September 2012

What Are The Real Costs, Value of High-Speed Rail?

by Brooks Bentz

Long-term transportation challenges have impelled a number of governments around the world to embark on investment in high-speed rail (HSR) networks. In the U.S., HSR has been debated for a number of years, but the high costs involved have dominated the debate. This, coupled with a lack of understanding of the true value proposition and the related long-term issues surrounding domestic transportation is slowing much of the investment needed for projects to proceed.

To create a better understanding of the wider impact of HSR, including funding concerns, a new financing formula is needed. Looking at the situation through the same lenses as we have used in the past fails to take into account the wider economic impact HSR can have. We need a new view, a financial calculus, which embraces a broader economic footprint than the historical “Farebox Model” that tries, unsuccessfully, to cover the cost of these large-scale systems from farebox revenue. Crucially, this new formula could attract private capital to HSR by clearly presenting the total realizable benefits that can be obtained.

Investment needed
Congress has set out its two-year transportation spending plan for the U.S. Passed June 29 this year and signed into law by President Obama on July 6, the Moving Ahead for Progress in the 21st Century (MAP-21) surface transportation program has been hailed as a successful conclusion to over three years of political debate and is part of the economic regeneration and job creation program.

The bill consolidates nearly 100 programs, providing states with more spending flexibility. MAP-21 authorizes $101 billion of funding from the Highway Trust Fund over the next two fiscal years (FY2013 and 2014). The U.S. Department of Transportation (U.S. DOT) will make $17 billion available immediately.1 To help mobilize qualified, large-scale projects, $1.7 billion will go to the Transportation Infrastructure Finance and Innovation Act (TIFIA) Loan program through 2014.

But, the future of the industry still needs to be addressed because there is no clear sustainable revenue stream to fund the aging and increasingly congested transportation system. This is at the heart of discussions over HSR. In 2009, the launch of a High-Speed Intercity Passenger Railway (HSPIR) program was launched. Dubbed the most ambitious transportation program since President Eisenhower’s Interstate Highway System in the 1950s, the HSPIR plan made some early progress, with approximately $10 billion in federal grant money distributed to date.3

But, the huge cost involved in financing HSR has proved to be a stumbling block, particularly in light of renewed calls for reduced government spending. Outside the U.S., a number of countries, including France, Germany, Spain, China and Taiwan, have launched HSR investment programs to help solve some of their longer-term transportation challenges. Many argue that their economic growth and competitiveness depend, to a large degree, on the effectiveness of their transport networks and are subsequently investing in HSR. But, as much of the investment is still ongoing, the economics of these projects are still being scrutinized.

Much of this investment is predicated on a number of arguments: that compared to road travel, HSR wins out for speed, efficiency, comfort and safety; it represents a viable “green alternative,” with a significantly lower carbon footprint than alternative transport methods; and, crucially, it provides a longer-term solution to fluctuations in oil prices. We should consider updating calculations used to judge the financial impact of HSR, with economic values attributed to all of these points.


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