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The (Very Profitable) Economics of Emissions

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For decades, Wall Street has seen environmentalism as a pest—but no longer. With the emergence of emissions markets in America, manufacturers are turning greenhouse gases into cold, hard cash.

In 1985, the rugged Colorado town of Telluride faced a nasty air-pollution problem created by the smoke from its wood-burning devices. To clear it away, city officials passed a clever ordinance. They handed out permits to all current stove and fireplace owners but declared that anyone installing a new stove or fireplace had to acquire two permits from preexisting owners first. And so, the market for trading permits was born. With every two-for-one transaction, the number of wood-burning devices decreased, as did the pollution. The town solved its environmental problem without fancy technology or harsh regulations—just pure and simple economics.

Two decades later, Telluride's idea is going national. A growing number of policy makers, economists, and environmentalists agree that the most efficient, least expensive way to reduce carbon dioxide emissions is with an "emissions market" where firms and brokers can trade shares of pollution just like they trade shares of stocks.

Caps and Commands

A national emissions market would work like this: The federal government decides that the whole United States can only emit X amount of carbon dioxide per year. (Currently, X equals about 6.5 billion tons.) Factories then get a certain number of permits for their emissions, each worth 1 ton. Instead of looking for ways to dump pollution, companies "own" their emissions output and can trade it like a commodity. For instance, if a business has 25,000 permits but only needs 20,000, then it can sell the extra shares for cash. Or, if a company unexpectedly exceeds its pollution limit, it can buy extra permits to cover itself.

The result is a "cap-and-trade" market, which allows the government to screw down maximum emissions levels and lessen pollution by taking shares out of circulation. When shares disappear, the supply goes down, and the remaining shares become more expensive. Eventually, it costs companies too much to simply buy extra permits and prompts them to invest in cleaner technology.

Supporters believe this system far surpasses the government's current approach, which is based on "command-and-control" regulations. Rather than punishing companies for bad environmental behavior, emissions markets encourage good deeds by financially rewarding those who get by with fewer shares. Under today's command-and-control scheme, if the limit on pollution is set at 1,000 tons of CO2, then a factory has no incentive to reduce pollution below that. The market scheme, on the other hand, entices factories to get that figure as close to zero as possible.

The government's current approach also requires plants to install expensive devices whenever they upgrade or build new facilities. Rather than pay ghastly installation and construction costs, managers often do nothing, which allows high-polluting plants to persist. By contrast, the market approach encourages factories to take baby steps if they can't take big ones, because even small investments in curbing pollution pay off in the form of extra shares.

Emissions markets have another big thing going for them—a successful track record. Remember acid rain? Believe it or not, an emissions market largely helped eliminate it as a major environmental threat. When Congress passed the Clean Air Act in 1990, it established a market for trading the sulfur and nitrous oxides that cause acid rain. Trading went live in 1995, and in three years, emissions had dropped by 3.9 million tons—70 percent more than expected. Within a decade, acid rain was a forgotten curiosity.

Bursting the CO2 Bubble

Unfortunately, dealing with greenhouse gases is trickier than acid rain, because every industry releases at least some carbon dioxide. Still, the carbon-market solution is making headway. Most prominently, there's the Chicago Climate Exchange, a mini-market for companies that want to trade pollution now in anticipation of tougher environmental regulations in the future. There's also the Regional Greenhouse Gas Initiative—a coalition of 10 states in the Northeast—which will begin trading emissions for power plants in 2009. And in California, a carbon market is part of an ambitious greenhouse-gas reduction scheme known as The Global Warming Solutions Act.

But governments have to be careful when setting up emissions markets, as Europe proved a couple of years ago. Environmental markets are prone to the same irrational exuberance as any capitalist market. In 2005, the European Union began mandating emissions trading, and analysts predicted prices wouldn't rise much higher than
$10 per share. One year later, however, they'd jumped to $38. The carbon dioxide bubble popped, and in two weeks, shares had dropped by two-thirds—the green equivalent of Black Tuesday.

Scared away by Europe's experience, some economists are promoting alternatives, such as "carbon taxes," which tax emissions just like personal incomes. (The more you pollute, the more you pay.) The problem is that carbon taxes set no cap on emissions. In other words, the world's biggest manufacturers could pollute all they want as long as they pay up, and global warming might actually get worse.

Going to Market

Still, most economists believe the United States can sidestep problems by following a few simple rules. First, future markets must issue a reasonable number of permits. The European Union handed out way too many credits initially, making everyone feel rich enough to take risks. A year later, when pollution reports came out, many countries had emitted far less than expected, leading to a glut of shares. With high supply and low demand, prices plummeted.

Also, U.S. markets will need to distribute their credits wisely. Some market proposals "grandfather" in firms, giving companies credits based on past pollution patterns. But that system punishes companies that have been controlling pollution and rewards those that were flouting the rules. Distributing credits via a good old-fashioned auction, however, could generate extra revenue for the government.

