What your Mother should have taught you about Entrepreneurship

July 14, 2008

I’m holding a talk today tonight at ACACES 2008 in lovely l’Aquila outside Rome. This posting is a placeholder for putting up information related to that talk and facilitating audience follow-ups.

The Amazon listmania for the suggested books is http://tinyurl.com/psm20080714B.

Below are selected slides from the presentation. These are also available as a public Google document.


Turn off the lights, just don’t light any candles

March 29, 2008

Today was the WWF Earth Hour event. CNN reports:

The environmental group WWF has urged governments, businesses and households to turn back to candle power for at least 60 minutes Saturday starting at 8 p.m. wherever they were.

Yes, for some bizarre reasons candles are viewed as good for the environment. I first assumed it was just media and folks in general that were confused, but nope. On the Earth Hour FAQ you can read:

If you plan on burning candles during Earth Hour, make sure you use 100% beeswax candles which are gentler on our planet – smoke free, non-toxic and non-allergenic. They are also made of natural products, not petroleum-based materials, so they are effectively carbon neutral (the CO2 they emit has already been taken from the atmosphere to produce the wax).

Brilliant.

Here’s an idea: let’s use beeswax for all our energy needs, since it’s carbon neutral.

(Of course, most people will burn paraffin candles, which are a by-product of, you guessed it, the petroleum industry.)

Why must environmental consciousness always seem to come with a dose of Luddism? Burning candles is a great way to add more CO2 to the atmosphere.

In my house most lamps are CFL (compact fluorescent) or halogen. They’re much more expensive, of course, but far greener. Indeed, CFL is several hundred (!) times more energy efficient than candles. The vast majority of the energy from a candle goes to heat and lighting in frequencies your eye can’t pick up anyway (e.g. infrared and ultraviolet).

Even good old-fashioned incandescent lights are much more efficient than candles.

Plus, the energy of the candle is 100% combustion-based. That means CO2. As opposed to the grid, which in North America is only 65% from combustion (the rest is nuclear, hydro, or renewable sources).

So yes, by all means, light those candles, and add some more CO2 to the world. Me, I celebrated Earth Hour by buying a neat new charger for my rechargeable batteries, plus a bunch of the new hybrid rechargeable batteries to try out.

And I threw my candles in the trash. Most US trash goes to landfills. So this way I’m doing some CO2 sequestering, too…


A nuclear power plant equals 100 billion bags of potato chips

March 11, 2008

PepsiCo’s Walkers unit in the UK spent two months to figure out that the carbon footprint of a bag of chips is 75 grams (Business Week). There are about a million grams in a short ton, and at $20 external cost of a ton of CO2 that’s 0.2 cents (see my previous posting about those numbers). Of course, there are no regulations covering how this number is generated, and there is no audit, nor any liability for PepsiCo if they get it wrong. But even at face value, we have a new reference point for CO2 emissions: bags of chips.

So consumers are supposed to include this as a guide to their behavior. What’s wrong with this picture? Well, let’s look at some other alternatives a consumer can look at.

Replacing a single 75W incandescent light bulb with an energy star alternative saves 100 lbs per year (EPA estimate). That’s 600 potato bags per year.

A typical pair of cheap PC speakers (with subwoofer) that are left turned on 24/7 can on passive use pull 40W. That’s what one of mine did that I measured using the highly useful Watts Up? meter. In terms of bags of potato chips, that’s almost 3000 bags. Turning off those speakers when you’re not playing games will save you thousands of potato chip bags.

Replacing an old gas or oil furnace or boiler with a new one saves about 3000 lbs per year of emissions (again, EPA estimate). That’s about 20,000 bags of potato chips per year. Per household.

The EPA estimates the average US household emits 41,500 pounds of CO2 per year, in total. That’s the equivalent of a quarter million bags of potato chips. So consumers are supposed to approach the CO2-reduction in their lifestyle in increments of 1/250,000?

Building a single additional nuclear power plant unit (upping our national production by less than 1%) instead of coal-based power is equivalent to about 100 billion bags of potato chips each year. Those are more interesting increments in my mind.

