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Document 52021SC0326

COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT minimising the risk of deforestation and forest degradation associated with products placed on the EU market Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the making available on the Union market as well as export from the Union of certain commodities and products associated with deforestation and forest degradation and repealing Regulation (EU) No 995/2010

SWD/2021/326 final

Brussels, 17.11.2021

SWD(2021) 326 final

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT

minimising the risk of deforestation and forest degradation associated with products placed on the EU market

Accompanying the document

Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on the making available on the Union market as well as export from the Union of certain commodities and products associated with deforestation and forest degradation and repealing Regulation (EU) No 995/2010

{COM(2021) 706 final} - {SEC(2021) 395 final} - {SEC(2021) 396 final} - {SWD(2021) 325 final} - {SWD(2021) 327 final} - {SWD(2021) 328 final} - {SWD(2021) 329 final}


Table of contents

Contents

1Introduction: Political and legal context

1.1EU context

1.2International and national context

2Problem definition

2.1What is/are the problems?

2.2Who is affected by the problem?

2.3What are the problem drivers?

2.3.1    Market and regulatory failures    

2.4How will the problem evolve?

3Why should the EU act?

3.1Legal basis

3.2Subsidiarity: Necessity of EU action

3.3Subsidiarity: Added value of EU action

4Objectives: What is to be achieved?

4.1General objective

4.2Specific objectives

4.3Intervention logic

4.4Deforestation-free definition

4.5Cut-off date

5What are the available policy options?

5.1Product Scope

5.2What is the baseline from which options are assessed?

5.3Description of the policy options

5.3.1    Policy option 1: Mandatory due diligence system, relying on a deforestation free definition    

5.3.2    Policy option 2: A benchmarking system and a list of contravening operators as a basis for a tiered improved mandatory due diligence system, relying on a deforestation free definition    

5.3.3    Policy option 3: Mandatory public certification combined with an improved due diligence requirement, relying on a deforestation free definition    

5.3.4    Policy option 4: Mandatory labelling combined with an improved due diligence requirement, relying on a deforestation free definition    

5.3.5    Policy option 5: Deforestation-free requirement for placing on the EU market supported by benchmarking and country card systems    

5.4Options discarded after the initial viability screening

6What are the impacts of the policy options?

6.1Impacts relevant for Policy Options 1-5

6.1.1    Environmental impacts    

6.1.2    Economic impacts    

6.1.3    Social impacts    

6.1.4    Coherence with other EU policy objectives    

6.1.5    Leakage problems    

6.2Policy Option 1 – Mandatory due diligence system, relying on a deforestation free definition

6.3Policy Option 2 – A benchmarking system and a list of contravening operators combined with tiered improved mandatory due diligence system, relying on a deforestation free definition

6.4Policy Option 3 – Mandatory public certification combined with an improved due diligence requirement, relying on a deforestation free definition

6.5Policy option 4 – Mandatory labelling combined with an improved due diligence requirement, relying on a deforestation free definition

6.6Policy option 5 - Deforestation-free requirement for placing on the EU market supported by benchmarking and country card systems

7How do the options compare?

8Preferred option

9How will actual impacts be monitored and
evaluated?



Glossary

Term or acronym

Meaning or definition

AFI

Accountability Framework Initiative

CA

Competent Authority

CBD

Convention on Biologic Diversity

COC

Chain of Custody

COFO

Committee on Forestry

DD

Due Diligence

DDS

Due Diligence System

EP

European Parliament

EUTR

European Union Timber Regulation

FAO

Food and Agriculture Organization of the United Nations

FLEGT

Forest Law Enforcement Governance and Trade

GATS

General Agreement on Trade in Services

GATT

General Agreement on Tariffs and Trade

GDP

Gross Domestic Product

GHG

Greenhouse Gas

IA

Impact Assessment

OPC

Online Public Consultation

IPBES

Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services

IPCC

Intergovernmental Panel on Climate Change

IUU

Illegal, unreported and unregulated fishing

LULUCF

Land Use, Land Use Change and Forestry

MS

Member State

NFRD

Non-financial reporting Directive

NYDF

New York Declaration on Forests

RED

Renewable Energy Directive

REDD

Reducing Emissions from Deforestation and Forest Degradation

SDG

Sustainable Development Goals

SME

Small and Medium Enterprise

TFEU

Treaty on the Functioning of the European Union

VPA

Voluntary Partnership Agreements

UNFCCC

United Nations Framework Convention on Climate Change

UNFF

United Nations Forum on Forests

WTO

World Trade Organisation



11    Introduction: Political and legal context

This impact assessment (IA) accompanies the Commission proposal for a regulation to minimise the risk of deforestation and forest degradation associated with products placed on the EU market. The proposal was first announced in the 2019 Commission Communication on Stepping up EU Action to Protect and Restore the World’s Forests 1 (from here onwards “2019 Communication”), and then confirmed in the European Green Deal, 2 the 2030 EU Biodiversity Strategy 3 and the Farm to Fork Initiative, 4 as well as in the Inception Impact Assessment. 5

The proposal is an integral part of and coherent with the overall objectives of the European Green Deal and all the initiatives developed thereunder. In particular it should be complementary to the other measures proposed in the 2019 Communication, in particular: 1) working in partnership with and support to producer countries, crucial to cover aspects related to root causes of deforestation, (such as governance, law enforcement and the fight against corruption), and 2) to minimise leakage (see section 6.1.4) by strengthening international cooperation, with major consumer countries, to promote the adoption of similar measures to avoid products coming from supply chains associated with deforestation and forest degradation being placed on the market.

Deforestation is a major cause of biodiversity loss. 6  Over 1 million species are threatened with extinction and the main driver of biodiversity loss on land is changes in land use, including deforestation and agricultural expansion. 7  Emissions from land-use and land-use change, mostly due to deforestation, are the second biggest cause of climate change after burning fossil fuels. 8  Agriculture, forestry and other land use accounted for an estimated 23% of total net greenhouse gas emissions from human activity 2007-2016. 9  Action in this area is therefore also important to fight climate change.

Forests are seriously endangered. The Food and Agriculture Organization of the United Nations (FAO) estimates 10 that 420 million hectares of forest — an area larger than the European Union — have been lost between 1990 and 2020. The global rate of deforestation has decreased over the past three decades, but there are strong regional differences. 11  In tropical moist forests, there has been a marked increase in disturbance rates (deforestation and forest degradation) in recent years (+2.1 million ha/year for the past 5 years compared with the period 2005–2014), reaching a level close to that of the early 2000s. Forest degradation is a main contributor to this recent increase, with much of it attributable to short-term disturbances. Forest degradation is caused by both natural and anthropogenic disturbances, and may subsequently lead to deforestation. Without a reduction of the present disturbance rates, undisturbed forests in tropical humid regions will disappear entirely by 2050. 12  (see sections 2.1 and 2.3 defining the problems this initiative aims to address and their drivers)

Deforestation and forest degradation are therefore among the most important environmental challenges. Stepping up action to fight deforestation and forest degradation will be an essential element in effectively grappling with the planetary crises that threaten our collective future: the climate and the biodiversity crisis.

Tackling deforestation would also have the additional benefit of removing one of the main pathways of zoonotic diseases, thereby reducing the likelihood of the next pandemic emerging through this route. 13

The public has made it clear that it wants the EU to take action to address the global impacts of deforestation and forest degradation. The Commission’s online public consultation that closed in December 2020 (see Annex II) received nearly 1.2 million contributions, including from partner countries, making it the second most popular in the history of the European Union. An overwhelming majority of respondents furthermore stated that they believed that an EU intervention could reduce global deforestation and forest degradation. This was confirmed also at specific stakeholder events, for example at the meetings of the Multi-Stakeholder Platform on Protecting and Restoring the World’s Forests 14 , gathering a very broad range of stakeholders from the EU and partner countries, including public authorities and representatives of industry, civil society, international organizations and research institutions.

In the “Conclusions of the Council and of the Governments of the Member States sitting in the Council on the Communication on Stepping Up EU Action to Protect and Restore the World’s Forests 15 of 2019. EU Member States expressed their concern regarding the current deforestation situation and stressed the importance of the EU addressing the direct and indirect drivers of deforestation, noting that approximately 80 per cent of global deforestation is caused by agricultural expansion. They emphasised that since current policies and action at global level on conservation, restoration and sustainable management of forests do not suffice to halt deforestation and forest degradation, enhanced EU action is needed to contribute more effectively to the achievement of the UN Sustainable Development Goals (SDGs). The Council specifically supported the Commission announcement in the 2019 Communication that it would assess additional regulatory and non-regulatory measures and that it would present respective proposals. This impact assessment and the accompanying proposal follow up on that announcement.

The European Parliament adopted on 22 October 2020 a resolution 16 in accordance with Article 225 of the Treaty on the Functioning of the European Union (TFEU) calling for an “EU legal framework to halt and reverse EU-driven global deforestation”. The resolution requests the Commission to submit, on the basis of Article 192 (1) TFEU, a proposal for an EU legal framework to halt and reverse EU-driven global deforestation. This impact assessment takes into account the recommendations of the European Parliament.

As described below in detail, the current legislative framework — at national, EU and international level — is not sufficient to reduce EU-driven deforestation. Therefore, in line with the announcement made in the 2019 Communication, the European Green Deal, the 2030 EU Biodiversity Strategy, the Farm to Fork Initiative, this initiative focuses on forests. While the European Parliament and NGOs advocated for an inclusion of other ecosystems, such an expansion of the scope at this stage was considered detrimental to the effectiveness and enforceability of the policy measures hereby assessed. However, at a later stage, building on lessons learned in implementation of a legislative act focusing on deforestation, it might be considered to expand the measures to cover also other ecosystems.

1.11.1    EU context

The existing EU legislative framework addresses deforestation only partially (see also section 4). The EU Forest Law Enforcement Governance and Trade (FLEGT) Action Plan 17  constitutes the key EU policy against illegal logging and associated trade. While it tackles illegal logging and associated trade, it does not address deforestation as such.

A key element of the FLEGT Action Plan is a voluntary scheme to ensure that only legally harvested timber is imported into the EU from countries agreeing to take part in this scheme. The internal EU legal framework for this scheme is the Forest Law Enforcement, Governance and Trade Regulation (FLEGT Regulation) 18 , which establishes a licensing system that is the basis for FLEGT Voluntary Partnership Agreements. Another key element of the FLEGT Action Plan is the EU Timber Regulation (EUTR) 19 , which prohibits the placing of illegally harvested timber and timber products on the EU market and lays down obligations for operators placing timber on the market for the first time. It requires that they should exercise Due Diligence (DD). Traders must keep a record of their suppliers and customers. The Regulation applies to both imported and domestically produced timber and timber products. Both FLEGT Regulation and EUTR have undergone a Fitness Check 20 , the findings of which have provided input into this impact assessment.

Note, that the 2018 Renewable Energy Directive (RED) 21 includes sustainability criteria for bioenergy, covering both biofuels for transport and biomass and biogas for heat and power, which must be met in order to qualify for financial and regulatory support. However, the Directive does not cover the placing on the market of such commodities, nor uses of commodities other than for bioenergy.

At EU level, a number of initiatives and instruments form the policy context for this impact assessment. The 2019 Communication sets out the overall objective of protecting and improving the health of existing forests, in particular primary forests and to increase sustainable, biodiverse forest coverage worldwide. In the context of the European Green Deal, both the 2030 EU Biodiversity Strategy and the Farm to Fork Initiative identify the legislative proposal and other measures to avoid or minimise the placing of products coming from supply chains associated with deforestation or forest degradation on the EU market, as important for the achievement of their objectives.

Other main EU initiatives that are relevant for the impact assessment given their scope, either already in force, or being prepared at the time of publication of this report, include:

1.The EU Taxonomy Regulation; 22

2.The EU Land Use, Land Use Change and Forestry (LULUCF) Regulation; 23

3.The EU Forest Strategy; 24

4.The legislative initiative on Sustainable Corporate Governance (SCG), 25 which aims to improve the EU regulatory framework on company law and corporate governance;

5.The proposal for a Corporate Sustainability Reporting Directive (CSRD);  26

6.A legislative initiative on substantiating green claims 27 regarding the environmental performance of products & businesses;

7.The Sustainable Product Initiative (SPI).  28

A comprehensive description of all EU initiatives and instruments relevant for this Impact Assessment is included in Annex 8.

1.21.2    International and national context

At international level, there are a range of fora and processes that are either directly or indirectly relevant for the fight against deforestation and forest degradation, mainly under the auspices of the United Nations. The bodies, instruments, processes and commitments relevant for this impact assessment are the following:

1.The UN Framework Convention on Climate Change (UNFCCC) of 1992 and its Paris Agreement, adopted at COP 21 in 2015; 29

2.The Convention on Biological Diversity (CBD); 30

3.The UN Sustainable Development Goals (SDGs); 31

4.The UN Forum on Forests (UNFF); 32  

5.The New York Declaration on Forests (NYDF) 

6.REDD+ (Reducing Emissions from Deforestation and Forest Degradation), which is a climate change mitigation solution being developed by the parties to the UNFCCC;

7.The Durban Declaration 2050 vision for forests and forestry in 2015; 

8.The Committee on Forestry (COFO) of the FAO; 

9.UN Decade of Ecosystem Restoration (2020-2030). 33

10.United Nations Convention to Combat Desertification (UNCCD)

At the national and regional level, the following initiatives are relevant for this impact assessment as they aim to achieve similar objectives:

-The Ministerial Conference on the Protection of Forests in Europe; 

-The Amsterdam Declaration Partnership, an initiative supported by eight EU Member States (Belgium, Denmark, France, Germany, Italy, the Netherlands and Spain) as well as Norway and the United Kingdom; 34  

-France’s 2017 due diligence law, and the French national strategy against imported deforestation; 35

-Germany’s draft Supply Chain Act

-The draft Schatz bill, 36 introduced in the US Senate to restrict access to the US market for certain commodities that originate from illegally deforested land;

-The UK’s proposed law to prevent forests and other natural areas of importance from being illegally converted to agricultural land.

Apart from the above mentioned initiatives and measures that have been taken into account when developing this impact assessment, due consideration had also been given to the existing obligations under international trade rules governed in particular by the General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS).

A comprehensive description international and national initiatives, instruments and commitments relevant for this Impact Assessment is included in Annex 8.

22    Problem definition

2.12.1    What is/are the problems?

Forests are valuable ecosystems that sustain most terrestrial biodiversity and act as a major sink of carbon. Yet forests around the world are being rapidly cut in an unsustainable manner, burnt and degraded. This leads to biodiversity loss and greenhouse gas emissions, which in turn fuel climate change. This also increases the likelihood of new diseases spreading from animals to humans. Around 80% of deforestation is currently driven by the expansion of agricultural land 37 and the demand for commodities and products such as soy, beef, palm oil and wood. The EU is a relevant consumer of those commodities, part of which are produced unsustainably, causing deforestation, and is therefore a contributor to the global problem of deforestation and forest degradation. The EU does not have in place specific and effective rules to reduce its contribution to deforestation and forest degradation.

The world currently has a forested area of 4.06 billion hectares, which is 31% of the total land area 38 . Forests contain more than 60 000 different tree species and provide habitats for 80% of amphibian species, 75% of bird species and 68% of mammal species 39 . Forest ecosystems are also the largest terrestrial carbon sink  storing approximately 400 gigatons of carbon 40  that would otherwise be free in the atmosphere and contribute to ongoing changes in climate patterns. On top of that, around 1.6 billion people depend on forests for their livelihood, including around 70 million indigenous people.

Deforestation occurs when forest is cleared to make space for other activities such as agriculture, mining, urban development, or other land uses. Forest degradation is a more gradual process through which a forest's biomass declines, its species composition changes, or its soil quality declines, but the land still meets the definition of a forest regarding surface, crown cover, and tree height. Forest degradation is often a precursor to deforestation. Both deforestation and forest degradation represent significant problems, in particular as they are occurring at an alarming rate.

The FAO estimates 41 that 420 million hectares of forest — about 10% of the world’s forests and an area larger than the European Union — have been lost worldwide through deforestation between 1990 and 2020. In terms of net area loss (the difference between area of forest cleared and new surface of forests planted or regenerated), the FAO estimates that the world lost around 178 million hectares of forest cover in the same period of time, which is an area triple the size of France. 

According to the FAO, the global rate of deforestation has decreased over the last decades. In the most recent five-year period (2015–2020), the annual rate of deforestation was estimated at 10 million hectares per year, down from 12 million hectares per year in the period between 2010 and 2015, and 15 million hectares per year between 2000 and 2010 42 .

Figure 1    Forest expansion and deforestation between 1990-2020

Source: FAO, 2020

In terms of net forest loss, there was a decrease due to a reduction of deforestation in some countries, plus increases in forest area in others through afforestation and the natural expansion of forests. The rate of net forest loss declined from 7.8 million hectares per year in the decade 1990–2000 to 5.2 million ha per year in 2000–2010 and 4.7 million ha per year in 2010–2020. It is to be noted that other sources, such as Global Forest Watch 43 , point to an increase in forest cover loss in recent years, specifically in tropical countries. 

As regards forest degradation, systematic data and statistics are much scarcer in comparison with deforestation. By definition, degradation is more difficult to measure and monitor. As part of the FAO’s 2020 Global Forest Resources Assessment, countries were asked whether and how they monitored forest degradation, with various definitions and criteria reported. 44 Illegal or otherwise unsustainable logging is a principal agent of forest degradation. 45 Major natural causes of forest disturbance include forest fires, insects, disease and severe weather events 46 . Considering forest intactness, the FAO in recent publications concluded that 49% of the global forest area had a high level of integrity, while 10% of the global forests are severely fragmented with little or no connectivity. 47  

According to a recent research paper 48 , 106.5 million hectares of tropical moist forests are in a degraded state, representing 10% of the around 1 billion hectares of tropical moist forest area remaining in January 2020. There has been a marked increase in disturbance rates (deforestation and forest degradation) in recent years (+2.1 million ha/year for the past 5 years compared with the period 2005–2014). Forest degradation accounts for 33% of the observed changes in forest cover, with much of it attributable to short-term disturbances such as selective logging, natural events and fire. Note also that, as forest degradation often leads to deforestation, the paper concludes that without a reduction of the present disturbance rates, undisturbed forests in tropical humid regions will disappear entirely by 2050.

Also relevant is the fact that deforestation rates and drivers vary widely across different continents. For the period 2015-2020, in terms of gross deforestation, FAO estimates put Africa on top, with 4,4 million hectares lost per year; followed by South America (2.9 million); Asia (2.2 million); North America (436,000); Europe (69,000); and Oceania (42,000.) The figures change significantly in terms of net forest loss, as shown in the chart below, especially for Asia, a continent where some countries are undergoing drastic deforestation while others are investing in reforestation and afforestation programmes.

Figure 2    Global annual net forest area change between 1990-2020 by region

Source: FAO, 2020

The main drivers of deforestation also vary geographically. Expansion of agricultural land dedicated to palm oil plantations is a major cause of deforestation in Southeast Asia, for example, while clearing of forests for pastures for cattle and for soy plantations and land speculation (land grabbing, often associated with forced displacement of local communities) are the top drivers in South America. The expansion of cocoa plantations has had a relevant impact on deforestation in Central and West Africa, while other areas of the continent have more mixed factors in play 49 .

With regard to European forests, FAO’s 2020 Global Forest Resources Assessment indicates that Europe has seen a net forest expansion in each of the three decades between 1990-2020. The State of Europe’s Forests 2020 reports that forest cover across Europe continuously increased between1990-2020, although the rate of increase is slowing down. 50  

The picture is, however, a bit different in terms of annual gross deforestation, which does not take into account afforestation and reforestation efforts. Gross deforestation across the whole of Europe (including the Russian Federation), increased from 88,000 hectares in 1990-2000, to 201,000 hectares in 2010-2015, and then fell to 69,000 hectares in 2015-2020 (FAO, 2020).

As regards the situation of forests within the EU, the State of Europe’s Forests 2020 report 51 states that, between 1990 and 2020, the area of forests in Europe has increased by 9%, carbon stored in the biomass has grown by 50% and wood supply has risen by 40%. However, less than 5% of European forests areas in the EU are considered undisturbed, or natural, according to the European Environment Agency’s State of the Environment 2020 report 52 .

As the EU forests are considerably less under threat of deforestation and degradation than forests elsewhere, it is expected that the proposed initiative will have less impact in the EU in terms of costs for operators sourcing relevant commodities domestically. However, where there are serious problems with deforestation and degradation, the legislation will provide a basis to tackle them.

The impact of deforestation and forest degradation on greenhouse gas emissions is also a source of concern. The Intergovernmental Panel on Climate Change (IPCC) 53 estimates that 23% of total anthropogenic greenhouse gas emissions (2007-2016) come from agriculture, forestry and other land uses. About 11% of emissions are from deforestation and conversion of natural ecosystems, while the remaining 12% are direct emissions from agricultural production such as livestock and fertilizers. It is crucial to consider forest degradation as a risk factor of deforestation and as an indicator of climate change and climate oscillations 54 .

The IPCC has also argued that most paths to keeping global warming within the limits agreed in the Paris Agreement involve reducing deforestation. “All assessed modelled pathways that limit warming to 1.5ºC or well below 2°C require land-based mitigation and land-use change, with most including different combinations of reforestation, afforestation, reduced deforestation, and bioenergy. 55

Deforestation and forest degradation are among the top drivers of biodiversity loss. 56 For terrestrial and freshwater ecosystems, land-use change has had the largest relative negative impact on nature since 1970. Agricultural expansion is the most widespread form of land-use change. This expansion has come largely at the expense of forests.

The contribution of deforestation and forest degradation to biodiversity loss is therefore very worrying. More species are now threatened with extinction than ever before, according to the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) 57 . Around 1 million species already face extinction unless action is taken to reduce the intensity of drivers of biodiversity loss; without, there will be a further acceleration in the global rate of species extinction.

In addition to contributing to climate change and biodiversity loss, deforestation and forest degradation threaten human health in an even more direct way. Deforestation and degradation can often lead to increased interaction between humans and animals, increasing the likelihood of zoonotic diseases spreading from animals to humans. 58  The majority of new infectious diseases affecting humans, including the SARS-CoV2 virus that caused the current COVID-19 pandemic, are zoonotic and their emergence may be linked to such interaction. Deforestation and forest fragmentation are increasing the risk of viral disease outbreaks 59 . 

2.22.2    Who is affected by the problem?

People around the world are affected by the loss of biodiversity, the effects of climate change and the emergence of new zoonotic diseases. Many of the countries experiencing serious levels of deforestation and forest degradation are among the poorest in the world. The poorest and most marginal segments of society, such as smallholder farmers, indigenous and local communities are disproportionately impacted by the effects of deforestation and forest degradation. The IPCC assessment indicates that the world needs to remain under 1.5-2 degree increase in order to avoid the worst effects of climate change, including the increased likelihood of severe, pervasive and irreversible impacts for people and ecosystems (e.g. heatwaves, extreme precipitation, acidification of the ocean and global sea level rise are some of the most likely effects). This is also the goal of the Paris Agreement, which is jeopardised by ongoing deforestation. As described above, most scenarios to meet the Paris Agreement objectives involve reduced global deforestation.

In addition around 1.6 billion people depend on forests for their livelihoods, including 70 million indigenous people, according to FAO. The formal forestry sector globally provides more than 45 million jobs, with additional 41 million jobs in the informal sector, also according to FAO. Furthermore, ‘wood and non-wood forest products’ provide up to 20% of the income of rural households in developing countries.

2.32.3    What are the problem drivers?

While there are a number of drivers of deforestation and forest degradation, agricultural expansion continues to be the main one, together with illegal logging.  60

An analysis 61 of data for 46 tropical and subtropical countries found that agriculture alone causes 73% of all deforestation, with commercial agriculture accounting for 40% of deforestation, followed by local or subsistence agriculture, which is related to 33% of deforestation. Infrastructure accounts for 10%, urban expansion for 10%, and mining for 7%. The same analysis lists logging as a main driver of forest degradation. Forest degradation is also often the first step of conversion from forest to other land uses.

Agricultural expansion is driven by global demand for specific products and commodities, market pressures, dietary preferences, and lack of efficiency in agricultural practices and waste 62 . As such there is a very strong link between deforestation and forest degradation and international trade.

Different studies have attempted to measure the impact of the production/harvest of particular commodities and/or the EU’s consumption on global deforestation and forest degradation 63 . They show that a limited number of agricultural commodities are responsible for most deforestation and forest degradation globally, and that the EU is among the major global consumers of some of these. The product scope section (chapter 5) of this Impact Assessment identifies cattle, wood, palm oil, soy, cocoa and coffee as the most relevant commodities to be considered.

A 2013 study 64  used two different models to estimate the impact of EU consumption on deforestation. The first model estimated that EU imports of crops and livestock were responsible for about 9 million hectares of deforestation globally over the period 1990-2008 (i.e. 500 000 Ha/year on average). This meant almost 36% of all embodied deforestation in crop and livestock products traded internationally during that period or 7% of global embodied deforestation if non-traded products consumed domestically were included. The second model based on consumption of final products estimated EU contribution to global embodied deforestation to be 732 000 Ha/year, or 10% of the total global embodied deforestation (including domestic consumption). The different estimates resulted from methodological differences of the two models.

Based on the model and data included in a recent research paper 65 , EU consumption 66 during the period 2008-2017 was responsible for 19% of the tropical deforestation embedded in the international imports of the six commodities selected in the product scope (6% if domestic consumption of producing countries is considered). The following figure presents the contribution of EU consumption to deforestation risk for each of the main commodities (palm oil, soy, cattle, cocoa, coffee and wood – see also chapter 5).

Figure 3    Contribution of imported consumption to risk of deforestation for selected commodities (average of period 2008-2017 in thousands of hectares per year; only countries larger than 10% are shown in the charts for individual commodities). Source: own elaboration based on data from Pendrill et al (2020). (RoW: rest of the world).

The overall lower figures in relation to those found in previous studies are consistent with the significant growth in commodity consumption by the rest of the world economies compared to the more stable consumption of the EU during the past decade, as shown in the following figure.

Figure 4    Relative growth of import of selected commodities (in tonnes) by the EU and the rest of the world in the period 2008-2017. Source FAOSTAT. Based on palm oil, soy, beef, cocoa and coffee. Imports in 2008 = 100.

2.3.12.3.1    Market and regulatory failures

At the global and regional level there are a number of general, political commitments regarding the protection and conservation of forests. However, while consumption of the abovementioned commodities drives the problem of deforestation and degradation, the markets currently fail to account for these environmental costs. They therefore do not provide sufficient incentive to change EU consumption away from these products with harmful supply-chains and equally do not encourage the consumption of deforestation-free commodities and products in the EU. This first failure is that market prices do not reflect how one activity produces costs or benefits for other activities or impacts on environmental and social issues. Specifically, deforestation results in negative externalities, including increased release of carbon into the atmosphere associated with global climate change, biodiversity loss through loss of habitat, loss of associated ecosystem services with subsequent impacts on agricultural yields 67 , and increased risks of pandemics by bringing nature and people more in contact through land clearing. These externalities are not reflected in the price of the products provoking deforestation.

Solutions to externalities include ensuring that prices reflect the externality more accurately (i.e. internalise) or by correcting the market through regulation of the particular activity.

The second failure is the lack of a level playing field for EU operators that want to source sustainable products. A recent report 68 focusing on 500 relevant corporations and financial institutions concluded that 43% of them did not have in place any deforestation commitments. This means companies aiming to clean their supply chains and prevent deforestation and forest degradation are forced to compete on the EU market with companies that do not implement sustainability considerations in their supply chains and face at the same time the increased costs of sourcing sustainably.

