Estimated benefits of HSR over 30 years, discounted at 7% p.a. (source data: Australian Greens)

A new “independent” report on High Speed Rail (HSR) by the Australian Greens claims the benefits of an east coast line from Melbourne to Brisbane would total $48 billion over 30 years.

This compares with an estimated cost of construction of around $80 billion. It seems bizarre that the Greens, who’re committed HSR boosters, would trumpet a report showing the cost of building it well and truly exceeds the benefits.

Trying to pass off a report prepared for a political party as “independent” is pretty bizarre too. This is a nakedly political document – Bob Brown committed the party to HSR before the last election – so it’s not surprising the construction cost estimate is in any event ridiculously low.

The Federal Government’s Phase 1 study estimated the risk-adjusted cost of building east coast HSR, with 10% risk of being wrong, as $108 billion. To that has to be added another 15% for management and procurement costs, plus rolling stock and more. None of it would be recovered from HSR fares (then there are operating and financing costs too….).

On the other hand, the Phase 1 Study assigned a confidence estimate to $80 billion of only 50%. In other words, $80 billion is a rubbish figure.

There are a number of questionable assumptions in the report in relation to the benefits of HSR too. For example, Robert Merkel argues the report over-estimates the benefits from fewer motor vehicle accidents and lower emissions.

I can’t find any reference in the report to the massive emissions that would be associated with construction. A British study by Booz Allen estimates a fast rail line from London to Manchester would emit more GHG during construction than it could recover from lower air travel over the 60 year time horizon adopted for the analysis.

Nor is there any allowance for the environmental impact of nearly 2,000 km of high speed track.

There are other convenient but arguable assumptions and omissions that undermine the credibility of the report, but that’s no surprise in an overtly political document. In any event, fiddling the numbers is not the main issue.

It’s clear from the Greens report that most of the benefits from HSR would come from savings in travel time (see exhibit). Moreover, those savings would mostly accrue to regional trip makers i.e. travellers journeying between major cities and regional areas.

The Phase 1 study forecast that regional travellers would make up 60% of all HSR passengers. Regional travellers who swap their cars for HSR or are induced to make additional trips by HSR would account for the great bulk of time savings. They’d mostly be leisure travellers.

In fact the Greens’ report quite properly counts no time savings from those inter-capital trip makers (who comprise the great bulk of high value business travellers) who’re assumed to transfer from air to HSR. That’s because HSR would be no faster than air between major cities.

The $48 billion in aggregate benefits over 30 years looks impressive, but that’s not surprising. Any large expenditure on infrastructure will produce benefits for some groups.

What matters is how those benefits compare against the costs.

In this case, as already noted, the construction costs exceed the benefits by a factor of at least two. That’s in the same ball park as the Baillieu Government’s proposed east-west road link in Melbourne.

What matters even more is whether there are better ways to spend the money.

Even if the benefit/cost ratio were positive, how important is it to the nation that regional leisure travellers should be able to travel faster to and from capital cities? Is that the best way to spend more than $120 billion?

On the basis of this study, the Greens call east coast HSR a “nation-building” project.  But it’s nothing of the sort – there’s no stand-out productivity benefit here.

Investing an additional $5 billion p.a. in education as Gonski proposed might qualify as a nation-building project. Investing an extra $120 billion plus in urban public transport, or in greening the nation’s power stations, might qualify as nation-building.

HSR looks more like (non means-tested) regional welfare.

One useful aspect of the Greens’ report is it puts the likely (operating) emissions savings from HSR in perspective. It estimates them at $2 billion over 30 years, assuming a carbon price of $34 per tonne rising to $107 per tonne by 2036. That makes it clear they’re modest relative to the cost of constructing HSR.

There’s no merit in spending more than $120 billion of public funds to replace one form of public transport (planes) with another (HSR). It would be an extraordinarily cost-ineffective way of lowering the nation’s production of emissions.

The Federal Government’s Phase 2 report is due any day now (it’s supposed to be released before the end of the year). Among other things, it’s intended to supplement the Phase 1 study’s analysis of the costs of HSR with an assessment of the benefits.

It should be a far more sophisticated and balanced effort than this one. I expect it will provide the evidence to show beyond doubt that HSR is a boondoggle. It’s unlikely mere evidence will be enough to change some minds though.

See ‘HSR’ in Categories list for more articles on High Speed Rail.

P.S. There are pollutions savings from HSR according to the Greens calculations, they’re just too small to show up on the chart ($64 million over 30 years)

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Peter Fray
Peter Fray
Editor-in-chief of Crikey