Rail: Ontario-Quebec High Speed Rail Study

[nfitz]

What's the population base for TGV Atlantique?

 

[Whoaccio]

France is a bit of a case of creative accounting. For starters, the SNCF never de-consolidates its financial statements for various operating divisions. So it is impossible to tell from the statements what earns what on any level. Realistically, busier TGV lines probably subsidize the rest. The SNCF also operates parts of the Paris RER and the commuter rail network which has several times the ridership of the TGV system, both of which are likely the SNCF's main cash cow.

Fundamentally though, the SNCF isn't even a realistic appraisal of HSR. They only operate the TGV, the RFF actually owns all the rails and carries all of the debt and it is massively unprofitable. In fairness, the same problems apply, with regards to inability to isolate various components of that. It is a bit of a shell game putting financing costs one place and operating costs another, which makes things look much more viable then they may be though. As of 2005, the RFF had the equivalent of about 50b CAD in liabilities. That doesn't even include things like rolling stock or stations.

 

[Whoaccio]

The NYTimes had a series of blog posts on HSR in the USA while back trying to decide whether it was a good investment with respect to economics, the environment and "social qualities" like land use planning.

How Big Are the Environmental Benefits of High-Speed Rail?

How large are the environmental and other social benefits of high-speed rail?

I’ve now reached the halfway point in this series of blog posts on the president’s “vision for high-speed rail.†The national discussion of high-speed rail must get away from high-flying rhetoric and tawdry ad hominem attacks and start weighing costs and benefits.

Environmental benefits are one potentially big plus from rail lines.

Today, I focus only on the social benefits that come from switching travelers from cars and planes to rail, not any indirect benefits associated with changing land-use patterns. I’ll get to those next week, when I also discuss high-speed rail as an economic development strategy. As I did last week, I use a simple, transparent methodology, focusing on costs and benefits during an average year. Today, I’ll estimate the environmental and other social benefits that will help offset the costs of rail.

To estimate the social benefits of rail on ridership in any given corridor, I calculate:

(Number of riders who switch from cars to rail) times (Social costs of cars minus social costs of rail) plus (Number of riders who switch from air to rail) times (Social costs of air minus social costs of rail) minus (Number of new riders who are taking rail) times (Social costs of rail)

I’d like to include buses, but this post is too long already. Only about 2 percent of inter-city vehicle miles are traveled by bus, and a Center for Clean Air Policy report has convinced me that buses wouldn’t make much of a difference.

I’m going to ignore fatalities for both rail and air and noise externalities (typical estimates for these are modest), and ignore any traffic congestion associated with getting to and from the airport or train station. For both air and rail, the only social cost will be carbon emissions. For cars, I’ll add in traffic deaths, congestion and local pollution.

As in the previous two posts, I focus on a mythical 240-mile-line between Houston and Dallas, which was chosen to avoid giving the impression that this back-of-the-envelope calculation represents a complete evaluation of any actual proposed route. (The Texas route will be certainly far less attractive than high-speed rail in the Northeast Corridor, but it is not inherently less reasonable than the proposed high-speed rail routes across Missouri or between Dallas and Oklahoma City.)

How big is the reduction in carbon-dioxide emissions associated with switching from cars to rail?

Cars average 22 miles a gallon, and contain an average of 1.63 people. Each gallon of gas is associated with 19.56 pounds of carbon dioxide. That comes to 0.545 pounds of carbon dioxide for each passenger mile, but I’ll increase that by 20 percent to reflect emissions from refining and delivering the gas.

All told, a 240-mile car trip produces 157 pounds of carbon dioxide.

Domestic air flights in the United States average 0.022 gallons of fuel for each passenger mile, and using a gallon of jet fuel is associated with 21.095 pounds of carbon dioxide. I’ll again increase that by 20 percent to reflect refining, and that comes to a total of 133.7 pounds of carbon dioxide on a 240-mile plane trip. This number is close to a Center for Clean Air Study figure based on flying a regional jet.

A classic study pegged high-speed rail in Europe as using from 6.1 to 11.1 kilowatt hours for every 100 passenger miles. The Center for Clear Air Policy also gives electricity use figures for a number of high-speed rail lines that run from 5.6 kilowatt hours for every 100 passenger miles for German intercity trains to 15.6 kilowatt hours for every 100 passenger miles for a Japanese bullet train.