It is then no surprise that a majority of industry associations and businesses advocate for binding EU rules that level the playing field, establishing the same requirements for all competitors. The online public consultation of this impact assessment specifically asked respondents whether “EU-level demand-side measures would reduce unfair competition from other businesses that have not made voluntary pledges/commitments.” About 51% of businesses and industry associations answered ‘yes,’ 34% said ‘may be’, and only 9% answered ‘no.’

A recent position paper issued by COCERAL, FEDIOL and FEFAC argued: “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 third failure is the absence of a dedicated EU legal framework and of a legally binding international instrument for the protection of forests against deforestation and degradation. At EU level, as explained in the first chapter, existing legislation addresses some drivers of deforestation (illegal logging or biofuel consumption), but not the main one, which is agricultural expansion. As explained in the text box below the FLEGT/VPA legal framework did not deliver on its objectives

Box 1. FLEGT Regulation / VPAs: Key findings from the Fitness Check

The Fitness Check of the FLEGT Regulation has confirmed the achievements of FLEGT VPAs in terms of enhanced stakeholder participation and improved forest governance frameworks in partner countries and, at the same time, highlighted a number of shortcomings of the FLEGT Regulation. It also points to the fact that there is limited evidence that the VPAs overall have contributed to reducing illegal logging. While the EU system itself would be an efficient tool to lower the compliance costs for EU operators, the main instrument for its operationalization, i.e. the VPAs, has not delivered. One of the main problems as regards the FLEGT Regulation is the fact that the main EU trade partners have never shown interest to engage in VPA processes, resulting in only 3% of timber imports covered by an operational VPA system.

Progress in VPA implementation has also been slow and there is no clear evidence of their impact in terms of supporting the implementation of the FLEGT Regulation and stopping illegal timber from being placed on the EU market. Only one country of the 15 with which the EU has engaged in a VPA process, has an operating FLEGT licensing system in place, more than 15 years after the FLEGT Action Plan set the basis for these processes in 2003. Only one country from the top 10 EU timber trading partners is engaged in a VPA process.

VPAs are complex and legally binding trade treaties, covering labour, social and human rights dimension of the forest sector. This means the negotiations are detailed and complex, usually taking years to finalize and implement — far from the quick and flexible tool they were expected to become. They are a unique tool with no clear parallels outside the EU and outside the timber sector, despite the fact that many economic fields share similar environmental, social and human rights implications (infrastructure, mining, food, textile…). As VPAs are trade treaties for a single commodity and derived products, the EU lacks the leverage of its full economic weight and the advantage that it enjoys when it negotiates broad Free Trade Agreements.

The concept underlying the FLEGT Regulation, in particular the VPAs, is not fit for the expansion of the scope from legality to sustainability based on a harmonised definition of deforestation and forest degradation free. Looking at the results so far, further investment of considerable resources into VPA processes cannot be justified. Considering that timber and derived products covered by FLEGT VPAs cover only 3% of timber imports into the EU, the benefits do not justify the costs.

At international level, the existence of a legally binding international instrument has been discussed since the United Nations Conference on Environment and Development in Rio de Janeiro in 1992, but the global community has not been able to agree on the need for, the possible structure and commitments of such an instrument. No discussions are currently ongoing that would indicate that developments will go beyond the current non-binding initiatives and fora. At national level while some Member States such as France 69 have taken or are contemplating steps to address issues related to the transparency and accountability of supply chains, action at EU level would ensure a coherent approach across the EU, ensure a level playing field and leverage the impact on deforestation and forest degradation.

The fourth failure consists of an underlying lack of transparency and information asymmetries derived from the lack of common standards and reliable information available to market actors. Information asymmetries occur when, in an economic transaction, one party has more information than the other does.

2.42.4    How will the problem evolve?

The population of the earth is expected to grow to 10 billion by 2050, which will lead to a growth of consumption. The changing climate will in addition affect food production in many areas of the planet. We therefore have to expect both an increased demand for agricultural land and pressure on forests.

Without further action, deforestation will most likely continue at rates that are incompatible with many international objectives, including the objective of the Paris Agreement of keeping the temperature rise below 1.5-2 degrees.

A feasibility study undertaken for the Commission 70 considered that the global production and the export of globally traded agricultural products coming from supply chains associated with deforestation and forest degradation will continue to grow in the coming years. The major commodities driving this, as identified by the study, will be cattle, palm oil, soy, and timber. The study also found that EU consumption of globally traded agricultural products coming from supply chains associated with deforestation will stagnate for some (e.g. cattle, soy, pulpwood), but increase for other (e.g. palm oil, cocoa and coffee). Overall, it predicted that the amount of deforestation associated with EU consumption would increase, with the approximate range of EU embodied deforestation rate being between 300,000 and 600,000 hectares per year by 2030.

Nevertheless, the role of EU production and consumption as a driver of deforestation will decrease proportionally, the same report noted, as Asia will significantly increase its demand for commodities related to deforestation such as soy and beef. This will increase the need for dialogues with other major market players to tackle global deforestation and forest degradation and promote global clean supply chains. The baseline scenario proposed in this impact assessment foresees that, without new EU policy measures the EU’s forest footprint will increase in the coming decade. For more see section 5.2 on baseline.

33    Why should the EU act?

3.13.1    Legal basis

EU competence to act in the area of deforestation and forest degradation stems from the articles of the Treaty on the Functioning of the European Union (TFEU) related to the protection of the environment (Articles 21 (2.f) and 191 (2) TFEU). Article 21(2.f) requires the Union “to help develop international measures to preserve and improve the quality of the environment and the sustainable management of global natural resources, in order to ensure sustainable development”. Article 191 (2) requires the Union policy on the environment to aim at a high level of protection.

Article 192 (1) states that “the European Parliament and the Council, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee and the Committee of the Regions, shall decide what action is to be taken by the Union in order to achieve the objectives referred to in Article 191”. 

3.23.2    Subsidiarity: Necessity of EU action

While environment is a competence shared between the EU and the Member States, the impact of initiatives by EU Member States (such as the ones described above), which might affect the functioning of the internal market and the trade aspect of the initiative, provide a justification for common European action.

The absence of applicable rules at the European level put responsible business operators that are ready to clean up their supply chains at a competitive disadvantage and rewards unsustainable behaviour. The supply chains for the products covered by the initiative are international and very often global. It is essential to ensure a level playing field for operators at the EU level in terms of requirements to be met before placing products (commodities and derived products) on the EU market for the first time. For this reason, EU-wide measures are necessary. They should be designed to ensure a common understanding of deforestation and forest degradation-free supply chains and to increase the transparency of such supply chains.

Were the EU not to act, the problem of deforestation and forest degradation related to EU consumption would persist and further deteriorate. This could negatively affect the EU's efforts in the field of global biodiversity protection and climate change.

While there is currently no regulatory framework to reduce the impact of EU consumption on deforestation and forest degradation, two Regulations (the EUTR and FLEGT Regulation) focusing on the legality of timber placed in the EU market have been developed as part of the FLEGT Action Plan. These instruments could potentially be affected by the new initiative (see section 8.)

3.33.3    Subsidiarity: Added value of EU action

The main drivers of deforestation and forest degradation are linked to both the EU market and international trade. Action at EU level to address the consumption footprint of the EU would provide the benefit of the EU experience in dealing with complex supply-chain issues (e.g. stemming from the illegal logging related legislation for example) and would address international trade issues in a coordinated and harmonised way.

As some Member States have started taking action at national level, the potential impacts on the internal market and the protection of the internal market also justify action at EU level. The EU action could complement and strengthen national efforts of Member States.

44    Objectives: What is to be achieved?

While the problem of deforestation and forest degradation is wide and touches many different areas, including social, economic and environmental issues, this initiative focuses specifically on measures to minimise the placing of products associated with deforestation or forest degradation on the EU market.

A single action by the EU (and EU alone) will however only have a limited impact in reducing global deforestation and forest degradation. Therefore, cooperation with producing and consumer countries, as well as with international organisations, is crucial to avoid leakage and to achieve the goal of halting global deforestation.

Work towards these goals is foreseen in the 2019 Communication, which in its annex 71 lists over thirty precise actions across five priorities that the European Commission commits to carry out. Hence assessment of impacts of this initiative needs to be seen also in the context of the other actions being put in place. In particular with regard to producer countries, the EU can build on years of experience in the international forestry area: the Forest Partnership currently being developed will be a useful tool to tailor outreach as well as policy dialogue and financial support for capacity building. The sustainable development chapters in trade agreements could also contribute to addressing the global problem of deforestation.

The proposed policy options will require products to have been produced in compliance with the deforestation-free definition (see section 4.4) and with the laws of the country of production. The latter means that labour, environmental and human rights laws applicable in the country of production (both national and international) will need to be taken into account when assessing the compliance of products with this initiative. This includes the rights of indigenous peoples, which is expected to contribute to protecting the rights of vulnerable local communities.

Other EU legislative initiatives, such as the one sustainable corporate governance currently being developed, will be specifically designed to address the broader social and human rights aspects. It will do so by requiring companies across all sectors to identify, prevent, and mitigate actual and possible adverse impacts on human rights (including labour right), health and the environment (including the climate), in their own operations and value chains 72 . The present initiative will not specifically target the financial sector and investments. Existing initiatives in the area of sustainable finance, such as the implementation of the EU Taxonomy Regulation and the future Corporate Sustainability Reporting Directive (current NFRD) are better suited to address the deforestation impacts of the finance and investment sectors, thereby complementing and supporting this legislative initiative on deforestation.

4.14.1    General objective

The general objective of this initiative is to minimise the EU’s contribution to deforestation and forest degradation worldwide thus reducing the EU contribution to GHG emissions and global biodiversity loss.

4.24.2    Specific objectives

Specific objectives are tailored around policy options identified and set out concretely what the policy intervention is meant to achieve:

a.Minimise consumption of products coming from supply chains associated with deforestation or forest degradation.

b.Increase EU demand for and trade in legal and ‘deforestation free’ commodities and products.



4.34.3    Intervention logic 

The above figure captures the intervention logic of the initiative, linking the problems, their drivers and the objectives. The proposed legislative initiative will cover a range of products/commodities associated with deforestation and forest degradation and will be based on a definition of deforestation-free product/commodity. Through an expanded product scope and by adding the requirement of “deforestation free” to the current system based on legality, the proposed measures will address the main driver of deforestation, i.e. agricultural expansion, thereby reducing the EU’s contribution to deforestation and forest degradation. The impact assessment analyses different policy options for achieving these objectives.

4.44.4    Deforestation-free definition

In developing the objectives that link the analysis of the problem (and its drivers) to the options for possible demand side measures, operational definitions need to be developed against which the compliance of commodities and products under the scope of the policy tools will be measured.

As was the case under the EUTR and the FLEGT Regulation, the policy options in this impact assessment will continue to require the compliance of products with the rules of the country of production — in other words, they will cover their legality. However, they will also go beyond that to assess whether products are deforestation and forest degradation free. To meet the ambition of the initiative, the definition of deforestation and forest degradation should rely as much as possible on internationally-backed criteria, should ensure legal clarity, and should be measurable, based on quantitative, objective data.

All available evidence and the inputs from stakeholders suggest this is the right decision to attain the desired goals of this initiative.

First, available reports confirm that a sizable part of ongoing deforestation is legal according to the laws of the country of production. Forest Trends 73 estimated in 2014 that almost half of all tropical deforestation between 2000 and 2012 was driven by the illegal conversion of forest lands for commercial agriculture. The same organization estimates that between 2013 and 2019, around 69% of deforestation destined to commercial agriculture in tropical countries was illegal. These reports tend to focus on countries with weak governance — the global share of deforestation that is illegal might be lower —, but already provide clear data signalling that leaving out deforestation that is legal in the country of production would undermine the effectiveness of the policy measures.

Second, focusing only on legality would make the intervention rely on the stringency of non-EU countries’ requirements and their enforcement. This would make it dependent on the decisions taken in third countries and their potential political turns. This could also potentially encourage a race to the bottom in countries highly dependent on agricultural exports that may be tempted to lower their environmental protection with a view to facilitating the access of their products to the EU market. Exports from a country with stricter environmental controls could therefore be adversely affected when compared to those of countries with less demanding controls, regardless of whether the latter presents a higher risk in terms of deforestation. This type of requirement could therefore discourage the adoption of more effective environmental controls.

Third, establishing a deforestation definition could facilitate the implementation of the measures. Results from the Fitness Check that looked at the due diligence implemented under the EUTR suggests that due diligence obligations only relying on the laws of the country of origin are sometimes difficult to implement, as companies and public authorities in charge of enforcement need to find their way among foreign documents, certificates and laws, written in foreign languages, and sometimes produced in countries with high levels of corruption where ascertaining the reliability of documents may also be very difficult. A deforestation-free definition opens a new, more straightforward way of checking compliance, whereby an operator or a public authority could check whether a product is deforestation-free by resorting to widely-available satellite monitoring tools (provided that the exact area of production can also be ascertained).

Fourth, the overwhelming majority of respondents (88%) to the online public consultation (OPC) carried out for this initiative 74 (see Annex 2) indicated their preference for assessing products based on an EU definition of deforestation-free, rather than only their legality according to the laws of the country of harvest or production. In addition, the OPC showed strong support for a deforestation-free requirement or standard that products must comply with to be placed on the EU market.

For these reasons, all proposed policy options rely on a single definition of what is to be considered as deforestation-free, as well as on compliance with the laws of the country of production. This will be the basis for the obligations for EU stakeholders including companies and EU competent authorities. It will also be relevant for stakeholders in third countries that have commercial relations with the EU.

A second question is which particular definition — among the different options provided by the literature review and stakeholder consultationis best suited to fulfil the objectives of the policy intervention. This impact assessment supports the adoption of the definition explained below, which is closely related to the definitions of forest and deforestation used by the members of the Food and Agricultural Organisation (FAO) 75 .

All policy measures will rely on the following definitions:

·Forest is defined as: “Land spanning more than 0.5 hectares with trees higher than 5 m and a canopy cover of more than 10% (land-cover criteria), or trees able to reach these thresholds in situ. It does not include land that is predominantly under agricultural or urban land use.” This is the definition used by the FAO 76 . Some tree plantations are explicitly recognized as forests by the FAO in the explanatory notes of the forest definition, namely rubber-wood, cork oak and Christmas tree plantations 77 . It is however suggested that all plantations are excluded from the definition of forest or otherwise converting pristine forest into some kinds of plantation would not be considered deforestation. This is the only slight deviation from the FAO approach.

·Deforestation is defined as: “the conversion of forest to other land use, including conversion to plantations, independently whether human-induced or not.” This is also the FAO definition, only slightly modified to cover conversion to all plantations.

·Forest degradation is defined as: “changes within a forest which negatively affect its species composition, structure, and/or function and reduce the capacity to supply products, support biodiversity, and/or deliver services.”, While the FAO does not have a definition of forest degradation, the proposed definition is consistent with descriptions in FAO reports, which say that, forest degradation entails a reduction or loss of the biological or economic productivity and complexity of forest ecosystems resulting in the long-term reduction of the overall supply of benefits from forest, which includes wood, biodiversity and other products or services. 78  

·‘Deforestation-free’: “A product/commodity that has neither caused nor contributed towards deforestation or forest degradation.”

This choice of definitions has several advantages. First, they rely on internationally used definitions, meaning they have already been discussed and are used among members of the FAO. Second, the concepts of forest and deforestation rely on precise physical characteristics and thresholds that can be measured, often with remote technical tools such as satellite images. Third, these definitions are relatively simple, and can be uniformly implemented across the globe, as they don’t rely on national particularities, easing implementation and enforcement.

Several other options were ruled out. The parties to the United Nations Framework Convention on Climate Change (UNFCCC), building on work of the FAO, agreed 79 on a definition of forests that involved a range of thresholds, for example tree canopy between 10% and 30%, leaving countries leeway to select their precise definition. This flexibility was considered inappropriate for this initiative as it would lead to uneven implementation (products from some countries would be subject to a different standard than products from other countries) and would have made monitoring with remote sensing tools more difficult. It is to be noted, however, that the chosen definition falls within the range agreed by the UNFCCC and that national particularities will be taken on board in the preferred policy option by requiring that products also be compliant with the laws of the country of production.

Other options ruled out were based on systems like the High Carbon Stock Approach, which try to categorise different types of forests according to their environmental value, which then could be used to better assess degradation. These sophisticated systems were rejected on the grounds that they are not available worldwide, thus jeopardising equal treatment of all products regardless of their origin, and that many times they rely on on-the-ground monitoring, hampering the possibility of remote monitoring with satellite images.

4.54.5    Cut-off date

Another essential decision, in relation to the deforestation-free definition, is the cut-off date. This means a specific point in time from which the products issued from newly deforested or degraded land will be penalised by the policy intervention — essentially with a prohibition of placing on the EU market, which is a common measure to all proposed policy options.

The cut-off date needs to be uniform for all commodities and products covered by the instrument, in order to facilitate implementation and monitoring. The same cut-off date set in the initial intervention needs to be maintained for future revisions and updates of the product scope, again, in order to facilitate implementation; otherwise, companies might be faced with the task of dealing with similar products covered by different cut-off dates and having to adapt their supply chains to each of them.

There is consensus in the literature and among many stakeholders that the cut-off date should not lie in the future, as this could risk triggering a “deforestation rush” in countries, which may be tempted to clear forests quickly — and essentially achieving the opposite objective of what is sought with the EU intervention.

Beyond that general consensus, the positions among institutions and stakeholders varied widely.

The European Parliament, in its resolution with recommendations to the Commission on an EU legal framework to halt and reverse EU-driven global deforestation 80 , proposed “no later than 2015.” The Renewable Energy Directive 81 uses 2008 as the date by which risk fuels are identified according to land expansion criteria. Voluntary certification schemes for different commodities have set different cut-off dates and advocate for EU legislation to use their own. The Forest Stewardship Council initially set 1994 as the date after which plantations converted from natural forest were not qualified for FSC certification. The Rainforest Alliance sets 2014 82 . The Roundtable on Sustainable Palm Oil sets a requirement to protect natural forests with a cut-off date of 2018 83 . In addition, the same discrepancies are present in the industry. FEFAC’s Soy Sourcing Guidelines includes a cut-off date of no later than 2020 84 . The European Cocoa Association, in a letter addressed to the Commission, has defended 2018.

Another factor to be taken into account is technology. Satellite monitoring tools, which are essential for monitoring, are improving rapidly — increasing the available resolution of their images and their capabilities —, especially in recent years. For instance, Global Forest Watch data is available since 2000 but the methodology has changed and improved since 2013 due to better technology 85 . In this sense, the more recent the date, the more tools will be available to monitor the implementation of the measures.

These factors and the conflicting proposals of different stakeholders were taken into account. Several potential dates were analysed. This impact assessment considers 2020 as the preferable option for a cut-off date. The main reasons are:

1. It would align the cut-off date to the UN Sustainable Development Goals’, whereby countries around the world have committed to halting deforestation by 2020 86 , and the New York Declaration on Forests, aiming at cutting natural forest loss by half by 2020 87 .

2. It will mitigate potentially negative social and economic impacts in partner countries, limiting the amount of smallholders that would be caught working on land whose products cannot be sold to the EU, and ensuring that nearly all current commodity production from producing countries can still make the cut.

3. It would moderate the immediate costs for operators, reducing the administrative and financial burden related to compliance, as most products currently in trade would be sourced from land put into production prior to 2020, providing time for operators to adapt.

4. It would reduce the likelihood of supply difficulties, commodity shortages or sudden price changes. For five of the six relevant commodities (beef, coffee, soy, palm oil and cocoa), the majority of EU imports are from a small number of producer countries.

5. It ensures widespread availability of modern monitoring tools.

6. It will match the main objective of this initiative, which is to halt EU-driven deforestation. Resorting to a date in the past will not bring pristine forests back to their previous state. Other initiatives, both at the EU and global level, deal with afforestation and reforestation efforts.

Several other options were considered in particular a cut-off date by 2015, as suggested by the European Parliament. This was not taken up as the main advantages linked to a cut-off date of 2020 would not be achieved, namely: a) 2015 would not be firmly anchored in the Sustainable Development Goals and the New York Declaration on Forests; b) the available monitoring tools would be more limited than for 2020 88 ; c) it would increase the potential problems for smallholders in third countries, as well as the likelihood of supply disruptions. The same reasons applied to other possible dates such as 2008, used in the Renewable Energy Directive. The negative effects would be even more pronounced, with fewer tools available to accurately and remotely monitor deforestation by 2008 and a higher risk of supply chain disruption and potential negative impacts in producing countries.

55    What are the available policy options?

5.15.1    Product Scope 

For the definition and the assessment of impacts of policy options, it is essential to identify the commodities and derived products falling under the scope of this initiative. The range of timber products included in the scope of the EUTR, wasthe starting point.

In line with the recommendations of a majority of stakeholders, this impact assessment endorses the view that the product scope should regularly be reviewed and amended – maintaining the same cut-off date for new commodities and products. This will allow to adapt it to changing deforestation patterns and to partly prevent leakage problems that the policy intervention may cause (see more details on leakage on section 6.1.4.)

The initial scope delineation has to answer two questions: First, which commodities – other than wood – to include; second, whether and which products derived from those commodities to cover (for example, cookies containing cocoa and palm oil, or meat from animals fed with soy).

To answer the first question, the approach aims at selecting a number of commodities where the policy intervention is justified in terms of efficiency. There is a need to understand how European production and consumption has been contributing to global deforestation and forest degradation, on which commodities that impact has concentrated, and then finally to perform a cost-benefit analysis – taking into account the consumption of each of those commodities – to select those where an EU policy intervention could bring highest benefits per unit value of trade.

A number of research papers and reports have attempted to use deforestation, agricultural production and trade data to estimate the EU’s deforestation footprint, and to link that footprint to specific commodities. An extensive literature review was carried out by the study supporting this impact assessment 89  with the aim of making a first list of commodities (see also sections 2.3 on problem drivers and 5.2 on baseline). This review, and the underlying research, is not without gaps. The statistics used by some of those reviewed reports are old 90 , and the numbers have substantially changed. Some papers 91 start from a preliminary list of commodities, which makes them uncomprehensive. Others 92 focus only on tropical deforestation. A majority disregards forest degradation, which is much more difficult to measure.

In spite of these caveats, the literature review shows consensus on which commodities the EU’s embodied 93  deforestation is mostly concentrated. This review delivered a first list of commodities (beef, wood, palm oil, soya, coffee, cocoa, rubber and maize) that was put to the consideration of stakeholders via the Commission Expert Group/Multi-Stakeholder Platform on Protecting and Restoring the World’s Forests. There was a high level of support for including the selected commodities in the scope, with some stakeholders also indicating a need for further enlarging the list to cover sugar or meat other than beef.

The list of the commodities was then further reduced via an efficiency analysis (see table 1.) This efficiency analysis compared the hectares of deforestation linked to EU consumption, as estimated in a recent research paper 94 , for each of those commodities with the average value of EU imports. 

Figure 5    Individual share of EU-embodied deforestation due to the eight pre-selected commodities between 2008-2017. Source: Pendrill F., Persson U. M., Kastner, T. 2020.

Maize and rubber account for the smallest fraction of embodied deforestation among the commodities analysed, while their trade volumes are very large (around EUR 2.8 billion per year for maize and 17.6 billion for rubber). Including these two commodities in the scope would require a very large effort and significant financial and administrative burden, with limited return in terms of curbing deforestation driven by EU consumption.

Table 1    Cost-benefit analysis of commodities for the scope other than wood. Source: Pendrill F., Persson U. M., Kastner, T. 2020, and own elaboration.

Commodity

Embedded deforestation Ha

Volume of annual imports in EUR million 95

Ratio mEUR of imports covered by the policy intervention/Ha

Palm oil

67,661.71

5,013

0.07

Soy

65,427.78

11,133

0.17

Beef

9,975.77

4,304

0.43

Cocoa

15,031.63

7,421

0.49

Coffee

13,967.76

8,060

0.58

Maize

3,221.37

2,834

0,88

Rubber

6,830.55

17,064

2,50

The analysis therefore identified six commodities for the scope of the legislative instrument: palm oil 96 , soy 97 , wood 98 , beef 99 (cattle) 100 , cocoa 101 , and coffee 102 .

The second question to address in relation to the product scope was how to cover products derived from the identified commodities.

Three scenarios have been considered:

1.Targeted scope, where only the selected commodities are covered in the legislative instrument, based on the criteria enumerated above.

2.Progressive scope, where selected commodities and certain derived products are included in a list that undergoes regular reviews.

3.Expanded scope of commodities, whereby all commodities and their derived products are covered in the legislative instrument.

The overwhelming majority of NGOs called for including all products derived from the selected commodities from the outset. Some industry associations, such as COCERAL, FEDIOL and FEFAC 103 , also called for including all products. This comment from industry came back on many occasions, where business representatives were referring to the difficulties that a partial scope may cause in terms of compliance and internal organization.

Such an expanded scope would increase the effectiveness of the regulation by closing any gaps which allow EU consumption of the relevant commodities in the form of derived products to continue to drive deforestation and forest degradation.

This impact assessment considers the scenario of ‘progressive scope’ the most suitable. The decision to limit the list of commodities and derived product stems from the desire to balance the potential benefits with the need to favour implementability and increase the efficiency of the intervention. There needs to be an analysis of derived products, based on potential costs and benefits, similar to the analysis of commodities. The analysis would need to map which products would maximise the impact of the intervention — covering more ground in terms of embodied deforestation — at the smallest potential cost. In addition, simply including all potential products in the scope without a clear map of which products these are would imply that the EU would be proposing new rules whose exact scope and impacts are blurred, which would be against the Better Regulation principles.

The progressive scope for both commodities and derived products would also favour flexibility and adaptability to changes in consumption in the EU, global deforestation patterns, as well as to new knowledge or technological developments. The list of commodities and derived products included in the legislative instruments would be regularly reviewed, based on the latest available evidence and scientific data on deforestation and forest degradation associated with those products or potential additional products, and updated to address potential leakage issues (see section 6.1.4.)

The identification of derived products to be specified in the scope requires a specific study. Some of the commodities in the scope, in particular palm oil and soya, are present in high number of derived products. Palm oil for example is widely used in food and snacks, cosmetics, biofuel, animal feed, pharmaceutical and other industrial products. The literature review and the consultation with stakeholders, in particular with industry associations, did not provide any ready-made listing or other materials. This made the mapping of derived products to be identified in the scope a daunting task that exceeded the capacity of this impact assessment.

Therefore, due to these technical difficulties, it was not possible within this impact assessment to perform the necessary analysis to map and list the products derived from the relevant commodities that should be included in the scope. An exception are wood products, where the product scope of the EU Timber Regulation already provides a base to build on.

As a consequence, the conclusion is to initially identify the main trading forms for each commodity — as they appear in trade databases, see table below —, with the exception of wood, where the EUTR scope would be used, and to postpone the detailed listing of derived products to a specific impact assessment and subsequent implementing legislation.

Table 2    HS codes of the commodities and products to be included in the initial scope of the EU intervention. Source: Own elaboration.

Wood

HS codes in EUTR scope

Beef

HS0102, 0201, 0202, 020610, 020622, 020629, 4101, 4104 and 4107

Cocoa

HS1801 to 1806

Coffee

HS0901

Palm oil

HS120710, 1511, 151321, 151329 and 230660

Soy

HS1201, 120810, 1507 and 2304

5.25.2    What is the baseline from which options are assessed?

The baseline quantified hereafter reflects the deforestation and forest degradation impacts of EU consumption in the context of these existing measures and settings..

The baseline builds on the qualitative and quantitative overview of the commodities placed on the EU market that present a deforestation and forest degradation risk to forests. The baseline attempts to model future consumption trends in the absence of additional policy measures, and to estimate the impact of these trends on deforestation and forest degradation and CO2 emissions. The baseline, therefore, aims to illustrate the impact of EU consumption on deforestation and forest degradation and CO2 emissions. It considers that unsustainable patterns of commodity production will remain the same in the absence of EU policy intervention. The policy options analysed below aim to enable replacing unsustainable consumption with sustainable consumption, by incentivising countries and companies to clean up their commodity production and supply chains.

