The economics of high-speed rail

February 23, 2010

Notebook and Thermos time again. Last week’s slightly weird dust-up between Andrew Adonis and Theresa Villiers highlights two things. First, how tortured the politics of high speed rail are becoming. Second, how murky the concrete costs and benefits remain.

Politically, a fast North-South line should be a done deal. Both main parties want it – but for different reasons, and probably going different places. HS2 is also getting entangled in highly sensitive planning questions, especially for the Conservatives. The Tories want a highly localised, ‘open source’ planning system – but also, room for nationally-driven infrastructure that goes straight through various safe seats.

As with the Channel Tunnel, a surprising number of people are desperate to get away from major investments designed to make their lives easier. (In California, by contrast, one of the main problems facing High Speed Rail proposals is that everyone wants to be on the line.)

We’re still not much clearer on what will actually deliver, economically and environmentally (something I complained about in a previous post). Happily, SERC has just published a new paper [pdf] which gives us some pointers.

The researchers look at the economic impacts of the Frankfurt-Cologne ICE line: 120 miles long, about the same distance as London to Birmingham. In theory, better links between cities bring people closer together, raising their productivity. The researchers isolate this effect by concentrating on new stations with no prior rail links. They find a 1% increase in market access raised GDP by 0.25% around towns on the line. These effects were highly localised, dropping off within about 30 minutes’ drive time.

Importantly, the research suggests these benefits are probably permanent – putting in a new rail line changes the underlying connectivity of the area, which then shifts firms’ and households’ location decisions.

Overall, the authors suggest that HSR both delivers significant additional economic benefit. And it’s good value for money – if gains are permanent, there should be big future fiscal payoffs from higher tax receipts.

That still leaves some big policy questions:

1) The SERC work only looks 4-5 years post-investment – so we don’t know what the really long term impacts of HSR will be (papers like this take a deeper view).

2) We also don’t know impacts for big, well-connected cities. If they are the major gainers from connectivity improvements, HS2’s impact on spatial disparities may be limited.

3) It’s hard to say whether people will switch from planes to faster trains (a modal shift) or use more of both. The answer makes a big difference to the environmental footprint of high speed rail.

4) How to actually fund and deliver the thing.

I’m sure we’ll get answers to some of this when the Government eventually publishes the HS2 report and its own ideas – both of which will be appearing, according to the Transport Minister, ‘before the election’. At which point we can settle down to round 2 of Adonis vs Villiers …

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