Free Slides from Ed Dolan’s Econ Blog http://dolanecon.blogspot.co m/ The Economics of High-Speed Rail: Lessons for Policy Analysis Post prepared August 23, 2010 Terms of Use: These slides are made available under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishers.
The economics of high speed rail
May 21, 2015
A set of slides discussing the economics of high-speed rail and lessons for public policy analysis that can be drawn from the case of HSR
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Free Slides fromEd Dolan’s Econ Blog
http://dolanecon.blogspot.com/
The Economics of High-Speed Rail: Lessons for
Policy AnalysisPost prepared August 23, 2010
Terms of Use: These slides are made available under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes
together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishers.
What is High-Speed Rail?
High-Speed Rail (HSR) typically refers to intercity trains with speeds of 120 mph or more
Speeds up to 350 mph have been achieved in trial runs
Average speeds in service: Paris-Marseilles 162 mph Tokyo-Osaka 137 mph Washington-New York 90 mph
US has no true HSR, although Amtrak’s Acela (Washington-Boston) can hit 150 mph on some short stretches of track
Post P100823 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
French TGV in Gare de MontparnassePhoto by David Monniaux http://commons.wikimedia.org/wiki/File:TGV_train_inside_Gare_Montparnasse_DSC08895.jpg
Love it or Hate It
Depending on who you talk to, high-speed rail is either a wasteful boondoggle or an economic and environmental panacea
Why the huge range of opinion? What can HSR teach us about
the do’s and don’ts of evaluating public projects?
Post P100823 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
“HSR proposals are high cost,high-risk megaprojects that promise little or no congestion relief, energy savings, or other environmental benefits.”
—Randal O’Toole, Cato Institutehttp://www.cato.org/pubs/pas/pa-625.pdf
“Fast trains are not only cool, they are practical. From Germany to Japan, high-speed rail has proven to reduce car and air travel, cut oil use and corresponding pollution, and to create jobs and economic development.”
—California Public Interest Research Grouphttp://www.calpirg.org/blog/blog/next-stop-california.-what-high-speed-rail-will-mean-for-the-golden-state
Is HSR Good for the Environment?
Backers of HSR cite data showing it is good for the environment
However, these very favorable data must be interpreted with caution They reflect only operating costs,
omitting energy and greenhouse gasses during construction
They are sensitive to assumptions about the source of electricity
They are highly sensitive to assumptions about passenger loads
Post P100823 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
Life-Cycle vs. Operating Costs
Life-cycle analysis looks at the whole cycle of producing a good or service, including energy and materials used in construction and maintenance as well as operation
HSR requires large construction outlays for tracks, bridges, and other elements. Up to 70% of CO2 emissions for HSR result from massive use of concrete and steel
By comparison, air travel uses more energy in operation but requires less infrastructure
With life-cycle analysis, HSR still looks better than air in terms of energy use and greenhouse gas emissions, but not by as big a margin
Post P100823 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
Use Sensitivity Analysis
Sensitivity analysis looks at how performance of a policy varies as critical assumptions are varied over a range
Example: The efficiency of HSR depends critically on the assumed load factor—the percent of seats filled on an average trip
Airplanes typically operate with 70-90 percent of seats filled. HSR needs 35-45% load factor to retain its energy advantage over air
Because of high construction costs, HSR advantage over air is highly sensitive to total travel over a given route as well as to load factor
Post P100823 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
Beware of Misleading Comparisons
Example: Randal O’Toole of the Cato Institute* uses data on market shares of European transportation modes to support his claim that “at best, HSR has slowed the decline of rail’s importance in passenger travel.”
The comparison is misleading for several reasons It uses data from 25 EU countries, including
Eastern Europe with decrepit post-Communist rail systems and no high-speed rail
It uses share of all rail, not just HSR Increase in total rail travel could be beneficial
even if other modes are also growing
Post P100823 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
*HSR: The Wrong Road for America. Cato Policy Analysis 625, 2008 http://www.cato.org/pubs/pas/pa-625.pdf
Beware of Misleading Comparisons
Example: Sources predisposed toward HSR often emphasize comparisons to only the most successful lines
These show the potential of HSR under the best conditions, but they may be misleading in comparison to US city pairs where conditions are less favorable Less total traffic Lower density of urban cores Lack of public transit systems to feed HSR Higher construction costs
For example, the city pair Chicago-St. Louis is superficially similar to Paris-Lyon, but close examination shows it has much less potential for HSR
Post P100823 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
Don’t Count Costs as Benefits
The potential for job creation is often listed as a benefit of HSR, in addition to saving energy, reducing pollution, and reducing travel time
This is not a valid argument for HSR. Labor used in construction is a cost of HSR, not a benefit
Even if conditions warrant an increase government spending to stimulate the economy, HSR must still compete on its merits with other infrastructure options like renewing sewer and water systems, building schools, or expanding the power grid
HSR has drawbacks for countercyclical stimulus spending because it involves long start-up times and spending commitments that extend over a period longer than a typical business cycle
Post P100823 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
John Maynard Keynes (1883-1946) argued that increased government spending during an economic downturn can boost employment .Picture source: http://commons.wikimedia.org/wiki/File:John_Maynard_Keynes.jpg
Lessons from HSR for Policy Analysis
Use life-cycle analysis to compare policy alternatives from start to finish, rather than looking at only operating costs and benefits
Use sensitivity analysis to show how critical variables like traffic densities and load factors affect costs and benefits
Make realistic comparisons—do not “cherry pick” data only from worst cases or best cases
Do not count costs as benefits—government stimulus spending may sometimes boost output and employment, but alternative spending projects must still compete with one another on their merits
Post P100823 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
Japanese Shinkansen trainPhoto source: http://commons.wikimedia.org/wiki/File:Shinkansen_tokyo.jpg
The Bottom Line
Carefully planned high-speed rail can save energy, cut pollution, and improve service quality when conditions are favorable, but initial costs are high and HSR must compete on its merits with other pubic and private investment projects
Post P100823 from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
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