Reports:
High-speed rail: international comparisons
Executive summary
1. Introduction
2. Appraisal and high-speed rail in the case study countries
3. The market for high-speed rail
4. The cost of high-speed rail projects
5. Review of different countries' appraisal techniques
6. Recommendations for Britain
7. The impact on the case for a high-speed line
8. Conclusions
Appendix A: Great Britain
Appendix B: France
Appendix C: Germany
Appendix D: Italy
Appendix E: Japan
Appendix F: Spain
Appendix G: Australia
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Executive Summary
1. In September 2003, Britain opened its first high speed rail line, and the SRA is expected to launch a consultation exercise on the case for a major new high speed line, linking London with northern England and Scotland. However, Britain is far behind other countries in Europe and Asia in this respect, many of which now have extensive high speed rail networks.
2. The Commission for Integrated Transport (CfIT) commissioned Steer Davies Gleave to:
- investigate whether Britain's failure to invest in high speed rail results from differences in appraisal and decision making processes and criteria, or differences in transport markets or other factors, which mean that high speed rail is of less benefit in Britain than in other countries; and
- make recommendations on how, if at all, Britain's appraisal criteria and processes should be changed to better capture the costs and benefits of high speed rail.
3. In order to do this, we undertook case studies of high speed rail development, transport markets and appraisal processes in Britain and six other countries: France, Italy, Spain, Germany, Japan and Australia. Australia was selected in order to examine at least one country that had not invested in high speed rail.
The market for high speed rail
4. Our analysis demonstrated that the case for high speed rail was dependent on a number of market factors and that the development of high speed rail in the case study countries did appear to be correlated with these factors. The main market factors were:
- The case for high speed rail is strongest in countries where there is a large market for travel over distances of around 200-800km, and particularly in the range 300-600km. High speed rail offers little benefit for journeys shorter than 150-200km, and is currently not be competitive with air transport for journeys longer than approximately 800km.
- A high speed line can offer very high capacity. For there to be sufficient travel demand for this capacity to be utilised effectively, there must either be very large cities of approximately the right distances apart, or there must be a number of significant population centres that can be accessed by the same high speed route.
- The construction of high speed lines is likely to be least difficult in sparsely populated countries, but within cities, high population densities mean that high speed railways (and conventional railways) can serve the potential market better.
- The existence of very good conventional rail lines reduces the incremental economic case for high speed rail, particularly over shorter distances, although if it is possible to use existing railway lines on final approaches to major cities, the construction costs of high speed rail can be significantly reduced.
5. On these measures, the basic economic case for high speed rail construction in (particularly) France is stronger than in Britain. However, the case for high speed rail construction in Britain is now stronger than it would have been in the 1980s, when many other European countries were building or planning their first high speed lines. At that time, there was spare capacity on the British national rail network, but this now faces severe constraints, and the upgrade of the West Coast Main Line has demonstrated that resolving these constraints can be very disruptive and expensive.
The costs of high speed rail
6. The SRA has based its analysis of the costs of a high speed line on the Channel Tunnel Rail Link. However, this is, per kilometre, the most expensive high speed railway to have been constructed anywhere in the world, even ignoring financing costs. Some of these reasons relate to the high proportion of tunnelling required on the approach to London, and the SRA have noted that part of the gap arises from substantial sunk costs relating to routes that were not built and improvements to Ashford and St Pancras. But even adjusting for these factors, the unit costs of high speed lines in other countries were generally 30-70% lower.
7. Although construction of high speed lines in Britain is likely to be more expensive than in (for example) Spain, it is not clear why unit costs should in general be significantly higher than in Germany or the Netherlands. We examined reasons for cost differences, and indicatively estimated that efficient costs under the current basic industry framework in Britain might be in the region of 30% lower than the costs estimated by the SRA. It is likely that further reductions in costs would be possible if the industry structure, approvals process and/or environmental and safety regulations were changed.
Appraisal in Britain and the case study countries
8. Even if the economic case for construction of a network of high speed rail lines had been stronger in Britain, it is unlikely that they would have been pursued in the 1980s and early 1990s, when most other European countries were building or planning high speed rail lines. At the time, rail projects were only authorised if they were expected to generate a return on a commercial basis. In contrast, although most other countries conducted little, if any, economic analysis of the high speed lines they were approving, the basic rationale for the investment decisions extended well beyond commercial considerations into widertransport objectives, or strategic and political objectives.
9. However, appraisal practice has now converged to an extent, at least amongst the major European countries: all of the European countries studied (except Italy) require detailed economic appraisal, including cost benefit analysis, before major transport projects can be approved, although in some countries this is used to assess when and how, rather than whether, projects should proceed. European countries are less good at assessing the wider economic impact of major transport projects: of the countries studied, only Japan undertook this analysis in detail.
