Friday, August 3, 2012

Two Big Es for High Speed Rail: Environment and Economy

Two Big Es for High Speed Rail: Environment and Economy

Continuing the discussion of the 8th World Congress on High Speed Rail, let's look at two important factors: the environment and the economy. Both of these aspects of HSR are key to Wake Up Washtenaw's support for it: shifting travel to HSR is good for the environment and helps grow the economy. In general - but always? The answer is nuanced, so details are important. First, the environment...


A question at the first round table was, "Are environmental concerns an appropriate justification for the investment in HSR?"

Interestingly, Joseph Boardman, CEO of Amtrak and a great HSR supporter, pointed to studies that HSR is not environmentally justified throughout US. There are certainly routes where it makes environmental sense in reducing emissions from other forms of travel - but not everywhere.

Andrew McNaughton, Chief Engineer of the UK's HS2 project (a new high speed line to serve England's west midlands), pointed out that although HSR is the most environmentally sound form of transportation (other than walking or cycling), it does create a negative environmental impact as it is built and, to a lesser extent, as it is operated. So it must be done carefully. One critical factor is how the electric energy that runs it is generated. If it's all coal-fired, the advantages of HSR are slim to none. But of course, the beauty of electricity is that there are many ways to generate it; and as better, more environmentally friendly ways are developed, they can be integrated without having to replace the vehicles that use it.

Satoshi Seino, Chairman of East Japan Railway Company (JR East), emphasized that although rail is the most efficient form of powered transportation, HSR is not a "simple solution". Yet even after nearly 50 years of HSR service in Japan, more extension of Shinkansen lines is taking place. The southern island of Kyushu completed an HSR line to its southern tip last year, and the northern island of Hokkaido is building a high speed line up to Sapporo as we speak.

JR East's E5 Shinkansen
(Wikimedia Commons)
Seino-san's company has developed new trainsets that improve not only speed and passenger comfort, but the impact of one of their most noticeable environmental disadvantages: noise. As everyone who lives near a freeway can attest, any vehicle running at high speed makes noise, and when you run a large one at 150-200 MPH at ground level through a populated area, it can get really ugly. So JR East's new equipment has several noise-reducing features, including semi-enclosed wheels, noise shields around the pantographs, and incredibly long noses to prevent sonic booms when they enter tunnels.

So, though not without negative environmental impact, HSR "done right" can be a net positive impact on the environment.


Several aspects of HSR economics were discussed: where to get the money - including public-private partnerships (PPP), the effect of competition in providing service, and what HSR does for the economy of countries it serves.

So, what are the "external" benefits from investment in a HSR line - benefits not directly related to getting from Point A to Point B?

Martha Lawrence, World Bank Sector Manager - Transport, has studied this in several countries. Looking at pairs of cities connected by HSR, the World Bank has observed increased economic activity in both cities as compared with nearby cities not connected by HSR. To fund the investment, tax districts are often created and can capture, - somewhat - the increase in economic value.

Michele Elia, CEO of Italy's state railway, pointed to the reduction of travel risk brought about by HSR, and indicated that it can be monetized. Also, the increase in economic competitiveness for the regions served and the country as a whole can be considerable. In Italy, congestion relief brought about by HSR has been measurable; several studies the I know of in the US have quantified the cost of congestion, both in fuel and in time wasted. Sr. Elia remarked that since new HSR lines must be linked to other transportation services, indirect development is needed and produces further economic benefits.

Where HSR is concerned, how much should a government sink into the project? The whole cost, capital and operating?

RENFE's Talgo 350
(Wikimedia Commons)
Julio Gómez-Pomar Rodriquez, President of RENFE, the Spanish Rail Transport Operator, reminded us of Spain's difficult moment - the banking and finance problems they are experiencing. In spite of the troubles, Spain's rail spending continues year-by-year averaging about $7 billion USD, though down to only $5 billion this year, and project time-lines have been extended. (We'd be glad in the US if Congress would appropriate even half that much for HSR.) It's seen as a good stimulus: after all, isn't it more risky not to do the project, when a billion dollars translates into about 25,000 jobs? Sr. Gómez-Pomar emphasized that although Spanish government has changed parties, commitment to HSR is viewed as non-partisan, and continues as strongly as possible.

