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Popular EU trade rule tackling palm oil deforestation raises doubts

10 December 2021 Cristina Brooks

An EU effort to ensure its supply chains are "deforestation-free" won't solve the problem of rapid clear-cutting of tropical forests, observers say.

The draft Deforestation-Free Products Regulation is a 17 November proposal from the EU Commission (EC) to the European Parliament, set to be discussed, and voted on as part of the revised Renewable Energy Directive.

The rule targets deforestation outside the bloc caused by the EU's imports of coffee, cocoa, cattle, palm oil, soy, and wood, as well as derived products such as leather, chocolate, and furniture, plus products made using them.

Initially discussed by the EC in a communication two years ago, this proposed rule is an attempt to curb the impact of EU consumers on deforestation contributing to climate change and biodiversity loss, lining up with this year's major effort enshrining its Paris Agreement pledge, the July policy package called Fit for 55.

The possible rule on deforestation is one of the trade measures related to the package. One of its aims is to prevent the EU's emissions from being exported, aka carbon leakage, as a result of tightening limits on emissions within the bloc. The EC's other moves to tackle leakage include proposed trade policies on steel and carbon-intensive products.

But many EU member states are ahead of the curve when it comes to deforestation linked to Europe's supply chains. France and Germany introduced corporate supply chain laws targeting human rights and environmental abuses over the past four years, and nine member states have signed a declaration in favor of deforestation-free products.

Despite these efforts, deforestation accelerated in 2020, as a recent WWF study showed. What's more, carbon sink loss caused by changes in land use, mostly due to clearing forests for farming and agriculture, remains the second biggest cause of climate change after burning fossil fuels, it said.

The EU's new deforestation regulation has in its crosshairs Brazil's beef supply-chain as well as soy production in South American countries with high deforestation risk like Argentina, Brazil, and Paraguay. It could also impact the EU's existing timber and illegal logging regulations (the EUTR and FLEGT).

It proposes that before traders market these products in the EU, they are required to show that the commodities were not grown or raised on land that was deforested or degraded after 31 December 2020.

To do this, they must file diligence statements overseen by independent monitors. Member states must establish authorities to check compliance for at least 5%-15% of commodities.

Due diligence requirements are stricter for countries with higher rates of deforestation, agricultural expansion, and weaker Paris Agreement commitments, among other things.

Industry backs green supply chain

The proposal is popular. The EC said a majority of industry respondents to a survey (51%) advocated for binding EU rules that level the playing field. For example, the Swedish producer of vegetable oils AAK welcomed the proposal, which it pushed for.

A recent position paper issued by EU agricultural product trade bodies COCERAL, FEDIOL, and FEFAC voiced its support: "Many of our companies involved in the soy and palm oil supply chain are already voluntarily implementing a (horizontal) due diligence. Making the implementation of such tool mandatory would not only enhance the level playing field across European companies but also increase awareness among all supply chain actors."

The deforestation proposal's public consultation also received the second most responses in the EU's history, which is a sign it will pass in Parliament, according to attorneys at German law firm Blomstein Rechtsanwälte.

The attorneys said that the proposal "would have a profound impact on international trade," as exporting countries would need to spend to ensure their products comply with the new rules.

Loopholes criticized

However, others are critical of loopholes that exempt logging. "Basically, 'deforestation' means a permanent change from forest to some other land use, like agriculture, so this doesn't cover industrial logging," Mary Booth, director of the Partnership for Policy Integrity, told Net-Zero Business Daily.

Environmental NGO Fern praised the enforcement mechanisms that improve on existing industry rules, but criticized the exemptions for EU small and mid-size enterprises and the omission of rubber, which the EC said accounted for the smallest fraction of embodied deforestation.

Fern, in a briefing, warned the EU was at risk of creating a two-tier system whereby the EU will consume deforestation-free products, but would not alter the pace of deforestation globally.

Mike Mason, visiting research fellow at the Centre for Sustainable and Circular Technology at the University of Bath, agreed. "No globally traded commodity can be deforestation-free selectively. This is a fundamental feature of economics, which politicians don't like to think about. Politically, it is much easier to label products than it is to change fundamental features like productivity or demand," said Mason.

Rising demand is the real problem, he explained, and one that can't be tackled by either regional or international standards. "Take soy because it's a classic. As long as the demand for soy is increasing, you will get deforestation. Certifying half of it won't change that one iota," Mason said.

"If there is twice as much demand in 10 years' time for soy, where is it going to come from? If Europe buys all the 'deforestation-free' soy, China, the world's biggest importer, will have to buy from the uncertified, and possibly lower cost, producers who are deforesting to create new farmland," he continued. "Whether I label some green and some brown doesn't change the fact that there's twice as much demand for soy." This makes these measures somewhat pointless, he added.

The EC's proposal acknowledged that "a single action by the EU (and EU alone) will however only have a limited impact in reducing global deforestation."

However, it said the regulation established definitions and data for "possible demand-side measures" as well as the potential for cooperation with producing and consuming countries and international organizations.

Possible demand-side measures include consumer labeling, public procurement criteria, lower import duties for complying products, according to a study commissioned by the EC's DG ENV unit.

EU forests a sensitive topic

At the same time, the EU is controversially seeking to cut back on deforestation within its borders.

It has proposed a Forest Strategy which won support from Fern for advocating for sustainable forest management, but saw pushback from EU member states and other owners of forests, in particular those that want to use forests for wood fuel or other economic purposes, and not as carbon sinks.

The strategy aims to improve forestry while preserving the EU's last old-growth forests and aligns with another proposal, the delegated act on the cascading use of biomass that will ensure more wood harvested becomes a store of carbon through use, for example, in long-lived products like buildings.

Posted 10 December 2021 by Cristina Brooks, Senior Journalist, Climate and Sustainability

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