To quantify a baseline one has to draw on data about the production of key selected commodities, the volumes that are placed on the EU market and key impacts associated with their consumption within the EU such as embodied deforestation and greenhouse gas emissions.

In estimating the quantitative baseline, the evolution of imports to 2030 was estimated based on projected annual growth rates found in literature (where possible) or otherwise based on historical trends 104 . To calculate the impact of this projected growth in consumption on global deforestation and CO2 emissions, average intensity factors (i.e. deforestation and emission ratios in ha/tonne and tCO2/tonne, respectively) were derived from literature and applied to import volumes (historical and projected). The impact of imports on deforestation and emissions is assumed to remain the same until 2030 (i.e. the same average ‘intensity factors’ are applied on an annual basis between 2009 and 2030).

Table 3    Baseline figures for the EU intervention. Source: Analysis based on COMEXT, DG AGRI 105 , OECD-FAO 106 , Jonsson et al. (2021) 107 , Pendrill et al. (2020) 108 , Global Forest Watch (GFW) 109 , and FAOSTAT 110 . 

2009-2019

2020-2030

Cumulated total imports placed on the EU27 market (Mtonne)

810.5

1,042.3

Cumulated total embodied deforestation (‘000 ha)

2,302.6

2,516.8

Cumulated total embodied emissions (MtCO2)

1,021.8

1,103.0

The analysis results in 248,000 hectares of embodied deforestation and 110 MtCO2 annual emissions by 2030 linked to the commodities in the scope. These figures will be the basis for the calculation of benefits of policy options in section 6.

The figures of cumulated embodied deforestation and emissions need to be read with caution. The simplified approach taken in the underlying study likely results in a conservative estimate of the contribution of EU consumption to global deforestation. Generally figures in the literature and previous studies are not directly comparable due to methodological differences, but are mentioned here in order to underpin the call for caution in using those results.

The 2013 study referred to in section 1 estimated that the EU imported commodities resulting in embodied deforestation between 500 000 and 732 000 Ha per year on average during the period 1990-2008. These figures are much higher than the ones resulting from the above baseline. Apart from differences in methodological approach and time periods, the scope of the commodities assessed in the 2013 was broader, and at the time of the analysis the EU included UK, but not Croatia. These factors can all contribute to the different results.

Other more recent estimates are closer to the baseline presented in the table above, such as a study for the European Parliament 111 , which estimated the impact of consumption (of maize, soy, rapeseed, other oil crops, sugar crops, and beef) to amount to at least 258 219 ha and 73.8 MtCO2. Pendrill (2020) model estimates EU total embodied deforestation to be 220 000 Ha per year (when considering the complete set of commodities included in the model, which is broader than the commodities covered in the scope).

The figure below presents the contribution to the baseline of each commodity considered — taking into account only the commodities of the scope.

Figure 6     Baseline prediction of total embodied deforestation of EU27 imports of key commodities, 2009-2030, in hectares

 

5.35.3    Description of the policy options

A list of five possible policy options was elaborated to achieve the objectives of the initiative. The sources and the criteria through which the policy measures were selected are elaborated in section 5.4.

The five policy options have then been assessed following the Better Regulation Guidelines, measuring the extent to which they would achieve the objectives (effectiveness); their respective key economic, social and environmental impacts and benefit/cost ratio, cost-effectiveness (efficiency); and the coherence of each option with other EU policy objectives (coherence). The impacts have been measured against the baseline previously described in order to be able to quantify them more precisely. A summary of this assessment is shown on Table 8.

All options described below include the following elements:

·A prohibition to place products on the EU market that have not been produced and/or harvested in accordance with ‘deforestation-free’ definition (as described above) and with the laws of the countries of origin.

·The same product scope covering a number commodities and products derived from them, subject to review and revision (as described in section 5.1 above).

Box 2: Key findings from the Fitness Check on the EUTR

The Fitness check has shown that the EUTR resulted in an improved situation in third countries, including countries that have chosen not to engage in VPA processes. Main EU trade partners (Brazil, Russia, and Ukraine, for example) have taken steps to strengthen their forest governance systems and reduce illegal logging to meet the requirements of the EUTR.

The EUTR – even if hampered by a number of design elements and enforcement weaknesses – has shown some positive results in terms of both effectiveness and efficiency. Its worldwide coverage has provided the EU with a basis to work closely together with other consumer countries to address the problem of leakage. This resulted in some main consumer countries adopting similar legislative approaches. Australia, Japan, and Korea are some of the main trade partners who followed the EUTR albeit with variations, while the US extended existing legislation to cover similar situations as the ones covered by the EUTR (Lacey Act). In the broader deforestation context, this is particularly important to bear in mind, as it shows that the EU, even with a decreasing market share, can have an impact and lead the way globally.

The Due Diligence system set up under the EUTR must however be improved to be efficient, inter alia through the introduction of multiple new features which are taken into consideration in this impact assessment and are described below (section 5.3.1.)

5.3.15.3.1    Policy option 1: Mandatory due diligence system, relying on a deforestation free definition

This option is based on the due diligence system (taking into account the experiences with the implementation of the EUTR, as explained in Box 2 above) with new features aiming to increase its effectiveness (see below), including universally applicable deforestation definition (see section 4.4.). This due diligence system is the base of policy options 1 to 4.

The system essentially consists of a requirement for operators that place relevant commodities or products for the first time on the EU market to exercise due diligence in order to ascertain that: a) Those commodities and products have not been produced on land deforested or degraded after the cut-off date set in the regulation (see section 4.4 and 4.5); b) they have been produced in accordance with the laws of the country of production.

If any one of the two requirements is not met — or if the operator cannot attain certainty or a negligible level of risk that the requirements are met —, then the operator shall not place those products on the EU market. The system, therefore, includes a prohibition to place non-compliant products on the EU market.

Operators would have to develop and apply a due diligence system to perform their duties. This obligation would apply to all operators seeking to place a relevant product on the EU market for the first time, irrespective of their legal form, size or complexity of their value chains — or where their headquarters are based.

In order to exercise due diligence, an operator would have to go through three steps. As step one, operators need to ensure access to all information necessary to determine whether the risk associated with the commodity is negligible. In step two, the operators need to use that information to analyse and evaluate the risk in the supply chain — from harvest or production to placing on the EU market. In step three, except where the risks are found to be negligible, operators need to take adequate and proportionate mitigation measures in order to effectively minimise the risk of placing incompliant products on the EU market to a negligible level.

If any of the three steps cannot be undertaken, due for instance to the lack of information available or the lack of robust mitigation tools to eliminate the risk of non-compliant products being placed on the EU market, then the operator shall not place those products on the EU market.

EU Member States, in turn, would be obliged to ensure the effective enforcement of the measure. Some of these duties will involve minimum inspections levels and a formal role for customs’ authorities in case of commodities imported from third countries. These measures are described below.

The Fitness Check of the EUTR (see box 2) revealed a series of shortcomings in terms of design and implementation that had marred the effectiveness of the due diligence system under EUTR (see section 6.1.1.). These findings, the most recent literature and the feedback from stakeholders have allowed to identify new features for the due diligence system of options 1 to 4 with view to increasing the effectiveness.

The new features that are expected to increase its effectiveness in comparison with the EUTR are:

1. Deforestation-free definition. This is the cornerstone of the improved EU intervention. As explained in section 4.4, there is a high degree of consensus among stakeholders and researchers that relying on universally applicable data that can be monitored remotely can increase the effectiveness of the policy measures.

2. Stricter traceability obligations. The proposed due diligence system of options 1 to 4 will require operators to ascertain relevant information on the country and area of production of the commodities or products they intend to place on the EU market. There is broad consensus that good traceability is needed to unleash the full potential of remote monitoring. It is to be noted that some of the commodities in the scope (like beef) are already covered by some traceability obligations due to food safety rules.

3. A formal declaration of conformity with the regulation. Operators will need to present to the authorities a self-declaration before placing relevant commodities or products on the EU market. This is expected to facilitate the work of the member states authorities in identifying operators and, in cases of non-compliance, in building solid court cases.

4. Increased cooperation between Competent Authorities and customs. In the case of commodities and products imported into the EU, custom authorities will receive the self-declaration. Custom authorities will also need to share information with other relevant authorities in the Member States directly in charge of enforcing the regulation. This will address one of the shortcomings identified in the implementation of the EUTR.

5. A reinforced substantiated concerns mechanism. Like in the EUTR, natural or legal persons will be entitled to submit substantiated concerns to Competent Authorities when they deem that one or more operators are breaching the regulation. Competent Authorities will take necessary steps to detect possible breaches, including inspections or and hearing of operators, or otherwise justify their decision not to take action. This mechanism was widely demanded by NGOs in the OPC.

6. Minimum inspection levels. Member States will be expected to conduct inspections covering a relevant share of the commodities and products placed on the EU market, which was not the case under the EUTR. In option 2 (see section 5.3.2), the inspections could target companies that trade with commodities produced in countries with higher risk of deforestation.

Certification (or verification) schemes may, in some cases, contribute to achieving compliance with the due diligence requirement, however the use of certification does not automatically imply compliance with due diligence obligations. There is abundant literature on certification schemes shortcomings in terms of governance, transparency, clarity of standards, reliability of monitoring systems, etc. (see more in section 5.4).

The consensus is that these schemes on their own have not been able to provide the changes needed to prevent deforestation. This is the position defended by the European Parliament and by most NGOs, whereas businesses in general advocate for a more prominent role of certification, including a way for companies to use these systems as proof of compliance with binding EU rules.

Maintaining operators’ responsibility for correctly implementing due diligence obligations when they use certification aims at ensuring that authorities remain empowered to monitor and sanction incompliant behaviour, as the reliability of those systems has repeatedly been challenged by evidence on the ground.

5.3.25.3.2    Policy option 2: A benchmarking system and a list of contravening operators as a basis for a tiered improved mandatory due diligence system, relying on a deforestation free definition

Policy option 2 builds on the due diligence system laid out in policy option 1. It includes a country benchmarking system that will assign a risk level to countries taking into account deforestation and forest degradation linked to relevant commodities. These assessments would be based on objective, comparable and scientific data. Thresholds based on deforestation rates as a share of the country’s forest area or absolute deforestation figures will be set up to classify countries (both member states and third countries) in three categories of risk: Low, standard and high risk. The Commission would make the country risk categorisation publicly available and update the list regularly. Countries will be updated by the Commission of their classification in one or another category. The obligations for operators and member states authorities will be adapted according to the level of risk of the country of production, with simplified due diligence duties for low risk and enhanced scrutiny for high risk.

Commodities produced in low risk countries would allow operators to apply simplified due diligence that will consist of making sure that these products or commodities have been produced in the low-risk country. Risk assessment and risk mitigation obligations would not apply in this case . The enhanced scrutiny for commodities stemming from high-risk countries would include higher minimum inspection rates obligations for member states over those shipments.

In addition, there will be a list of contravening operators. The Commission would publish in the Official Journal of the European Union a list of contravening operators, conceived as a shame list with no legal consequences. An operator or trader would be placed on the list if a Member State administrative authority or court has imposed final administrative or criminal sanction or penalty for infringing their obligations under this regulation. Member States would inform the Commission without undue delay about any such sanctions or penalties. Upon receipt of such notification the Commission would include the operator or trader concerned on the list without delay and inform him of its inclusion. If, for a certain period after the final administrative or criminal sanction or penalty, no further reports of sanctions or administrative or criminal proceedings concerning alleged contravening activity have been reported by the respective Member State authority, the Commission would remove the operator or trader from the list.

There are several ways in which policy option 2 could contribute to increase the effectiveness — and reduce the costs — of the EU intervention as compared to the due diligence system of the EUTR and option 1:

1. Incentives for third countries. The benchmarking system is meant to create incentives for countries to protect their forests, as stronger environmental protection and governance will bring easier market access for their products to the EU. It will also mitigate the risk of leakage (see section 6.1.4), increasing the overall effectiveness of the intervention.

2. More focused enforcement resources. The benchmarking system would help member states authorities concentrate scarce enforcement resources where they are most needed — via stronger monitoring obligations for standard and high risk countries.

3. Reduced companies’ compliance costs. By singling out low and high risk countries, the Commission would facilitate the risk assessment that companies need to do as part of their due diligence obligations. The availability of simplified due diligence for operators sourcing from low risk countries is also expected to reduce compliance costs.

4. Stronger dissuasive power. The list of contravening operators is meant to increase the dissuasive power of the regulation, also increasing its effectiveness.

Nonetheless, there is a risk that the list of contravening operators, where it applies to natural persons, might interfere with rights protected under Article 7 and 8 of the Charter of fundamental rights (Respect for private and family life and Protection of personal data). Limitations to these rights need to be justified under Article 52(1) of the Charter, i.g. the measure needs to be proportionate and serve an objective of general interest. In the present case, this could be debated, if other measures, which are less limitative on those rights, achieved the same deterrent effect (i.e. financial sanctions). Legal entities do not held the before mentioned rights, still the measure would need to be justified, especially if the sanction applied by the national competent authorities is already sufficiently deterrent.

5.3.35.3.3    Policy option 3: Mandatory public certification combined with an improved due diligence requirement, relying on a deforestation free definition

Policy option 3 also builds on the due diligence system laid out in policy option 1. In addition, the EU would, upon request from a Member State or third country, review and approve mandatory public certification systems on a country level. The approval would be contingent on the reliability of such a system in ensuring compliance with the requirements of the EU policy intervention, in particular the deforestation-free definition. This would include specific requirements in terms of transparency and reliability. Mandatory public certification would need to be mandatory in the country of origin, covering all operators. These approved mandatory public certification systems would, in turn, certify that relevant commodities and products are compliant with the EU requirements. Operators could then use the approved systems to facilitate their compliance with the EU legislation as a risk mitigation tool within the due diligence requirements, maintaining, however, operators’ liability in case of non-compliance (as in option one).

Policy option 3 seeks to achieve some of the same benefits of option 2, namely creating incentives for countries to engage and protect their forests (in exchange for improved market access), as well as facilitating compliance — and reducing costs — for operators. However, in contrast with option 2, which can be applied to all countries, policy option 3 would rely on the willingness of countries to create their own mandatory public certification systems and request its recognition.

5.3.45.3.4    Policy option 4: Mandatory labelling combined with an improved due diligence requirement, relying on a deforestation free definition

Policy option 4 also builds on the due diligence system laid out in policy option 1. In addition, companies will be required to label relevant commodities and products signalling compliance with the EU intervention. This label would be for information purposes only, as non-compliant products would not be allowed to be placed on the EU market, in line with the general prohibition established in the underlying due diligence system. Mandatory labelling would provide consumers with the information that products placed on the EU market are not coming from supply chains associated with deforestation and/or forest degradation, potentially increasing awareness about the subject.

5.3.55.3.5    Policy option 5: Deforestation-free requirement for placing on the EU market supported by benchmarking and country card systems

This option is the only one not based on a due diligence system. It would be based, with the necessary adaptations, on the current EU rules to prevent, deter and eliminate illegal, unreported and unregulated fishing (IUU).  112  

The system would consist of several features to implement and enforce the deforestation-free definition and the requirement for the relevant commodities and products to be produced according in respect of the laws of the country of production: a) Public certification systems in producing countries intending to place their commodities and products on the EU market; b) a benchmarking system to support the implementation and enforcement of the measure; c) a country carding system; d) penalties for EU operators not adhering to the laws and a list of contravening operators.

Producing countries would issue and validate certificates for the placing of commodities/products on the EU market, including basic information about the consignment, as well as specifying that the commodities and products were harvested/grown/produced in compliance with national and international legislation as well as in compliance with the ‘deforestation-free’ definition defined at EU level.

Member states would be in charge of receiving, inspecting and monitoring the commodities and products, as well as their certificates. An EU entity would be in charge of monitoring the certification systems of the countries. It would also be in charge of the benchmarking system. Countries (EU and non-EU) identified as experiencing serious rates of deforestation and forest degradation and as having inadequate measures in place to prevent and deter activities associated with deforestation and/or forest degradation may be issued with a formal warning (yellow card). Yellow cards would trigger a dialogue process between the country in question and the Commission, which over time, and in the absence of corrective measures, may lead to a red card, which would be the basis for a ban for their products on the EU market.

5.45.4    Options discarded after the initial viability screening

A total of 17 policy measures (see Figure 7.2) were considered in the initial viability screening of this Impact Assessment. The list of potential measures covered a wide range of possible interventions which were alternative to one another, included regulatory and non-regulatory instruments, and went from soft to hard interventions.

The information sources used to select and assess those policy measures were the following:

a)An initial list put forward in the Inception Impact Assessment based on:

a.Previous EU policy choices, such as the EUTR and the FLEGT Regulation, the EU regulation to prevent, deter and eliminate illegal, unreported and unregulated fishing (IUU), the Renewable Energy Directive, the Conflict Minerals Regulation or the rules governing the EU Organic Logo.

b.The political commitments laid out in the 2019 Communication, the European Green Deal, the EU Biodiversity Strategy and the Farm to Fork Strategy.

c.Inputs received ahead of the launch of the legislative initiative from stakeholders, EU member states, third countries, etc. These were gathered for example in bilateral meetings with Commission services and position papers.

b)The public feedback received on the Inception Impact Assessment (a total of 99 contributions). 113

c)The European Parliament resolution of 22 October 2020 with recommendations to the Commission on an EU legal framework to halt and reverse EU-driven global deforestation.

d)The positions expressed by the Council of the EU, in particular the Council conclusions on the 2019 Communication.

e)The stakeholder consultation of this impact assessment, including the online public consultation 114 with nearly 1.2 million contributions and the targeted consultation where 49 organisations and 92 individuals were consulted via specific interviews and focus groups. The outcome of the online public consultation showed a high level of support for binding measures (e.g. deforestation-free requirement, IUU-like approach, mandatory due diligence, mandatory public certification, etc.) whereas voluntary measures (e.g. voluntary due diligence, private certification schemes, voluntary labelling) received the lowest rates of support (see detailed results on annex 2.) In general, targeted interviews and position papers showed that businesses and NGOs agree on the need for binding EU rules. Both groups showed a high level of support for mandatory due diligence. Businesses argue that homogeneous, mandatory EU rules can level the playing field and advocate, in general, for more lax due diligence rules. NGOs argue that putting responsibility on companies via due diligence obligations is the right way to go and advocate in general for stricter due diligence rules.

f)Further stakeholder, EU member states and third countries’ consultation, in particular via individual meetings with Commission services, seminars and public events organized by third parties.

g)The meetings of the Commission Expert Group/Multi-Stakeholder Platform on Protecting and Restoring the World’s Forests, including the EUTR and the FLEGT Regulation. Since the launch of the roadmap for this legislative initiative in February 2020, the group has met nine times in different configurations — and included four specific workshops to gather inputs on policy options studied in the impact assessment (see more detailed information on annex 2).

h)Inter-service meetings among relevant Commission departments. Until May 2021, five meetings took place, some of them including specific discussions on policy options. The inter-service group, for example, endorsed the list of 14 policy measures included in the questionnaire of the open public consultation.

i)The Fitness Check of the EUTR and the FLEGT Regulation. In particular, this report was instrumental to assess the strengths and weaknesses of mandatory due diligence and that of bilateral trade agreements with producing countries, in line with the Voluntary Partnership Agreements (VPAs) of the timber sector.

j)The Study on Certification and Verification Schemes in the Forest Sector and for Wood-based Products, which provided fundamental insights on certification systems and their strengths and weaknesses.

k)The study “Impact assessment on demand side measures to address deforestation”, which provided part of the underlying analysis and data for this Impact Assessment.

l)Existing evidence from literature. Particular attention was paid to evaluations and reports on previous EU laws that were used as a model to different policy measures.

The criteria used in the viability screening to assess those policy measures and select the five final policy options whose potential impacts were studied in detail were, among others:

a)Legal, technical and political feasibility and proportionality;

b)Potential effectiveness;

c)Potential efficiency and costs;

d)Potential challenges for implementation;

e)Feedback from stakeholders, EU member states and third countries.

The screening of the viability of policy options, based on the criteria and information sources described above, led to discarding a number of policy options at an early stage. Five of them (deforestation-free standard, mandatory due diligence, country benchmarking, mandatory public certification and mandatory labelling) made the cut into the combinations listed in the five final policy options selected.

The options ruled out were voluntary labelling, voluntary due diligence, voluntary private certification, broad trade agreements, voluntary partnership agreements, mandatory information disclosure, information campaigns, green diplomacy, and approaches based on an expansion of the EUTR maintaining only legality as the criteria of compliance, the Financial Action Task Force (FATF) and The Kimberley Process aiming at curbing trade on conflict diamonds.

More details on the initial viability screening for all 17 considered policy options are provided in annex 6. Table 4 (see below) offers a summary on all policy options and the main criteria used for the initial viability screening, cross-matching each policy measure with the criteria used – and grading its performance with a positive (green), neutral (orange) or negative (red) mark. The last column of the table states whether the option has made the cut into the five final policy options.

Many soft measures — such as voluntary labelling, voluntary due diligence and voluntary certification — were ruled out on grounds that these measures and related commitments have already been implemented for years by some companies, with little success in terms of preventing deforestation and fostering deforestation-free supply chains. In addition, the feedback from stakeholders, the general public and the European Parliament all pointed to the need of binding measures.

It is worth explaining here in detail the considerations around two of the policy measures — the Voluntary Partnership Agreements and the private certification systems — that have been ruled out as stand-alone measures, in spite of support from a significant number of stakeholders. These present additional complexity that deserves further clarification.

The first is the approach based on the model of the FLEGT Voluntary Partnership Agreement (VPA), the bilateral trade treaties for timber and timber products between the EU and a wood producing country (see box 1 and 2 for more background on their functioning and the shortcomings detected in the Fitness Check.)

Table 4    Summary of the initial viability screening of policy measures. Source: Own elaboration

 

Measure

Feasibility

Effectiveness

Costs

Challenges

Feedback

Taken in the five final policy options

 

 

1

Deforestation-free standard

 

 

 

 

 

Yes

2

Voluntary labelling

 

 

 

 

 

No

3

Mandatory labelling

 

 

 

 

 

Yes

4

IUU Fishing

 

 

 

 

 

Yes

5

Voluntary due diligence

 

 

 

 

 

No

6

Mandatory due diligence

 

 

 

 

 

Yes

7

Mandatory public certification

 

 

 

 

 

Yes

8

Voluntary private certification

 

 

 

 

 

No

9

Country benchmarking

 

 

 

 

 

Yes

10

Broad trade agreements

 

 

 

 

 

No

11

Voluntary partnership agreements

 

 

 

 

 

No

12

Mandatory information disclosure

 

 

 

 

 

No

13

Information campaigns

 

 

 

 

 

No

14

Green diplomacy

 

 

 

 

 

No

15

EUTR Plus (based on legality)

 

 

 

 

 

No

16

FATF

 

 

 

 

 

No

17

Kimberley Process

 

 

 

 

 

No



The VPA approach, which is based on legality and limits itself to assessing whether the laws and regulations of the country of production have been complied with, is not compatible with the approach based on a definition of “deforestation-free“. That definition is not up for negotiation. In addition, the shortcomings detected in the implementation of FLEGT VPAs would persist and become more pronounced under the new initiative. This includes in particular even larger resource challenges for producer countries as well as the EU, and continued lack of willingness of major producing countries to engage in a process where their negotiation space would be much more limited than under FLEGT VPAs. 115 . 

Private certification may, in some cases, facilitate compliance with the due diligence requirement. There are however a number of concerns. The main concern is that they have often varying levels of transparency, different rules and procedures as well as different quality assurance systems. Over the past years, concerns have also been raised over the efficiency and integrity of chain of custody (CoC) systems. Some see these systems as open to fraud given that certified companies may easily mislead their auditors although the audit is conducted with the greatest care and according to all procedures. A company may be selling products containing a volume of “certified” timber material that exceeds the volume of certified raw material that they are buying. The current CoC systems seem to only work for companies not committing deliberate fraud. Concerns about the integrity of CoC systems are mounting, and therefore discussions over this gap in the CoC systems have grown in strength in recent years.

In addition, the lack of independent audits, considered to be key in ensuring the robustness of the certification, was highlighted as a key weakness of the private certification schemes 116 , 117 . A specific study commanded by the Commission 118  confirms these findings, including a lack of transparency issues and a propensity to contain partial or even misleading information. 

Interactions with public certification scheme can also be challenging. In particular when covering the same scope and criteria, private certification schemes can lead to undermining the efficiency of public systems, as they can see the public systems as competition. Also, the European Parliament report 119 calls to not consider voluntary (private) certification measure as these are seen as being insufficient. Thus private certification schemes often fail to provide the full picture. 

As an example one can say that even if most farms in an area are certified, land tenure can still be weak, poverty increasing, and legal and illegal deforestation still take place. The need to monitor and audit the use of private certification and the wide-ranging products/commodities that the private certification would have to cover could make cost-benefit balance problematic – the costs may outweigh the benefits. Private certification can also be a complicated and costly process and resources spent to certify operations and to support the various schemes’ managerial structures could be used for other ends. The available evidence also indicates that the costs borne by producer Small and Medium Enterprises (SMEs) for certification can be perceived as significant that it becomes difficult for SMEs to make good use of such schemes. Economies of scale have SMEs at a disadvantage in achieving certification in comparison to larger operators and traders.

66    What are the impacts of the policy options?

This section presents a summary of the assessment of the impacts of the policy options, focusing on environmental, social and economic impacts. It provides an analysis of impacts expected to be common to all policy options 1-5 to a varying degree, followed by specific impact assessment of Options 1, 2, 3, 4 and 5 compared to Option 0, the baseline scenario.

6.16.1    Impacts relevant for Policy Options 1-5 

The policy options have been selected and designed to achieve the objective of the EU intervention, that is, to curb and halt EU-driven deforestation and forest degradation and to contribute to reducing GHG emissions and biodiversity loss. As regards its wider impact on global deforestation and forest degradation trends, the EU intervention will also depend on other measures identified in the 2019 Communication, in particular: 1) working in partnership with producer countries, accompanied by adequate support, which is crucial to address the root causes of deforestation, such as market failures, weak governance, corruption and problems with law enforcement; and 2) strengthening international cooperation, especially with major consumer countries, to ensure adoption of similar measures to avoid products coming from supply chains associated with deforestation and forest degradation being placed on the market, in order to minimise leakage. An overview of different potential leakage problems and mitigation measures is presented in section 6.1.4.

6.1.16.1.1    Environmental impacts

The analysis focused on the areas where deforestation and forest degradation is expected to have the most significant negative impact: greenhouse gas emissions and biodiversity loss. Without further intervention, it is likely that deforestation and forest degradation will accelerate and worsen negative trends in these areas over time. EU measures explained under policy options 1-5, if fully implemented, are expected to reduce the EU contribution to deforestation and forest degradation and, in turn, reduce GHG emissions and biodiversity loss.

The impact magnitude of the various policy options will depend on multiple factors such as the regions in which deforestation and/or forest degradation is reduced, the amount of the reduction, and the affected forest type. The determination of the environmental benefits of the policy options is directly linked to the effectiveness of the measures included in the policy options. A trade analysis conducted for the Fitness Check 120 estimated the effectiveness of the EU Timber Regulation — measured in the share of illegally harvested timber prevented from entering the EU market — in between 12% and 29% 121 .

For policy options 1-4, which — like the EUTR — are based on due diligence obligations, we assume a significantly higher effectiveness than for the EUTR, and take the upper end of the mentioned research (29%) as a minimum. This assumption is justified by the numerous improvements introduced in policy options 1 to 4 as compared to the EUTR (a detailed list of those improvements is contained in sections 5.3.1 and 5.3.2.) These new features of the “improved due diligence,” as foreseen in policy options 1 to 4, aim at correcting the design and implementation problems that have marred the effectiveness of EUTR. Beyond that minimum, the analysis of effectiveness is done qualitatively.