Carbon labeling products like potato chips is a nutty approach to global warming. It’s about being eco-chic, about feeling good, not about actually doing something about the problem. Plus it’s misleading, since a price difference of 1/5 cents is more significant than whether or not you buy that bag. The only practical solution is of course a carbon tax, which will allow the market to figure out how to minimize the aggregate effects.

Still, you do save CO2 by eating the chips and then walking it off, instead of driving. By my estimates, your car emits the equivalent of six (6) bags of potato chips per mile. If you use the chips directly to fuel your own biological engine, a single bag will get you about 1 1/2 miles, so that’s about ten times as efficient.

Now that would be a smart consumer decision.


Gasoline is Good for Global Warming

March 5, 2008

Today the price of oil just set a new all-time high of over $104, something that may come as news to a President that doesn’t know the price of gasoline [1]. But that’s not what’s most interesting about the news on energy. What’s interesting is the recent data that gasoline consumption in the United States is down slightly, and what that tells us about carbon taxes and climate change.

The issue isn’t whether global warming is real or not, or even whether it’s mostly (or just partly) a man-made phenomenon. The issue is what to do about it. And in the midst of the hoopla around super delegates and related matters of import, it merits to be reminded of some of the key issues that the next President will face.

For the sake of argument let’s assume global warming is all about CO2 emissions. CO2 is not a pollutant in the sense that it’s something we can get rid of. In fact if we got rid of CO2 in the atmosphere, most of life as we know it would die. CO2 plays a role in a broad number of natural processes, not just ecosystems. Changing the level of CO2 - up or down - impacts a number of these, weather being one of them.

What that means is that there is no “right” level of CO2. There is no historical “in the absence of Man” level. In particular, there is no notion of zero.

Which means a cap-and-trade system makes little sense, which is why most economists favor carbon tax. They are both effective in reducing emissions - “effective” in the strict economic sense, namely, that under certain assumptions it minimizes the costs in adopting new manufacturing techniques etc, as needed, to cut the aggregate emissions to some very small number. The principal difference is that cap-and-trade focuses on the target level, whereas carbon tax focuses on setting the external cost.

The challenge with CO2 that is in question is that large amounts of it affect the weather, which in turn affects a number of facets of life on Earth. Rise in ocean levels, changes in rainfall patterns, possibly more flooding, likely more hurricanes, some species will either adapt or become extinct, changing agricultural conditions, and so forth. There are also some good effects - a reduction in cold-related deaths, increased water supplies in large parts of Asia, etc. But on balance, it appears to be a net negative.

That negative carries an associated economic cost. The cost of improving infrastructure, adapting farming, building or improving levees, providing disaster aid, etc. And this is where it gets really interesting. The costs are huge - in the billions - but the emission base is large as well. Hence the logic of a carbon tax - calculate the aggregate cost and divide it by total emissions. Predictably, human intuition is weak when a large number is divided by another large number. That’s where this thing called “math” comes in.

Global emissions of CO2 are on the order of 30 billion tons per year. The current best estimate of the likely annual cost of these emissions is on the order of $60 billion - or $2 per ton. But there is a great deal of uncertainty with that number, which is as you would expect from an extraordinarily complex economic calculation. The various studies conclude different numbers with wide zones of confidence.

The principal meta study to date (a study that looked at all the major studies done and tried to form a balanced view of them) concluded that the cost per ton was very likely on the order of several dollars per ton, or less, but to be 80% sure you needed to assume a $20 price tag, and to be 95% sure you need to consider a $60 price tag. (The study also concluded that there was a distinct possibility that the net value was negative, in other words, that the net effect of higher CO2 levels was an economic good.)

Some global warming critics will argue that we should go with a “likely” number of something around $2 until there’s serious evidence that the cost is higher. They have a point, but for my purposes today - talking about cars - I can assume a statistically safer position. Let’s go with the 80% number: thus the aggregate external negative effects of CO2 emissions is at most $20 per ton, or on the order of $600 billion, globally, per year. (To put that number in perspective, that is approximately equivalent to paying for a new Katrina each month.)

So that would be the “carbon tax” we should put in place (globally), and the proceeds should be spent on offsetting the damage (globally).

