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Authors:  Juan Matute, Mikhail V. Chester

Date: March 24, 2014

Project: Cost-effectiveness of reductions in greenhouse gas emissions from High-Speed Rail and urban transportation projects in California

A rising trend in state and federal transportation finance is to invest capital dollars into projects which reduce greenhouse gas (GHG) emissions. However, a key metric for comparing projects, the cost-effectiveness of GHG emissions reductions, is highly dependent on the cost-benefit methodology employed in the analysis. Our analysis comparing California High-Speed Rail and three urban transportation projects shows how four different accounting framings bring wide variations in cost per metric tonne of GHG emissions reduced. In our analysis, life-cycle GHG emissions are joined with full cost accounting to better understand the benefits of cap-and-trade investments. Considering only public subsidy for capital, none of the projects appear to be a cost-effective means to reduce GHG emissions (i.e., relative to the current price of GHG emissions in California’s cap-and-trade program at $12.21 per tonne). However, after adjusting for the change in private costs users incur when switching from the counterfactual mode (automobile or aircraft) to the mode enabled by the project, all investments appear to reduce GHG emissions at a net savings to the public. Policy and decision-makers who consider only the capital cost of new transportation projects can be expected to incorrectly assess alternatives and indirect benefits (i.e., how travelers adapt to the new mass transit alternative) should be included in decision-making processes.

Update 4/8/2014:

Financial costs used in the first version of this working paper were given in year-of-expenditure values.  To better compare between expenditures in different years, this updated version normalizes all financial costs to 2012 dollars.  Furthermore, we reduce California High-Speed Rail’s required public capital subsidy by the  $9.091B in private capital and cash-flow from operations that the Authority expects offset the public’s investment, per their 2012 Business Plan.  Adjusting to 2012 dollars and offsetting non-public capital contributions made our cost of urban transit and the bikeway higher and our capital costs for California High-Speed Rail lower (now an estimated $44.247B in required public subsidy).

The greatest change between versions comes from correcting an incorrect assumption.  In the first version of this paper, we incorrectly used the Authority’s stated $81 average fare for all trips.  This $81 fare, rather only applied to trips between San Francisco and Los Angeles, which make up roughly 1/3rd of all trips.  In this update, we instead derive the expected average ticket price ($52.75) by dividing expected revenues by annual passengers and adjusting into 2012 dollars.

We also increase the cost of the bicycle from $400 to $500 and assume that the bicycle is replaced twice  rather than once per decade.  We also corrected an internal inconsistency in our discussion;  that the per-tonne public capital cost results we presented for the Orange Line Bikeway in the summary table were inconsistent with what we discussed in the Greenhouse Gas Emissions Assessment paragraph.   In the summary table, and other results, we now allocate only 4.49% of the bikeway emissions and financial costs, per our extant discussion on the matter.

Finally, we clarify the introduction to reflect that the California High-Speed Rail analysis pertains to the “Phase 1 – Blended” rather than “Phase 1 – Full Build” scenario.

We do not update the entirety of our analysis for the 2014 Draft Business Plan for two reasons.  First, the 2014 Plan represents a substantial change in mode shift from the 2012 plan.  The California High-Speed Rail Authority expects substantial change in passengers diverted from air, down from 17.23% in 2012  to 5.85% in 2014 (2014b, Benefit-Cost Plan).   Furthermore, the average length an avoided automobile trip avoided due to high speed rail changed from 150.42 miles under the Authority’s 2012 benefit-cost analysis to 117.69 miles in 2014.  Second, we consider the 2014 Draft Business Plan to be preliminary before it is formally adopted by the Authority.

We do include some key inputs from the 2014 Draft Business Plan within our sensitivity discussion.

Update 4/9/2014:
Mostly cosmetic changes and a few typo corrections.

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