Inkling & Surowiecki & Safeway at BNET

Michael Giberson

The folks that do technology site CNET have launched an online business magazine at www.BNET.com.

Among the items of interest (at least to me) now on BNET:

A discussion with the CEO of Erickson Retirement Communities which covers, among other things, practical applications of prediction market Inkling.

A podcast that includes New Yorker writer/Wisdom of Crowds author James Surorwiecki.

A brief posting on grocer Safeway’s energy strategy (citing a MarketWatch story. Did you know that the retail grocery chain has a FERC-approved license to engage in wholesale energy marketing? Find out why.)

(HT to Midas Oracle and the Inkling Blog.)

Tim Haab on the Politics of Gas Prices: Get Over It

Lynne Kiesling

Three cheers for Tim Haab for saying what I’m often too lazy or too cowardly to say:

So let’s take a look at the STUPID price gouging bill…

So we’ve now proven that Democrats are idiots. We’re halfway there. …

Republicans are idiots.

Since independents don’t matter, I conclude my proof. All politicians are idiots.

Look, in all seriousness. High gas prices are NOT an economic or political problem. They are the result of the natural workings of markets. There is nothing wrong with the market–and no reason, other than self-preservation and the false appearance of being able to do something, for politicians to intervene. Supplies are decreasing–both temporarily through unexpected refinery shut-downs and permanently through stock depletion. Demand is increasing–both in the U.S. and worldwide. Both of these will cause gas prices to rise and that’s good. If gas prices don’t rise, we will consume gas even faster and run out sooner. Higher gas prices encourage conservation and encourage investment in alternatives. High gas prices might be uncomfortable while we search for viable long-term solutions, but they’re more comfortable than the alternative: no gas and no solutions.

Yes. Go read him. Now. Please. Even if you are already convinced that all politicians are idiots.

Cycling: Landis (Kangaroo?) Trial in Full Swing

Lynne Kiesling

I’m not being as productive this week as I could be, because I am trying to keep up with the Floyd Landis doping trial/arbitration taking place this week at Pepperdine University. I’ve been silent on this topic since October, when I wrote about Floyd’s “wikipedia defense” and the wisdom of crowds (back in July 2006 I wrote about public and media innumeracy and lack of understanding of statistics here and here).

Since I last broached the subject in October, events have been a combination of fiasco, farce, and soap opera. The French lab that did the testing, Laboratoire National du Dépistage du Dopage (LNDD), has a substantially higher rate of positive results than the other 29 labs certified by the World Anti-Doping Agency (WADA) to perform such tests, but they claim strongly that this rate is not because of false positives. LNDD was running the tests using software on an old OS-2 computer that did not keep good log files, and the lab techs were in the habit of overwriting trial run files instead of saving every single run as a separate file. Then the hard disk on which some of the data were saved was mysteriously wiped clean of all files. Then the Landis legal team asks for more complete, electronic, data on the mass spectrometry tests on the urine samples, and the WADA/US Anti-Doping Association refuses to give them the higher-resolution electronic versions because they were concerned that the Landis team would tamper with the data (even though they were just a graph, not the underlying data). The LNDD logs demonstrate a shoddy chain-of-control protocol. WADA may be trying to use a test threshold that differs from the international standard and does not take into account experimental error in determining the positive/negative ranges. The USADA offered Landis a reduced suspension if he dished them dirt on Lance Armstrong and what he put in his body when he was still racing.

And yet, there is still a suspicion that the fix is in. No athlete has ever successfully defended against accusation in a USADA arbitration procedure, and the process for choosing the panel of arbiters and the arbitration procedure itself (a process that did not allow the parties a discovery process) is consistent with the hypothesis that this proceeding is really a kangaroo court. US and world anti-doping governance is, in my opinion, horribly opaque and unfair to athletes, in part because of its dismissal of the probability of false positives and its wilingness to ruin careers by committing Type I errors (rejecting when you should fail to reject). I’m suspicious that this is the case, although the first three days of testimony have shown that if the arbiters are indeed interested in scientifically-supportable conclusions, they should be skeptical about the WADA/USADA accusation and the LNDD testing procedures (however, in athlete doping cases, there is no presumption of innocence as there would be in a typical legal proceeding). In brief, I’m pretty convinced by now, after following this story for nine months, that the world anti-doping organizations and labs are emperors without clothes, and that Floyd is right (and courageous) to call BS on them.

One other really remarkable aspect of the “wikipedia defense” and the role of the Internet in creating community and information is the wonderful role that Trust But Verify is playing in disseminating information about the trial. Neither a journalist nor a scientist, Mr. Brower has been an enormously valuable information repository since the fall; TBV is the Floyd Landis doping allegation portal, with his own informative analyses, links to media articles and to the discussions at the Daily Peloton Forums and elsewhere. Other contributors have joined TBV to comment on specific legal and scientific aspects of the case. When all is said and done here, TBV will be a crucial chronological record of this case, and may be an important source of information in what I hope will be a dramatic overhaul of the governance of athletic doping regulation, enforcement, and testing.