It's well known that China has invested billions to quickly bring a vast HSR network into service. Jianping Zhang, an officer of the People's Republic of China's Ministry of Railways, confirmed what we've been hearing: China uses HSR, among other things, as an investment a tool to stimulate the economy. But how much they decide to invest depends on the specific recovery of investment estimated from any given HSR project.

China's planned and existing HSR network
Click map to see larger size; original here
(Wikimedia Commons)
Ms. Lawrence, of the World Bank, added some useful detail. The World Bank did a study in cooperation with China to determine how much traffic needed to support HSR. The result: to repay operating costs, a line needs about 20 million passengers per year; to fully recoup the capital investment, annual ridership should top 40 million.

Barbara Dalibard, CEO of SNCF Voyages, the French HSR operator, noted that while a line may be estimated to recover its costs in 20 years through revenue alone, if carbon offsets are part of the computation, the payback period is only 11-12 years. That's a great way to monetize the environmental benefits of HSR. (France's population density of 289 per square mile is less than or similar to the US states of New Jersey, Rhode Island, Massachusetts, Maryland, Delaware, New York Florida, Pennsylvania, and Ohio.)

But not many places can expect the level of ridership considered by the World Bank to be self-sustaining. That means that HSR is a good bargain for investment if the project itself can meet the ridership levels. According to Amtrak, ridership on Acela (the US's only claim to HSR) was 3.219 million in 2010; total Northeast Corridor (NEC) ridership for that period was 14.925 million, though ridership has been increasing steadily.

What to do about that? Well, you can either grow your ridership or continue to get support from the government. Acela trains are running near capacity now, and Amtrak is getting ready to add two more cars to each trainset. Beyond that, the NEC itself is at or near capacity with regional and commuter trains. Amtrak might do what France's SNCF did - run double-deck high speed trains - except that double-deckers won't fit through the tunnels to New York City. Not serving NYC would cut the route in half and the ridership way down, so the only other option would appear to be building new crossings to the Big Apple - which Amtrak has been planning to do (if they can find a fistful of billion-dollar bills).

Who's got that kind of money? If governments won't come through with it, how about the private sector?

What about Public-Private Partnership (PPP)?

Wake Up Washtenaw has always advocated strong partnership between public and private sectors in funding transportation. True, successful models for doing it are not easy to find. Investment in transportation can be both risky and slow to return profits, making private enterprises and banks leery of jumping in. One question to roundtable participants was, Should ridership risk - that is, the risk that ridership won't be high enough to generate an operating surplus - be public or private?

Mr. McNaughton has been intimately involved in the risks of setting up a new high-speed line as Chief Engineer for England's HS2. As a project is launched, it needs political support - but it is inappropriate (or unlikely) for politicians to risk their careers for HSR. It's also inappropriate for engineering firms to risk their own money planning the details. Acquiring land, which some alternatives may require, is an inappropriate risk for private capital as well. On the other hand, design-build-maintain-operate arrangements are appropriate for private companies in some circumstances. But revenue risk? That gets difficult again! In all cases, Mr. McNaughton feels that government must carry most of the risk, and hence maintain overall specification and quality control, lest private firms cut corners, compromise public safety, and milk the government for undue profit.

Ms. Lawrence of the World Bank advised that the risk must be placed where it can best be borne. Private companies are no longer willing to take ridership risk - that is, gambling on sufficient ridership to repay their investment. Seino-san told us that JR East is big on demand forecasting. If their forecast determines that a line won't be profitable, they'll lease the line to a private company, where the forecast determines the terms of the lease. Presumably, the lower the demand forecast, the lower the lease payments, giving the operating company a better chance to make a few yen from their fares.