Now, CO2 emissions per gallon of gasoline is about 20 pounds per gallon. So at $20 per ton, that’s 20 cents per gallon. (See where I’m going?) Prices of gasoline the past ten years have gone from around $1 per gallon to upwards $4. This three dollar increase in price is over a magnitude (!) above our upper limit of the external cost.

The recent statistics on gasoline usage in the United States indicates that it’s only now that consumption has started leveling off - 2007 petroleum consumption was up only 0.2% over 2006, and recently actually declined. Certainly a general slowdown in the economy affects consumption, but one can’t help conclude that consumers tolerated a quadrupling of gasoline prices before noticeably altering their behavior.

Which means that the consumer easily values gasoline well above any reasonable estimate of the external cost.

Which means we should go ahead and put a federal 20 cent tax on gasoline, and pool that money with the countries that are also willing to tax their carbon emissions at the same level (and put in place carbon tariffs against countries outside this group to avoid unfair trade), and put in place an agency that invests this money globally to offset these damages. And then we’re done.

Basically, car usage would be paying for reconstruction around the world, including providing for an infusion of aid to developing countries, offsetting damage from global warming. This is why gasoline powered cars are good for global warming. They provide the needed tax base.

Ah, you might say, this can’t be right. We should go to bio fuels. Or hybrids. Or electric cars. And more public transport. We have to get off “foreign oil”.

This is where the debate gets even messier. I’ve already proved the point that gasoline cars are good for global warming, given what we now know about aggregate consumer pricing sensitivity. But that doesn’t in and of itself prove that there aren’t even better solutions, just that properly taxed gasoline-powered cars are a good solution.

Some of these comments are also quite sensible. Hybrids are indeed a net good - they are a smart way to increase the energy efficiency of traditional cars. So by all means, let’s encourage the transition to hybrids, especially hybrid diesel. Public transportation should obviously be expanded - in particular high-speed trains that can offset commercial aviation.

But electric cars don’t make sense no matter how you do the math. First let’s look at CO2 emissions. The current mix of electric power consumption in the US corresponds to 1.3 lb of CO2 per kWh, and at 0.3 kWh/mi an electric vehicle emits about 0.4 lbs/mi. That’s the same emission as a 50 mpg gasoline powered hybrid. In other words, if you buy a plug-in electric vehicle today, you’re not doing much to reduce greenhouse gases.

What if the emissions associated with power consumption could be reduced? What about solar power and other renewable energy sources? They’re expensive. Residential solar power only makes sense given a combination of artificially low interest rate, high tax subsidy, and artificially high electricity prices. If the current energy industry was allowed to do it’s thing, we’d have residential power at under 10 cents per kWh. Solar power is about four times that. That would be a 30 cents per kWh additional cost, which for an electric vehicle would translate to 9 cents per mile - compared to the carbon cost of gasoline of 0.4 cents per mile.

And of course the energy requirements for switching to electric are enormous. If you do the math, you would need to double the total electricity production in the US. The only option for that is nuclear. Personally, I’m all for it - there’s enough uranium in sea water to last us for thousands of years. Currently nuclear is about 20% of electricity production, so we would need to quintuple that. The political will isn’t there. So it won’t happen.

But even if it did, it wouldn’t matter. The aggregate external carbon costs from a gasoline engine over it’s entire lifetime is around $1000. So any engine changes that increase the price of the car by more than that doesn’t change the equation. And batteries are much more expensive than that, more on the order of $10,000 over the lifetime of the car. In other words, even if you could get zero-emission free electricity for your electric car, it still would not make sense.

What about bio fuels? Well it turns out we don’t know much about their net effects on CO2 emissions - some recent studies show they are a net loss. Sure, they remove our “dependence on foreign oil”, and they get you votes in agrarian districts, but they don’t do much to reduce carbon emissions. They simply either require too much energy to produce to have much effect, or too much acreage to be economical. And they have some nasty side-effects, like dramatically raising the price of food in the world, to the detriment of developing countries, many of whom are net food importers.

What about “foreign oil”? Sure, you can make the argument that it’s of strategic value to reduce revenue to countries that we have various levels of disagreements with. But that is a different discussion. It has little to do with helping the environment or supporting developing countries in building their infrastructure.

