THE SIZE OF AN AIR SHED: A MACROECONOMIC STOCK ESTIMATE

Abstract

This paper presents a simple method for estimating the size of environmental capital (KN) assets that are otherwise mistaken as infinite. An illustration is provided for Australia’s air shed. The method draws on the perpetual inventory method (PIM) used in macroeconomics for measuring the size of manufactured capital (KM) stock. While the application of the PIM for measuring KM is based on net accumulation over time, with KN it involves net depreciation over time. The depreciation, however, can be negated by the resilience capabilities of KN assets based on their biophysical characteristics. Owing to sparse data, two proxy methods for estimating the resilience coefficient are developed. These proxies rely on emission targets and standards that have been discussed in Australia’s policy context.