Suppose you have been hired by the developing country of Equatoria

to calculate its Green GDP. Assume for simplicity that only three adjustments need to be made to account for natural capital depreciation and pollution damages; timber capital, oil capital, and carbon dioxide damages. You have been given the following data:

Economic Data

Gross domestic product: $40 billion

Depreciation of manufacture capital: $6 billion

Timber data

End-of-year timber stocks (board-feet): 2.0 billion

Start-of-year timber stocks (board-feet): 2.4 billion

End-of-year timber price ($/board-foot): $6

Start-of-year timber price ($/board-foot): $4

Oil data

End-of-year oil stocks (barrels): 500 million

Start-of-year oil stocks (barrels): 550 million

End-of-year oil price ($/barrel): $60

Start-of-year oil price ($/barrel): $50

Carbon data

CO2 emissions (tons): 75 million

Damage per ton of CO2 emissions: $20

For timber and oil, you will need to calculate the value of depreciation, or appreciation, as the change in the total market value of the resource during the year, where total market value is the physical quantity times the resource price.

a) What is the Green GDP for Equatoria, also accounting for the depreciation of manufactured capital?

b) Would you recommend that Equatoria use Green GDP to measure its progress toward sustainability objectives, or perhaps some other indicator discussed in Chapter 10?

c) Would you make any other recommendations to policy makers in Equatoria? Explain clearly