Sr. Gómez-Pomar insisted that PPP is not new. It works well for Spain. A good example is the 25-mile link with France uses PPP and is profitable. Stations are leased to or built by private concerns; 100 miles signaling and telecom was installed in which a private firm provided 35% of capital and entered into a 20 year maintenance agreement. However, the risk must be clearly delimited, and competition is key to success. (I believe he meant competitive bidding on contracts, though this wasn't totally clear to me.)

England's HSR plans
(Wikimedia Commons)
Mr. McNaughton said he believes public funding is needed, but not 100%. Capital expenditure on track, stations, and similar long-term infrastructure, with a payback period of 25 to 30 years, can be handled by the private sector. (This may be true in the UK, but sounds very unlikely in the US!) On the other hand, ultra-high cost features like tunnels and bridges can most effectively be built with public funding. He cautioned that "Funny money" (known to investment firms as "creative financial instruments") are absolutely no good for rail. This caution may be the result of some highly controversial techniques used in Britain to fund public works with private money, the result of which (according to some) was private enterprise simply milking the taxpayer's cash cow.

OK, so capital expenditure by private parties is unlikely; what about operating concessions, such as the British arrangement to run private trains on government rails? Mr. McNaughton felt that since the rail line is a public system built for the public good, public must have a say in it. Public financing parties will inevitably have authority in setting fare policies. This is the case in the UK, and the rail infrastructure company charges the operators "tolls" for the use of their rails. But the tolls don't cover the costs of maintaining or improving the infrastructure - the government pays about half that cost.

Interestingly, China has been trying to engage the private sector in infrastructure investments. They've had very limited success, with an insurance company being the largest investor. Why insurance? Because insurance is a long-term business, and such companies are willing to wait if they can be assured of adequate return.

Mr. Boardman of Amtrak reminded us of an early example in American history: many farmers along the route of the Eire Canal voluntarily helped dig it, in expectation of later returns as their products fetched higher prices in urban markets. He also held up Amtrak and Conrail as examples of public-private partnerships, which goes to show that PPP means many things to many people.

Does competition enhance projects?

One issue that's relevant to the economics of high speed rail and to building public-private partnerships is the role of competition. Competition is often presented as a panacea to high costs and poor customer service, and there's no doubt that it often helps. There have been some industries in which the benefit of competition has been questioned, so the topic was discussed at the first round table.

The question presented to participants was, "Is competition in the rail sector favorable to rail infrastructure projects, If so, how?". Although the question focused on infrastructure, the discussion was more wide-ranging.

Fabio Senesi, Manager of RFI, the Italian rail infrastructure provider, appears to have been referring to competition among operators when he said that it does increase expectation of performance and leads to higher demands on infrastructure. His company's studies show that a 300km/h "slot" can be sold every 5 minutes thanks to the advanced signaling system they recently installed. He believes the competition on Italian high speed lines has produced "virtuous cycle", in which companies have indeed improved their offerings.

However, Sr. Senesi cautioned that private companies will want to "cherry-pick" profitable routes and leave the state railway to take the losses on unprofitable ones, so for competition to really work, there must be a policy that balances the "cherries" against the "lemons". But the bottom line is that competition is good for customers.

Mr. Boardman pointed out that competition in some cases can degrade service, citing competition for capacity into Penn Station. This is a classic case of competition for a scarce resource, which often leads to a stronger competitor eliminating weaker ones. Not good. (Though Amtrak owns Penn Station and its approaches, the public is clearly best served by having NJ Transit and MTA Long Island Railway providing regional commuter service while Amtrak provides long-distance trains.) But competition helps in a sense, because everybody knows there must be infrastructure capacity improvement. (Well, almost everybody...New Jersey Governor Chris Christie appears to be a prominent exception, having turned down multiple billions of federal dollars for the Access to the Region's Core project in 2010.)

The second round table ended by asking whether a capital-heavy system like HSR can be flexible enough to serve the needs of generations to come. Deputy FRA Administrator Karen Hedlund and Mme. Dalibard agreed that Investments must be made in the very best technology available today: rolling stock must last 30 years, and infrastructure far longer.

I sincerely hope my grandchildren will be able to say that our generation built the beginnings of a really high-quality, high speed rail system in the United States.

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