So there you have it. US consumers are clearly willing and able to pay a lot more for gasoline than we expected. Which means gasoline can easily carry the cost of the external damage done by CO2 emissions. Which means the gasoline-powered car will be our savior - it can easily pay for any global investments needed to deal with global warming.

[1] Yeah I’m being bloggish. The prez actually reacted to the $4 claim, which had circulated in the press but was based on a local chapter AAA spokesperson comment in Florida. The official AAA comment was that they expected $3.75 gasoline.

Edit (3/7) I just found some good data to kill any arguments of “you save on maintenance”. Consumer Reports did a study of total cost of ownership over 5 years for 300 models of cars. Capital cost, and costs related to it, completely dominate: depreciation, sales tax, insurance, and interest together is 75% (!). Fuel (even at $3) is just 21%, and maintenance & repair is 4%. So there is minimal room to increase the cost of a normal car - you can only go one third above cost of the car, after that it doesn’t matter if fuel and maintenance is zero bucks.


Yossi Vardi wins Quote of the Day at TechCrunch 40

September 17, 2007

In the category of best closing comment to close the first day of TC40, I hereby declare the legendary Yossi Varid the winner.

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TechCrunch 40, Day 1

September 17, 2007

I’m hanging out at the event of the day, the TC40, where Jason, Michael, and Heather have done an amazing job of getting sizzling hot startups to fight for a seat at the podium. Well, that’s the story, anyway. As if this event needs blog coverage, lol!

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Blaming Jane Fonda for Global Warming doesn’t help

September 16, 2007

Levitt and Dubner takes a look at why nuclear power only accounts for 20% of electricity production in the US, and playfully blames Jane Fonda. It’s a cute narrative, but Levitt and Dubner ignore a number of economic aspects of the energy sector in their column, which is interesting since, *ahem*, Levitt is a brilliant economist.

If you haven’t read Freakonomics yet, you really should. Steven D. Levitt and Stephen J. Dubner do a marvelous job of applying critical thinking (or as they term it, “economics”) to some non-typical problems and arrive at some thought-provoking conclusions. E.g., crime rates don’t drop because of “get tough on crime”; the only statistically significant factors are (a) the number of cops and (b) legalization of abortion; and backyard pools are more dangerous than guns.

Ok, that’s enough of a plug for their book and my own affiliate kick-back.

The Freakonomics blog is an extension of the book, and continues Levitt’s tradition of revisiting old topics with a fresh, critical eye. And eyebrows were raised over the weekend as he took aim at Hollywood. In an expanded article in today’s New York Times Magazine, Levitt argues that Hollywood, with “The China Syndrome”, which coincided with the Three Mile Island incident, helped derail US exploitation of nuclear power, and so playfully blames Jane Fonda for global warming.

A wonderful headline, to be sure. But this is a troublesome perspective, for a number of reasons.

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Miniguide: Moving your contacts from Windows to Mac

September 14, 2007

The best way to migrate your Outlook contacts to the Macintosh Address Book is by way of the Mozilla Thunderbird installation wizard on the Windows side; Thunderbird will then export to LDIF, which Address Book can import. And you’re done. This tip took me a while to find amongst all the options, and with an increasing number of friends and acquaintances switching from Windows to Mac these days, I thought I would share it.

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For the first time in 10,000 years, farming is not the dominating industry

September 4, 2007

The international reporting on the KILM report mostly rehashed the original Reuters report, and failed to emphasize the most interesting tidbit: that of the three economic activities - farming, industry, and services - farming is no longer the largest global employer.

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Miniguide: Liquids and Electronics

August 24, 2007

I’ve been enjoying hanging around at GetSatisfaction lately, and for some reason decided to research the issue of what to do when you spill liquids on your electronics. This isn’t the usual heady strategic stuff that I prefer to write, but odds are this is actually more useful. I haven’t really found a good general online guide for this, which is bizarre since this is really something that basically every modern adult should know. If you’re anything like me, then it’s not a question of if you’re going to spill something on your laptop or mobo, but when. I suspect if you know me and my blog you probably know this stuff, but odds are you have friends and family that don’t.

Well this advice may be too late, but this is an area that is broadly misunderstood, so this might be of general interest. I learned the bulk of this stuff years ago, but after freshening up with some online guides, here’s the dope on liquids and electronics:

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