Taking a middle figure of 8.6 kilowatt hours for every 100 passenger miles, and using the North American Electric Reliability Corporation estimate of 1.555 pounds of carbon dioxide for each kilowatt in Texas means 13.37 pounds of carbon dioxide for every 100 passenger miles, or 32.1 pounds of carbon dioxide for a 240-mile trip.

If I assume, relatively arbitrarily, that one-half of the rail riders used to take cars and one-half used to take planes, and that there is no extra travel generated by the rail line, then each 240-mile train trip eliminates 113 pounds of carbon dioxide for each passenger in our atmosphere. These estimates suggest that trains are green, which differs from the studies, which include the emissions from building the rail system, cited by Eric Morris at Freakonomics.

Trains reduce carbon emissions and the world should reduce its carbon footprint, but those two facts don’t make the case for rail. Trains make sense only if they are a cost-effective means of reducing carbon in the atmosphere, or whether the social benefit of eliminating 113 pounds of carbon dioxide emissions can outweigh the costs of rail.

A recent review article looked at the dollar cost to the world of each additional ton of carbon dioxide emissions. Most estimates found that a ton of carbon dioxide causes less than $20 worth of damage. Put another way, eliminating a ton of carbon dioxide would bring about $20 worth of benefits. (The one big outlier to these estimates, the Stern Report, shows the benefits of reducing carbon dioxide to be $85 a ton, but that figure has been widely disputed.)

A better way to evaluate the benefit of reducing carbon emissions by rail is to look at the cost of reducing carbon emissions by means other than rail. In current carbon offset markets, the average price of an offset is $7.34 for each ton of carbon dioxide. Technologies like carbon capture and sequestration seem to offer the possibility of reducing emissions for less than $50 a ton of carbon dioxide emissions eliminated.

I’ll assume a environmental benefit of $50 for eliminating a ton of carbon dioxide emissions. With this figure, the total global-warming-related benefit of 1.5 million high-speed riders taken equally from cars and planes is $4.24 million a year.

The National Safety Council estimates the total losses due to traffic accidents in 2008 as $237.2 billion. There were about 3 trillion vehicle miles, and 1.63 people per vehicle, so all this safety cost of cars comes to 4.8 cents a passenger mile (which is more than double more standard estimates). Using this 4.8 cent figure, a rail line that displaces 750,000 drivers creates an extra $8.73 million a year of traffic safety benefit.

A standard estimate is that cars create 5 cents of congestion damage for each vehicle mile of travel. From the same source, I’ll add in another 2.7 cents per vehicle mile to cover local pollution, fuel dependency issues and road maintenance. This works out to another $8.67 million worth of benefits from reducing the number of drivers by 750,000.

Combining reduced carbon emissions, reduced congestion and reduced traffic mortality provides an extra $21.63 million worth of benefits a year from the rail line, which increases the $102 million benefit minus operating costs figure from last week to $124 million, which is still far less than the $648 million estimated cost per year of building and maintaining the infrastructure.

The environmental and mortality benefits of rail are real, but the magnitude of the social benefits from switching modes seems is quite small relative to the cost of the system.

 

[afransen]

Does anyone know of an HSR line serving a population base as small as the Calgary-Edmonton corridor? I can't think of any. Regular VIA service is needed though, at a minimum.

That line is more about political expediency.

 

[MisterF]

France is a bit of a case of creative accounting. For starters, the SNCF never de-consolidates its financial statements for various operating divisions. So it is impossible to tell from the statements what earns what on any level. Realistically, busier TGV lines probably subsidize the rest. The SNCF also operates parts of the Paris RER and the commuter rail network which has several times the ridership of the TGV system, both of which are likely the SNCF's main cash cow.

Fundamentally though, the SNCF isn't even a realistic appraisal of HSR. They only operate the TGV, the RFF actually owns all the rails and carries all of the debt and it is massively unprofitable. In fairness, the same problems apply, with regards to inability to isolate various components of that. It is a bit of a shell game putting financing costs one place and operating costs another, which makes things look much more viable then they may be though. As of 2005, the RFF had the equivalent of about 50b CAD in liabilities. That doesn't even include things like rolling stock or stations.

