Bayesian state-space synthetic control method for deforestation baseline estimation for forest carbon credits

Abstract

Abstract Carbon credits from the reducing emissions from deforestation and degradation (REDD+) projects have been criticized for issuing junk carbon credits due to invalid ex-ante baselines. Recently, the concept of ex-post baseline has been discussed to overcome the criticism, while ex-ante baseline is still necessary for project financing and risk assessment. To address this issue, we propose a Bayesian state-space model that integrates ex-ante baseline projection and ex-post dynamic baseline updating in a unified manner. Our approach provides a tool for appropriate risk assessment and performance evaluation of REDD+ projects. We apply the proposed model to a REDD+ project in Brazil and show that it may have had a small, positive effect but has been overcredited. We also demonstrate that the 90% predictive interval of the ex-ante baseline includes the ex-post baseline, implying that our ex-ante estimation can work effectively.