In today’s Finshots, we break down the European Union’s ambitious attempt to prevent global deforestation

The Story

What if we told you that the European Union outsources deforestation?!

It might seem confusing at first. But, think about it this way. The EU doesn’t have the capacity to produce a lot of commodities. They may not have suitable land and weather. They may not have the right resources. So they rely on other countries to feed their consumption.

But these countries can’t produce goods out of thin air, no? If they’re cultivating palm oil (an ingredient that permeates most products including chocolate and biscuits), they might have to mow down their forests to make way for this. In fact, the EU’s consumption patterns are responsible for 16% of deforestation activity across the world!

It’s quite crazy.

But why are we talking about this now, you ask?

Well, the EU has finally woken up to its role in all of this. The folks in power have realized that cutting down forests anywhere in the world isn’t really a sustainable affair. After all, forests are important carbon sinks. They absorb the carbon dioxide from the air, store it, and help us fight climate change. But if we’re losing forest cover rapidly, it hurts the collective effort.

And guess what’s the biggest contributor to this deforestation?

Agriculture!!! Between 2001 and 2015, agriculture contributed to 39% of global tree cover loss.

So the EU is doing something ambitious now. It recently adopted a law called the European Union Deforestation-Free Products Regulation (EUDR) with a singular goal — slow down deforestation.

That means if a product traces its origins back to a land stripped of its forest after December 2020, the EU simply won’t let it enter or leave the region. It’s banning such trade. Both imports and exports. And to kickstart this initiative the rule will apply to what it believes are some of the biggest culprits — palm oil, beef, cocoa, coffee, soya and wood.

So imagine that you are a company exporting cocoa to Belgium. Before your goods can cross the border, you have to prove that the cocoa hasn’t been sourced from plantations cultivated on newly deforested land. You’ll have to show proof of your due diligence. And you’ll have to label the farmland with precise geographical information. This way, the authorities can use satellite imagery, go back in time, and verify if you’re telling the truth or not.

And once you satisfy these rules, your cocoa can make its way into Belgium.

Sounds like quite an elaborate plan to save our trees, doesn’t it? If all of it works out, the EU might be able to save 72,000 hectares of forest land each year. For context, that’s roughly the size of 101,000 football fields.

But not everyone’s happy with this well-intentioned rule, of course.

Countries such as Indonesia and Malaysia which are palm oil exporters are already heading to Brussels to complain. India too is feeling jittery since we export over $1.3 billion worth of products like coffee and leather hide to the EU every year. In fact, we’ve already raised objections at the World Trade Organization. We sent out a strongly worded letter a couple of months ago. And pointed out that some countries are using environmental measures to limit the import of certain products to protect local trader (which maybe in contravention of international trade laws). That these rules were an indirect tariff. And that while exporters lose money, it’s the verification agencies (in Europe) that’ll stand to gain.

Even Finland, which is an EU member, has raised its eyebrows. See, around 75% of the Nordic country is covered by forest. And they’re concerned that such rules would hamper any future agricultural development it undertakes.

The thought in everyone’s head is basically, “Look EU, you deforested your land over the years and made money. Now that it’s our turn, you can’t shackle us as per your whims and fancies. We need to make money too.”

But for now, it doesn’t look like the EU is going to budge.

So, the only question that’s remaining is — could the EUDR be a practical success?

Well, it’s tough to say because it’s the first such regulation of its kind anywhere in the world. But maybe we can draw a parallel from Brazil’s voluntary Soy Moratorium.

You see, before 2005 the Brazilian Amazon rainforests were being heavily razed to cultivate soy — 30% of soy originated here. The only thing multinational companies that operated here cared about was access to the cheap raw material for chicken feed. But after a huge public outcry, everyone voluntarily decided to stop the purchase of soy cultivated on newly deforested Amazonian land. And it seemed to have worked like magic. By 2019, just under 2% of the soy crop was linked to deforestation. It saved the Amazon! Or at least that’s the popular narrative.

So yeah, if a voluntary moratorium could have such an impact, you’d imagine that a heavily regulated region like the EU could be quite successful in its efforts too, no? And since we’re all in a race to cut emissions and save our planet, you can be sure that the EU won’t be the last country to try out such regulations.

Until then…

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