I don’t see how any of this is creative accounting. It’s no secret that commuter rail gets a lot more passengers than intercity rail, or that commuters are a big part of HSR ridership. From what I’ve heard the TGV gets a lot more commuters than they were expecting when it first opened, same with the high speed lines in Spain. The California project counts on commuters as well. If we ever build HSR it’s likely that it’ll get a lot of commuter ridership in the GTA. There's no reason that revenue from short commuter trips shouldn't be counted.

Re: infrastructure costs, those are accounted for. I couldn’t find any recent numbers but back in 1991 the Sud-Est line to Lyon made $382 million in profit, and that includes $212 million in depreciation costs for rolling stock and infrastructure. Considering the line cost 3.5 billion euros to build and profits are probably a lot higher now than they were 18 years ago, the line would have paid for itself sometime in the 90s.

The fact that RFF as a whole has liabilities means nothing with respect to whether some of its lines pay for themselves. That’s akin to saying the LCBO doesn’t make a profit because the Ontario government has debt.

 

[Ansem]

The SNCF believes in HSR Québec-Windsor

http://www.cyberpresse.ca/actualite...95482-la-sncf-croit-au-tgv-quebec-windsor.php

The main points:

For the SNCF, one of the most important railway companies in the world, building HSR for the Quebec-Windsor corridor is completely justified, because all the conditions like financial profitability, social and environmental are met to make this line a great success .

In a memo obtained by La Presse, French National Railway (the SNCF) http://en.wikipedia.org/wiki/Sncf even compares this corridor with its most profitable lines of the Hexagon, HSR the Rhone-Alps, the Mediterranean and the Atlantic.

“All the criterias for a successful implementation of the line Quebec-Windsor are met said the SNCF, based on their vast experience in HSR projects around the world.'' Those are the conclusions of an “exploratory study†contained in the “technical and financial proposal†that the company gave to the mayors of the six big cities concerned with this project last June.

Its to some extend a bonified study, in which the SNCF offers its services, at the request of the City of Quebec, to undertake a thorough study on the socio-economic, environmental and financial aspects of the project, also on its potential ridership, its revenue and operating cost.

“The density of the population of the Quebec-Windsor corridor and the distances between its principal poles of population like her economic and socio-economic characteristics constitute strong arguments in favour of the HSR network serving Quebec City , Montreal, Laval, Ottawa, Toronto, Kitchener, London and Windsor.â€

Officialized last June by the City of Quebec, the contract of service granted to the SNCF provides that the final report will be produced in November. The City of Montreal, which share the invoice of 375.000$ with the province and the other cities concerned, had to approve the contract during the meeting of the municipal council which was held yesterday evening.

“This study will provide us the information needed to better explain the project to the population, explained the mayor of Quebec, Régis Labeaume, in a telephone interview. We are very late in this chapter. Even the US president is more advanced than us, this is not funny!†Mr. Labeaume accused Stephen Harper of being slow on this matter which would link Quebec, Montreal, Ottawa, Toronto, Windsor and, possibly, Chicago.

“Its up to the politicians, he said. I have the support of Michael Ignatieff, Jack Layton, Gilles Duceppe, Jean Charest and Pauline Marois. The only one missing is Mr. Harperâ€

 

[nfitz]

SNCF is hardly a disinterested party ... as they would profit from further study and construction of high-speed rail.

 

[Whoaccio]

Let me clarify. Rail operations in France have two main components, the SNCF (sort of like Via) and the RFF (sort of like CN/CP). Both are owned by the French government

The SNCF operates almost all passenger rail services in France, including the TGV services, regional rail services, commuter rail services in Paris (the Transilien and RER) as well as a few international services (Thalys). It turns a profit of about half a billion euros, and that is where most claims that "TGV is profitable" come from. The issue with that is that SNCF doesn't breakdown its income statement at all. Everything is grouped into one income category. That in itself is suspicious, as Transilien or RER services could well be subsidizing TGV or TER services. The only reason to present financial information in this manner is to hide potentially poor performance of a given segment. Ultimately, the SCNF is not a clear proxy for the TGV services it operates as ridership on TGV services is dwarfed by RER and Transilien services.

