The Economics of High-Speed Rail: Lessons for Policy Analysis

High-speed rail (HSR) is back in the news. Proponents see it as a cool but practical cure for economic and environmental ills. Opponents see it as a costly boondoggle. Why the huge range of opinion? What can we learn about policy analysis in general from the case of HSR?

Reduced energy use and pollution are among the most widely cited benefits of HSR. Advantages over road or air transport of up to six-to-one are widely cited. However, such data cannot be accepted uncritically.

First, the most favorable comparisons often look at emissions and energy use only in operation. A valid comparison should use life-cycle analysis that also includes energy use and emissions in infrastructure construction, vehicle manufacturing, and fuel production. HSR appears to retain an edge over air travel on a life-cycle basis, but the advantage is not as great, mainly because air travel requires less infrastructure investment per passenger mile.

Similarly, analysis of HSR should employ sensitivity analysis. The viability of HSR on any given route is highly sensitive to variables like passenger load factors per trip and total traffic density. Policy advocates often use inappropriate comparisons, citing data only from best or worst cases without looking at the specifics of proposed projects. City pairs that look superficially similar, like Chicago-St. Louis vs. Paris-Lyon, can turn out to have very different HSR potential.

Finally, one must beware of counting costs as benefits. Proponents of HSR often cite its job-creation potential, but labor and other inputs used in provision of HSR are costs, not benefits. Even when conditions warrant government stimulus spending of some kind, HSR should still compete on its merits with other potentially beneficial projects like renewing sewer and water systems, constructing schools, or expanding the power grid. Drawbacks of HSR as a candidate for stimulus spending include a long start-up time and spending commitments that extend over a period longer than a typical business cycle.

On balance, high-speed rail appears to lie somewhere between a transportation panacea and a hopeless boondoggle. Well-planned projects implemented under favorable conditions can potentially save energy, cut pollution, and improve service quality, but initial costs are high. HSR must compete on its merits with other public and private investment projects.

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