The Economics of Investment in High-Speed Rail

image of The Economics of Investment in High-Speed Rail

High-speed trains can compete successfully with road, air and conventional rail services on densely trafficked routes where willingness to pay is sufficient at the relatively elevated fare levels needed to cover costs. High-speed rail investments can also relieve congestion on the conventional rail network, and the capacity for high-speed rail to provide fast city centre to city centre services creates new possibilities for day-return business trips and short-stay leisure trips.

The long cost recovery periods for high-speed lines imply government involvement in the financing of most investments. The high costs mean that governments can be exposed to accumulation of large debts, particularly if demand develops more slowly than expected. Where high-speed rail investments are designed to promote regional integration rather than meet commercial demand, significant subsidy from central and regional governments will be needed for the construction of infrastructure and possibly also for train operations.

This report examines the key factors that drive the costs of high-speed rail investment and reviews the economic benefits delivered by high-speed rail services on the basis of experience in countries that have developed large high-speed rail networks.



When to invest in high-speed rail

International Transport Forum

This paper will start by a general review of the costs and benefits of high-speed rail, of how they are measured in cost-benefit analysis and of the circumstances in which benefits may be expected to exceed costs. It is concluded that the three main factors determining economic success are construction costs, value of time saving per passenger and traffic volume. At typical construction costs and values of time savings something like 9 million passengers per annum are needed to justify a line in cost-benefit analysis terms, and very many more before it becomes financially profitable. We then turn to the British experience of the appraisal of high-speed rail, both for HS1 – the high-speed line already open between London and the Channel Tunnel, and for HS2 – the proposed line linking London to Birmingham, Manchester and Leeds. Controversies over a number of issues, including the value of business travel time savings and wider economic benefits, are discussed. It is concluded that favourable circumstances for High-Speed Rail are typically the result of a combination of low construction costs (often brought about by avoiding the need for tunnelling), high values of time savings per passenger (a wealthy country with a lot of existing travel by rail) and high population (either very large cities or cities located in a corridor which may be served by a single line).


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