Secondly, the RFF owns the rail networks on which most SNCF services operate. It is essentially a vehicle to store all of SCNF's debt and financing costs. As everyone knows, financing costs represent the bulk of HSR systems. By placing what is essentially the SNCF's debt into the RFF, the SNCF is made to look quite healthy because it has 50b less of debt. The RFF itself is subsidized by around 10b euros per year, which eliminates any profit made by SNCF. Incidentally, Enron's main accounting trick was that it moved all of its debt and losses into various off-balance sheet entities. That isn't to suggest that SNCF is doing something sinister, the current system was created to comply with EU competition laws, but just that the RFF makes the SNCF appear much better than it really is.

Most of the European passenger rail business is contingent uponlarge degrees of public funding and resort to all manner of non-GAAP trickery to hide that fact. There is only one HSR line in existence which exists for non-political reasons and that is the Taiwan HSR. Even it has lost billions of dollars over the past two years and just completed a restructuring to better organize its debt.

 

[UD2]

Let me clarify. Rail operations in France have two main components, the SNCF (sort of like Via) and the RFF (sort of like CN/CP). Both are owned by the French government

The SNCF operates almost all passenger rail services in France, including the TGV services, regional rail services, commuter rail services in Paris (the Transilien and RER) as well as a few international services (Thalys). It turns a profit of about half a billion euros, and that is where most claims that "TGV is profitable" come from. The issue with that is that SNCF doesn't breakdown its income statement at all. Everything is grouped into one income category. That in itself is suspicious, as Transilien or RER services could well be subsidizing TGV or TER services. The only reason to present financial information in this manner is to hide potentially poor performance of a given segment. Ultimately, the SCNF is not a clear proxy for the TGV services it operates as ridership on TGV services is dwarfed by RER and Transilien services.

Secondly, the RFF owns the rail networks on which most SNCF services operate. It is essentially a vehicle to store all of SCNF's debt and financing costs. As everyone knows, financing costs represent the bulk of HSR systems. By placing what is essentially the SNCF's debt into the RFF, the SNCF is made to look quite healthy because it has 50b less of debt. The RFF itself is subsidized by around 10b euros per year, which eliminates any profit made by SNCF. Incidentally, Enron's main accounting trick was that it moved all of its debt and losses into various off-balance sheet entities. That isn't to suggest that SNCF is doing something sinister, the current system was created to comply with EU competition laws, but just that the RFF makes the SNCF appear much better than it really is.

Most of the European passenger rail business is contingent uponlarge degrees of public funding and resort to all manner of non-GAAP trickery to hide that fact. There is only one HSR line in existence which exists for non-political reasons and that is the Taiwan HSR. Even it has lost billions of dollars over the past two years and just completed a restructuring to better organize its debt.

And that's exactly it. It brings to my point of that public transportation that involves heavy capital investments are usually not profitable. Subways, streetcars, HSR, and the like.

Which is why in most countries that are seen as successful in terms of providing public transit in a certain form, that form of service is usually owned and operated with heavy involvement of the government, if not in its entirety by the government.

To think that we can simply spend the billions to build a HSR and have it run by a privately owned corporate without any government support is simply unrealistic.

 

[jwill]

Obviously a government makes its money back on the economic development stimulated by such a huge undertaking. A private company would not benefit from this, so what incentive would they have in paying for it?

 

[Long Island Mike]

High Speed Rail in the Ontario/Quebec Corridor...

Ansem and Whoaccio: I agree with the pro-HSR statement and the fact that France's SNCF is interested in it is quite interesting to me!
With the help of the SNCF it may get quite interesting...LI MIKE

 

[MisterF]

Whoaccio, none of what you're saying in any way refutes that the Paris-Lyon line has paid for itself. You seem to be equating SNCF and RFF with the TGV, which makes no sense. Nowhere did I claim that the SNCF's profits pay for all the rail infrastructure in France, only that the first TGV line's profits pay for the infrastructure it uses.