It is assumed that it will take time for operators and enforcement authorities to get accustomed to the regulation and to achieve full implementation both by operators and competent authorities of EU Member States. 2030 has been chosen as the year for the comparison with the baseline. The baseline (section 5.2) is that — without a new policy intervention — the EU will provoke 248,000 hectares of deforestation and 110 million metric tons of carbon dioxide (MtCO2) emissions per year by 2030 via the consumption and production of the six commodities included in the product scope.

In order to quantify the benefits in terms of avoided emissions of GHG, a carbon cost of 100 EUR per tonne of CO2 is used. This carbon price is measured in euros from 2016 and taken from the Handbook on the External Costs of Transport 122 , which analysed diverse carbon price scenarios in the medium and long term. 100 EUR is the central scenario up to 2030. It is also in line with rising carbon prices as reflected in the EU Emissions Trading System 123 , where the price per tonne of CO2 equivalent surpassed 50 EUR in May 2021.

Taking into account these factors, it is expected that options 1 to 4 should be able to prevent a minimum of 29% of deforestation driven by consumption and production of the six commodities included in the scope by 2030, and therefore a minimum of 71,920 hectares of forest less affected by EU-driven deforestation and forest degradation starting in 2030 124 . This would also mean a minimum of 31.9 million metric tons of carbon fewer emitted to the atmosphere every year due to EU consumption and production of the relevant commodities, which could be translated into economic savings of at least 3.2 billion EUR annually.

Beyond that minimum level, a qualitative analysis is made below concluding that option 2 could provide the highest effectiveness due to the enhanced features of the benchmarking system. The effectiveness of option 3 is expected to be significantly below option 2, but above options 1 and 4. It is estimated that the latter two will deliver similar effectiveness — still significantly above the minimum — resulting from the fact that the mandatory labelling of option 4 is merely for information purposes.

For policy option 5, the conducted analysis is only qualitative due to the lack of precise information on the effectiveness of the EU rules to combat illegal, unreported and unregulated fishing (IUU), on which the system is based.

The impact on biodiversity is more difficult to quantify. Over one million species are threatened with extinction globally. Land use change, including deforestation, is the main driver of biodiversity loss on land 125 . A 2016 analysis 126 , based on the Nature Red List of Threatened Species by the International Union for Conservation of Nature (IUCN), estimated that around 11,738 species were threatened by logging, crop farming, livestock farming and timber plantations. It is to be expected that the EU intervention will reduce this kind of forest damage and will therefore have a positive impact on biodiversity. This analysis is done qualitatively due to the challenges of precise quantification.

6.1.26.1.2    Economic impacts

While the amount and type of impacts will vary depending on the specific policy option, the following main impacts are expected to apply to all options.

Impact on EU operators

For operators placing products and commodities on the EU market for the first time, Options 1 to 4 are likely to cause compliance costs linked to the establishment and operation of the due diligence system. They may incur costs where they may need to support their current supplier base in demonstrating or transitioning to deforestation-free sourcing. Costs related to risk mitigation in the event of identified deforestation risk will also likely be incurred. Where these risks cannot be adequately mitigated or deforestation-free sourcing cannot be achieved through the above processes, operators may incur costs through the need to switch to deforestation-free supply chains. Option 5 will not involve direct costs to EU operators.

Any costs incurred by the EU operators would either have to be absorbed by a reduced profit by operators along the value chain and/or eventually passed through to the final consumer. At that stage it may have an impact on the price of some commodities. Operators are, however, expected to benefit from the level playing field created, namely the absence of competition from products from supply chains associated with deforestation or forest degradation.

Costs to operators in carrying out due diligence will likely vary by commodity, as will the possibility of switching to lower-risk supply chains. Where production is concentrated in a small number of countries which are associated with commodity-driven deforestation (e.g. palm oil: Indonesia and Malaysia, cocoa: Côte d’Ivoire and Ghana 127 ), there may be limited options to meet EU demand by switching to lower-risk countries (beef, soy and the majority of timber have more widespread production).

In some sectors and for some producer countries, EU operators may already have a good knowledge of their supply chains and have at least some information relevant to due diligence, for example, where:

-there are existing national traceability systems;

-a high proportion of trade is covered by certification schemes (e,g. in 2019, 86% of European palm imports are certified sustainable 128 , although this does not always guarantee traceability to farm or forest of origin);

-operators have adopted voluntary sustainability standards (most common in the palm oil and timber sectors, less common for soy and beef 129 ).

-multinationals have smallholder engagement programs (e.g. for cocoa in Côte d’Ivoire and Ghana, and palm oil in Indonesia and Malaysia 130 ) or have invested in supply chain mapping 131

-operators source directly from producers, with well-established links (e.g. in the speciality/artisanal cocoa sector 132 )

-other EU regulations require information on product origin and/or traceability (e.g. timber covered under EUTR or FLEGT, and meat/meat products require veterinary certification, which includes some level of traceability through the supply chain 133 )

-there are sector-relevant resources to assist operators (e.g. WRI’s Universal Mill List  134  for palm oil mills, FEFACs Soy Sourcing Guidelines 135 , which includes no-deforestation as desirable criterion since 2021).

For longer and more complex supply chains, there are likely to be additional costs when systems to trace to farm/forest/plantation-level are lacking. However an independent survey among palm oil importers, companies responded that 99% of the products they are placing on the market were already traceable to the mill, with “slightly lower traceability to plantation 136 .

Palm oil sourced from intermediaries and third-party owned mills or warehouses is however sometimes difficult to map and monitor, and in practice a ‘deforestation-free’ supply is very difficult to guarantee. In Brazil, none of the three dominant meatpackers currently monitor their indirect suppliers (the bulk of their supply chain) 137 . It is also difficult to trace cocoa back to the many small-scale farms in West Africa, as currently no cocoa traceability system exists in Côte d’Ivoire and the national system in Ghana does not provide full traceability back to the forest of origin 138 . A 2020 cut-off date and EU support to partner countries and operators (including in-country assistance and industry guidance/awareness raising, drawing on the EUTR experience), will be important to minimise the short term impact on EU operators with long complex supply chains. 139

In terms of trade flows, larger companies in relevant NACE activity codes accounted for a higher proportion of the value of imports (import granularity not to commodity level). Furthermore, a number of EU Member States (Belgium, Germany, Italy, Netherlands, Spain, Sweden), which are also main seats of relevant large (multinational) operators 140 , 141 , 142 , 143 are key import routes of the focal commodities into the EU (see Figure). The EU market for coffee, cocoa, and palm oil is dominated by a relatively small number of large companies 144 , 145 , 146 , but there are a growing number of small speciality coffee roasters, for example, who source directly from origin  147 . When looking at overall number of businesses based on the NACE activity codes that are more likely trading the commodities in scope indicate that more than 90% of the operators are SMEs, which however doesn't indicate that the majority of the transactions are conducted by SMEs.

Figure 7 Main EU Member States importers by commodity (based on average annual imported quantity of the six commodities over the period 2015-2019). Importers are displayed if the quantity of imports is over 5% of the total. Source: Eurostat ComExt 148 , importer-reported data.

Given the different roles that Member States economies play in the import, processing and sale of commodities in different sectors, it is possible that changes brought about by the new initiative may impact some Member States more than others. For example, the Netherlands is the world’s largest importer of cocoa beans, it has the world’s largest cocoa grinding industry and is Europe’s largest exporter of cocoa beans 149 ; Germany and Belgium are also large hubs of import, processing and export. The Nordic countries, however, currently import most cocoa beans from elsewhere in the EU 150 . A trend towards shortening supply chains could lead to Member States increasing their direct sourcing of cocoa beans from producing countries rather than via other EU importers (accentuating a trend already observed in Nordic and Eastern European countries towards increased direct sourcing 151 ). The majority of palm oil also enters the EU via Rotterdam, where key refineries and processors are located 152 . For soy, primarily used in the EU for manufacturing animal feed 153 , Member States with large livestock populations and exports might be affected by increased feed prices. Although the EU feed manufacturers federation (FEFAC) does not require deforestation-free or conversion-free soy, it has recently updated its soy sourcing guidelines to signal this might become an essential criterion in the future 154 , also providing a useful benchmarking tool for conversion-free standards 155 .

While some evidence exists that setting up and operating a due diligence system is more challenging for SMEs, the experience from the EUTR indicates that the main driver of costs of due diligence obligations is not so much the size of the company or the trade volume but the number and complexity of supply chains and the risks associated with the sourcing country.

In some sectors, SMEs already have considerable knowledge of their supply chains and product origin. This is the case in the EU’s growing artisanal/speciality chocolate market, where small and medium sized chocolate makers ensure the high quality and consistency of their products through establishing direct trade relationships with producers of speciality cocoa beans (primarily sourced from South and Central America) 156 . This speciality market is generally associated with more ethical and sustainable sourcing 157 , hence there may be low additional costs anticipated to comply with new legislative requirements. In comparison, EU imports of cocoa beans for the bulk market is dominated by large multinationals 158 . Whilst many have their own buyers and processing facilities in cocoa producing countries and use certification 159 , tracing product origins may be challenging due to the wide supply base and sheer number of smallholder producers. Nevertheless, many importers, cocoa processors, chocolate makers and retailers already have sustainability commitments, including the majority of multinationals 160 , 161 . Similarly, multinationals importing other commodities appear willing to work through their supply chains, as many have already published deforestation free sourcing commitments 162 , 163 , 164 ; this initiative will help harmonize these approaches, also for consumers and third country suppliers. More information is provided under the assessment of impacts of option 1. 

Responses to the EUTR and FLEGT Fitness Check Online Public Consultation indicate that many businesses support the establishment of a mandatory framework to ensure a level playing field. 165 While such a level playing field has been found to be essential when implementing the EUTR, it is even more relevant and essential for the much larger and even more competitive trade in the commodities that this initiative proposes to cover.

Trade implications

All policy options are expected to have intended consequences, which could translate into the following trade impacts (unintended trade impacts are discussed further below):

a.Sourcing of commodities and derived products shifts to products that come from deforestation-free supply chains.

b.Consumption and production patterns within the EU change to minimise or eliminate the use of commodities and derived products that come from supply chains associated with deforestation or forest degradation.

The intervention will impact third countries to the extent that they export to the EU and their production practices for the relevant commodities and products do not comply with the deforestation-free definition. There is a degree of uncertainty as regards the measurement of impacts (costs and benefits) of the EU intervention on third countries. These will also depend, for instance, on concrete commitments aiming at reducing deforestation as part of the new global biodiversity framework and in revised nationally determined contributions (NDCs) under the Paris Agreement. In addition, the countries have already committed to halting deforestation by 2020 under SDG 15.2. Political leaders of 88 countries, as well as the EU, committed in the United Nations Summit on Biodiversity in 2020 to reversing biodiversity loss by 2030, and promised to redouble efforts on fighting deforestation. In this context, it is extremely challenging to determine the degree to which trade, environmental, economic and social impacts related to deforestation and forest degradation could be a consequence of the EU intervention or rather the individual initiative of those countries to live up to commitments already made.

Countries exporting commodities within the scope of the initiative would need to take action to ensure that the production of such commodities is deforestation-free and traceable to meet the requirements of the EU. Additional costs borne by actors in producing countries to ensure compliance with the regulation would be any costs of switching to production practices compliant with the deforestation-free definition. These costs are likely to differ significantly depending on product, region, complexity of supply chains and current production processes, including local market context and legislative framework. It is unclear however whether these costs would be permanently higher. The suggested cut-off date of 2020 is expected to significantly reduce compliance costs for third countries and their stakeholders (see section 4.5.)

Eventual costs linked to compliance with applicable legislation in the country of production should not be attributed to the EU requirements, as cost of legal compliance for producers should be part of the normal operating costs.

As a snapshot of potential impacts on particular third countries, Côte d’Ivoire supplies 44% of the EU’s cocoa and cocoa is central to its economy, contributing to close to 6% of its GDP (see annex 6). Cocoa is almost exclusively produced by smallholders, who depend on the crop for their income and livelihood 166 . The country will likely be impacted by the EU initiative, as cocoa production has been a major driver of deforestation, drawing on the soil fertility of newly deforested land 167 , 168 . Cocoa farming is characterised by low productivity, pests and disease, with smallholders facing many barriers to investing in sustainable agriculture 169 . Côte d’Ivoire does not have a traceability system 170 , and whilst some large corporate players have implemented smallholder engagement programs 171 , EU operators are likely to face difficulties in ensuring compliance with the new initiative, whilst the country adapts its production practices. Ghana and Cote d’Ivoire, however, are currently working with the aim of improving their national traceability capabilities 172 and have undertaken commitments to curb deforestation. The Commission in 2020 launched the EU multi-stakeholder dialogue for sustainable cocoa 173  to support both countries towards eliminating child labour, deforestation, and to ensure a living income for cocoa farmers.

In the case of soy, the commodity is particularly important for the economies of Argentina, Brazil and Paraguay 174 . Deforestation linked to the relevant commodities of the scope has been documented in those countries 175 , and Argentina and Brazil are relevant as origins of soy used in the EU. A shift in preference to low-risk origins could favour imports from the USA, the largest global producer, and already major supplier to the EU. To a lesser degree, it may incentivize an increase in domestic production. France and Italy are the largest producers in the EU and domestic EU production is already increasing not least due to growing demand for GM-free soy and higher prices 176 .

For palm oil, recent studies on the impact of changes in trade with the EU suggest that there would only be small impacts on major economic variables in Indonesia 177 . However, the shift towards sourcing deforestation-free commodities will likely place a burden of cost on operators and stakeholders in producing countries such as Indonesia and Malaysia (palm oil represents the countries’ second and fifth highest value export respectively) 178 . Traceability beyond mill-level that is, to plantation levelhas not been implemented widely. Mixing of palm oil sources may occur at multiple stages in the supply chain, making traceability harder to achieve due to its complex social system 179 . Establishing a palm oil traceability/transparency system to ensure deforestation-free sourcing will likely be a transition that takes time, investment, support and engagement. A more detailed description of the potential impacts on third countries is outlined in case studies available in Annex 6.

As explained above, the regulation is the key deliverable under priority 1 of the 2019 Communication. However, it should be seen in conjunction with the actions under other priorities in this Communication, notably priority 2 that aims at supporting third countries in adopting sustainable production practices that halt deforestation and forest degradation. In this context, the tools to be developed under the current programming process for the Neighbourhood, Development and International Cooperation Instrument (NDICI) for the period 2021-2027 will constitute important flanking measures and tools to ensure the legislative instrument achieves its objectives without unduly impacting vulnerable sectors in third countries that rely on their trade with the EU.

The impact of the intervention on each third country depends on many factors such as the quantity and value of the export to the EU of each commodity/product, the degree of deforestation associated with the current production, the characteristics and structure of production for the relevant commodities, etc. Given these variables that would differ between countries it will not be possible to analyse in detail the potential impacts on each trading partner. However, the quantities and value of exports to the EU by a specific producer country can provide an indication of the potential impact of the intervention. The value of exports as a percentage of the Gross Domestic Product (GDP) can also help identify countries which potentially could be more impacted.

Annex 6 shows the main trading partners and the share of the commodities the EU imports from them, both in terms of quantity and value. It also shows countries where the commodities play a key role as a proportion of overall imports by the EU from them and those countries with highest value of exports to the EU as percentage of the GDP.

It is however important to point out that the change of forest cover given in the tables is the national rate. A loss in forest cover (negative number) may vary considerably sub-nationally and loss may be related to other drivers than the production of the relevant commodities under consideration.

The following figure illustrates the main trading partners for each commodity (average annual quantity 2015-2019), including associated deforestation risks. Some of the imports are concentrated on a few countries with high risk of deforestation associated to the production of those commodities. These are the countries that will be more likely impacted by the initiative.

Figure 8 Main trading partners of the EU-27 by commodity (based on average annual imported quantity of the six commodities over the period 2015-2019).

The deforestation risk level associated with the partner countries is indicated by colour: Orange = ≥ 5000 ha/yr embodied deforestation, ≥5% deforestation of natural forest, ≥ 5% net natural forest loss, deforestation was linked to the focal commodity in the country, and/or >13% (beef) or >10% (other focal commodities) of forest was converted to the commodity in at least one 10 km2 area of the country; Yellow = 1000-5000 ha/yr embodied deforestation, 1-4.99% deforestation of natural forest, 1-4.99% net natural forest loss and/or 1.1-13% (beef) or 0.6-10% (other focal commodities)of forest was converted to the commodity in at least one 10 km2 area of the country; Green = <1000 ha/yr embodied deforestation and/or no 10km2 area of the country had >1% (beef) or >0.5% (other focal commodities) forest converted to the commodity; Black = N/A (as all remaining countries were grouped in the ‘Other’ category). See methods for full details of deforestation risk datasets. Where risk levels differed between datasets, the highest risk level was shown. Note that deforestation risk is not necessarily comparable between commodities because datasets and data coverage may differ. Source: Eurostat ComExt 180 , importer-reported data.

Impacts in third countries may vary depending on operator size and stage in the supply chain. The supply chains of proposed commodities are generally hourglass shaped, with a small number of multinational processors and traders dominating the international trading stage, and production involving a wide range of suppliers from companies to smallholders 181 , 182 . For example, cocoa production relies on 5-6 million smallholders worldwide, with a few large multinational companies dominating processing and trade 183 , and around two-thirds of Brazilian beef exports are handled by three main meatpackers, whilst cattle are produced and reared by 2.5 million farmers 184 ranging from small-scale ranchers to large company-run farms 185 .

Operators in third countries, including smallholders, could face costs to develop or implement systems to allow EU operators to comply with the new requirements, where they do not already have systems in place. These costs could be passed through the prices of products. However, a level playing field will be established as regards the exports to the EU, providing an incentive for all operators to switch to deforestation-free supply chains and a competitive advantage for those that are or would become compliant. In the medium to long term, this is the only way to avoid the race to the bottom.

It is important to highlight once again that the proposed cut-off date of 2020 can mitigate the impact of the proposal in third countries by focussing on the effective development of systems for current/future supply, rather than diverting resources to retrospective compliance (see section 4.5).

All options might also have unintended trade impacts, which can be separated into three main categories: i) risk of leakage, ii) hindered access to commodities for which EU supply is concentrated in a small number of producing countries and iii) unavailability of alternatives that would be compliant with the requirements.

The risk of leakage is addressed in section 6.1.4.

In cases of commodities with a limited supply base the implementation of measures could theoretically reduce supply of certain products and higher potentially lead to higher market prices, especially where supply to the EU is concentrated in a small number of producing countries such as for cocoa or palm oil. However, the proposed cut-off date of 2020 would significantly reduce these risks, as most products currently in trade would be sourced from land put into production prior to 2020, providing time for operators to adapt.

6.1.36.1.3    Social impacts

At a local level, forests provide subsistence and income to about 25% of the world’s population, including indigenous people. 186  The FAO estimates that one-third of humanity could be described as being ‘closely dependent’ on forests. Furthermore, ‘wood and non-wood forest products’ provide up to 20% of the income of rural households in developing countries. The expansion of land for subsistence agriculture is one of the drivers of deforestation, at the same time, an unsustainable use of forest natural resources jeopardises the livelihood of the local population. 187  

Due to the EU’s large-scale consumption of commodities and products coming from supply chains associated with deforestation and forest degradation, all options could have the potential for significant positive social impacts in producing countries. The analysis indicates positive impacts of Options 1-5 in multiple areas of social policy, notably: land tenure; governance and capacity building in administration; participation of local communities and civil society; preservation of cultural heritage of indigenous peoples; income distribution, social protection and social inclusion; and workers health and safety.

While this initiative focuses specifically on measures to minimise the placing of products associated with deforestation or forest degradation on the EU market, it will also address the issue of rights of indigenous and local communities. The proposed policy options will require products to be compliant with both deforestation-free criteria and the laws of the country of production, thereby allowing to assess whether the rights of vulnerable communities such as indigenous people and local communities have been respected and upheld in the country of production.

In terms of employment, the policy options are expected to positively affect the competitiveness of relevant sectors and specific operators within these sectors which will result in the creation of new jobs in operators applying compliant production processes, and a loss of jobs for operators applying non-compliant production processes. New jobs will likely be created related to compliance with the new requirements for operators placing products on the EU market.

Whilst the long term impacts on third countries are expected to be positive, initial short term impacts caused by EU operators shortening/simplifying supply chains, reducing their number of suppliers and/or switching to lower-risk supply chains may particularly impact smallholders. For example, smallholders produce over 90% of the cocoa in West Africa. For palm oil, smallholders are reported to control 46% of Indonesia’s planted land and 28% of land in Malaysia 188 . Fluctuations to the income of smallholders may have social as well as economic impacts, where families are reliant on the income for food, health, education etc. and where limited options exist for alternative income.  Whilst multinational companies are engaging with smallholders to achieve zero-deforestation commitments, complex supply chains for cocoa and palm oil create challenges with tracing back to the farm/plantation of production 189 . Reduction in mills or supply base has been implemented as a strategy by companies to make it easier to monitor suppliers 190 .

Again, the suggested cut-off date of 2020 would significantly mitigate potentially negative social impacts by limiting the number of smallholders that would be caught working on land whose products cannot be sold to the EU — and ensuring that nearly all current commodity production from exporting countries can still make the cut (see more on section 4.5.).

Box 3. Interplay between the due diligence requirements in the Sustainable Corporate Governance (SCG) initiative and those established in the legislative initiative on deforestation

The SCG initiative is a company law initiative fostering behavioural change aiming at embedding sustainability firmly in the Member States corporate governance systems. It foresees a general due diligence obligation applying to EU limited liability companies (with a lighter regime for SMEs), while non-EU companies would only be covered above a certain turnover in the EU. The due diligence process under the SCG initiative would not include the risk of illegal production and harvest.

The legislative initiative on deforestation has a very specific objective related to the European Green Deal and its requirements will go beyond the general duties under the SCG initiative. It will establish a more targeted regime for relevant products and commodities that may be associated with deforestation and will set specific conditions for their placing on the EU market. Critically, it will also include a prohibition, which will apply to all operators placing the relevant products on the market, including EU and non-EU companies, irrespective of their legal form and size.

The due diligence system set by the legislative initiative on deforestation will apply to operators that are the first to place relevant commodities/products on the EU market in relation to the risk that those commodities may pose as regards deforestation and forest degradation and illegal production and harvest. Conversely, the SCG due diligence duty would apply to all other products of that company and in relation to all other adverse impacts

Like other EU product-specific legal instruments containing a due diligence duty, the deforestation due diligence regime will act as lex specialis. This will entail that the SCG due diligence could apply in so far as there are no specific provisions with the same objective, nature and effect in the framework established by the legislative initiative on deforestation. However, the mere existence of specific deforestation rules should not exclude the application of the SCG. Where SCG provides for more specific provisions or adds requirements to the provisions laid down in the deforestation regulation, the two initiatives should be applied in conjunction.

Whilst smallholder producers and rural communities will ultimately benefit from the policy options (through benefits of healthy ecosystems, nature underpinning wellbeing and growth, and others), mitigation measures such as enhanced EU support to partner countries and operator support within their supply chains will be important from the outset, to ensure support the transition to sustainable production by smallholders in EU commodity supply chains. To maximise positive impacts and mitigate against any potential challenges, within the EU and third countries and for all types of actor, the identified options must be accompanied with other measures identified in the 2019 Communication.

6.1.46.1.4    Coherence with other EU policy objectives

The policy options proposed are coherent with the overall objectives of the European Green Deal and all the initiatives developed thereunder. Both the EU Biodiversity Strategy for 2030 and the Farm to Fork Initiative identify the legislative proposal and other measures to avoid or minimise the placing of products coming from supply chains associated with deforestation or forest degradation on the EU market as important for the achievement of their objectives.

The initiative is also part of the actions foreseen in the 2019 Communication on Deforestation, which sets out the overall objective of protecting and improving the health of existing forests, in particular primary forests and to increase sustainable, biodiverse forest coverage worldwide. Other relevant related initiatives foreseen in the Communication that are complementary with the proposed initiative are: 1) Work in partnership with producer countries, to address root causes of deforestation, and to promote sustainable forest management; 2) international cooperation with major consumer countries, to minimise leakage and to promote the adoption of similar measures to avoid products coming from supply chains associated with deforestation and forest degradation being placed on the market.

The proposed policy options are also coherent with the international instruments backed by the EU, specifically the Paris Agreement and the UN's 2030 Agenda.

All policy options include measures that also may impact trade, which could have an impact on EU foreign policy and also on the EU’s development cooperation. The goal of all proposed policy options is to provide an incentive for 3rd countries to take action to achieve the sustainability milestones to which they also have committed. This is to be achieved by favouring sustainable supply chains and the consumption of deforestation-free commodities and products in the EU, thereby curbing the EU’s negative impact on those countries’ environment. In addition, some common features of the policy measures — namely the deforestation-free definition and the cut-off date — have been designed with the aim of minimising any sudden impact on 3rd countries.

Precisely in view of the potential impacts on 3rd countries, policy options 1 to 4, which are based on due diligence, are considered to be coherent with EU policy objectives. Policy options 2 and 3, which allow better performing countries to enjoy improved market access to their commodities and products, are considered more coherent than policy options 1 and 4. In contrast, policy option 5, which could result in extreme cases in an import ban against the commodities or products from 3rd countries, , is considered to be less coherent, as this could have a stronger economic impact on 3rd countries. These differences can be observed in table 8.

6.1.56.1.5    Leakage problems

The main objective of the initiative is the elimination of the EU contribution to global deforestation, with the reduction of overall global deforestation as an additional effect. That additional effect could of course be reduced by the leakage or spill-over effects. This means that deforestation or degradation embedded in EU consumption may be reduced or eliminated, but at the same time unsustainable production activities would either be transferred to other commodities not in scope of the regulation or by switching to less discerning markets 191 , potentially reducing the overall impact of the EU intervention.

Various stakeholders indicated that they expect that the EU intervention will entail leakage risks. Nevertheless, many also agree that this is an acceptable risk if additional measures – as described and identified in the 2019 Communication - are taken to mitigate this risk as much as possible. Based on the insights and additional inputs from consulted stakeholders, some precautionary measures can be identified to mitigate these risks. The preferred policy option contains many of these mitigating measures. The results are shown in table 7.3 below.

Figure 13:    Examples of risks of leakages and mitigation measures

Unintended effect

Mechanism

Potential mitigation measures

Shift to other commodities or products not under the scope of the measures.

Substitution of commodities or products that are included in the scope with commodities or products that are not covered by the scope of the measures. This could happen, for instance, if palm oil in products is substituted by other vegetable oils that are not covered by the scope of the measures, triggering deforestation that is outside the reach of the EU intervention.

The progressive scope (section 5.1) advocated for in this impact assessment aims at being able to deal with changing trends in commodities and products involved in deforestation. There was strong support among stakeholders, as well as the European Parliament, for having the scope revised regularly as a mitigation measure.

The so-called Brussels effect could also play a positive role to extend the reach of the EU intervention beyond its scope. “Environmental regulation is often non-divisible. After an investment in compliance with the EU’s stringent environmental rules is made, the company typically extends those same sustainability practices across its global conduct or production,” argues Anu Bradford in The Brussels Effect 192 .

Also relevant is the fact that companies working with products outside the scope of this EU intervention may be obliged to conduct horizontal due diligence duties due to the initiative on Sustainable Corporate Governance (see EU context on section 1.1)

Shift of non-deforestation-free exports to other markets outside the EU with laxer regulation, to avoid the burden of the measures.

Rather than fully shifting to sustainable agriculture and halt deforestation, producers may be tempted to separate their supply chains, selling deforestation-free products to the EU, while they continue to sell non-deforestation-free products to other markets. This could significantly reduce the overall impact of the EU intervention.

