Institute for Transport Studies FACULTY OF EARTH AND ENVIRONMENT When to invest in High Speed Rail Chris Nash

Outline Motivation behind high speed rail investment Costs and benefits of high speed rail Examples of appraisals – ex ante and ex post What alternatives should be considered? Conclusions

Origins (new lines 250km per hour or more) 1964 Tokaido Line 1981 Paris-Lyon 1981 Rome-Florence (1 st section) 1988 Fulda-Wurzberg 1992 Madrid-Seville 2013 European total 7378km (Spain 2515; France 2036) World km (China 9867; Japan 2664) Source: UIC

Motivation for HSR Speed Capacity Reliability Economic Development Environment Supply industries Prestige Political integration

Costs and Benefits COSTS Capital costs Net Operating costs Net External costs (environment, safety) Loss of tax revenue BENEFITS Revenue Time savings and improved reliability Additional capacity; reduced crowding and diversion from other modes Diversion from other modes (reducing congestion and environmental impact) Generated traffic Wider economic benefits

Typical costs of HSR in Europe (m2004 euros) Capital costs Infrastructure Construction (per km) Construction costs vary enormously with the terrain (especially length of tunnels) and the degree to which new lines and stations in cigties are needed. Operating costs depend mainly on rolling stock requirements, staff, energy, wear and tear – note very high utilisation of assets may offset high energy and maintenance costs

Time savings Most of the benefits time or time related (crowding, reliability) Most of them relate to business travel Usually based on cost savings approach (wage rate plus overheads) New work based on willingness to pay puts values up! -Can fit more meetings into a day -Avoids travel in (very) unsocial hours

Values of Time for rail travellers per hour 2010 prices Source: DfT (2015) CurrentRecommended commuting other leisure Business (>100km)

Capacity benefits Increased traffic on hsr route Increased traffic on other routes Reduced overcrowding Improved reliability

Benefits of diversion from car or air Reduced congestion Environmental pollution Accidents Release of airport capacity for long distance flights

Generated traffic (valued at half the benefits to existing traffic) Leisure Commuting Business Does this reflect relocation of business or net expansion?

Wider economic impacts Current evidence relates mainly to major conurbations - Agglomeration benefits - Labour market benefits -Imperfect competition Are there also benefits from improving inter city connections? Venables, Overman and Laird – specialisation and economies of scale KPMG – correlation between productivity and rail connectivity, but does this imply causation? Should a LUTI model be developed to examine locational implications and further agglomeration?

Ex post appraisal of French high speed line construction Sud EstAtlantiqueNordInter Connection Alpes Meditar ranean Passengers in first year (m) Social return (%) Source: Conseil Général des Pont et Chaussées (2006) Annex 1 Updated from Crozet (2013)

CBA of Madrid-Seville high-speed rail in Spain (billions of 2010 euros) COSTS6.8 BENEFITS4.5 Of which Time savings1.6 Generated traffic0.8 Costs saved on other modes1.9 External costs saved0.2 Net present value of HST-2.3 Demand in m trips

CBA of Madrid-Barcelona high-speed rail in Spain (billions of 2010 euros) COSTS12.4 BENEFITS 7.2 Of which Time savings 2.8 Generated traffic 1.1 Costs saved on other modes 2.9 External costs saved 0.4 Net present value of HSR -5.3 Demand in m trips

First year demand required for breakeven (α = 0.2 θ = 3%)

sH2HS2w? HS2 New high speed line from London to Birmingham, Manchester and Leeds (with trains running on to Newcastle, Glasgow ands Edinburgh) Objectives to provide sufficient capacity to meet long term demand, and to improve resilience and reliability across the network; and to improve connectivity by delivering better journey times and making travel easier. Economic regeneration and reducing the North-South divide Reducing greenhouse gases

CBA of HS2 (£m PV) Phase One Full Network Oct 2013 Transport benefits (Business) 16,92140,529 Transport benefits (Other) 7,67319,323 Other quantifiable benefits Indirect taxes (loss to Govt) -1,208-2,912 Net transport benefits 23,79357,727 Wider economic impacts 4,34113,293 Total costs 29,91962,606 Revenues 13,24331,111 Net cost to Government 16,67631,495 Benefit cost ratio (inc WEIs)

Long run trend in rail passenger traffic in Great Britain

Forecasting demand 1.Will long run trend favouring rail continue? 2.Impact of improvements in telecommunications 3.Autonomous cars 4.Range of scenarios

Examples of Network Rail forecast growth over 30 years London to: Birmingham 33-87% Manchester % Leeds % Birmingham to Manchester % Leeds %

Diversion from other modes HS2 patronage is forecast to be: 69% diverted from conventional rail 26% induced 4% from car 1% from air But released capacity on conventional lines may permit more diversion including freight from road.

Current government pricing policy Rail fares rise by 1% per annum from 2020 (25% by 2036) HSR fares to be same as conventional rail But the only sensible pricing policy for HSR is yield management Threat of open access competition Motoring costs fall by 40% by 2036 Air fares fall by 30% by Should alternative pricing policies be explored? Are they really a matter of overall land use transport strategy

Range of options considered First British domestic HSR study – Atkins 2002 Options considered: -Different routes -New conventional line -Timing -Pricing -Road and air investment

Figure 1.1 The Atkins study in Britain- results

HS2 alternatives examined Alternative routes Longer trains Upgrading of existing lines 51M proposals But not Is infrastructure suitable for 400km (and actual 360kmph running) needed?

Table 13 Incremental benefits and costs over 51M package ( £ b2011PV) Incremental benefits and costs compared with 51M proposal 51Mincremental costs and benefits of HS2 Benefits Costs to gov BCR Source: derived from Atkins (2012)

Lower speed options HS2 Conventional line 9% cheaper Atkins 2002 Conventional line 15% cheaper But loses 42% of the benefits Civity vs 300 km plus Capital cost 6.3% less Operating cost 2.8% less Benefits 15% less

Conclusions HSR only justified when volumes high (construction cost also crucial) Typically needs around 10m passengers per annum density on social cost benefit terms (much higher for commercial viability) Level of time savings also critical Should always compare with a range of options including: -Revised pricing ;policy to damp down demand -Upgrading existing lines -Building a new line for conventional speeds

Reference Christopher Nash (2013) When to Invest in High-Speed Rail. International Transport Forum Discussion Paper No December. OECD, Paris. apers/jtrcpapers.html