(Bloomberg) -- The European Union is determined to be a global leader in the fight against climate change. In its most radical move yet, the bloc decided in late 2022 to ban the import of products made on recently deforested land, anywhere in the world.
The European Deforestation Regulation, or EUDR, provoked a storm of protest from countries and companies around the world that handle food and forestry products sold to the EU’s 450 million consumers. As the deadline to comply with the new rules approached, many businesses complained that they’d not had time to adjust, and were still waiting for the necessary guidance.
In early October, EU officials acknowledged their concerns and decided to delay EUDR by 12 months to the end of 2025.
The setback underscores the scale of the EU’s task in bending the world to its climate protection agenda. It may also reflect a shift in the political mood in Europe, where right-wing parties have made electoral gains with calls to water down green policies and prioritize the region’s competitiveness.
What’s the plan?
The EUDR is designed to stop the felling of forests to grow certain commodities and products made from them that are sold in Europe. The list includes palm oil (which is found in thousands of everyday items including ice cream, shampoo and fuel), soy, cattle (along with beef and leather) timber (and derived products such as paper and wooden furniture), rubber and coffee.
To send them into the EU or export them from the bloc, companies would have to show they weren’t made on land that was deforested or degraded since Dec. 31, 2020. They would also need to prove they were produced in compliance with local laws protecting human rights and the interests of indigenous peoples.
Sophisticated tracking systems are required to comply with the rules, which would be enforced using the threat of fines. Importers must have collected precise data identifying the plots of land where the goods were grown. A traffic light system is being devised to assign a score for each country based on the perceived risk of deforestation there. Companies that fail to meet the rules could face fines of at least 4% of their annual turnover in the EU.
When will the EUDR come into effect?
The measures entered into force officially at the end of June 2023. Companies were supposed to have until the end of 2024 to comply, with a further six-month grace period granted to smaller businesses.
On Oct. 2, the EU yielded to the widespread complaints and moved to delay the deadline by a further 12 months, taking it to the end of 2025.
That decision still needs to be approved by the European Parliament and the European Council.
Why is the EU trying to tackle deforestation beyond its borders?
Burning or cutting down rainforests releases greenhouse gases and deprives ecosystems of carbon-absorbing trees. Much of the cleared land is used to grow export crops or to raise livestock, which generates even more climate-warming emissions. The EU was responsible for 16% of deforestation associated with international trade in 2017, surpassed only by China, at 24%, according to a 2021 report by the World Wide Fund for Nature. Europe’s demand for rubber alone has been linked to the deforestation of 520 square kilometers (201 square miles) of West Africa since the end of the last century.
Up to this point, efforts to stop the destruction focused largely on persuasion and positive incentives. The EU is focusing on trade to change that after pledging at the COP26 climate conference in 2021 to reverse deforestation.
It’s not the only area where the bloc is using trade in pursuit of climate goals beyond its borders. It’s also agreed to a carbon levy on imports of goods such as steel and aluminum from countries with less strict environmental rules, while packaging producers outside the bloc will also have to comply with its re-use and recycling rules.
Who opposes the EUDR?
Governments in commodity-producing countries said the rules would unfairly penalize smallholders who often lack the sophisticated mapping tools needed to get their harvests approved by the EU. The likes of Indonesia — a major producer of palm oil — even accused the bloc of “regulatory imperialism.” Others saw it as a form of trade protectionism. A group of 20 industry groups — from animal feed suppliers to grain traders — warned of impending supply disruptions and inflation due to a lack of detail on the rules.
Businesses complained they had no idea if the paperwork they were preparing was in the right format, and were unsure how to upload it onto the EU’s database. The EU left it until Oct. 2 to publish its detailed guidance on EUDR implementation.
Grumbling from governments intensified after the EU delayed one key part of the implementation.
Under the planned traffic light system, 9% of goods coming from countries seen as having a high risk of deforestation would face customs checks, compared with 1% for those deemed to be low-risk. Many governments objected to that idea, fearing companies would cancel investments in their countries if they are branded high-risk.
The EU later decided to have one standard level of risk to start with and move to the tiered system later. The change only led to further friction, as the US and even some EU member states complained that, until the tiered system was finalized, they would be lumped in with countries where deforestation was happening on a vast scale.
The EU’s executive, the European Commission, changed tack again on Oct. 2, saying it would classify a large majority of countries as “low risk” when the grading system comes into force next year, easing the burden for all involved.
What was the reaction to the EUDR delay proposal?
The Commission said the move “in no way puts into question the objectives or the substance of the law, as agreed by the EU co-legislators.”
But some business leaders reacted with sighs of relief. Several farm groups saw the delay as proof the EU had listened to the concerns of farmers and exporting nations.
Environmental campaigners and human rights groups decried what they saw as backpedalling on efforts to protect forests and the rights of indigenous peoples. Some voiced outrage at how long it took the Commission to issue the implementation guidance. Greenpeace said Europeans will have deforestation products on their supermarket shelves for another year. Human Rights Watch said the proposed delay contradicted the EU’s commitment under the 2021 Glasgow Declaration to end forest loss.
What would the EUDR mean for European consumers?
Tackling deforestation in supply chains has received an overwhelming citizen support through the EU’s public consultation. But compliance is costly and it’s eventually expected to filter through to prices of anything from their morning coffee to chocolate.
One study published in 2022 found the new measures would create compliance costs equivalent to as much as 3.5% of palm producers’ revenue. A recent study from the livestock-feed lobby group pegged the extra sourcing costs at as much as 2.25 billion euros. Advocates of the new rules say the companies will recoup those costs as consumers will be ready to pay more if they know the goods are environmentally sustainable.
--With assistance from Mumbi Gitau, Áine Quinn and Celia Bergin.
©2024 Bloomberg L.P.