by the promoters in order to get the projects signed off is probably very important. As Flyvbjerg puts it: “Strong incentives and weak disincentives may have taught project promoters what there is to learn, namely that cost underestimation and overrun pay off.”

I would add that the Sydney-Brisbane HSR line faces particularly unfriendly natural terrain, compared to most of China and anywhere else.

By far the best public analysis of the high-speed rail issue appears to be Alan Davies’ work at The Urbanist, and he does not appear very surprised by KMPG’s estimate.

So I think it’s hard to argue those numbers are on their face ridiculous.

Just as troubling is the tendency to ignore the report’s conclusions on the MSB HSR’s environmental impacts. “I’d think HSR would have considerable … environmental benefits which don’t seem to be mentioned in the report” suggested one Troppo commenter. Actually, the environmental benefits are in chapter three of the report, which has a sub-section titled “System-wide environmental impacts during operation”, and in Appendix 5G, which goes through the modelling of those impacts. The problem for HSR boosters is the environmental story that the report tells.

The report claims, for instance, that an MSB HSR will cause a net increase in emissions. Why?

Partly because building a new rail system uses a heap of cement and steel, which are high-emission materials.

And partly because when you build new pieces onto an existing traffic network, you encourage activity on other parts of the network.

But mostly because right now there’s a lot of unmet demand for flights out of Sydney Airport. When we build our rail line, we won’t get less traffic through Sydney Airport; we’ll just get new traffic replacing old.

This is a variant of the point often made by critics of new freeways: they don’t reduce congestion, because they pull new users onto the roads. (Note by the way that we do get benefits in these situations; those benefits just don’t include reduced congestion.) Because this point is so often made by anti-freeway, pro-rail types, I suspect it will be a little hard for HSR fans to deny.

Yes, when it’s up and running the MSB HSR should create less greenhouse gas emissions than air and road travel (though this depends on the trains being pretty full). But it ends up producing a lot of net new transport activity, which means emissions go up rather than down. The report estimates “a net increase in overall transport emissions of 32 million tonnes of CO2–e over the evaluation period up to 2085”.

You can construct a scenario where HSR reduces emissions. That’s the scenario where Sydney gets a second airport, so that HSR is no longer filling unmet Sydney airport demand. But of course an extra Sydney airport makes the economic case for HSR weaker. And even in this scenario, HSR remains an extraordinarily expensive way to reduce CO2 emissions.

High-speed rail has rarely been economically compelling anywhere. But like many forms of infrastructure, it has most appeal when you are starting with a relatively clean slate and high population densities, like Japan after World War II. In Australia, with its built-up cities and long inter-city distances, HSR makes less sense.

For Australia, high-speed rail looks a little like a very expensive hobby. We have far better ways to spend $100 billion.

About David Walker

David Walker runs publishing consultancy Shorewalker DMS (shorewalker.net). David has previously been: editor of INTHEBLACK magazine (intheblack.com), Australia's largest-circulation business magazine; chief operating officer of publishing firm WorkDay Media (bankingday.com); director of communications and advocacy for the Business Council of Australia; director of policy and communications for the Committee for Economic Development of Australia; site director for online finance start-up eChoice; and an editor and columnist at The Age. He has written professionally on economics, business and public policy since 1987 and spent three years in the Canberra Press Gallery. Contact him on 03 8899 7790 or email [email protected]
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15 Responses to High-speed rail: an expensive hobby

  1. hc says:

    Very unconvincing. Of course it wouldn’t recoup capital costs to a private operator since many of the benefits would be social benefits that would not be privately appropriable – these would result from linking half of Australia’s population in a non-congesting way on our major transport corridor.

    No environmental benefits? So you assume airtravel will be possible without using carbon-based fuels. Certainly electricity need not be sourced from carbon-based fuels.

    But its a safe position to ridicule any substantial infrastructure investment project. Its almost a conventional reason. The glib comments here do not improve on the glib KPMG report.

    • David Walker says:

      “So you assume airtravel will be possible without using carbon-based fuels.”

      I don’t assume this, and neither does the report. The report in fact says that replacing air travel with train travel will on its own substantially reduce emissions.