 

 

The benchmarking system of the preferred policy option is one potential mitigation tool that tries to address this risk (see section 5.3.2.) The system is meant to assess countries in terms of deforestation linked to the production of the commodities covered in the scope. As such, it could create incentives for countries to curb deforestation regardless of the final destiny of their production (internal, EU or other extra-EU markets.)

This type of risk is higher in those commodities where EU market share is lower (see trade impacts on section 6.1.2.) For instance, for cocoa and coffee, the EU is such a substantial global buyer that the effect of potential leakage is less likely to meaningfully undermine the overall impact of the EU intervention.

The additional measures identified in the 2019 Communication should also help tackle this kind of leakage, in particular by working in partnership with producer countries offering adequate packages of support, and by strengthening international cooperation with other major consumer countries to ensure adoption of similar measures to curb deforestation and forest degradation.

Also relevant to address this type of risk is a potential Brussels effect, as mentioned above.

Shift to other ecosystems not covered under the ‘deforestation-free’ definition

Expansion of agricultural production into natural non-forest ecosystem with high nature values, like natural savannah, grassland or wetland ecosystems, which are not under the scope of the EU intervention. Stricter rules aiming to protect Amazon forest has already been shown to accelerate conversion of Cerrado savannah and Pantanal wetlands for agricultural production.

The EU intervention contemplated in this impact assessment focuses on the protection of forests. Enlarging the coverage to other ecosystems would jeopardise implementability by making monitoring of deforestation and forest degradation criteria more difficult. Also, the policy options are based on an assessment of the relevance of forest from the perspective of climate change and biodiversity loss. A different assessment of different ecosystems would entail a different policy intervention proposal.

Companies may be obliged to conduct horizontal due diligence duties due to the initiative on Sustainable Corporate Governance (see EU context on section 1.1), meaning impacts on ecosystems other than forests are expected to be covered by that proposal.

Indirect land use change

When commodities covered in the scope replace other crops on existing agricultural land, this may lead to producers engaging on deforestation or forest degradation to maintain production of crops and commodities not covered by the EU intervention. This problem is abundantly documented in the field of biofuels 193 .

Potential mitigation tools to this risk have already been explained above: a) The progressive product scope that is regularly updated; b) working in partnership with producing countries; c) the benchmarking system; d) the potential Brussels effect; e) the broader coverage of the initiative on Sustainable Corporate Governance.

6.26.2    Policy Option 1 – Mandatory due diligence system, relying on a deforestation free definition 

Benefits

Due to the similarities and improvements with regards to the EUTR, option 1 is expected to provide benefits at the middle-low end above the minimum described in section 6.1.1, that is at least 29% of deforestation driven by consumption and production of the six commodities included in the scope by 2030, and therefore a minimum of 71,920 hectares of forest less affected by EU-driven deforestation and forest degradation starting in 2030 194 . This would also mean a minimum of 31.9 million metric tons of carbon fewer emitted to the atmosphere every year due to EU consumption and production of the relevant commodities, which could be translated into economic savings of at least 3.2 billion EUR annually.

Option 1 would also contribute to preserving biodiversity by reducing activities that are proven to threaten the survival of numerous species.

Option 1 is also expected to contribute to achieving the specific objectives of the EU intervention, namely minimising the consumption of products coming from supply chains associated with deforestation or forest degradation, and increasing EU demand for and trade in legal and ‘deforestation-free’ commodities and products. It would also contribute to creating a level playing field for companies operating in the EU market and benefit ‘lower-risk’ third countries, who are likely to experience increased EU demand for their commodities.

Costs

Apart from the cost addressed under Section 6.1, option 1 will lead to costs for operators related to establishing and maintaining appropriate due diligence systems and conducting risk mitigation. The proposed improved due diligence systems would require operators to take action to ensure traceability and transparency. In addition, there are likely to be administrative costs associated with the need to identify and analyse the possibility that commodities or products in the supply chain could be associated with deforestation and forest degradation.

As is the case with the EUTR, operators that place imported products on the EU market will be the most impacted by compliance costs. Operators that place relevant commodities produced in the EU on the market are already under the obligation to apply national and EU laws, which comprehensively cover a wide range of legal and sustainability aspects (e.g. existing nature legislation as well as planned legislation under the Biodiversity Strategy), and therefore the additional burden that the new initiative would place on them is expected to be limited.

EU operators are expected to incur both one-off costs to set up the due diligence system and recurrent costs to maintain and operate the system.

One-off costs may include components such as developing and instituting a due diligence policy, procuring and installing necessary IT systems, informing and training staff and supply chain partners. Recurring costs include the costs of employees dedicated for the task, maintenance of systems, and costs related to the collation, aggregation and analysis of the data, including in some cases professional services for 3rd party audit costs and surveys.

The approach to estimate the costs for operators of establishing and maintaining due diligence systems is based on cost estimates for the compliance with the EUTR. Although there are other sources for the cost of due diligence in the literature and from policy developments in other areas, the EUTR provides the closest example of due diligence of a forest-related supply change for the purpose of this initiative.

The cost of a due diligence system varies across operators. The following key factors influence operator-specific costs:

·The number of products

·The number of suppliers

·The size of the operator

·The length of each supply chain (value chain complexity)

·The country of production

·The availability of existing supplier information systems

The higher the number of products and suppliers that an operator deals in and with, the higher the costs of the due diligence system. The size of the company could be correlated with the number of products and suppliers, but it is the latter that is the main cost driver, i.e. the number of products and suppliers are more decisive for the due diligence costs than the size of the company in question. Generally, more complex supply chains could lead to higher costs, but this is dependent on many factors including the extent to which the operator is able to push some of the effort to trace the full supply chain back onto its immediate supplier.

An important element that could influence the costs of setting up a due diligence system is whether importers have already equipped themselves on a voluntary basis with policies and systems to measure and mitigate sustainability risks in their supply chains. Importers may, for example, be monitoring their supply chains for other certification purposes. This can be in the form of forest or chain of custody certification of their products, or as part of internal corporate social responsibility commitments. In such cases, these efforts contribute to the due diligence system and may thus result in lower costs in comparison to companies that have no such policies or systems in place. According to a recent report 195 , 93% of the companies have taken at least one industry-accepted measure to safeguard forests in their operations and supply chains.

The due diligence system foreseen in the legislative initiative on Sustainable Corporate Governance referred to in section 1.1 may also entail significant costs. It is expected that a large proportion of companies that would be considered operators under the deforestation legislation will also be in scope of the due diligence obligation under the Sustainable Corporate Governance initiative. While the scope and definition of the due diligence obligations may differ (for example the deforestation due diligence obligation is not expected to include disclosure obligations), some of the processes and systems established to comply with the obligations under the Sustainable Corporate Governance initiative would also be useful to fulfil the obligations under the deforestation legislation (more information in box 3.)

There are very few studies providing information on one-off costs of setting up the EUTR due diligence system. One of them 196 provides a range between EUR 5 000 and 90 000 per operator, which is comparable with the values given for other due diligence processes 197 . This range provides a reasonable estimate of the costs that companies could incur to set up the due diligence system. The level of costs for a particular company will depend on the specific factors mentioned above.

As regards recurrent costs of the due diligence system, the overall costs for importers of EUTR products is estimated as a range between 0.29 and 4.3% of the value of the imports (see SWD Fitness Check EUTR/FLEGT Regulation) 198 . This same percentages were applied to the value of imports for the relevant commodities to derive an estimate of due diligence costs for those importers of those commodities:

Table 5 Estimate of annual costs of due diligence based on EUTR and value of imports. Import values extracted from Comext, average of 5 years (2015-2019)

Commodity

Value of imports (EUR million)

Costs of DD lower estimate (EUR million)

Costs of DD higher estimate (EUR million)

Comments (HS codes included in the value of imports)

Wood

24,525

71

(0.29% of imports)

1,071

(4.3% of imports)

Comext data for all HS codes in scope of EUTR. The percentages derived for lower and higher estimates are used for the other commodities

Beef

4,304

12.5

185.1

HS0102, 0201, 0202, 020610, 020622, 020629, 4101, 4104 and 4107

Cocoa

7,421

21.5

319.1

HS1801 to 1806

Coffee

8,061

23.4

346.6

HS0901

Palm oil

5,013

14.5

215.6

HS120710, 1511, 151321, 151329 and 230660

Soy

11,133

32.3

478.7

HS1201, 120810,1507 and 2304

Totals (excluding wood)

35,932

104.2

1.545

Totals (including wood)

60,457

175

2,616

The approach taken to estimate the costs of due diligence for operators presents a number of uncertainties and limitations:

-It is based on EUTR due diligence which includes only due diligence obligations related to the laws of the country of origin. The deforestation-free definition is expected to add a new layer of costs to due diligence systems. This new layer, as argued in section 4.4, is expected to be simpler and therefore less costly.

-The same EUTR ratio is applied across the board to all commodities on the basis of import value but it is likely that exercising due diligence for some commodities would be either easier or more complex than for wood. There will also be significant differences depending on the levels of risk of deforestation in sourcing countries;

Although these elements introduce uncertainty in the calculations, they are considered the best estimate. This results in recurrent costs of between €175 million and €2,616 million per year. Other attempts to estimate the costs of due diligence based on the number of operators for each commodity showed a very high variability due to the lack of reliable data, and were therefore discarded 199 .

The above costs represent the direct costs of setting up and operating a due diligence system. In addition to those, operators may incur additional costs as a consequence of the results of the due diligence for specific supply chains, i.e. by implementing mitigation measures where necessary. These may entail for example changing suppliers, if risks of specific supply chains cannot be mitigated in a different way. Given that the need for such mitigation measures and the type of action taken are very context specific, it is not possible to quantify such costs.

In addition, option 1 will entail costs of implementation and enforcement for Member States authorities, who, as in the case of EUTR, would be tasked with inspecting and ensuring that the operators have appropriate due diligence systems in place. The costs for authorities of EUTR was estimated on the basis of the data reported by Member States.

The recent analysis on EUTR implementation published in 2019 using information from Biennial Reports published by Member States in the period 2017-2019 compares the human resources available for the implementation of the EUTR. Implementation resources are uneven across member states. In the EUTR Fitness Check, interviewees confirmed that the member states’ costs for the EUTR implementation depends much on the number of operators and traders within a specific country.

Estimated overall costs of EUTR for CAs are shown in the table below. This shows the total number of FTEs (full time equivalent staff) across the EU is 182 and based on an average wage across Member States in the EU of 40,000 per year, the total costs of EUTR compliance for Member States CAs is approximately 7.3 million per year. This cost is slightly higher than the total cost of EUTR compliance reported by Member States CAs in the 2016 evaluation of the EUTR, which provided a range of €20,000 - 466,000 per year, depending on the Member State 200 , which corresponded to total annual costs for all EU Member States of €6.8 million.

It is assumed that the resources required from Member States to enforce and monitor the implementation of the proposed new Regulation covering an expanded scope of commodities are proportional to the total value of imports of each commodity. Extrapolating from the EUTR-induced costs and accounting for the total value of wood imports regulated by the EUTR, the expansion of the scope will lead to the need for around 267 FTEs of additional human resources for Member States as seen in the table below (449 in total when including wood.) When calculating the cost for expanding the scope of the regulation to other commodities, an average annual wage of €40,000 per FTE has been used (based on the findings of the Fitness Check on the EUTR). This results in a total cost of approximately €18 million for all Member States and commodities per year.

Table 6    Estimated total resources needed (FTE) and costs (Euro) incurred by Member States under Policy Option 1

Commodity

Total import value (€ billion)

Enforcement resources needed (FTEs)

Enforcement costs (€ million)

Wood

24.53

182

7.28

Beef

4.3

32

1.28

Cocoa

7.42

55

2.20

Coffee

8.06

60

2.39

Palm Oil

5.01

37

1.49

Soy

11.13

83

3.30

Total (excluding wood)

35.92

267

10.66

Total (including wood)

60.45

449

17.94

It is to be noted, however, that the figure of about €18 million per year for all EU Member States should be considered as a minimum, as is based on the estimated cost of enforcement of the EUTR as currently done by the EU Member States, which has been sometimes not fully adequate to the task. Those enforcement efforts have been plagued by shortcomings, including insufficient checks and uneven enforcement across member states, as highlighted by the Fitness Check of the EUTR and FLEGT Regulation. It is expected that a satisfactory level of enforcement by EU Member States would require even more resources and imply higher costs. In addition, a number of measures involving new enforcement obligations for Member States — including a minimum volume share of products and commodities checked per year or the obligation to respond to substantiated concerns raised by civil society — are also expected to increase the costs.

Regarding costs to third countries, all options have a deforestation-free requirement, so producers will need to make the necessary changes to their production practices to ensure that commodities exported to the EU meet legal and deforestation-free requirements. Whilst costs should be minimal in countries and products where commodity production rarely involves newly deforested or degraded land, as well as those with effective national institutions controlling the legality of local production, there may be particular countries and supply chains where this would require additional time and resources

As noted above, some EU operators could switch to lower risk countries and supply chains where possible. Higher risk countries could therefore experience a lower demand for their products from the EU (although the extent of such switching of suppliers is not known, and the experience from the EUTR indicates that operators continue to source timber from higher risk countries).

Figure 12 (section 6.1.2) illustrates the top EU trading partners per commodity and their level of deforestation risk, with further details on countries most likely to be impacted by the regulation provided in Annex 6.

6.36.3    Policy Option 2 – A benchmarking system and a list of contravening operators combined with tiered improved mandatory due diligence system, relying on a deforestation free definition

It is expected that this option will have a higher effectiveness and efficiency than option 1, as the DDS requirements will be accompanied by a benchmarking system creating incentives for countries to curb deforestation and facilitating due diligence by operators, among other benefits (see section 5.3.2 for more information).

Benefits

Option 2 falls within the same range of expected benefits as option 1. Therefore, option 2 is forecast to provide benefits at the high end above the minimum described in section 6.1.1, that is at least 29% of deforestation driven by its consumption and production of the six commodities included in the scope by 2030, and therefore a minimum of 71,920 hectares of forest less affected by EU-driven deforestation and forest degradation starting in 2030 201 . This would also mean a minimum of 31.9 million metric tons of carbon fewer emitted to the atmosphere every year due to EU consumption and production of the relevant commodities, which could be translated into economic savings of at least 3.2 billion EUR annually. Yet, while not quantified due to the limitations the assessment faces, it is expected that the enhanced features described in section 5.3.2 will bring higher effectiveness than option 1.

Option 2 would also contribute more decisively to preserving biodiversity by reducing activities that are proven to threat the survival of numerous species.

Option 2 is also expected to contribute to achieving the specific objectives of the EU intervention, namely minimising the consumption of products coming from supply chains associated with deforestation or forest degradation, and increasing EU demand for and trade in legal and ‘deforestation-free’ commodities and products. It would also contribute to creating a level playing field for companies operating in the EU market and streamline enforcement activities and associated costs across the EU through the transparent identification of contravening operators.

In addition, operators sourcing commodities and products from ‘low-risk’ countries would benefit from higher demand for commodities and products from countries assessed to be ‘low-risk’. They are also likely to see increased competitiveness compared to operators sourcing from ‘high-risk’ countries due to a reduced administrative burden to meet due diligence requirements. Benchmarking will also facilitate the amount of information available to consumers. This might result in a further increase in demand for products from ‘low-risk’ countries. Public access to benchmarking might also provide valuable information to NGOs, academia and policy makers and would facilitate decision-making, innovation and research relating to deforestation, forest degradation and trade.

Option 2 will also create benefits for third countries. As mentioned above, the benchmarking information on third countries could act as an incentive for producer countries to improve their environmental protection and its enforcement thus making their supply chains more sustainable. This will be essential for the EU market but also increase their access to other sensitive markets. This is likely to be most effective if coupled with technical and financial assistance, including measures identified in the 2019 Communication, to work in partnership with producer countries to reduce pressures on forests.

Countries specifically identified as ‘low-risk’ may benefit from higher EU demand than in Option 1, potentially increasing their exports to the EU. The categorisation of ‘low-risk’ could also act as a positive signal to other sensitive markets, encouraging sourcing from such countries. Option 2 would have lower administrative costs to ‘low risk’ countries than Option 1, due to the simplified due diligence obligations of EU operators. These benefits to ‘low-risk’ countries would vary by commodity, with greater possibility of sourcing commodities like beef, soy and wood from ‘low-risk’ countries.

Costs

Benchmarking is expected to lower the operational costs for EU businesses as compared to option 1. The simplified due diligence obligations for low risk countries are expected to lower the costs of conducting due diligence per se. The list of low risk countries could help guide operators to deforestation-free supply chains, therefore reducing the costs of finding those reliable and safe suppliers. Option 2 is also expected to create an incentive for operators placing products on the EU market to shift their sourcing from ‘high-risk’ countries to ‘low-risk’ countries.

The costs for the DD under this option were established on the following basis: the ‘standard’ due diligence is expected to produce the same costs for operators as under option 1; the ‘simplified’ (‘low-risk’) due diligence will arguably lead to lower costs for the operators. This approach would be particularly beneficial for SME operators and traders as they would benefit from lower costs of the simplified DDS by placing products derived from low-risk supply chains (commodity/country of origin) on the market.

The analysis calculated the simplified DDS costs as a 50% reduction compared to DDS under option 1. This is based on expert judgment derived from the implementation of EUTR, where risk assessment and mitigation is more costly and difficult for high risk areas. It is estimated that 20% of the operators will be placing products on the market under ‘simplified’ due diligence and therefore would be incurring 50% of the costs as compared to Option 1. This results in an estimated cost of due diligence under option 2 ranging from €158 million to 2,354 million per year. This is based on a conservative estimate of 20% imports coming from lower risk countries. Currently 26% of the imports for the 6 commodities come from countries with lower risk according to ILAT score 202 . Given that this score is based on legality only a conservative round up to 20% has been used.

Figure 9 Risk categorization of imported commodities based on the ILAT score 2020 of the country of origin. Based on quantities imported 2015-2019.

As regards costs for public authorities, significantly lower costs than under Option 1 are expected. The European Commission will be covering costs associated with setting up the benchmarking system and the processing of the information received. The system will need to be kept up to date to reflect the developments in producer countries. Costs for the establishment of the benchmarking system are estimated for year 1 to amount to €337,000 and thereafter €168,000 per year for its maintenance. This is based on the assumption that the benchmarking could include up to 134 countries based on a further analysis of trade flows, which would indicate the need to assess specific countries. Its set up would entail a one-off cost of 20 working days per country and then 10 working days per country per year to keep updated the benchmarking results (hourly salary of 15.71€/hour was used based on Eurostat average labour costs for the public sector in EU).

Given the anticipated greater effectiveness of option 2 at ensuring EU sourcing is from deforestation-free supply chains, it is important to consider economic impacts on third countries from the benchmarking system, in addition to the impacts described under Option 1. By categorising producer countries as low, standard and high risk, this may increase the costs and/or benefits to those countries. In particular, the explicit labelling as ‘high risk’ of producer countries could lead to economic effects which are greater or take effect sooner, through EU operators switching suppliers and source countries (where available), or by requesting further information and verification from high risk producers. The benchmarking system may also act as a stronger signal to other sensitive markets, further reducing demand for products from ‘high-risk’ countries. Countries likely to be most affected will be those with a high proportion of exports to the EU (and other sensitive markets), high deforestation risk and where the shift to deforestation-free production and supply chain traceability may be lengthy and complex (see Annex 6 case studies including cocoa from West Africa and palm oil from Asia, both of which rely on smallholders in their production). As indicated in Figure 7 above, for commodities such as cocoa and coffee, ILAT scores indicate that the majority of producer countries might be ‘high-risk’.

Whilst a desired outcome of EU measures is the shift in public and private sector investment towards low risk supply chains, strengthening the benefits of the policy option in EU partner countries will require targeted financial and technical assistance to support high risk countries and producers in the transition towards deforestation-free production practices. This measures were identified in the 2019 Communication and are being developed by Commission services. This will also to help to mitigate against supply shortages of deforestation-free products to the EU. For example, some multinational companies have smallholder engagement programs (e.g. for cocoa in Côte d’Ivoire and Ghana, and palm oil in Indonesia and Malaysia 203 ) to improve sustainability in their supply base. The 2020 cut-off date (see section 4.5) will also be important in minimising immediate impacts and providing time for ‘high-risk’ countries to improve their production systems.

6.46.4    Policy Option 3Mandatory public certification combined with an improved due diligence requirement, relying on a deforestation free definition

Benefits

Option 3 falls within the same range of expected benefits of option 1. Therefore, option 3 is forecast to provide benefits at the middle end above the minimum described in section 6.1.1, that is at least 29% of deforestation driven by consumption and production of the six commodities included in the scope by 2030, and therefore a minimum of 71,920 hectares of forest less affected by EU-driven deforestation and forest degradation starting in 2030 204 . This would also mean a minimum of 31.9 million metric tons of carbon fewer emitted to the atmosphere every year due to EU consumption and production of the relevant commodities, which could be translated into economic savings of at least 3.2 billion EUR annually. Yet, albeit not quantified due to the methodological challenges, it is expected that the enhanced features described in section 5.3.3 will bring slightly high effectiveness.

Option 3 would also contribute to preserving biodiversity by reducing activities that are proven to threat the survival of numerous species.

Option 3 is also expected to contribute to achieving the specific objectives of the EU intervention, namely minimising the consumption of products coming from supply chains associated with deforestation or forest degradation, and increasing EU demand for and trade in legal and ‘deforestation-free’ commodities and products. It would also contribute to creating a level playing field for companies operating in the EU market.

In addition to environmental benefits mentioned under section 6.1, mandatory public certification could act as an incentive for those producer countries who opt to use it, to improve their environmental protection and make their supply chains more sustainable. Certification could lead to competitive advantages in other markets as well.

Costs

In terms of economic impacts, the costs and impacts relating to a tiered DDS as described under option 2 are also relevant here. Operators sourcing from countries which have a mandatory public certification system recognised by the EU would face lower compliance costs to meet their due diligence obligation. It is however expected that the share of operations benefiting from lower compliance costs be lower than in option 2.

The cost linked to the tiered due diligence system would be based on the same assumptions as for option 2, however the split between those operators assumed to be in the simplified due diligence category would be different than in option 2. This difference is based on the relatively low expected uptake and even lower expected recognition of the public mandatory certification schemes. To build on lessons learned from previous experiences (to avoid demand-led processes that might fail to cover the main EU trade partners, while still investing considerable resources), this option would be open for countries to apply under the following criteria: 1) the country exports a significant volume of commodities or products covered by the regulation; and 2) the EU consumes a significant volume of these commodities or products.

As in option 2, a reduced due diligence cost for sourcing from countries that choose to establish and obtain approval for a mandatory certification system is estimated as 50% reduction compared to option 1. The EU recognition process is expected to provide operators additional assurance on the sustainability of the products, so that it would reduce the extent of their due diligence obligations. However, the FLEGT experience shows that it is likely that only a limited number of countries would be able to or interested in developing a mandatory public certification system and seek its recognition by the EU.

Although difficult to predict, for the purpose of the impact assessment it is estimated that 10% of the commodities in scope of the regulation would be sourced from recognised mandatory public certification systems and therefore the operators would be under ‘simplified’ due diligence obligations, incurring in 50% of the costs as compared to option 1. This results in an estimated total costs of due diligence under option 3 ranging between €166 and 2,485 million per year.

The costs of enforcement of the scheme are likely to vary depending whether new enforcement infrastructure would be needed. In addition, annual costs of reporting to EU institutions are expected and estimated to be between 100,000 - 1,000,000 EUR per country.

For EU institutions, the main costs are associated with setting up and operating the process of reviewing, assessing and recognising the existing public mandatory certification schemes. It is expected that there will be some costs associated to setting up the process, but the main costs would be the annual operating costs, which would strongly depend on the number of countries seeking recognition for mandatory public certification systems for specific commodities. The main cost for any country choosing to set up such a mandatory certification system would be borne at national level , and is estimated to amount to a minimum of €1.2 million per country and commodity per year. The cost of setting up such a scheme will depend on the potential risk of commodities and products from a given country being associated with deforestation and forest degradation, the size and the complexity of the production structures in the country for that particular commodity, and administrative and socioeconomic characteristics. Costs for producing countries to implement the system would also be strongly dependent on the specific situation and context. The following table provides some situation specific examples of costs reported in the literature linked to certification of palm oil in different countries. It should be noted however that this table is for the illustration of costs that are associated with some existing systems; a system that would adequately meet the criteria under Option 3 described above may generate different and additional costs.

Table 7 Examples of costs of setting up public certification systems.

Examples

Cost borne by

Elements included

Costs

Malaysian Sustainable Palm Oil standard (MSPO) – mandatory public 205

Producer

Support for smallholders farmers in gaining certification

US$13 million has been allocated to Malaysia’s smallholders

Indonesian Sustainable Palm Oil (ISPO) scheme – mandatory public 206

Producer

Other costs identified include:

Initial costs of certification IDR

Corrective costs (in Year 2)

Maintenance and monitoring costs

35,000/ha (EUR 2/ha)

IDR 400,000/ha (EUR 23.5/ha)

IDR 130,000/ha (EUR 7.65/ha)

Producer countries most likely to develop a public certification system could include those where EU trade is particularly important to the economy, and where the nature of supply chains and conditions within the country are conducive to setting up such a scheme. For example, the palm oil industry is important for Indonesia and a high proportion of trade is already covered by certification schemes, including the Indonesian Sustainable Palm Oil standard (Annex 6). Indonesia’s experience in developing a FLEGT licensing scheme could also facilitate the setting up of a mandatory public certification for palm oil.

Costs to producer countries would also include the costs to individual producers in reaching and maintaining certification.

Producer countries choosing to develop mandatory public certification schemes would also be taking an economic risk, with considerable outlay in developing a scheme which may not attain recognition from the EU.

6.56.5    Policy option 4 – Mandatory labelling combined with an improved due diligence requirement, relying on a deforestation free definition

Benefits

Option 4 falls within the same range of expected benefits of option 1 and it is expected to bring the same effectiveness. Therefore, option 4 is forecast to provide benefits at low-middle end above the minimum described in section 6.1.1 that is at least 29% of deforestation driven by consumption and production of the six commodities included in the scope by 2030, and therefore a minimum of 71,920 hectares of forest less affected by EU-driven deforestation and forest degradation starting in 2030 207 . This would also mean a minimum of 31.9 million metric tons of carbon fewer emitted to the atmosphere every year due to EU consumption and production of the relevant commodities, which could be translated into economic savings of at least 3.2 billion EUR annually.

The label is expected to increase awareness about deforestation and might contribute to shift consumer preferences for deforestation-free products, but it is expected that its impact in terms of increasing the baseline effectiveness of the due diligence system be limited compared to other options.

Option 4 would also contribute to preserving biodiversity by reducing activities that are proven to threat the survival of numerous species.

Option 4 is also expected to contribute to achieving the specific objectives of the EU intervention, namely minimising the consumption of products coming from supply chains associated with deforestation or forest degradation, and increasing EU demand for and trade in legal and ‘deforestation-free’ commodities and products. It would also contribute to creating a level playing field for companies operating in the EU market.

Costs

A key additional cost component under this option, besides costs identified under Option 1, will be the costs of labelling. Administrative costs related to labelling obligations can include costs to assimilate/obtain relevant information to comply with labelling regulations, translations for labelling in different languages, redesign of the label and packaging, production of the printing plate, printing of the label, auditing, submitting information to the regulator, etc. Based on examples from food labelling legislation, it is estimated that that operators and traders will face a minimum of €10.6 and a maximum of €831.5 in labelling costs on average. It can be assumed that SMEs will face lower labelling costs in comparison to large companies due to the lower number of products that would need to be labelled. Across all sizes, an average cost of €421 per business can be expected, with total labelling costs for EU business potentially amounting to €35.3 million. The costs for SMEs were calculated as €14.2 million for intra-EU traders.