10. Our view is that the new British transport appraisal structure as it is applied to railways, set out by the SRA in their new appraisal guidance earlier in 2003 and based on the new Treasury Green Book, includes most factors on which it is feasible to place monetary values, and in most areas comes close to representing best practice.
11. The ultimate decision to proceed with a high speed rail project is taken at the highest levels of government, given the very significant investment involved. The criteria used for this decision are likely to be wider than those used within the technical appraisal itself, but are difficult to assess on an objective and internationally comparable basis. There was some evidence that perceived wider economic benefits of projects, national pride issues, and wider strategic impacts, were more important in decision making than the cost benefit analysis results from appraisals. In some countries, the appraisal criteria appeared to have been explicitly or implicitly skewed to generate outcomes that were consistent with certain policy objectives.
Recommendations for appraisal in Britain
12. Although in many respects the new British appraisal framework represents best practice, we have made some recommendations, relating to the value of time, economic impact analysis, environmental benefits, and the basis of cost assumptions, allowances for risk and optimism bias.
13. Values of time are always likely to be a very important input to appraisal, but these vary significantly between regions and types of journey. Although project-specific values of time have been used on some projects in the past, we suggest that they should be used as a matter of course where the projects are large and likely to be distinctive in their journey time benefits, and that the government should produce guidance on appropriate values. This is likely to improve the case for a high speed line, as it would predominantly handle passengers travelling long distances to/from London, many of whom would be travelling for work-related purposes - who are likely to have the highest values of time.
14. The new Green Book requires that very significant allowance is made for risk and optimism bias, particularly for capital intensive projects such as high speed railways. In our view, these allowances are excessive as they relate to high speed rail: there is no clear evidence that high speed rail projects tend to exceed budgeted costs by these levels. Although the Green Book allows for the optimism bias allowance to be reduced after further analysis, there is a risk that a project will not be analysed further because of the impact of the initial higher allowances on the appraisal may be such that the project does not proceed further - particularly if they are combined with inflated cost estimates.
15. We also propose that Britain should consider undertaking analysis of the wider national economic impact of very major projects, such as a high speed line. The standard British assumption, that national economic growth would not be changed by transport projects, would not necessarily apply to a project of this scale. Evidence from overseas, including in densely populated countries such as Japan and the Netherlands, is that when undertaken systematically, analysis of high speed rail economic impacts indicates them to be higher than revealed by narrow cost-benefit analysis alone.
16. This will be particularly true if its construction could help relieve the very severe transport bottlenecks that Britain is likely to suffer from in the medium term if we do not undertake significant investment in strategic transport infrastructure. In principle the same argument could apply to a London to Scotland motorway, although as road journeys tend to be shorter, any national economic impact would be smaller.
The impact on the case for a high speed line
17. We have recreated the SRA appraisal of a high speed line available at the time of our research, and adjusted this in order to reflect the revised appraisal criteria we have proposed. The results of the revised appraisal are indicative, because we did not have access to the specific appraisal assumptions that will form the basis of the SRA's consultation on the case for a high speed railway, and therefore we had to use an earlier version. As the earlier appraisal was conducted in line with the previous version of the Green Book, we had to estimate the impact of the new Green Book. We also understand that the case for an HSL has improved as a result of different assumptions about upgrades to other long distance rail lines and the use of a different methodology for calculating the BCR.
18. With these caveats, our analysis indicated that there could be significant changes in the conclusions with revised assumptions. The outcome would be changed most significantly by the revised optimism bias assumptions we suggest. The combined effect of the changes we propose to the appraisal framework would change the benefit to cost ratio for the high speed line case that we evaluated from 1.42 to 1.97. If it was also possible to reduce costs to what we estimate would be efficient levels, the benefit to cost ratio would increase further, to around 2.5.
19. It is important to note that the latest revised SRA work (conducted since we undertook our analysis), which will help inform their consultation document, shows a BCR of around 2.0. The strengthening of the BCR in the revised SRA appraisal is due to a different method for calculating the BCR and the revision of their assumptions about the upgrade of the East Coast Main Line. Combining these with our proposed adjustments to the appraisal framework and using our estimates of efficient costs, would increase the benefit to cost ratio to between 3 and 4.
20. In combination, these effects would make a strong economic cost benefit case for an HSL. It is also likely that undertaking an appraisal of the wider economic impacts of the project would further strengthen the case, although it is not possible to quantify the extent to which this would be true - recent academic debate over the issue has produced incremental economic benefit estimates ranging from 3 to 30%.
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