It's a good thing the Europeans are showing us how to stomach the ups and downs, because carbon markets will receive a big boost when the Kyoto Protocol goes into effect in 2008. Emissions markets are at the core of that agreement, allowing entire countries to trade pollution shares as though they were businesses. In other words, someday, people all over the world could be getting rich off pollutants once regarded as worthless.

This article was written by Sam Kean and originally appeared in mental_floss magazine.

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iStock // Ekaterina Minaeva
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Man Buys Two Metric Tons of LEGO Bricks; Sorts Them Via Machine Learning
May 21, 2017
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iStock // Ekaterina Minaeva

Jacques Mattheij made a small, but awesome, mistake. He went on eBay one evening and bid on a bunch of bulk LEGO brick auctions, then went to sleep. Upon waking, he discovered that he was the high bidder on many, and was now the proud owner of two tons of LEGO bricks. (This is about 4400 pounds.) He wrote, "[L]esson 1: if you win almost all bids you are bidding too high."

Mattheij had noticed that bulk, unsorted bricks sell for something like €10/kilogram, whereas sets are roughly €40/kg and rare parts go for up to €100/kg. Much of the value of the bricks is in their sorting. If he could reduce the entropy of these bins of unsorted bricks, he could make a tidy profit. While many people do this work by hand, the problem is enormous—just the kind of challenge for a computer. Mattheij writes:

There are 38000+ shapes and there are 100+ possible shades of color (you can roughly tell how old someone is by asking them what lego colors they remember from their youth).

In the following months, Mattheij built a proof-of-concept sorting system using, of course, LEGO. He broke the problem down into a series of sub-problems (including "feeding LEGO reliably from a hopper is surprisingly hard," one of those facts of nature that will stymie even the best system design). After tinkering with the prototype at length, he expanded the system to a surprisingly complex system of conveyer belts (powered by a home treadmill), various pieces of cabinetry, and "copious quantities of crazy glue."

Here's a video showing the current system running at low speed:

The key part of the system was running the bricks past a camera paired with a computer running a neural net-based image classifier. That allows the computer (when sufficiently trained on brick images) to recognize bricks and thus categorize them by color, shape, or other parameters. Remember that as bricks pass by, they can be in any orientation, can be dirty, can even be stuck to other pieces. So having a flexible software system is key to recognizing—in a fraction of a second—what a given brick is, in order to sort it out. When a match is found, a jet of compressed air pops the piece off the conveyer belt and into a waiting bin.

After much experimentation, Mattheij rewrote the software (several times in fact) to accomplish a variety of basic tasks. At its core, the system takes images from a webcam and feeds them to a neural network to do the classification. Of course, the neural net needs to be "trained" by showing it lots of images, and telling it what those images represent. Mattheij's breakthrough was allowing the machine to effectively train itself, with guidance: Running pieces through allows the system to take its own photos, make a guess, and build on that guess. As long as Mattheij corrects the incorrect guesses, he ends up with a decent (and self-reinforcing) corpus of training data. As the machine continues running, it can rack up more training, allowing it to recognize a broad variety of pieces on the fly.

Here's another video, focusing on how the pieces move on conveyer belts (running at slow speed so puny humans can follow). You can also see the air jets in action:

In an email interview, Mattheij told Mental Floss that the system currently sorts LEGO bricks into more than 50 categories. It can also be run in a color-sorting mode to bin the parts across 12 color groups. (Thus at present you'd likely do a two-pass sort on the bricks: once for shape, then a separate pass for color.) He continues to refine the system, with a focus on making its recognition abilities faster. At some point down the line, he plans to make the software portion open source. You're on your own as far as building conveyer belts, bins, and so forth.

Check out Mattheij's writeup in two parts for more information. It starts with an overview of the story, followed up with a deep dive on the software. He's also tweeting about the project (among other things). And if you look around a bit, you'll find bulk LEGO brick auctions online—it's definitely a thing!

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Nick Briggs/Comic Relief
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What Happened to Jamie and Aurelia From Love Actually?
May 26, 2017
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Nick Briggs/Comic Relief

Fans of the romantic-comedy Love Actually recently got a bonus reunion in the form of Red Nose Day Actually, a short charity special that gave audiences a peek at where their favorite characters ended up almost 15 years later.

One of the most improbable pairings from the original film was between Jamie (Colin Firth) and Aurelia (Lúcia Moniz), who fell in love despite almost no shared vocabulary. Jamie is English, and Aurelia is Portuguese, and they know just enough of each other’s native tongues for Jamie to propose and Aurelia to accept.

A decade and a half on, they have both improved their knowledge of each other’s languages—if not perfectly, in Jamie’s case. But apparently, their love is much stronger than his grasp on Portuguese grammar, because they’ve got three bilingual kids and another on the way. (And still enjoy having important romantic moments in the car.)

In 2015, Love Actually script editor Emma Freud revealed via Twitter what happened between Karen and Harry (Emma Thompson and Alan Rickman, who passed away last year). Most of the other couples get happy endings in the short—even if Hugh Grant's character hasn't gotten any better at dancing.

[h/t TV Guide]

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