The European Commission would bear the costs of developing the content of the label and the requirements for its use (i.e. scope of commodities to be covered, label definitions, as well as issue EU-wide guidance on the use of the label to support implementation at Member State level, possibly issuing harmonised pictograms to be used throughout Member States (e.g. size and design). Based on experience with EU Ecolabel, these costs are unlikely to significantly exceed an average annual management cost of 1.1 million EUR. Member States would bear costs for implementing and enforcing the legislation, and ensuring that products are correctly labelled. In addition to DDS costs, EU institutions and Member State authorities would need to ensure compliance with labelling. Based on existing labelling schemes in the energy sector, these costs are estimated to be between 148,148 and 296,296 EUR per Member State, annually.

There are not anticipated to be additional costs to third countries from labelling, as these costs will be borne by the EU and are unrelated to the choice of country from which commodities are sourced. However, economic impacts slightly higher than already laid out under option 1 already may arise through reduced consumer demand of goods failing to meet deforestation-free criteria.

6.66.6    Policy option 5 - Deforestation-free requirement for placing on the EU market supported by benchmarking and country card systems

The challenges of estimating the benefits for this policy option were greater due to the lack of precise quantitative information on the effectiveness of the EU regulation to prevent, deter and eliminate illegal, unreported and unregulated fishing (IUU Regulation), from which the system is adapted. Therefore, the range of impacts used below, and the uncertainty of the conclusions, is larger than for policy options 1 to 4.

The experience of IUU implementation suggests that country carding systems were successful in driving positive reforms in countries and that, on the back of yellow and red cards, most of the countries showed commitment to improve their management and control systems and a willingness to cooperate closely with the EU. 208 Yet, there is a lack of precise quantification on the effectiveness of this policy measure.

Benefits

The challenges of quantifying impacts for this option means that it is necessary to assess its impacts qualitatively and work within the full range of possible benefits as described in figure 11.

Option 5 is expected to contribute to curb EU-driven deforestation, and in turn greenhouse gas emissions and to preserve biodiversity by reducing activities that are proven to threat the survival of numerous species

Option 5 is also expected to contribute to achieving the specific objectives of the EU intervention, namely minimising the consumption of products coming from supply chains associated with deforestation or forest degradation and increasing EU demand for and trade in legal and ‘deforestation-free’ commodities and products. It would also contribute to creating a level playing field for companies operating in the EU market.

As Option 5 is the only option not to include a due diligence obligation, EU operators and traders would benefit from this option compared to Options 1-4, as they would not need to set up and maintain due diligence systems for each of their supply chains.

A benefit of Option 5 to third countries, in comparison to Options 1-4, could be the adaptation of their own public certification systems to the local context. Countries where private certification schemes already cover a high proportion of their exports and where certification has long been used to improve forest management and improve sustainability of supply chains may favour this option, as the transition to public certification would build on existing national efforts and enable more national control in ensuring their products meet the EU requirements.

Costs

The administrative burden of this policy option depends on the different components of the policy option, i.e. the benchmarking system, the country carding system, and the certification requirement. The costs of the benchmarking system and the carding system would be borne by the European Commission. For the 136 countries of relevance, which export significant quantities of any of the commodities during the past 5 years, the costs of benchmarking is estimated to be €1,025,712 in year 1, and €598,264 annually afterwards. The costs of the carding system, associated mainly with the necessary country site visits are expected to amount to €75,600 per year. At Member State level, it is expected that more resources would be needed to control the certifications of commodities and products. An annual costs of €22,539,794 for Member States overall is estimated.

Under this option there are no direct costs for EU businesses. However, EU businesses may incur in costs when changing source country as a consequence of a ‘red card’ decision by the EU. Given that such ‘red card’ would imply a ban to place certain products on the EU market, the businesses sourcing from such a country would need to find alternative supply chains in other markets.

The economic impact on third countries is likely to be greatest for option 5, where any producer country wanting to place commodities and products on the EU market would need to develop a public certification system, or adapt a pre-existing one. As discussed under option 3, the costs to public authorities and ease of developing such systems would depend on inter alia the length and complexity of supply chains, size of the country and area under production, volumes of commodities concerned and the risk of deforestation in the supply chains. The transition to public certification less costly for countries where a high proportion of the commodities exported are already covered by private certification schemes.

As all options 1-5 would require producers to make the necessary improvements to their production practices to meet the legality and deforestation-free requirements, additional costs to producers countries under option 5 would relate to gaining public certification.

Country carding will not only signal which countries have high rates of deforestation/degradation and inadequate measures in place (yellow card), but the red card option will be the basis for an EU ban on trade, with the sharpest economic impact on countries concerned. This could have a strong economic impact on high risk countries unable to efficiently remove deforestation risk from their supply chains, especially where exports to the EU contribute a sizeable proportion of their GDP.

As detailed in section 6.1, supply chains in some high risk countries and for some commodities rely on large numbers of smallholders (e.g. cocoa in Côte d’Ivoire and Ghana, palm oil in Indonesia and Malaysia), and additional EU support and funding focused on such countries would be needed to assist in the transition to deforestation-free production, to minimise the economic and social impacts on vulnerable communities (as foreseen under Priority 2 of the 2019 Communication).

77    How do the options compare?

The table below give an overview of the analysis of the impacts as discussed in Section 6. It summarises the conclusions on the environmental, economic and social impacts and provides simple overview how the options compare against baseline situation in terms of effectiveness and efficiency 209 . A more comprehensive comparison is contained in annex 8.

Table 8    Option comparison against baseline in terms of effectiveness and efficiency

Options

Effectiveness linked to the objectives

Efficiency

Coherence

Curb EU-driven deforestation

Minimise placing of unsustainable products (and increase intake of sustainable products)

Option 1: Mandatory due diligence system, relying on a deforestation free definition

++

++

++

++

Option 2: A benchmarking system and a list of contravening operators as a basis for a tiered improved mandatory due diligence system, relying on a deforestation free definition (preferred option)

++++

+++

++++

+++

Option 3: Mandatory public certification combined with an improved due diligence requirement, relying on a deforestation free definition

+++

++

+++

+++

Option 4: Mandatory labelling combined with an improved due diligence requirement, relying on a deforestation free definition

++

++

+

++

Option 5: Deforestation-free requirement for placing on the EU market supported by benchmarking and country card systems

+

+

+

+

88    Preferred option

The most viable option appears to be Option 2, a benchmarking system and a list of contravening operators combined with a tiered improved mandatory due diligence system, relying on a deforestation-free definition.

Option 2 is forecast to provide benefits well above the minimum described in section 6.1.1, that is, to prevent at least 29% of deforestation driven by EU consumption and production of the six commodities included in the scope by 2030, and therefore a minimum of 71,920 hectares of forest less affected by EU-driven deforestation and forest degradation starting in 2030 210 . This would also mean a minimum of 31.9 million metric tons of carbon fewer emitted to the atmosphere every year due to EU consumption and production of the relevant commodities, which could be translated into economic savings of at least EUR 3.2 billion annually. 

This option would ensure that the EU puts in place a regulatory framework that is both very ambitious and implementable, while incentivising the sustainability transition in all countries, within or beyond the EU, making us a credible global standard-setter.

The proposed instrument is a ‘Regulation’ because it is necessary to ensure the highest level of harmonization to avoid the coexistence of different standards between Member States, which would undermine the fundamental principle of free movement of goods. A Regulation will set direct requirements for all operators, thus providing the necessary legal certainty and enforcement possibility of a fully integrated market across the EU. A Regulation also ensures that the obligations are implemented at the same time and in the same way in all 27 Member States.

To strengthen its impact, the preferred option must be accompanied with other measures identified in the Communication on Stepping up EU Action to Protect and Restore the World’s Forests, in particular: 1) Working in partnership with producer countries, accompanied by adequate packages of support, which is crucial to address the root causes of deforestation, such as weak governance, corruption and problems with law enforcement; and 2) strengthening international cooperation, especially with other major consumer countries, to ensure adoption of similar measures to avoid products coming from supply chains associated with deforestation and forest degradation being placed on the market, in order to minimise leakage. An overview of different potential leakage problems and mitigation measures is included in section 6.1.4.

The option proposed includes a number of pertinent elements which draw inspiration from the EU regulation to prevent, deter and eliminate illegal, unreported and unregulated fishing (IUU Regulation) in combination with due diligence.

The preferred option would lead to the EU Timber Regulation being repealed when the new Regulation against deforestation enters into force – as the new law will essentially integrate and improve the existing system to control timber legality. As regards the FLEGT Regulation, which lays out the foundation for negotiating and implementing the Voluntary Partnership Agreements (VPAs), it is suggested that it be maintained as a legacy tool.

This would entail that VPAs that have been signed with EU partners and reached the last stage of the implementation – the FLEGT licensing stage – by a certain date will be preserved, so that they can be integrated in the new Regulation as proof of compliance with the laws of the country of origin. Operators, in contrast, will still be required to conduct due diligence to ascertain that the commodities and products coming from those countries are deforestation-free.

Under this scenario, there would be a limited amount of years for VPA partner countries to reach FLEGT licensing. After a certain date without having attained that goal, implementation will be discontinued. Specific cooperation programs under the Forest Partnerships (or similar cooperation tools) will replace the VPAs that have not reached the licensing stage by the agreed date. There will be no new VPAs, neither for timber nor for other commodities. The Commission will not engage in VPA negotiations with new countries.

99    How will actual impacts be monitored and evaluated?

The Commission will ensure that arrangements are in place to monitor and evaluate the EU intervention, and evaluate it against the main policy objectives (see figure below.) Given the role of Member States authorities in the enforcement of all proposed policy options, a reporting mechanism, similar to that in place for the EUTR, will need to be established.

The system should be reviewed after five years of full operation to identify any issues and potential improvements. In addition, the Commission will also review after the first year after the entry into force of the regulation its product scope (see section 5.1), with view to extending it further down the value chain.

As regards the main objective of this EU intervention, EU-driven deforestation and forest degradation has been captured in different research undertakings in the past. The product scope, the baseline and the analysis of impacts of this Impact Assessment build on this previous work. The monitoring of the impacts of the EU intervention will rely on similar tools.

Deforestation and, to a lesser extent, forest degradation, can be monitored via satellite imagery. Widely available agricultural production and trade data by country allow to link deforestation to EU consumption and production. An overview of free-access satellite imagery tools and datasets is available in Annex 6.

It is therefore expected that the actual impact of the EU intervention could be relatively straightforward to monitor, and separate it from other potential factors that may influence market trends.

Table 9 Objectives, progress indicators and data sources/measurement tools

Objectives

Indicators

Measurement tools/data sources

Reduce EU-driven deforestation and forest degradation

-Hectares of deforestation and forest degradation provoked by EU consumption and production

-Deforestation and forest degradation statistics

-Agricultural production statistics

-Trade statistics

Minimise consumption of products coming from supply chains associated with deforestation or forest degradation

-EU consumption trends of commodities and products under the scope of the EU intervention (compared to products outside the scope and to other regions lacking a similar policy intervention)

-Trade statistics

-Agricultural production statistics

-Sector statistics

-Consumer price statistics

-Consumer surveys

Increase EU demand for and trade in legal and ‘deforestation free’ commodities and products

-EU consumption trends of commodities and products under the scope of the EU intervention (compared to products outside the scope and to other regions lacking a similar policy intervention)

-Trade statistics

-Agricultural production statistics

-Sector statistics

-Consumer price statistics

-Consumer surveys

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Stepping up EU Action to Protect and Restore the World’s Forests, COM/2019/352 final

(2)

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS The European Green Deal, COM/2019/640 final.

(3)

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS EU Biodiversity Strategy for 2030 Bringing nature back into our lives, COM/2020/380 final

(4)

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS A Farm to Fork Strategy for a fair, healthy and environmentally-friendly food system, COM/2020/381 final

(5)

Inception Impact Assessment - Minimising the risk of deforestation and forest degradation associated with products placed on the EU market

(6)

 The need to reduce forest loss is underlined in IPBES. 2019. Global assessment report on biodiversity and ecosystem services of the Intergovernmental Science- Policy Platform on Biodiversity and Ecosystem Services. E. S. Brondizio, J. Settele, S. Díaz, and H. T. Ngo (editors). IPBES Secretariat, Bonn, Germany. https://www.ipbes.net/global-assessment-report-biodiversity-ecosystem-services.  Betts et al. 2017. Global forest loss disproportionally erodes biodiversity in intact landscapes. Nature letters 547: 441-444.

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IPBES 2019. Global assessment report on biodiversity and ecosystem services of the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services. E. S. Brondizio, J. Settele, S. Díaz, and H. T. Ngo (Eds.). IPBES Secretariat, Bonn, Germany.

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Smith P et al. (2014) Agriculture, Forestry and Other Land Use (AFOLU). In: Climate Change 2014: Mitigation of Climate Change. Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Edenhofer O et al (eds.)]. Cambridge University Press, Cambridge, UK and New York, NY, USA.

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IPCC, 2019: Summary for Policymakers. In: Climate Change and Land: an IPCC special report on climate change, desertification, land degradation, sustainable land management, food security, and greenhouse gas fluxes in terrestrial ecosystems [P.R. Shukla, J. Skea, E. Calvo Buendia, V. Masson-Delmotte, H.- O. Pörtner, D. C. Roberts, P. Zhai, R. Slade, S. Connors, R. van Diemen, M. Ferrat, E. Haughey, S. Luz, S. Neogi, M. Pathak, J. Petzold, J. Portugal Pereira, P. Vyas, E. Huntley, K. Kissick, M. Belkacemi, J. Malley, (eds.)]. In press.

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FAO. 2020. Global Forest Resources Assessment 2020: Main report. Rome.

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FAO 2020. Global Forest Resources Assessment 2020: Main report. Rome.

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Vancutsem, et al. (2021). Long-term (1990–2019) monitoring of forest cover changes in the humid tropics. Science Advances 7:10. Available at https://advances.sciencemag.org/content/7/10/eabe1603.full

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Dobson et al. 2020. Ecology and economics for pandemic prevention. Science 369 (6502): 379-381.

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Register of Commission Expert Groups - Commission Expert Group/Multi-Stakeholder Platform on Protecting and Restoring the World’s Forests, including the EU Timber Regulation and the FLEGT Regulation. Available at https://ec.europa.eu/transparency/regexpert/index.cfm?do=groupDetail.groupDetail&groupID=3282

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 Council conclusions on the Communication on Stepping Up EU Action to Protect and Restore the World’s Forests (16 December 2019) 15151/19. Available at https://www.consilium.europa.eu/media/41860/st15151-en19.pdf

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  European Parliament resolution of 22 October 2020 with recommendations to the Commission on an EU legal framework to halt and reverse EU-driven global deforestation (2020/2006(INL) Available at https://www.europarl.europa.eu/doceo/document/TA-9-2020-0285_EN.html  

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Communication from the Commission to the Council and the European Parliament - Forest Law Enforcement, Governance and Trade (FLEGT) - Proposal for an EU Action Plan (COM(2003) 251 final).

(18)

Council Regulation (EC) No 2173/2005 of 20 December 2005 on the establishment of a FLEGT licensing scheme for imports of timber into the European Community

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Regulation (EU) No 995/2010 of the European Parliament and of the Council of 20 October 2010 laying down the obligations of operators who place timber and timber products on the market.

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https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/11630-Illegal-logging-evaluation-of-EU-rules-fitness-check-_en

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Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources, OJ L328/82 of 21.12.2018

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Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088

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Relevant information on the review of the LULUCF Regulation, including the inception Impact Assessment can be found in https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12657-Land-use-land-use-change-and-forestry-review-of-EU-rules

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https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12674-Forests-new-EU-strategy_en

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https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12548-Sustainable-corporate-governance_en

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https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12129-Corporate-Sustainability-Reporting_en

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https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12511-Environmental-performance-of-products-&-businesses-substantiating-claims_en

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https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12567-Sustainable-products-initiative_en

(29)

In particular, Article 5.1 of the Paris Agreement recalls the commitment made by the Parties in the 1992 Convention to “take action to conserve and enhance, as appropriate, sinks and reservoirs of greenhouse gases […] including forests.” Article 5.2 further calls on Parties to implement and support the existing framework relating to reducing emissions from deforestation and forest degradation, and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries (REDD+), and alternative policy approaches.

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Of particular relevance to deforestation and forest degradation are Target 3, 4, 9, 14, 15 and 20

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Of particular relevance for deforestation and forest degradation are SDGs 12.2, 13, and 15.2.

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The main outcome of the work of the UNFF so far are: 1) The International Arrangements on Forests and the UN Forest Instrument, and 2) The UN Strategic Plan for Forest 2017-2030 , which provides a global framework for action at all levels to sustainably manage all types of forests and trees outside forests, and to halt deforestation and forest degradation

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United Nations General Assembly Resolution 73/284: United Nations Decade on Ecosystem Restoration (2021–2030) A/RES/73/284:

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  Home - Amsterdam Declarations Partnership (ad-partnership.org)

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République Française - Ministère de la Transition Écologique et Solidaire. 2018. Stratégie nationale de lutte contre la déforestation importée 2018-2030: dossier de presse. Available at https://www.ecologie.gouv.fr/sites/default/files/2018.11.14_dp_sndi_mtes.pdf

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Environmental Investigation Agency. 2020, March 3. EIA Applauds Newly Announced U.S. Bill to Tackle Global Deforestation; Urges Biden-Harris Administration to Support. Press release. Available at https://eia-global.org/press-releases/20210303-tackling-global-deforestation-schatz-pr

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Council of the European Union 2019. Conclusions of the Council and of the Governments of the Member States sitting in the Council on the Communication on Stepping Up EU Action to Protect and Restore the World’s Forests: Outcome of proceedings. Available at https://www.consilium.europa.eu/media/41860/st15151-en19.pdf

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FAO. 2020. Global Forests Resources Assessment 2020: Main report. Rome. Available at  http://www.fao.org/3/ca9825en/CA9825EN.pdf  

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Kayler, Z.; Janowiak, M.; Swanston, C. 2017. Global Carbon. (June, 2017). U.S. Department of Agriculture, Forest Service, Climate Change Resource Center

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World Resources Institute. 2020. We Lost a Football Pitch of Primary Rainforest Every 6 Seconds in 2019. Available at https://www.wri.org/blog/2020/06/global-tree-cover-loss-data-2019

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FAO. 2021. Sustainable Forest Management Toolbox. Technical Module: Reducing Deforestation. Rome. Available at http://www.fao.org/sustainable-forest-management/toolbox/modules/reducing-deforestation/in-more-depth/en/?type=111  

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FAO and UNEP, 2020. The State of the World's Forests 2020. Forests, biodiversity and people. Rome. Available at  http://www.fao.org/3/ca8642en/CA8642EN.pdf

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https://www.worldwildlife.org/stories/deforestation-fronts

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 FOREST EUROPE, 2020: State of Europe’s Forests 2020. Available at SoEF_2020.pdf (foresteurope.org)

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Forest Europe - Ministerial Conference on the Protection of Forests in Europe, State of Europe’s Forests 2020, https://foresteurope.org/state-europes-forests-2020/.

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European Environment Agency, State of the Environment 2020, https://www.eea.europa.eu/soer/publications/soer-2020.

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IPCC, 2019: Climate Change and Land: an IPCC special report on climate change, desertification, land degradation, sustainable land management, food security, and greenhouse gas fluxes in terrestrial ecosystems [P.R. Shukla, J. Skea, E. Calvo Buendia, V. Masson-Delmotte, H.-O. Pörtner, D. C. Roberts, P. Zhai, R. Slade, S. Connors, R. van Diemen, M. Ferrat, E. Haughey, S. Luz, S. Neogi, M. Pathak, J. Petzold, J. Portugal Pereira, P. Vyas, E. Huntley, K. Kissick, M. Belkacemi, J. Malley, (eds.)]. Available at https://www.ipcc.ch/site/assets/uploads/sites/4/2021/02/210202-IPCCJ7230-SRCCL-Complete-BOOK-HRES.pdf

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 Vancutsem, C., Achard, F., Pekel, J.-F., Vielliedent, G., Carboni, S., Simonetti, D., L. E. O. C. Aragão, Nasi, R. (2021). Long-term (1990–2019) monitoring of forest cover changes in the humid tropics. Science Advances 7:10. Available at https://advances.sciencemag.org/content/7/10/eabe1603

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IPCC, 2019: Climate Change and Land: an IPCC special report on climate change, desertification, land degradation, sustainable land management, food security, and greenhouse gas fluxes in terrestrial ecosystems [P.R. Shukla, J. Skea, E. Calvo Buendia, V. Masson-Delmotte, H.-O. Pörtner, D. C. Roberts, P. Zhai, R. Slade, S. Connors, R. van Diemen, M. Ferrat, E. Haughey, S. Luz, S. Neogi, M. Pathak, J. Petzold, J. Portugal Pereira, P. Vyas, E. Huntley, K. Kissick, M. Belkacemi, J. Malley, (eds.)]. Available at https://www.ipcc.ch/site/assets/uploads/sites/4/2021/02/210202-IPCCJ7230-SRCCL-Complete-BOOK-HRES.pdf

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 On the link between biodiversity and climate change see the final report of IPBES-IPCC co-sponsored -workshop “Biodiversity and climate change”, available at 20210609_workshop_report_embargo_3pm_CEST_10_june_0.pdf (ipbes.net)  

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 FAO and UNEP, 2020. The State of the World's Forests 2020. Forests, biodiversity and people. Rome. Available at http://www.fao.org/3/ca8642en/CA8642EN.pdf

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 Vancutsem, C., Achard, F., Pekel, J.-F., Vielliedent, G., Carboni, S., Simonetti, D., L. E. O. C. Aragão, Nasi, R. (2021). Long-term (1990–2019) monitoring of forest cover changes in the humid tropics. Science Advances 7:10. Available at https://advances.sciencemag.org/content/7/10/eabe1603

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 FAO and UNEP, 2020. The State of the World's Forests 2020. Forests, biodiversity and people. Rome. Available at http://www.fao.org/3/ca8642en/CA8642EN.pdf

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Hosonuma et al. 2012. An assessment of deforestation and forest degradation drivers in developing countries. Environ. Res. Lett. 7 044009. Available at https://iopscience.iop.org/article/10.1088/1748-9326/7/4/044009/pdf

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 FAO and UNEP, 2020. The State of the World's Forests 2020. Forests, biodiversity and people. Rome. Available at   http://www.fao.org/3/ca8642en/CA8642EN.pdf  

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IEEEP. 2019. EU Consumption as a Driver of Global Deforestation. Available at https://ieep.eu/uploads/articles/attachments/d99f5a14-e05c-4592-b59e-63612a6ea9b2/EU%20consumption%20and%20deforestation%20factsheet%20(IEEP).pdf?v=63744063219

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EC. 2013. The impact of EU consumption on deforestation: Comprehensive analysis of the impact of EU consumption on deforestation. Technical Report 2013-063. Available at https://ec.europa.eu/environment/forests/pdf/1.%20Report%20analysis%20of%20impact.pdf

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Pendrill F., Persson U. M., Kastner, T. 2020. Deforestation risk embodied in production and consumption of agricultural and forestry commodities 2005-2017 (Version 1.0) [Data set]. Zenodo. Available at https://zenodo.org/record/4250532#.YGrNv0BuK1M  

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Based on imports of wood, palm oil, soy, cocoa, coffee and beef from Eurostat Comext data.

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 Leite-Filho, A.T., Soares-Filho, B.S., Davis, J.L. et al. Deforestation reduces rainfall and agricultural revenues in the Brazilian Amazon. Nat Commun 12, 2591 (2021)

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https://forest500.org/sites/default/files/forest500_2021report.pdf

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More information is available at https://www.deforestationimportee.fr/fr

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COWI. 2018. Feasibility study on options to step up EU action against deforestation. Available at https://ec.europa.eu/environment/forests/pdf/feasibility_study_deforestation_kh0418199enn_main_report.pdf

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(72)

 A description of the interplay between the due diligence requirements in the Sustainable Corporate Governance (SCG) initiative and those established in the legislative initiative on deforestation is included in Box 3

(73)

https://www.forest-trends.org/publications/illicit-harvest-complicit-goods/

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Note that indication of responses reported in this Impact Assessment concern unique responses to the OPC and the, campaign responses which were analysed separately as explained in Annex 2.

(75)

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http://www.fao.org/3/I8661EN/i8661en.pdf

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The explanatory notes from the FAO

1. Forest is determined both by the presence of trees and the absence of other predominant land uses. The trees

should be able to reach a minimum height of 5 meters in situ.

2. Includes areas with young trees that have not yet reached but which are expected to reach a canopy cover of

10 percent and tree height of 5 meters. It also includes areas that are temporarily unstocked due to clear-cutting

as part of a forest management practice or natural disasters, and which are expected to be regenerated within

5 years. Local conditions may, in exceptional cases, justify that a longer time frame is used.

3. Includes forest roads, firebreaks and other small open areas; forest in national parks, nature reserves and other

protected areas such as those of specific environmental, scientific, historical, cultural or spiritual interest.

4. Includes windbreaks, shelterbelts and corridors of trees with an area of more than 0.5 hectares and width of

more than 20 meters.

5. Includes abandoned shifting cultivation land with a regeneration of trees that have, or are expected to reach,

a canopy cover of 10 percent and tree height of 5 meters.

6. Includes areas with mangroves in tidal zones, regardless whether this area is classified as land area or not.

7. Includes rubber-wood, cork oak and Christmas tree plantations.

8. Includes areas with bamboo and palms provided that land use, height and canopy cover criteria are met.

9. Includes areas outside the legally designated forest land which meet the definition of “forest”.

10. Excludes tree stands in agricultural production systems, such as fruit tree plantations, oil palm plantations,

olive orchards and agroforestry systems when crops are grown under tree cover. Note: Some agroforestry

systems such as the “Taungya” system where crops are grown only during the first years of the forest rotation

should be classified as forest.

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http://www.fao.org/3/ca8642en/online/ca8642en.html

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https://unfccc.int/sites/default/files/resource/docs/tp/tp0201.pdf

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https://www.europarl.europa.eu/doceo/document/A-9-2020-0179_EN.html

(81)

https://ec.europa.eu/commission/presscorner/detail/en/MEMO_19_1656

(82)

https://www.rainforest-alliance.org/business/wp-content/uploads/2020/06/Annex-12-Additional-Detail-On-Requirements-For-No-conversion.pdf

(83)

https://www.greenpeace.org/static/planet4-malaysia-stateless/2021/03/f66b926f-destruction_certified_09_03_21.pdf

(84)

https://www.greenpeace.org/static/planet4-malaysia-stateless/2021/03/f66b926f-destruction_certified_09_03_21.pdf

(85)

https://www.globalforestwatch.org/blog/data-and-research/tree-cover-loss-satellite-data-trend-analysis/

(86)

Goal 15.2: “15.2 By 2020, promote the implementation of sustainable management of all types of forests, halt deforestation, restore degraded forests and substantially increase afforestation and reforestation globally.” https://sdgs.un.org/2030agenda

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https://forestdeclaration.org/

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One example would be the freely available high-resolution satellite imagery of tropical forests, updated monthly, put in place by Norway’s Ministry of Climate and Environment and the satellite monitoring group Planet. These use satellites to capture images of the Earth on a daily basis. The best images from a given month are stitched together into a seamless, cloudless, mosaic. These monthly mosaics give users a clear picture of where deforestation is happening and how it has progressed over time. These monthly high-resolution images are available since 2020. More information here: https://www.planet.com/explorer/#/mosaic/45d01564-c099-42d8-b8f2-a0851accf3e7.planet_medres_visual_2021-02_mosaic/zoom/2.3

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Study commissioned by the European Commission, DG ENV: “Study on EU forest policy: Impact assessment on demand side measures to address deforestation, Final Report.”