Let me clarify. Rail operations in France have two main components, the SNCF (sort of like Via) and the RFF (sort of like CN/CP). Both are owned by the French government

The SNCF operates almost all passenger rail services in France, including the TGV services, regional rail services, commuter rail services in Paris (the Transilien and RER) as well as a few international services (Thalys). It turns a profit of about half a billion euros, and that is where most claims that "TGV is profitable" come from. The issue with that is that SNCF doesn't breakdown its income statement at all. Everything is grouped into one income category. That in itself is suspicious, as Transilien or RER services could well be subsidizing TGV or TER services. The only reason to present financial information in this manner is to hide potentially poor performance of a given segment. Ultimately, the SCNF is not a clear proxy for the TGV services it operates as ridership on TGV services is dwarfed by RER and Transilien services.

No, it's the other way around - the TGV subsidizes the other rail services in France. Regional rail like the RER or conventional intercity rail rarely make a profit. HSR systems do. If the SNCF is making half a billion dollars in annual profit, then the TGV's profit is much higher. The Sud-Est line alone made almost that much profit way back in 1991.

Secondly, the RFF owns the rail networks on which most SNCF services operate. It is essentially a vehicle to store all of SCNF's debt and financing costs. As everyone knows, financing costs represent the bulk of HSR systems. By placing what is essentially the SNCF's debt into the RFF, the SNCF is made to look quite healthy because it has 50b less of debt. The RFF itself is subsidized by around 10b euros per year, which eliminates any profit made by SNCF. Incidentally, Enron's main accounting trick was that it moved all of its debt and losses into various off-balance sheet entities. That isn't to suggest that SNCF is doing something sinister, the current system was created to comply with EU competition laws, but just that the RFF makes the SNCF appear much better than it really is.

Most of the European passenger rail business is contingent uponlarge degrees of public funding and resort to all manner of non-GAAP trickery to hide that fact.

Of course passenger rail depends on big capital costs, when did I ever argue otherwise? You're trying to create an argument here where none exists. Your hints at criminal behaviour by every rail operator in Europe are quite humourous though.

There is only one HSR line in existence which exists for non-political reasons and that is the Taiwan HSR. Even it has lost billions of dollars over the past two years and just completed a restructuring to better organize its debt.

That statement isn't true. And by "lost billions" do you mean "cost billions to build"? Well duh. The Taiwan HSR started turning a profit in its second year, right on target.

 

[Whoaccio]

No, it's the other way around - the TGV subsidizes the other rail services in France. Regional rail like the RER or conventional intercity rail rarely make a profit. HSR systems do. If the SNCF is making half a billion dollars in annual profit, then the TGV's profit is much higher. The Sud-Est line alone made almost that much profit way back in 1991.

First, a website with unsourced information from 1991 calling itself "railfaneurope" isn't exactly reliable. Second, gross profit isn't a relevant metric. The point I have been trying to make is that none of that includes interest costs, which are the main ongoing costs involved with HSR.

Of course passenger rail depends on big capital costs, when did I ever argue otherwise? You're trying to create an argument here where none exists. Your hints at criminal behaviour by every rail operator in Europe are quite humourous though.

You keep ignoring that interest costs aren't accounted for in claims that the TGV is profitable. If you don't look at the single largest cost item, then maybe, yea TGV is profitable. If GM got to place all of its debt into a shell company that had its massive annual losses covered by the government it would probably report a profit on its books, but any idiot can see why that isn't totally accurate.

That statement isn't true. And by "lost billions" do you mean "cost billions to build"? Well duh. The Taiwan HSR started turning a profit in its second year, right on target.

No, it didn't. I'm sorry you don't seem to understand the role interest costs have on these projects, but the Taiwan HSR has lost billions since opening because the debt levels for these things are way too high. Interest payments alone, as in no repayment of the principal, represent 75% of the railway's total revenue. Out of every dollar the company takes in, three quarters goes strait towards covering interest.

 

[golodhendil]

There is only one HSR line in existence which exists for non-political reasons and that is the Taiwan HSR. Even it has lost billions of dollars over the past two years and just completed a restructuring to better organize its debt.

Not sure what you mean here, but if one knows Taiwanese politics, nothing exists for non-political reasons and every policy or measure is thoroughly calculated and political, and the HSR was no exception.

 

[afransen]

Whoaccio: what rate of interest is being paid by the Taiwan HSR? I could see it being over 10%, given that it's so highly levered. On the other hand, governments can borrow for as little as or less than 5%.