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On April 19, 2023, the EU passed the EUDR (European Union Deforestation-Free Supply Chain Regulation). In short, the regulation aims to curb deforestation and forest degradation by requiring much stricter accounting for the sources of several types of commodities.
Adding accountability across the supply chain will reduce and eventually eliminate goods produced using unethical or illegal deforestation practices. We anticipate that the sweeping reforms on imports of these major commodities to the EU will have an enormous impact.
The EUDR officially took effect on June 30, 2023. Traders and operators have up to December 30, 2024 to properly implement their processes to adhere to the regulations. Accordingly, we're seeing a great deal of renewed interest in what the EUDR entails and how organizations can begin to align with its requirements.
To help make things easier, we’ve put together a straightforward rundown of what the EUDR is all about. This includes some of the challenges the regulation already faces under scrutiny.
The EUDR reflects a clear and direct initiative to restrict deforestation and degradation from both global forestry and agriculture. The legislation expands on many components of the 2010 EU Timber Regulation (EUTR), which aims to reduce illegal logging and trade. By doing so, the EU is prioritizing their transition into a more sustainable world.
The EUDR sets new mandatory reporting requirements for business operators in the EU involved with certain commodities. Operators in this context mean any organization that either:
Reporting involves keeping track of the value chain of these commodities to prevent using materials stemming from deforestation or forest degradation.
In the context of the EUDR, these terms mean the following:
To simplify, commodities can’t be tied to any sort of forest removal or land change from forests into non-forests to stay in compliance.
The initial commodities covered under the EUDR include the following:
This list does not strictly refer to the raw materials. It also encompasses the range of products that use or are derived from these commodities.
Failing to comply is not as simple as paying a cursory fine, either. This will mean operators will be forbidden from either selling or exporting said products (and the commodities used to create them) on the EU market.
At its heart, this regulation adds the step of due diligence to buyers of materials used in their businesses. Accountability and record-keeping will ensure that European businesses will only deal with legitimate suppliers and producers.
The regulation connects to many other major changes across forestry, energy and agriculture in major markets like the US and Europe.
With such strict penalties for unethical or illegal deforestation or degradation, these operations will become obsolete (hopefully). Large-scale changes like this will help the EU meet its sweeping climate change goals by significantly reducing carbon output.
The EUDR officially took effect on June 30, 2023. All requirements for operator compliance must be in place and ready to go by the end of this year—December 30, 2024.
In the meantime, an EU commission has begun work on a country-based benchmarking system to assess overall deforestation and degradation risk. The ratings range from low, standard, and high based on three main criteria:
These ratings will help the commission better understand how to direct their efforts in addressing deforestation and degradation.
No matter an operator’s risk ranking, everyone will need to keep all of the following records on all relevant commodities for a minimum of 5 years:
Needless to say, these provisions add a significant amount of work for operators to meet and maintain their records. With more commodities potentially going on the list in the future, we may only be seeing the tip of the iceberg here.
In the early stages of the EUDR’s coming into law, many questions and concerns have understandably come up. A few of the most apparent challenges are listed below.
Major costs and extraordinary burdens across the global supply chain are likely to occur. Smaller, low-risk operators may suffer serious financial setbacks following the law.
No impact analysis was done prior to the passing of the EUDR. Problems like pricing, trade, food security, and other components could disparately affect some countries worse than others. This could lead to even worse economic conditions in certain countries.
The feasibility of geolocation required by the EUDR seems unsteady at best. Verifying a full chain of custody for products across the global supply chain may not be possible in the way the EUDR proposes.
The EU’s definition of forest degradation is ambiguous and has been criticized as far too extreme in its scope. This definition is not globally standardized, either. Many countries have differing viewpoints and legal standards on how to classify degradation.
Inspectors will use the EU Earth Observatory to remotely determine forestlands in their determination of deforestation and degradation. The accuracy of this observation process on some of the specific requirements has been called into question. This could lead to wildly inaccurate reporting on timber production or other factors.
Many people within the US forest products market have also expressed concerns with some of the requirements the EUDR will pose for them. EU officials haven’t given much help with clearing up the ambiguity, either.
The supply chain for wood products in the global industry poses particularly challenging in terms of tracking. The full chain of custody between trees in a forest and finished wood products move through many different hands.
At the very least, the EUDR will require several conversations among forestry professionals to set up the proper channels for tracking. Similarly, the changes will alter supply chain optimization and require a restructuring of SFI and FSC forestry certification standards.
The European Commission provided an updated FAQ in December that has begun to address and clarify many of the above-mentioned challenges. The updates address some of the confusion on a few significant topics:
ResourceWise will continue to cover this topic outlining these new clarifications and their implications in commodity markets. Check back with us regularly to be sure you never miss any critical updates.
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(Post originally published August 18, 2023; updated with more recent information)
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