States could learn from Baird's infrastructure model: ISN

Read my letter to the AFR, 20/6/2013, page 47

Energy costs take a toll on roading charges

Treasurer Baird wants to fund the first stage of WestConnex from asset sales (equals taxpayer money) and then wait for traffic counts so that a publicly owned toll road company can issue bonds against toll revenue. Which toll revenue?

Estimates after stage one would be as risky because no one knows what the traffic would be in stage two, not to mention stage three.

Granted, the risk is spread over many years but there is a rub. As we are burning our finite oil reserves, the remaining oil is less productive to produce. A recent energy outlook of the US department of Energy estimated that US shale oil until 2040 - the timelines for a tollway - is the equivalent of just 10 months of global oil demand but require more than 200,000 wells. Syncrude from tar sands, oil from deep or even ultra-deep water and oil from maturing giant fields with horizontal wells and enhanced oil recovery, all cost a lot in input energy and money.

High oil prices reflect this situation. For an economy just to stay even, productivity in the use of oil would have to compensate for the loss in productivity to produce this oil.

Tollways dependent on a slow transition from gas-guzzlers to fuel efficient cars cannot neutralize the impact of a three to four-fold increase in oil prices. Only car-pooling can do that. But that would kill all tollway operators unless tolls are charged per passenger. Good luck.

Traffic projections of four road tunnels were embellished because planners did not do the above productivity calculations.

Instead, their models calculated that higher oil prices would be absorbed by a growing, general inflation and purchasing power index.

This has turned out to be an untested assumption. So there is no future for toll-ways