Raise the Hammer
The city's $100 million aerotropolis investment will "lock in" a system that is inherently less efficient than available alternatives, saddling Hamilton with infrastructure that will make it less competitive in the future.
By Ryan McGreal
Published July 01, 2005
(This article has been updated.)
City Council just made a $100 million dollar mistake.
Even if Mayor Larry Di Ianni and the councillors who voted for the 3,000 acre urban expansion around Hamilton International Airport believe the loss of agricultural land and shift of resources to a location far from downtown are worth the sacrifice for economic gain, the fact is this investment will not pay off.
Air transport depends on cheap fuel, but oil prices have doubled in the past four years and the emerging consensus among financial analysts, investment bankers, and even oil companies is that the next several years will be extremely volatile for oil markets, with price spikes punctuating a general upward trend.
The city's $100 million aerotropolis investment will "lock in" a system that is inherently less efficient than available alternatives, saddling Hamilton with infrastructure that will make it less competitive in the future. In other words, Aerotropolis will do exactly the opposite of what its proponents claim.
Instead of a transport hub with no future, Hamilton should invest in marine shipping and rail, two modes that we are already well situated to exploit, and which will become increasingly popular as businesses and individuals try to insulate themselves from volatile fuel prices.
| Mode | % Energy | % Activity |
|---|---|---|
| Air | 5% | 2% |
| Automobiles | 0% | 0% |
| Rail | 10% | 41% |
| Marine | 14% | 27% |
| Trucks | 71% | 30% |
Look at the table on the right. Air transport consumes five percent of freight transport energy, but moves only two percent of total freight (measured in tonne-kilometres). Similarly, trucking consumes 71 percent of freight transport energy, but moves only 30 percent of total freight.
By contrast, Rail consumes ten percent of total transport energy but moves 41 percent of total freight, and marine consumes 14 percent of total transport energy and moves 27 percent of total freight.
Of all the ways to move goods and people, air transport is by far the most energy-intensive. It consumes ten times as much energy per tonne-kilometre as trucking and 100 times as much energy as rail and shipping. Air transport did not increase its share of total freight transport significantly even during the cheap oil heyday of the late 1990s. Without cheap energy, air transport will be negligible.
Similarly, while air passenger-kilometres increased significantly through the 1990s, growth has faltered this decade amid a generalized crisis in the Canadian airline industry. After 2000, air traffic shrank by ten percent and has only returned to pre-9/11 volumes this year. Aviation is consolidating amid a flurry of high profile failures and bankruptcies.
In the July 15 public meeting on aerotropolis, Councillor Terry Whitehead responded somewhat to public concerns about oil prices. "I can't speculate on where the oil is. And, I don't know - there's many experts out there, yet I see many other - I mean the ones I'm hearing in the oil industry, is it's a capacity issue. It's a capacity issue of refining the oil, not as much in respect to taking the oil out of the ground."
If the problem were merely "a capacity issue," then the oil industry would be investing in more capacity. U.S. President George W. Bush recently offered to donate former military bases as sites for new refineries, but no one has taken him up on his offer. This suggests the oil services industry has little confidence in the long-term viability of oil.
Similarly, oil companies are not investing more heavily in exploration, even though high prices have historically spurred more exploration that eventually brought more oil onto the market and lowered prices. Instead, oil companies, like airlines, are merging and consolidating.
For example, ChevronTexaco is spending over $16 billion to buy Unocal Corporation, even though Unocal's stock price is already high. ChevronTexaco is gambling that the price of oil will stay high enough to justify the huge investment.
All the evidence is that the global oil market is near an historic peak, meaning global oil supplies cannot grow any more, and will soon begin an inexorable decline. Since global production is already maximized (refineries are running at 98-99 percent capacity), the price will keep rising until demand falls in line with supply.
Transportation is the single biggest consumer of oil, and its costs tend to be rigid over the short term. That is, most people cannot simply change jobs to a closer employer or buy a smaller car when gas prices go up. If the oil supply cannot rise to meet demand and prices stay high, people will eventually replace their cars, move, or switch jobs either by choice or by necessity, but this, in turn, takes years to have a significant effect on demand.
In the meantime, extreme price volatility lowers demand by driving individuals and businesses into bankruptcy and throwing people out of work. One way or another, high prices will constrain demand.
Aerotropolis is a big mistake. The purpose of public discussions is not to convince the public that city council is doing the right thing, but to get a broad enough spectrum of voices - real, public, disinterested voices, not developers - so that city council can make good decisions on what to do.
Hamilton can have a bright future as a bustling transport hub, but not for air transport. We are a major port on the Great Lakes, nestled between Toronto and the Ohio Valley along an historic rail line. These are the economic opportunities to exploit, and we already have the basic infrastructure, zoning, and rights-of-way to do it.
The aerotropolis opportunity took off decades ago, and Hamilton may one day consider itself lucky we decided not to sink our fortune into a fly-by-night operation.
Update: this article originally claimed, "After 2000, air traffic shrank by ten percent and shows no sign of recovering." It has been corrected to read, "After 2000, air traffic shrank by ten percent and has only returned to pre-9/11 volumes this year."
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