      The major environmental issue for the MSB HSR is that replacement of existing travel isn’t the only thing that will happen. Creating a new train option will also provoke new air travel and road travel. It will also use a lot of emissions-intensive concrete and steel. That’s why net emissions go up.

      This is not a slam-dunk argument against an MSB HSR. But it does suggest that to the extend people like you and me want a lower-emissions economy, HSR is not necessarily going to help deliver it.

      The report does also discuss the social value of the system, and ways to capture some of that value to private parties.

      I’d note that no-one disputes that there is value in “linking half of Australia’s population”. They are already linked by road, air and rail. The current debate is over the best way to deliver future increments to the size of the link.

      I’d also note that in my experience it is not “a safe position to ridicule any substantial infrastructure investment project”. Rather, the opposite is true. Big infrastructure projects are extremely popular. When you question such projects, you get called all sorts of things, of which “glib” is thankfully amongst the mildest.

  2. john r walker says:

    David

    How about fast inter-urban type trains? Intuitively speaking, fast (160Kms) connections for the central coast, lower blue mts, southern table lands, would have plenty of takers ,yes?? Would reduce use of, and need to keep adding more lanes on Fwys ,yes??… do you think it might have a case?

    • David Walker says:

      I don’t have at hand any cost-benefit calculations for interurban regional trains. Victorian undertook a major interurban regional rail exercise under the previous state Labor government, and it has attracted much criticism for failing to significantly reduce trip times. However, there are also claims that the project very substantially increased regional rail trips.

      Essentially, what you are describing is a strategy to use locations like Ballarat as substitutes for outer suburbs of Melbourne. I’m genuinely uncertain whether or not that is a sensible public policy aim. It has some appeal in that it promotes more intensive use of existing facilities in regional cities rather than new facilities on the periphery of cities. On the other hand, it is not clear to me that promoting 200- to 500-kilometre round-trip commutes to and from sprawling, low-density regional towns is a very green solution. (It is undoubtedly popular in the regional towns. Politically, the Victorian regional rail project was originally a cornerstone of John Brumby’s “McKell” strategy to win regional seats from the Kennett Government, a strategy that was ultimately successful.)

      In Victoria, the alternative to regional rail is to build new suburbs in outer Melbourne and extend existing suburban rail lines. However, the existing Melbourne suburban rail lines have capacity problems, which makes regional rail look more attractive. In Sydney, building new suburbs is much harder, so the argument for connecting regional centres to the city appears stronger still.

      However, bear in mind that the vast majority of work commutes within a major city are not from the suburbs to the CBD, but from suburbs to other (often nearby) suburbs. Most of the people filling the freeways are not actually travelling to the CBD, which is where regional trains go to.

      My view has long been that the best way to improve travel times on major roads is to manage demand through pricing. Nick Gruen made this point in a study I commissioned from him for CEDA back in 2006.

      In any event, the argument for regional rail seems to be mostly about where suburbs should be – close to cities, or distant from them. The argument for an MSB HSR is partly about this, but mostly about the economic benefits of greater modal competition in linking the three major cities. See page 287 of the report, which states concisely: “HSR demand would be strongly focused on the capital cities”.

      • john r walker says:

        Was thinking of the areas that already have fairly high populations and are a bit closer than 200ks – Gosford, Springwood ,Camden so on.

        As for ‘they are not heading for the CBD’, I know that’s true …sort of- we drive the M5 fairly often and after Pheasants nest there are always many more cars joining the road to the CBD than leaving.

        • john r walker says:

          A bigger problem for medium distance rail travel in NSW is that sometimes it feels like virtually everybody on the train are $2 pensioners – I sometimes think of State Rail as one of NSWs biggest pensioner befits schemes.
          A awful lot of the populations at the ends of the interurban systems are there because its a bit cheaper to live there than in Sydney.
          Obviously a upgraded ‘fast enough’ train system could not have $2 tickets. And this has been the story for ever.

  3. derrida derider says:

    On project costs, you list correct reasons why all major infrastructure projects are bloody expensive, but no reason (with the possible exception of “insufficient attention to cost-benefit analysis”) for your assertion that they come in way over budget.

