Mitigating Deforestation through Trade Policy: European Union

Overview

Land-use change to accommodate agricultural products, such as cattle and coffee farming, is a top cause of deforestation and a major contributor to climate change and biodiversity loss. Deforestation accounts for almost 12% of total global emissions, according to the Intergovernmental Panel on Climate Change. Between 1990 and 2020, a 10th of the world’s forests – around 420 million hectares – was lost, largely due to agricultural.

To combat the EU’s contribution to global deforestation, the bloc has instituted a regulation to prohibit the trade of seven soft commodities within the region, unless producers can prove they are not linked to deforestation alongside other requirements.

The EU Deforestation Regulation, or EUDR, which will apply from December 30, 2025, prohibits the sale, import or export of cattle, cocoa, coffee, oil palm, rubber, soy and wood – both as raw materials and their derivatives – unless producers can prove imports were made in accordance with local legislation and covered by a due diligence statement.

Impact

Over $110 billion in imports and 450 million customers in the EU stand to be impacted by the regulation.

Companies placing products onto the EU market from December 2025 must show that they did not participate in the conversion of land from forest to agricultural use or involve forest degradation, at any time after December 2020. The law is the most concerted effort globally to rein in deforestation, and unlike many other regional laws, the regulation covers both legal and illegal deforestation.

To demonstrate the deforestation-free credentials of their products, companies are conducting extensive supply-chain mapping and have begun to deploy satellite technology that enables each commodity to be traced back to its source. EU member states will undertake regular checks on operators and traders to ensure compliance. Breaches of the regulation will incur fines proportionate to the damage caused, up to a total of 4% of company revenue, and potential market exclusion.

Opportunity

While the European Commission’s own impact assessment report found that that the EUDR will significantly reduce the deforestation footprint of the bloc, its full impact may be diluted.

The timeline for implementing the regulation has already been delayed. When the regulation went into force in May 2023, compliance for stakeholders was due to begin at the end of 2024 ; that date was pushed back 12 months after several countries voiced concerns over not having sufficient time to adjust. Moreover, concerns over the EU’s supply chain security and consumer prices could lead policymakers to water down the regulation’s most contentious aspects.

Critics of EUDR have also cited the risk of unintended consequences affecting smallholder farmers and indigenous communities, who may lack the technical solutions to comply with the reporting obligation .

The EU has assured skeptics that the compliance burden is on the importers, not the smallholder farmers themselves, who will only be required to provide their farms’ geolocation data to the operators up the value chain. The practical reality of the policy could prove more complex than the EU anticipates, though, as many of these farmers lack connectivity and have little knowledge of what the law entails. The EU has dedicated €80 million ($86 million) to support smallholder farmers in the transition and address these concerns.

As a major global importer, the EU can play a role in leading the decarbonization of global supply chains by setting stringent standards on commodities. EUDR is the first attempt to effectively ban the sale of commodities produced on deforested land, and the subsequent private-sector commotion is evidence that this policy is indeed capable of sparking abiding change to the way these commodities are produced.

Source

European Commission, Bloomberg, BNEF