TBV has taken vacation this week to spend long days in the press room at Pepperdine, providing “play-by-play” on the hearing as it evolves. This is a labor of love, of the sport, of the scientific method, and of a quest for truth. He is joined by Bill Hue, a trial court judge (and cyclist) in Wisconsin, who has also taken the week off of work to observe this proceeding; Mr. Hue is providing “color commentary” and offering key insights into legal procedure. This is my public shout-out of gratitude to them; without their efforts, this process would be much less transparent (regardless of who did what). Their dedication has provided a forum for analysis and discussion that reduces the innumeracy and opacity that allows bad governance institutions to persist, and I am truly grateful to them.

How Competitive Is Coal-To-Liquids Conversion?

Lynne Kiesling

As economic growth continues to drive up demand for petroleum-based energy, foreign supplies are fraught with geopolitical costs, and concerns about the environmental effects of fuel use increase, energy prices rise and we naturally seek out alternatives to the oil we’ve become accustomed to using over the past century. One potentially attractive option is the transformation of our plentiful domestic coal supply into liquid fuels. While coal is still carbon-based and thus does not represent a “paradigm shift” to a new platform in energy production, researching and potentially commercializing coal-to-liquids (CTL) could provide a transition bridge technology (much like the changes in internal combustion technology that I mentioned earlier this week).

CTL production of synthetic liquid fuel is one type of “clean coal” technology; clean coal technology was the subject of several sections of the Energy Policy Act of 2005. EPAct section 369 promotes efforts to commercialize domestic unconventional fuels, including CTL. EPAct also has provisions (specifically, sections 401, 403, 437, 962, and 1812) pertaining to feasibility studies and research funding for the Clean Coal Power Initiative. The Fossil Energy division of the Department of Energy has a page summarizing the clean coal provisions of EPAct 2005 and its progress toward meeting them.

There are plenty of benefits to doing this: using domestic fuel, using a fuel that is relatively inexpensive as the price of oil rises faster than the price of coal (which, by the way, has itself increased 25% over the past decade, or 2.5% per year on average, just below the average GDP growth rate). One other benefit is that CTL technologies use cogeneration/combined heat and power (CHP) technology in production, enabling the capture and recycling of waste heat and gases. With respect specifically to electricity generation, CHP can achieve fuel efficiency levels around 80%, while a conventional large-scale coal-fired generation plant has fuel efficiency levels around 33%. Thus with CHP you get more output from a given BTUs worth of fuel because less is wasted, and you also reduce pollution emissions (including CO2, if you want to consider that a pollutant) in the process. However, most petroleum refining (and petrochemical) production also use CHP processes, so that’s not necessarily an incremental benefit relative to existing petroleum product manufacturing processes.

The costs are just what you would expect from a new technology on the steep part of the development curve: production costs are high because of the novelty and insufficient production to achieve scale economies, high fixed costs, investment risk, market risk, etc. Also, it is an energy technology that still produces pollution emissions, although its pollution profile differs from, and may be less than, oil consumption equivalents.

This recent presentation from the DOE’s Lowell Miller contains a lot of useful information about the current state of CTL technology, its domestic and international implementation and planning, and the economic factors affecting its commercial viability. Mr. Miller estimates that capital costs for a 50,000 barrels/day CTL plant would be $3.5-4 billion. In separate testimony before the Senate Energy & Natural Resources Committee in April 2006, Mr. Miller estimates that at that scale, production costs for CTL synthetic fuel could fall to $35/barrel; note that a rule-of-thumb number for comparison with petroleum-based fuels is around $5/barrel, so CTL’s production costs would still be 7 times that. In both documents Mr. Miller estimates that CTL could be commercially viable when oil prices are in the $45-60/barrel range. However, as a new technology, CTL could not achieve that $35/barrel cost at this point, and still needs some pilot testing and smaller-scale implementation tests (he suggests at the 10,000-20,000 barrel plant size).

China is the global leader in CTL production; Mr. Miller’s presentation shows that China already has several CTL plants in construction (although South Africa is the only country with one in actual operation). China’s interest is no great surprise, given the constraints on their growth that energy supplies (and environmental concerns) could provide. As noted in the Energy Information Administration’s International Energy Outlook:

With a substantial portion of the increase in China’s demand for both oil and natural gas projected to be met by imports, the Chinese government is actively promoting the development of a large coal-to-liquids industry. Initial production of coal-based synthetic liquids in China is scheduled to commence in mid-2007 with the completion of the country’s first coal-to-liquids plant, located in the Inner Mongolia Autonomous Region. It is being built by the Shenhua Coal Liquefaction Corporation and will have an initial capacity of approximately 60,000 barrels per day. In another development, China’s Shenhua and Ningxia Coal Groups have initiated a feasibility study regarding the construction of two 80,000 barrel per day plants to be sited in the Ningxia Autonomous Region and the Shaanxi Province.

Another informative analysis of CTL is Congressional testimony from RAND’s James Bartis, who estimates capital costs of a first-of-its-kind CTL plant at $3 billion.

In short, there is no silver bullet for the complex challenge of meeting energy demand and geopolitical interests while not impeding economic growth or environmental quality, but CTL technologies do have some promise as a way to use our existing, abundant domestic fuel sources to balance all of those tradeoffs, in the long-run transition from carbon energy platforms to non-carbon platforms.