(90)

https://ec.europa.eu/environment/forests/pdf/1.%20Report%20analysis%20of%20impact.pdf

(91)

https://www.wri.org/research/estimating-role-seven-commodities-agriculture-linked-deforestation-oil-palm-soy-cattle

(92)

https://iopscience.iop.org/article/10.1088/1748-9326/ab0d41/pdf

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Deforestation and forest degradation impacts of EU consumption.

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Pendrill F., Persson U. M., Kastner, T. 2020.

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Average annual imports 2015-2019 extracted from Comext using the HS codes mentioned in the table presented later in this section. For rubber HS40 and for maize HS1005 were used.

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 Goldman, E., M.J. Weisse, N. Harris, and M. Schneider. 2020. Estimating the Role of Seven Commodities in Agriculture-Linked Deforestation: Oil Palm, Soy, Cattle, Wood Fiber, Cocoa, Coffee, and Rubber. Technical Note. Washington, DC: World Resources Institute. Available at wri.org/publication/estimating-the-role-of-sevencommodities-in-agriculture-linked-deforestation; FAO and UNEP. 2020. The State of the World’s Forests 2020. Forests, biodiversity and people. Rome. Available at https://doi.org/10.4060/ca8642en ; Henders, S., Persson, U.M., Kastner, T. 2015. Trading forests: landuse change and carbon emissions embodied in production and exports of forest-risk commodities. Environmental Research Letters 10, no. 12, Available at doi:10.1088/1748-9326/10/12/125012; VITO. 2013. The impact of EU consumption on deforestation: Comprehensive analysis of the impact; Ordway E. M, Asner G. P., Lambin E. F. 2017. Deforestation risk due to commodity crop expansion in sub-Saharan Africa. Environmental Research Letters 12:4. Available at https://iopscience.iop.org/article/10.1088/1748-9326/aa6509; Hylander et al. (2013), Effects of coffee management on deforestation rates and forest integrity, https://pubmed.ncbi.nlm.nih.gov/23772911/ ; Pirker, J., Mosnier, A., Kraxner, F., Havlík, P., & Obersteiner, M. (2016). What are the limits to oil palm expansion?. Global Environmental Change, 40, 73-81. https://www.sciencedirect.com/science/article/pii/S0959378016300814 ; Strona G, Stringerb SD, Vieilledenta G, Szantoia Z, Garcia-Ulloa J, Wich SA. 2018. Small room for compromise between oil palm cultivation and primate conservation in Africa. Proceedings of the National Academy of Sciences of the United States of America 115(35):8811–8816 DOI 10.1073/pnas.1804775115. Estrada A, Garber PA, Chaudhary A. 2019. Expanding global commodities trade and consumption place the world’s primates at risk of extinction. PeerJ 7:e7068 DOI 10.7717/peerj.7068

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Partiti (2020); Goldman, et al. (2020); VITO (2013); Pendrill et al. 2019; FAO and UNEP (2020); Henders et al. (2015)

(98)

; Goldman, et al. (2020); Pendrill et al. 2019; FAO and UNEP (2020); Henders et al. (2015)

(99)

The cost-benefit analysis (table 1) is based on HS codes that correspond to “beef." ”Cattle” is however preferred across the document as it would allow for the progressive scope to be enlarged to derived products such as leather, which is a relevant factor of deforestation according to literature and feedback from stakeholders — which should be properly studied in the impact assessment foreseen to extend the product scope downstream.

(100)

Earthsight. 2020. Grand theft chaco; Goldman et al. 2020; FAO and UNEP (2020); Henders, et al (2015); VITO. 2013.

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Goldman, et al. (2020); Hylander et al. (2013) VITO. 2013; IDH (2020) The urgency of action to tackle tropical deforestation. February 2020. Prepared for IDH by FACTS Consulting, COWI A/S and AlphaBeta Singapore. IDH: Utrecht, the Netherlands.

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Goldman, et al. (2020); Hylander et al. (2013); IDH (2020); CBI. 2019. What is the demand for coffee on the European market? https://www.cbi.eu/market-information/coffee/trade-statistics ; Conservation International. 2016. Coffee in the 21st Century, https://www.conservation.org/docs/default-source/publication-pdfs/ci-coffee-report.pdf  

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http://www.coceral.com/data/162192986321ENV047%20COCERAL-FEDIOL-FEFAC_Due%20Diligence%20position_210423.pdf

(104)

Study on EU forest policy. Impact assessment on demand-side measures to address deforestation.

(105)

European Commission, DG AGRI (2020), EU Agricultural Outlook, https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/farming/documents/agricultural-outlook-2020-report_en.pdf  

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OECD-FAO (2020), Agricultural Outlook 2020-2029, https://stats.oecd.org/Index.aspx?datasetcode=HIGH_AGLINK_2019  

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Jonsson et al. (2021), Boosting the EU forest-based bioeconomy: Market, climate, and employment impacts, https://www.sciencedirect.com/science/article/pii/S0040162520313044  

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 Global Forest Watch Data available at  https://www.globalforestwatch.org/dashboards/global/  

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 FAOSTAT Data available at  http://www.fao.org/faostat/en/#data  

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EPRS. 2020. An EU legal framework to halt and reverse EU-driven global deforestation European added value assessment. Available at https://www.europarl.europa.eu/RegData/etudes/STUD/2020/654174/EPRS_STU(2020)654174_EN.pdf

(112)

This option is inspired in the experience of the EU Regulation 1005/2008 to prevent, deter and eliminate illegal, unreported and unregulated fishing (IUU).

(113)

https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12137-Deforestation-and-forest-degradation-reducing-the-impact-of-products-placed-on-the-EU-market_en

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The questionnaire of the online public consultation contained a multiple choice question where respondents could assess the suitability of 14 policy measures.

(115)

Reference to para 8

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WWF. 2015. Profitability and Sustainability in Responsible Forestry Economic impacts of FSC certification on forest operators. Available at https://wwfmy.awsassets.panda.org/downloads/profitability_and_sustainability_in_responsible_forestry_main_report_final.pdf

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Study on Certification and Verification Schemes in the Forest Sector and for Wood-based Products; Preferred by Nature; 2021. Available at: https://op.europa.eu/en/publication-detail/-/publication/afa5e0df-fb19-11eb-b520-01aa75ed71a1/language-en]

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https://www.europarl.europa.eu/doceo/document/TA-9-2020-0285_EN.html

(120)

The full analysis can be consulted in Annex C (difference-in-difference analysis) of the ‘Support study for a Fitness Check of the EUTR and FLEGT Regulation’

(121)

The analysis uses trade data to estimate the impacts of the EUTR on imports of illegally harvested timber to the EU. It builds on import statistics comparing products from ‘low’ and ‘high’ risk countries, and changes before and after the entry into force of the EUTR. Two different control groups are used to compare actual trends: A group of comparable countries who do not have in place a legality control system, and the products that are not covered by the EUTR but belong to the same HS groups of the EUTR scope. The analysis provided a range of estimated effectiveness between 12% and 29%. Analysis of the levels of illegal timber entering the EU is complex and problematic. There are several caveats and limitations in the research. The results, therefore, should be considered an estimation subject to a degree of uncertainty.

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European Commission (2019). Handbook on the external costs of transport. https://op.europa.eu/en/publication-detail/-/publication/9781f65f-8448-11ea-bf12-01aa75ed71a1  

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https://ember-climate.org/data/carbon-price-viewer/

(124)

Under the assumption that the regulation enters into effect three years after a proposal is agreed upon, i.e. in 2025. Several years will be required to reach the maximum effectiveness of the regulation as operators and Competent Authorities adjust their approaches to be able to more effectively perform their duties in the context of the new requirements, thus the full effects of the regulation are expected to start in 2030.

(125)

IPBES 2019. Global assessment report on biodiversity and ecosystem services of the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services. E. S. Brondizio, J. Settele, S. Díaz, and H. T. Ngo (Eds.). IPBES Secretariat, Bonn, Germany.

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https://www.nature.com/articles/536143a.pdf

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World Resources Institute 2021. Global Forest Review. Indicator – Deforestation linked to agriculture. Available at: https://research.wri.org/gfr/forest-extent-indicators/deforestation-agriculture.

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Data covers EU28 countries and Switzerland. See EPOA and IDH. 2020. Sustainable Palm Oil for Europe in 2019.

(129)

Thomson, E. 2020. Time for change: delivering deforestation-free supply chains. Global Canopy, Oxford, UK.

(130)

Bakhtary, H., Matson, E., Mikulcak, F., Streck, C. and Thomson, A. 2020. Company progress in engaging smallholders to implement zero- deforestation commitments in cocoa and palm oil.

(131)

E.g. Unilever publishes the list of all palm oil mills declared by its direct suppliers: https://www.unilever.com/planet-and-society/protect-and-regenerate-nature/sustainable-palm-oil/

(132)

Cadby, J., Araki, T. and Villacis, A.H. 2021. Breaking the mold: Craft chocolate makers prioritize quality, ethical and direct sourcing, and environmental welfare. Journal of Agriculture and Food Research, 4.

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 DG Health & Food Safety, undated. https://ec.europa.eu/food/sites/food/files/safety/docs/ia_trade_import-cond-meat_en.pdf  

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World Resources Institute. 2021. Universal Mill List. See https://data.globalforestwatch.org/datasets/gfw::universal-mill-list-1/about

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FEFAC Soy Sourcing Guidelines 2021. Available at: https://fefac.eu/wp-content/uploads/2021/02/FEFAC-Soy-Sourcing-Guidelines-2021-1.pdf  

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Palm Oil Transparency Coalition and 3keel. 2020. First Importer Suvey: 2019 Palm Oil Industry Standard. Available at: https://www.palmoiltransparency.org/wp-content/uploads/2020/01/2019-POTC-Scorecard-Report_public.pdf . The same survey indicated that over half of importers already have traceability to the mill commitments in place, while only 33% have traceability to plantation commitments in place

(137)

Kuepper, B., Steinweg, T. and Piotrowski, M. 2020. Brazilian beef supply chain under pressure amid worsening ESG impacts. Chain Reaction Research.

(138)

Brack, D. 2019. Towards sustainable cocoa supply chains: Regulatory options for the EU. FERN, Tropenbos International and Fair Trade Advocacy Office. 52 pp.

(139)

Case studies

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TRASE 2021. https://trase.earth/explore  

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CBI 2020. What is the demand for cocoa on the European market? 11 November 2020. Available at: https://www.cbi.eu/market-information/cocoa/trade-statistics.

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For palm, AAK AB (Sweden), Unilever (Netherlands), Nestlé (Switzerland), and BASF are among the largest palm oil buyers. See WWF. 2019. Palm Oil Buyers Scorecard. Available at: https://palmoilscorecard.panda.org/check-the-scores/all  

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For soy, United Nations Department of Economic and Social Affairs (2019) UN Comtrade: International Trade Statistics Database. Retrieved from https://comtrade.un.org/data  

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 Centre for the Promotion of Imports from developing countries (CBI), Ministry of Foreign Affairs (NL), https://www.cbi.eu/market-information/coffee/trade-statistics#:~:text=Europe%20accounted%20for%2034%25%20of,a%20market%20share%20of%2019%25

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  Global Market Report: Palm Oil (iisd.org)

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 Centre for the Promotion of Imports from developing countries (CBI), Ministry of Foreign Affairs (NL), https://www.cbi.eu/market-information/cocoa-cocoa-products/netherlands/market-potential

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Eurostat, 2021. https://ec.europa.eu/eurostat/web/international-trade-in-goods/data/focus-on-comext . Downloaded on 12/02/2021.

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CBI 2020. What is the demand for cocoa on the European market? 11 November 2020. Available at: https://www.cbi.eu/market-information/cocoa/trade-statistics

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CBI 2020. What is the demand for cocoa on the European market? 11 November 2020. Available at: https://www.cbi.eu/market-information/cocoa/trade-statistics.

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CBI 2020. What is the demand for cocoa on the European market? 11 November 2020. Available at: https://www.cbi.eu/market-information/cocoa/trade-statistics.

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IDH and IUCN NL (2019) European Soy Monitor. Available at: https://www.idhsustainabletrade.com/uploaded/2019/04/European-Soy-Monitor.pdf

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FEFAC Soy Sourcing Guidelines 2021. Available at: https://fefac.eu/wp-content/uploads/2021/02/FEFAC-Soy-Sourcing-Guidelines-2021-1.pdf

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https://standardsmap.org/fefac

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 CBI 2020. Which trends offer opportunities or pose threats on the European cocoa market? 17 November 2020. Available at: https://www.cbi.eu/market-information/cocoa/trends .

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Cadby, J., Araki, T. and Villacis, A.H. 2021. Breaking the mold: Craft chocolate makers prioritize quality, ethical and direct sourcing, and environmental welfare. Journal of Agriculture and Food Research, 4.

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 CBI 2020. What is the demand for cocoa on the European market? 11 November 2020. Available at: https://www.cbi.eu/market-information/cocoa/trade-statistics .

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 CBI 2020. Which trends offer opportunities or pose threats on the European cocoa market? 17 November 2020. Available at: https://www.cbi.eu/market-information/cocoa/trends .

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 CBI 2020. Which trends offer opportunities or pose threats on the European cocoa market? 17 November 2020. Available at: https://www.cbi.eu/market-information/cocoa/trends .

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World Cocoa Foundation 2021. Cocoa & Forests Initiative. Available at: https://www.worldcocoafoundation.org/initiative/cocoa-forests-initiative/.

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  https://www.unilever.com/planet-and-society/protect-and-regenerate-nature/zero-deforestation/

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  https://www.nestle.com/ask-nestle/environment/answers/nestle-deforestation

(164)

  https://www.reuters.com/article/us-mars-palmoil-forests-idUSKBN26T1U3  

(165)

Cocoa Forests initiative, European Cocoa Association, International Cocoa Organisation, FEDIOL and COCERAL, GIZ, Nestle and the Round Table on Responsible Soy

(166)

Kroeger, A., Koenig, S., Thomson, A. and Streck, C. 2017. Forest- and Climate-Smart Cocoa in Côte d’Ivoire and Ghana, aligning stakeholders to support smallholders in deforestation-free cocoa. Washington.

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Schulte, I., Landholm, D.M., Bakhtary, H., Czaplicki Cabezas, S. Siantidis, S., Manirajah, S.M. and Streck, C. 2020. Supporting smallholder farmers for a sustainable cocoa sector: exploring the motivations and role of farmers in the effective implementation of supply chain sustainability in Ghana and Côte d’Ivoire. Washington (DC)

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Ongolo, S., Kouassi, S.K., Chérif, S. and Giessen, L. 2018. The tragedy of forestland sustainability in postcolonial Africa: Land development, cocoa, and politics in Côte d’Ivoire. Sustainability (Switzerland), 10(12): 1–17.

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Kroeger, A., Koenig, S., Thomson, A. and Streck, C. 2017. Forest- and Climate-Smart Cocoa in Côte d’Ivoire and Ghana, aligning stakeholders to support smallholders in deforestation-free cocoa. Washington.

(170)

Brack, D. 2019. Towards sustainable cocoa supply chains: Regulatory options for the EU. 52 pp.

(171)

Bakhtary, H., Matson, E., Mikulcak, F., Streck, C. and Thomson, A. 2020. Company progress in engaging smallholders to implement zero- deforestation commitments in cocoa and palm oil.

(172)

https://www.idhsustainabletrade.com/uploaded/2021/04/Cocoa-Traceability-Study_Highres.pdf

(173)

https://ec.europa.eu/international-partnerships/events/eu-multi-stakeholder-dialogue-sustainable-cocoa-launch-event_en

(174)

IDH and IUCN NL (2019) European Soy Monitor. Available at: https://www.idhsustainabletrade.com/uploaded/2019/04/European-Soy-Monitor.pdf

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Pendrill et al. (2020)

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USDA (2021) European Union: Oilseeds and Products Annual. Available at: https://www.fas.usda.gov/data/european-union-oilseeds-and-products-annual-1

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Jafari, Y., Othman, J., Witzke, P., and Jusoh, S. 2017. Risks and opportunities from key importers pushing for sustainability: the case of Indonesian Palm Oil. Available at: https://agrifoodecon.springeropen.com/articles/10.1186/s40100-017-0083-z . See also Rifin, A., Feryanto, Herawati and Harianto. 2020. Assessing the impact of limiting Indonesian palm oil exports to the European Union. Available at: https://journalofeconomicstructures.springeropen.com/articles/10.1186/s40008-020-00202-8

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Data from Comtrade (2019).

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 Lyons-White, J., and Knight, A. 2018. Palm oil supply chain complexity impedes implementation of corporate no-deforestation commitments. Available at  https://www.sciencedirect.com/science/article/pii/S0959378017310117  

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 Eurostat, 2021. https://ec.europa.eu/eurostat/web/international-trade-in-goods/data/focus-on-comext . Downloaded on 12/02/2021. The trade data included in Eurostat ComExt are based on trade between two trading partners and do not provide details on whether the exporting country is also the country of origin for either the commodity or raw product. The third countries should therefore not be assumed to be the sole country of origin for the reported trade.

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Pacheco P, Gnych S, Dermawan A, Komarudin H and Okarda B. 2017. The palm oil global value chain: Implications for economic growth and social and environmental sustainability. Working Paper 220. Bogor, Indonesia: CIFOR.

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Santucci, F.M. and Tiagni Wouakoue, C. 2019. Long-term and recent trends in the cocoa and chocolate international market. International Journal of Social Sciences and Management Review, 2(5): 139–152.

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Santucci, F.M. and Tiagni Wouakoue, C. 2019. Long-term and recent trends in the cocoa and chocolate international market. International Journal of Social Sciences and Management Review, 2(5): 139–152.

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Ermgassen, E.K.H.J. zu, K.H.J., Ayre, B., Godar, J., Bastos Lima, M.G., Bauch, S., Garrett, R., Green, J., Lathuilli re, M.J., Löfgren, P. et al. 2020. Using supply chain data to monitor zero deforestation commitments: an assessment of progress in the Brazilian soy sector. Environmental Research Letters, 15(3).

(185)

Kuepper, B., Steinweg, T. and Piotrowski, M. 2020. Brazilian beef supply chain under pressure amid worsening ESG impacts.

(186)

  https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52019DC0352&from=EN

(187)

FAO and UNEP, 2020. The State of the World's Forests 2020. Forests, biodiversity and people. Rome. in EPRS, 2020.

(188)

Bakhtary, H., Matson, E., Mikulcak, F., Streck, C. and Thomson, A. 2020. Company progress in engaging smallholders to implement zero- deforestation commitments in cocoa and palm oil.

(189)

Bakhtary, H., Matson, E., Mikulcak, F., Streck, C. and Thomson, A. 2020. Company progress in engaging smallholders to implement zero- deforestation commitments in cocoa and palm oil.

(190)

Mars. 2020. Mars Palm Positive Plan Delivers Deforestation-Free Palm Oil Supply Chain. Available at: https://www.mars.com/news-and-stories/press-releases/mars-palm-positive-plan

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Ingram, V., J. Behagel, A. Mammadova and X. Verschuur. (2020). The outcomes of deforestation-free commodity value chain approaches. Background report. Wageningen University and Research, Wageningen, The Netherlands

(192)

‘The Brussels Effect: How the European Union Rules the World’, Anu Bradford, 2020.

(193)

https://www.sciencedirect.com/topics/engineering/indirect-land-use-change

(194)

Under the assumption that the regulation enters into effect three years after a proposal is agreed upon, i.e. in 2025. Several years will be required to reach the maximum effectiveness of the regulation as operators and Competent Authorities adjust their approaches to be able to more effectively perform their duties in the context of the new requirements, thus the full effects of the regulation are expected to start in 2030.

(195)

CDP (2021). The collective effort to end deforestation. A pathway for companies to raise their ambition. https://www.cdp.net/en/research/global-reports/global-forests-report-2020

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Indufor (2016). Review of the EUTR. Avaliable at https://ec.europa.eu/environment/forests/eutr_report.htm  

(197)

The OECD study ‘Quantifying the Costs, Benefits and Risks of Due Diligence for Responsible Business: Conduct, Framework and Assessment Tool for Companies’(2016) estimates the one-off costs between EUR 3 150 and 205 000 for staff time, consultant fees and training and between EUR 36 000 and 90 000 for IT systems. The draft Impact Assessment for the legislative initiative on Sustainable Corporate Governance estimates up to EUR 31 500 of direct one-off costs per company to set up the due diligence system.

(198)

For the sake of comparison, the draft Impact Assessment for the legislative initiative on Sustainable Corporate Governance estimates in EUR 7.6 billion the recurrent direct costs of due diligence for 223 000 high impact SMEs and large companies. Comparing this value with the estimate of the imports for such subset companies (calculated with Eurostat 2017 data by proportionally reducing on the basis of the number of companies the total imports of all EU companies in the relevant NACE codes) provides a value of 1.7% of total recurrent costs of due diligence expressed as a percentage of the value of imports, which is within the range of the estimates for the EUTR.

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See section 8.2.3 of the study supporting this impact assessment: Study on EU forest policy. Impact assessment on demand-side measures to address deforestation.

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European Commission. (2016). Evaluation of Regulation EU/995/2010 of the European Parliament and of the Council of 20 October 2010 laying down the obligations of operators who place timber and timber products on the market (the EU Timber Regulation)

(201)

Under the assumption that the regulation enters into effect three years after a proposal is agreed upon, i.e. in 2025. Several years will be required to reach the maximum effectiveness of the regulation as operators and Competent Authorities adjust their approaches to be able to more effectively perform their duties in the context of the new requirements, thus the full effects of the regulation are expected to start in 2030.

(202)

Forest Trends (2021). Global Illegal Logging and Associated Trade Risk Assessment Tool (ILAT Risk). https://www.forest-trends.org/fptf-ilat-home/  

(203)

Bakhtary, H., Matson, E., Mikulcak, F., Streck, C. and Thomson, A. 2020. Company progress in engaging smallholders to implement zero- deforestation commitments in cocoa and palm oil.

(204)

Under the assumption that the regulation enters into effect three years after a proposal is agreed upon, i.e. in 2025. Several years will be required to reach the maximum effectiveness of the regulation as operators and Competent Authorities adjust their approaches to be able to more effectively perform their duties in the context of the new requirements, thus the full effects of the regulation are expected to start in 2030.

(205)

https://www.foodingredientsfirst.com/news/malaysia-all-palm-oil-producers-must-be-certified-by-2020.html

(206)

Ernah, 2015, Cost-Benefit Analysis of the Introduction of the Indonesian Sustainable Palm Oil Standards: A Case Study in Jambi Province, Indonesia

(207)

Under the assumption that the regulation enters into effect three years after a proposal is agreed upon, i.e. in 2025. Several years will be required to reach the maximum effectiveness of the regulation as operators and Competent Authorities adjust their approaches to be able to more effectively perform their duties in the context of the new requirements, thus the full effects of the regulation are expected to start in 2030.

(208)

IUU Watch, 2015 EU Regulation to combat illegal fishing Third country carding process yellow and red-carding process is encouraging fisheries reforms and must be maintained

(209)

Effectiveness: The extent to which different options would achieve the objectives; Efficiency: the benefits versus the costs;

(210)

Under the assumption that the regulation enters into effect three years after a proposal is agreed upon, i.e. in 2025. Several years will be required to reach the maximum effectiveness of the regulation as operators and Competent Authorities adjust their approaches to be able to more effectively perform their duties in the context of the new requirements, thus the full effects of the regulation are expected to start in 2030.

Top

Brussels, 17.11.2021

SWD(2021) 326 final

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT REPORT

minimising the risk of deforestation and forest degradation associated with products placed on the EU market

Accompanying the document

Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on the making available on the Union market as well as export from the Union of certain commodities and products associated with deforestation and forest degradation and repealing Regulation (EU) No 995/2010

{COM(2021) 706 final} - {SEC(2021) 395 final} - {SEC(2021) 396 final} - {SWD(2021) 325 final} - {SWD(2021) 327 final} - {SWD(2021) 328 final} - {SWD(2021) 329 final}


Contents

Annex 1: Procedural information

Annex 2: Stakeholder consultation

Annex 3: Who is affected and how?

Annex 4 Detailed screening of measures

1. Deforestation-free requirement or standard

2.Voluntary labelling

3.Mandatory labelling

4.IUU like approach

5.Voluntary due diligence

6.Mandatory due diligence

7.Mandatory public certification

8.Private voluntary certification systems either new or those already in place

9.Benchmarking

10.Promotion through trade and investment agreements of trade in legal and sustainable products

11.A VPA-like approach in combination with possible legislative measure(s)

12.Mandatory disclosure of information (including corporate non-financial reporting)

13.Consumer information campaigns in the EU

14.Green Diplomacy

15.Other – EUTR Plus – US approach – Schatz Bill

16.Other – FATF

17.Other – Kimberley process

Annex 5: Satellite monitoring tools

Annex 6: Additional information and case studies on potential impacts on third countries

Annex 7: The international, EU and national context

Annex 8: Overall comparison of options



Annex 1: Procedural information

1. LEAD DG, DECIDE PLANNING/CWP REFERENCES

The Directorate General for Environment of the European Commission is the lead Directorate General for this impact assessment accompanying a legislative proposal on ‘Minimising the risk of deforestation and forest degradation associated with products placed on the EU market’.

The Decide planning reference is PLAN/2019/6251.

2. ORGANISATION AND TIMING

An Inter-service Group to steer and provide input for the evaluation was set up in 2019 with representatives from the Directorate Generals for Environment (ENV); Climate Action (CLIMA); Energy (ENER); Agriculture and Rural Development (AGRI); International partnership (INTPA); Regional and Urban Policy (REGIO); Legal Service (SJ); European Neighbourhood Policy and Enlargement Negotiations (NEAR); European Civil Protection and Humanitarian Aid Operations (ECHO); Internal Market, Industry, Entrepreneurship and SMEs (GROW); Health and Food Safety (SANTE); Employment, Social Affairs and Inclusion (EMPL), Mobility and Transports (MOVE); Justice and Consumers (JUST); Trade (TRADE); Taxation and Customs Union (TAXUD); Economic and Financial Affairs (ECFIN); European Anti-fraud Office (OLAF); Research and Innovation (RTD); Joint Research Centre (JRC-Ispra) and the Secretariat General (SG).

The group met 5 times during the impact assessment process.

Figure 1 ISG meeting dates and topics of discussion

DATE

TOPICS OF DISCUSSION

22/10/2019

1st ISG meeting: Discussion on the follow-up to the 2019 EU Communication on “Stepping up EU Action to Protect and Restore the World's Forests”, including the identification of DGs, units and colleagues in the lead for each measure of the Annex 1 to the Communication, and agreement on the implementation table covering all these measures. ENV briefly presented the current state of play on Council Conclusions, including the most important comments the Presidency received from MS and the next steps.

08/07/2020

2nd ISG meeting: Discussion on and approval of the last versions, taking on board all comments previously submitted by the ISG, of the Deforestation Impact Assessment and the EUTR/FLEGT Regulation Fitness Check questionnaires and consultation strategies for the online public consultations.

22/01/2021

3rd ISG meeting: Presentations were made on the state of play of two tasks of the consultants’ study: Task 2 “Support the study for a Fitness Check of the EUTR and FLEGT Regulation” and Task 3 “Identification and analysis of demand-side measures to reduce the impact of products placed on the EU market”. The SG clarified the scope of the EUTR/FLEGT Regulation Fitness Check. All DGs were invited to provide any additional data and evidence for the Fitness check, including INTPA on financing, and elements on forest degradation to beef up the Impact Assessment. ENV clarified the preliminary choice of commodities to be tackled because of their possible impact on forests.

25/03/2021

4th ISG meeting: Discussion on the state of play in the preparation of the Staff Working Documents on the EUTR/FLEGT Regulation Fitness Check and on the Deforestation Impact Assessment. The discussion also covered the latest consultants’ report on the study on “EU policy on forest products and deforestation”.