    Having read the report, I reckon you’re on weak ground asserting the $117 billion estimate is a sound one – it really does look to me as though it was goosed up to make sure the project is killed (which is undoubtedly what the consultants’ paying customer – the government – wanted) .

    That said, it does do enough to persuade that going the full monty of HSR from Melbourne to Brisbane via Canberra is not economic (Syd-Can, Syd- Ncl or even Syd-Wol) might be a different matter – especially as a fast (not necessarily ultra-fast) Syd-Can run may delay the need for Badgery’s Creek (with its multibillion dollar ancillary infrastructure) suburban rail for a decade or two. A separate study examining more modest options might have been nice.

    As a moderately regular user of the Hume, and occasionally the Pacific, highway I reckon the really big need is fast freight corridors with efficient intermodal hubs, to get all those unsafe and environmentally expensive B-Doubles off the road. A decent Syd-Ncl or Syd-Pt Kembla freight line in particular would see them come into their own as a container port.

  4. hc says:

    “I’d note that no-one disputes that there is value in “linking half of Australia’s population”. They are already linked by road, air and rail. The current debate is over the best way to deliver future increments to the size of the link”.

    Yes and ways of carrying out these connections that don’t rely on carbon-based air travel are worth looking at.

    To say that you are not biased against trains because you liked choo-choos as a kid and because you have come up with a long list of ways that the costs of infrastructure project costs can be exaggerated is glib and unconvincing.

    The KPMG report accounted in a very inadequate way for the possibility of reduced carbon emissions. Are you also seriously suggesting that trains run on carbon neutral electricity would yield more emissions than vehicle and air travel using carbon fuels? I don’t believe it.

    • David Walker says:

      Harry, I don’t think we disagree that lower-emissions transport alternatives are worth looking at. What I’m trying to do is look at them as carefully as possible, and to the extent you can educate me on better ways to look at them, I’ll be in your debt.

      The KPMG report essentially models carbon emissions effects via prices (for carbon, oil etc). I’d be interested in your views on whether there’s a better way to do that modelling, and whether they should have modelled higher paths than those modelled in Appendix 5. There’s certainly an argument that they should have modelled much higher prices. That’s a world I’d like to see – though right now I’m a little gloomy about our prospects of getting there.

      Actually, from your comments, you seem to be envisaging a scenario where surface transport in general produces radically lower emissions than at present. That is probably a scenario worth thinking about, and it is probably the missing “much higher prices” scenario.

      Are you also seriously suggesting that trains run on carbon neutral electricity would yield more emissions than vehicle and air travel using carbon fuels? I don’t believe it.

      You’re right not to believe it. What I believe is that adding more intercity transport has knock-on effects on transport use elsewhere in the system that we should not ignore.

  5. Pappinbarra Fox says:

    I am curious – we always hear about passenger numbers and competing with airlines but no one seems to mention whether freight can be carried by HSR – seems obvious to me that we should get all those B Doubles off the roads and the freight into trains. If I could send a parcel to Melbourne in the morning that would be there in the afternoon, (cheaply compared to air freight) I would do it! And rail should take heavier items. Special carriages could be designed but it seems to me that if freight has not been considered it ought to be and that it would have a massive impact on the economies of a HSR system. I am interested to hear form the experts on this.

    • David Walker says:

      Short answer: freight is rarely significant in HSR. From the Phase 2 Report:

      International experience demonstrates that the only freight carried on dedicated HSR networks is transported in vehicles similar to high speed passenger rolling stock. ‘Light freight’ trains carrying items such as high value, parcel-type goods may have some potential, although there would be some additional cost involved to cater for these services. Additionally, freight services on the HSR line would have ramifications for speed and also for track wear from heavy haulage. Overall, this opportunity is minor when compared to the HSR passenger services and has not been considered as part of the preferred HSR system.

      The report does note that if you can get passenger services out of the conventional rail system, you’ll free up capacity for conventional rail freight. But bear in mind that rail and road freight services are far from perfect substitutes.

      • john r walker says:

        Given the bans on overnight airfreight operations and general congestion at Sydney airport a very high speed connection to a air freight hub at ’24/7′ Canberra airport might be another reason why this 272Km corridor might be worth a HSR?

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