07/04/2021

5th ISG meeting: The ISG continued the discussion on the Staff Working Documents on the EUTR/FLEGT Regulation Fitness Check and on the Deforestation Impact Assessment, focusing in particular on how the latest comments/suggestions made by line DGs have been integrated/addressed in the latest draft circulated.

3. CONSULTATION OF THE RSB

Changes resulting from the first RSB opinion

The RSB scrutiny meeting took place on 5 May 2021 and issued a negative opinion on 7 May 2021. To address the weaknesses of the impact assessment identified by the RSB in its opinion (Section B: Summary of findings), the following changes were introduced to the SWD:

Figure 21 Changes introduced into the Impact Assessment

RSB meeting comments

Reflection in text

The report does not sufficiently take into account the lessons learned from the fitness check of the EU Forest Law Enforcement Governance and Trade and the EU Timber Regulations, especially regarding the effectiveness of due diligence.

Text boxes 1 and 2, which present the findings of the Fitness Check respectively on the FLEGT Regulation (Chapter 2.3.1) and on the EUTR (Chapter 5.3). The lessons taken from the Fitness Check are also explicitly referred to in the definition of options and further exploited in the assessment of effectiveness of options. In Chapter 8 the report also outlines the proposed way forward for both Regulations as a result of the establishment of the new system.

The report lacks clarity on the content of the options, how they were selected, how they relate to existing measures and how they are expected to address the problems. It does not include options for some relevant policy choices.

This is done through a dedicated Annex 6, outlining the policy options screened in the preparatory phase of this Impact Assessment. Section 5.4 also includes a description of the methodology and the criteria used in the viability screening to assess those policy measures and select the five final policy options whose potential impacts were studied in detail. A graphic summary of the initial viability screening of policy measures has also been added.

The report does not sufficiently assess the expected impacts of the policy options, especially on consumer prices, trade flows, third countries and SMEs.

The report includes new evidence in Chapter 6.1.1 (environmental impact), Chapter 6.1.2 (economic impact) and Chapter 6.1.3 (social impact) qualifying the expected impact in terms of trade flows, third countries and SMEs. While not analysed in detail, as part of the costs assessment, the report acknowledges that the initiative might impact consumer prices.

The report is not clear on how effective this initiative can be in reducing deforestation and forest degradation globally.

The general objective of the initiative is to minimise the EU’s contribution to deforestation and forest degradation worldwide thus reducing the EU contribution to GHG emissions and global biodiversity loss. Chapter 4 also clarifies that this initiative contributes to a broader goal of reducing deforestation and forest degradation globally only if all measures announced in the 2019 Communication are successfully developed. Effectiveness is explicitly assessed for all considered options. In addition, the report now includes a new Chapter 6.1.4 on leakage.

On top of the above listed main recommendations of the RSB, the amended SWD also addresses the more detailed set of comments made by the RSB in Section C -What to improve- of its opinion in the relevant sections of the impact assessment.

Changes resulting from the second RSB opinion

After resubmission, the RSB issued a positive opinion with reservations on 22 July 2021. To address the weaknesses of the impact assessment identified by the RSB in its opinion (Section B: Summary of findings), the following changes were introduced to the SWD:

Figure 22 Changes introduced into the Impact Assessment

RSB comments

Reflection in text

The report lacks clarity on the precise content of the preferred option.

More detail has been added to explain how the preferred option is expected to work, particular attention to the country benchmarking system (Chapter 5.3.2.)

The report is not sufficiently transparent on how the options compare against the assessment criteria. The scoring of the options is not clearly justified.

Further explanations have provided on the options discarded after the initial viability screening (Chapter 5.4) and the rationale behind the assessment of the five main policy options (Chapter 5.3.)

The report does not sufficiently present the methodologies used for estimating environmental benefits and enforcement costs.

The methodology for estimating the enforcement costs has been explained in detail on Chapter 6.2. With regards to environmental impacts, a clear reference to the effectiveness analysis of the Fitness Check, which is attached to the inter-service consultation, has been added.

On top of the above listed main recommendations of the RSB, the amended SWD also addresses the more detailed set of comments made by the RSB in Section C -What to improve- of its opinion in the relevant sections of the impact assessment.

4. EVIDENCE, SOURCES AND QUALITY

The impact assessment was supported by the study: “Impact assessment on demand side measures to address deforestation” as a key deliverable of the service contract “EU policy on forest products and deforestation” commissioned by the European Commission (DG Environment) under the Framework Contract ENV/F1/FRA/2019/0001. The objective of the study was to support an impact assessment on demand-side measures in order to increase supply chain transparency and minimise the risk of deforestation and forest degradation associated with products placed on the EU market. The study 1) presented findings on the problems and drivers to forest loss and degradation, 2) identified the objectives to tackle these issues at EU level including a mapping of existing policies and initiatives, an intervention logic along a subsidiarity analysis, and 3) proposed operational definitions for ‘deforestation-free’ supply chains. Finally, the study identified, described and analysed several policy options and their impacts in addressing deforestation and forest degradation.

Stakeholder consultation and targeted data collection were an important element of the exercise (see Annex 2 to this SWD).



Annex 2: Stakeholder consultation

INTRODUCTION

This report is the synopsis report for all stakeholder consultation activities undertaken as part of the impact assessment of demand-side measures to address deforestation and forest degradation. In line with the Better Regulation requirements, this report provides an outline of the consultation strategy, documents the consultation activities undertaken, presents the stakeholder groups that participated and describes the methodology and tools used to process the data gathered. The results of each consultation activity are briefly presented.

CONSULTATION STRATEGY

The consultation strategy was developed at the start of the study. The consultation had two objectives:

·To ensure that all relevant stakeholders are identified and are given the opportunity to take part in the consultation activities; and

·To gather stakeholder opinions on the potential additional measures at EU level.

Due to the restrictions introduced in response to the Covid-19 pandemic, all of the consultation activities were undertaken virtually (e.g. stakeholder meetings were organised as virtual events.)

The relevant stakeholders groups that have been targeted in this consultation are listed below.

·EU Member State authorities.

·Third-country stakeholders.

·Farmers, both large-scale agri-businesses and small-scale local producers, including livestock producers, both large and small.

·Logging, wood-processing companies and forest owners.

·Businesses operating with commodities associated with deforestation and forest degradation.

·Traders working with supply chains potentially associated with deforestation.

·Consumers and consumer organisations.

·Civil society organisations and non-governmental organisations.

·International organisations.

·Citizens.

The consultation strategy was implemented through the use of several consultation tools. These tools and the way the responses received were analysed are presented below.

I.Feedback on the inception impact assessment.

II.Online public consultation (OPC).

III.Targeted stakeholder consultation through interviews and focus groups.

All the consultation activities carried out provided valuable input for the impact assessment. The information gathered through the consultation activities complemented evidence gathered from other strands of the project (e.g. literature review) and allowed to triangulate evidence for the impact assessment.

I.FEEDBACK RECEIVED ON THE INCEPTION IMPACT ASSESSMENT 

The inception impact assessment was opened for public feedback from the 5 February 2020 to 4 March 2020. A total of 99 responses from 23 countries were submitted through the online portal and the categories of these respondents are shown in Figure 2.1.

Figure 1    Overview of categories of respondents (N=99)

A general assessment of the responses is that the Commission seeking to minimise the EU’s contribution to deforestation and forest degradation worldwide and promote the consumption of products from deforestation-free supply chains in the EU is very welcome. In general, there is a strong preference for legal, binding regulatory action with many respondents also reporting non-regulatory measures and voluntary actions to compliment such regulatory action. A broad overview of the themes identified are presented in Table 2.1.

Figure 2    Summary of the main issues to be addressed according to the respondents and number of times the issues were mentioned

Themes identified

Number of respondents who mentioned the issue

Supporting or against EU action

·87 responses supported EU action.

·11 responses were unclear on their support.

·No responses were against EU action.

Supporting regulatory measures

·63 responses supported regulatory measures.

·34 responses were unclear on their support.

·2 responses did not support regulatory measures.

Proposed regulatory measures

·65 responses proposed regulatory measures.

Supporting non-regulatory measures

·62 responses supported non-regulatory measures.

·9 responses were unclear on their support.

·No responses did not support non-regulatory measures.

Non-regulatory measures proposed

·71 responses proposed non-regulatory measures

Advice against particular measures

·31 responses recommended against measures.

Factors for consideration and assessment criteria

·43 responses proposed factors for consideration and assessment criteria.

Discussion of definitions

·9 responses discussed definitions.

II.ONLINE PUBLIC CONSULTATION

The online public consultation questionnaire had two parts, one targeting all public stakeholders, and the other one being more specific with questions directed at expert stakeholders. The consultation was carried out in all official EU languages, it contained both open and closed questions. It addressed forward-looking options about demand-side measures, which should ultimately contribute to addressing deforestation and forest degradation associated with products placed on the EU market. The respondents were not obliged to answer all questions.

The consultation period started on 3 September 2020 and ended on 10 December 2020, lasting 14 weeks.

In total, 1,194,761 public responses were obtained during the consultation period. This number was driven to a large extent by a campaign carried out by a group of NGOs 1 using pre-filled questionnaires. This makes the consultation the second most popular in the history of EU consultation.

Of the 1,194,761 responses, 1,193,611 responses have been identified by the European Commission as submitted through the campaign. These responses were identified using a methodology known as “key-collision clustering algorithm”. As required by the Better Regulation guidelines 2 , the campaign responses were segregated and analysed separately. This avoids overall results being distorted by the large number of campaign responses. The content of the pre-filled questionnaire submitted as part of the campaign can be consulted online 3 .

The remaining 1,150 responses are further broken down in this report on the open public consultation and presented in the figure below.

Figure 3    Overview of categories of respondents (N=1,150)

A total of 997 (86.7%) respondents defined their country of origin as being an EU Member State, whereas the remaining 153 (13.3%) of respondents defined their country of origin as not being an EU Member State. Responses were not obtained from individuals from every Member State.

Key points from the OPC analysis include:

·Action is supported mostly at EU level, followed closely by international level.

Figure 4    Views from respondents on level best suited to take action

·Most respondents (81%) agreed that an EU-level intervention on EU consumption could reduce global deforestation and forest degradation “much” or “very much.”

·Most respondents (88%) indicated their preference for tackling the sustainability of products based on an EU definition of deforestation-free, rather than just their legality.

Figure 5    Views on deforestation-free definition

·In terms of policy measures, support was stronger for a deforestation-free requirement or standard that products must comply with to be placed on the EU market.

·Some binding measures — such as mandatory product-specific due diligence, mandatory public certification or the system in place to fight illegal, unreported and unregulated fishing — have high and similar levels of support.

·Some voluntary measures — such as voluntary due diligence, private certification and voluntary labelling — receive the lowest rates in the survey.

Figure 6     Respondents were asked to rate each policy measure on a scale of 1 to 5, 1 representing not suitable at all and 5 representing completely suitable.

Note: The total number of responses varied with the measure assessed as follows: A deforestation-free requirement or standard that commodities or products in their product category must comply with to be placed on the EU market (1,109), Voluntary labelling (1,084), Mandatory labelling (1,104), Public national legality verification schemes, prohibited operators list, country carding system and export ban to the EU (1,051), Voluntary due diligence (1,076), Mandatory due diligence (1,093), Mandatory public certification system (1,044), Private certification systems, new and the ones already in place in the EU market (1,037), Build benchmarking or country assessments (1,051), Promotion through trade and investment agreements of trade in legal and sustainable products (1,064), Mandatory disclosure of information (1,061), Development and cooperation assistance to producing countries (1,059), Consumer information campaigns in the EU (1,069), Green diplomacy (1,051) and Other measure(s) (677).

·A majority of businesses support EU measures as they could reduce unfair competition from rivals that don’t care about deforestation-free supply chains.

·Public authorities respondents associated public national certification schemes, a mandatory public certification system and development and cooperation assistance to producing countries with the highest costs.

·Most measures proposed in the questionnaire have an overall positive response form third countries. The least supported measures are voluntary labelling, voluntary due diligence and private certification systems already in place in the EU market.

·On the scope of the EU intervention, there was a stronger support for a large scope encompassing a large number of products including all (or nearly all) that have a potential to be linked to deforestation and forest degradation.

·The biggest obstacle identified for effectively implementing deforestation-free supply chains in companies was that “deforestation-free products are more expensive.”

·Leakage was identified as a potential issue; however, responses were mixed on the issue, with many respondents not knowing the extent to which the measures could have unintended impacts to other ecosystems.

·Most respondents indicated there is a way to encourage companies and suppliers to “clean” their supply chains not just for their sales in the EU market but also for other markets, preventing supply chain divergence.

·Animal-based food and non-food sector and plant-based food and feed sector are considered the highest contributors to deforestation and forest degradation via the goods and services they provide on the EU market.

III.TARGETED CONSULTATIONS

The key objective of the targeted consultation was to complement and validate the information gathered from the literature review. It built up an evidence base through the collection of data and opinions from relevant stakeholders in order to inform the Impact Assessment of each policy response. This task was fundamental in order to gather robust quantitative and qualitative data, rather than only individual opinions.

Stakeholder Meetings

Two meetings were held on October 2 (2020) and February 25 (2021) focusing on the impact assessment. These meetings are part of the Commission Expert Group/Multi-Stakeholder Platform on Protecting and Restoring the World’s Forests, including the EU Timber Regulation and the FLEGT Regulation. Over 120 representatives from member states, the business community and NGOs are part of the platform. Third countries and international organizations are also invited to the platform as observers. Both meetings were used to update participants on progress and request their inputs on the legislative work. In the first, attendees took part in a specific workshop. In the second, they responded to a list of tailored questions, both orally and in writing later on.

The meetings covered, among others, the following topics:

·Definition of ‘deforestation free’; and specifically the issue of forest degradation;

·Products and commodities to be covered by potential demand-side measures;

·Possible measures (e.g. country benchmarking; due diligence; verification systems, etc;

The feedback from such a wide range of stakeholders was very rich and often contradictory, as could be expected.

Some stakeholders recommended the use of Accountability Framework Initiative (AFI) definition for ‘deforestation-free’, as it goes beyond the one used by FAO, however other argued in favour of the FAO definition (as it enjoys more acceptance of the international community.) Some expressed concerns with definition of ‘negligible risk’. Some stakeholders made the case that considerations such as human rights and forest conflict with indigenous groups should be incorporated in the definition. Some stakeholders argued that it is important to get definition of ‘deforestation-free’ right, building on ongoing initiatives, not to undermine progress made so far (including High Carbon Stock Approach). Some argued that the focus should be on land-use change, to avoid association of deforestation with wood-working industry only. Peatlands and compliance with WTO rules mentioned were mentioned.

On the scope, some participants argued that avocado, leather, natural rubber, dairy, sugar cane, corn, wheat should be added to list of commodities covered by the potential regulation and that restricting the list could distract from wider sustainability concerns and lead to unwanted consequences. Some made the case that embedded risks need to be considered (e.g. pork and chicken imports may have an embedded risk due to their consumption of soy and corn) and risk thresholds need to be defined. Some argued that imposing restrictions on downstream companies was complicated as ingredients used and proportions not always clear. A point was made that, if derived products were to be included too, HS codes could be useful in the early stages of processing a specific commodity but may not be appropriate further down the supply chain. Some preferred using thresholds to ascertain how much of a commodity is contained within a product. Risk assessments need to be flexible as drivers of deforestation may change with time, and big discrepancies with regard to risk at sub-national levels. Some wanted to focus on products/commodities with highest deforestation risk to start with, while others favoured a more encompassing approach. Some favoured cross-commodity approach to ensure that impacts from one commodity are not moved to another. Some argued that there’s a need to keep in mind subsistence farming, interactions in landscape, country of origin of commodity. The issue of leakages was raised.

On policy options, there were conflicting views regarding the country card approach and concerns about state-to-state level approach were raised. One suggested to put in place a carding system at subnational level, since national level not always relevant to assess deforestation risk. Others argued that combining landscape measures and carding system might be good solution. Some pointed out that incentives could be included (in addition or instead of carding systems) by linking deforestation free value chains with REDD and result-based payments. Some said a country-rating system might help identify which companies need inspection. Some argued that wider sustainability concerns (e.g. slavery) should be incorporated into whatever measures the EU decides to adopt. Some said the experience with the IUU approach in fisheries was cumbersome and slow to implement, with many loopholes present to ensure compliance.

On “verification” systems, some argued these should be implemented in all measures, and that implementation features should be considered. Some argued that this risks leading companies to abdicate their responsibility by shifting the choice to consumers. Some argued that only labelled products should be allowed on the EU market. Many argued that certification schemes should not replace a proper risk assessment, and certifying bodies need to be controlled by authorities. Public legislation cannot depend on private certification schemes, which may change their sustainability criteria over time. Certification schemes can support risk assessments and they promote sustainability, but only to a certain degree and not as a stand-alone measure. Some made the case that labelling may have very limited impact.

On due diligence, some defended that key findings from the EU Timber Regulation implementation, the fitness check and studies looking at the due diligence mechanism should be applied if this measure is selected. One participant argued that a risk-based approach would limit the burden on companies. Others said that financial institutions should be involved as they could support investments to change the deforestation curve. Some participants discussed that, although a due diligence system can be effective, it can also be difficult to enforce and burdensome. Some argued that incorporating a system differentiating a risk of deforestation in different areas could be more effective. Some participants said due diligence legislation could disengage smallholders because of the associated burden, which could in turn lead to additional deforestation from loss of livelihood. Some said that terminology such as “negligible risk” in the EUTR is ambiguous and difficult to enforce.

Interviews and focus groups

Along with the targeted consultation interviews there were a series of stakeholder meetings. A list of stakeholders was identified for the targeted consultation through stakeholder mapping. Priority was given to stakeholders most impacted by the implementation of the proposed policy options and measures. A sufficiently wide and diverse selection of interviewees was made to ensure a well-represented stakeholder group was selected. All interviews took place remotely. Written responses to the questionnaire were also received. Stakeholders were asked to review the inputs provided and to submit additional literature and data, when relevant. Anonymity in responses was assured to them. Finally, stakeholders were asked whether they agree for their feedback to be shared with the DG Environment.

An overview of the audience reached by all activities is presented in the figure below. Figure 2.6 shows the number of participants by stakeholder type, including the written responses, for each consultation activity. Altogether 49 entities or organisations and 92 individuals were consulted via the interviews and focus groups.

Figure 7 Participants by stakeholder type for the consultation activities (without OPC)

Source: own analysis of groups of participants per consultation activity

Some of the key points from the interviews include:

·On the deforestation-free definition, interviewees raised that it is critical to use an existing definition rather than come up with a new one. They also considered it desirable to include forest degradation, but no interviewee came up with a quantifiable and measurable way to monitor this. Focusing on land-use was found as the most pragmatic approach.

·On the scope, interviewees agreed that the cross commodity approach was good, and that a combination of commodities based on those with the most impact at global level and those where EU consumption is higher should be covered. Interviewees mostly agreed that bulk commodities and derived products that contained them should be under scope. However, concerns were raised by interviewees on how this could be done in practice — and some argued that it might be more practical to cover all products than trying to select only some of them. On that basis, some interviewees recommended to focus only at commodity level.

·On the objectives, the interviewees agreed with the objectives set out. While some interviewees noted that these might be ambitious and could be more targeted, others indicated that the objectives could be extended to cover social issues and human rights, which are difficult to disentangle from deforestation issues.

·On measures, interviewees mainly support mandatory due diligence with an emphasis on learning from the EUTR and not replicate weaknesses (e.g. burdensome paperwork requirements or blurry legal definitions (e.g. on negligible risks)). The interviewees expressed some interest for IUU inspired measures but were less familiar with the features and process. Finally, some stakeholders recommended a tiered approach in the due diligence with gradual requirements based on a specific classification of countries or commodities.

Annex 3: Who is affected and how?

SUMMARY OF BENEFITS AND COSTS

Overview of Benefits - Preferred Option

Type

Direct benefits

Environmental

·The effectiveness in curbing EU-driven deforestation and forest degradation is estimated to be at the high end above 29%.

·The environmental benefits are expected at the high end above the following minimums:

a)At least 71,920 hectares of forest saved from EU-driven deforestation and forest degradation annually starting in 2030.

b)At least 31.9 million metric tons of carbon fewer emitted to the atmosphere due to EU-driven deforestation every year, which could be translated into economic savings of at least 3.2 billion EUR annually.

·It is also expected to contribute to preserving biodiversity decisively and achieving the specific objectives of the EU intervention.

Economic

·Operators sourcing commodities and products from ‘low-risk’ countries would benefit from higher demand for commodities and products from countries assessed to be ‘low-risk’

·Producers implementing more sustainable production practices expected to gain share in the EU market and

·

Social

·Public access to benchmarking might provide valuable information to NGOs, academia and policy makers and would facilitate decision-making, innovation and research relating to deforestation, forest degradation and trade

·Positive impact on: land tenure; governance and capacity building in administration; participation of local communities and civil society; preservation of cultural heritage of indigenous peoples; income distribution, social protection and social inclusion; and workers health and safety. 

Overview of costs – Preferred Option

Citizens/Consumers

Businesses

EU Administration

Third countries

Frequency of cost:

One-off

Recurrent

One-off

Recurrent

One-off

Recurrent

One-off

Recurrent

Direct costs

N/A

Minimal increase in price of products possible

The costs increase will be lower for consumers purchasing ‘low risk’ products than for those purchasing ‘high risk’ products

Costs of between 5 000 and 90 000 EUR per operator for setting up the DDS

Total costs for the tiered DDS are estimated to range from 158 to 2,354 million EUR per year

SMEs might be disproportionately affected; however, the two-tiered DDS would be particularly beneficial for SMEs as they would benefit from lower costs of the simplified DDS by placing products derived from low-risk supply chains

EU level:

Cost of initial implementation (e.g. developing guidance to MS and operators and traders)

Establishment of the benchmarking system: 337,000 EUR

Total costs of implementation and enforcement for all Member States authorities: 18 million EUR per year

EU level: maintenance of the benchmarking system: 168,000 EUR per year

N/A

Possible economic impacts resulting from changes in trade flows

Indirect costs

N/A

Potentially reduced choice of products.

N/A

Additional costs on producers passed to operators and traders.

N/A

N/A

N/A

Costs of DDS requirements and environmental compliance could be carried down the supply chain.



Annex 4: Analytical methods

The methodological approach to prepare this Impact Assessment was designed to meet the requirements of the Better Regulation Guidelines. The approach can be divided into two relatively independent parts – data collection and analysis.

1. DATA COLLECTION:

Data collection relied on the following main steps:

a.Extensive literature review.

b.Consultation of stakeholders, namely:

Feedback to the Inception Impact Assessment

An online public consultation (OPC)

Targeted interviews

Stakeholder meetings, through the expert group/multi-stakeholder platform on Protecting and Restoring the World’s Forests, including the EUTR/FLEGT.

a.Literature review

A literature review was performed to initiate the data collection and to provide a solid background to this Impact Assessment. As the work on this Impact Assessment was carried out largely in parallel to the Fitness Check on EUTR and FLEGT Regulations, to avoid fragmentation of data, the literature review has been a transversal activity within the two exercise, through a flow of information between the Fitness Check and Impact Assessment, where similar issues were considered.

The literature review started with the identification of ‘information and data’ needs for the overall project along with the identification of relevant data sources. The literature review included materials from a wide range of stakeholders, including industry, government, researchers, and NGO. Key data sources for this assignment included:

·Existing policy reports from the European Commission and other public bodies;

·Academic papers;

·Techno-scientific publications;

·Database, in particular data from COMTRADE, COMEXT and EUROSTAT to support the quantitative assessment; and

·Other grey literature, such as position papers, press releases, etc.

The identified literature was subject to a preliminary screening that determined the availability and reliability of information. A final list of relevant references was then identified, allowing a critical assessment of the information gathered.

b.Consultation activities

Following the consultation strategy several stakeholder consultation activities were carried out the results of which have been systematically integrated into this Impact Assessment. (See Annex 2 for a synopsis of consultation activities.)

Feedback to the inception Impact Assessment

The inception impact assessment was opened for public feedback from the 5 February 2020 to 4 March 2020. A total of 99 responses from 23 countries were submitted through the online portal.

As the feedback provided on the inception Impact Assessment is in an open-ended format, to help the analysis of the answers, a semi-automatic, qualitative data analysis software ATLAS.ti was used to facilitate the analysis. ATLAS.ti is a semi-automatic, qualitative data analysis software specifically designed to efficiently perform analysis on underlying constructs, relationships and patterns deriving from any type of open text. To use the software, all responses were translated into English. Based on a sub-set of responses, a group of key themes on which respondents focused, was identified, and complemented by other key words from the policy area. This allowed to produce a descriptive statistics (as reflected also in Annex 2) on a given theme. This was followed by a more detailed analysis of themes to provide a deeper meaning to the descriptive statistics (and to feed into the follow up work).

 Online public consultation

A 14-week online public consultation was carried out on between 3 September 2020 and 10 December 2020. The online public consultation questionnaires was broken into two parts, one general and one more specific with questions directed at more expert stakeholders. The consultation was translated in all EU languages.

In total, 1,194,761 public responses were obtained during the consultation period. This number was driven to a large extent by a campaign carried out by a group of NGOs using pre-filled questionnaires. Of the 1,194,761 responses, 1,193,611 responses have been identified by the European Commission as submitted through the campaign, using a methodology known as “key-collision clustering algorithm”. The content of the pre-filled questionnaire submitted as part of the campaign can be consulted online. This makes the consultation the second most popular in the history of EU consultation.

Once the responses were cleaned of the campaign data, and the final data quality check was run, analysis of the 1,150 unique responses was carried out using Excel. For the analysis of open questions and submitted position papers, ATLAS.ti was used (see above for explanation of the software).

Stakeholder meetings

A series of stakeholder meetings took place virtually, during the Multi-Stakeholder Platform on Protecting and Restoring the World’s Forests. The aim of these meetings was to gather further information on some of the key challenges encountered in the project and it also provided the opportunity to elaborate upon emerging findings. A first series of meetings took place on 1 and 2 October 2020. A second series of meetings took place on 24 and 25 February 2021. On 1 October, 55 competent authorities from Member States gathered, and they were joined by other stakeholder organisations, third-country representatives, international organisations, and EU representatives on 2 October. A total of 103 participants attended the meeting on 2 October. Advanced findings were presented to participants of the Multi-Stakeholder Platform on follow-up meetings on 24 and 25 February 2021. 4 Results of the discussion fed into the Impact Assessment.

Targeted interviews

Interviews were carried out to complement the outcome of the other consultation activities, including the online public consultation, and results of the desk research. Eventually 7 focus groups and 17 individual interviews were carried out covering 49 entities or organisations and 92 individuals. Targeted interviews covered the following categories of stakeholders’: Research, Non-Governmental Organisations, Industries, Third Countries, Member States Competent Authorities, International Organisations and EU Institutions. The criteria for their selection were: the impacts the initiative would have on them if (not) adopted, their expertise and balance between diverging stakes.

The interviews took place either through teleconference conversations or, in limited cases, through written responses. Interview guidance were tailored according to the background and expertise of each of the stakeholder groups, using only open questions. The interview guide developed for teleconference conservations and focus groups was used as a basis for the written responses.

2. ANALYSIS

·Analytical approach

Detailed methodologies for the analysis, related assumptions and impact on robustness of conclusions are described throughout the relevant chapters.

·Triangulation

Triangulation of primary (consultation) and secondary (literature) data was carried out in order to validate the research, through the use of a variety of methods to collect data, with different types of samples and different methods of data collection. Its purpose was both to cross-validate data as well as capture different dimensions on the same topic. The objective was to compare data gathered (in particular from databases such as COMTRADE, COMEXT, Eurostat, and extracted from literature review), perceptions (from interviews and stakeholder meetings), observations (from the online public consultation) and documentation (written evidence from the literature), using transversal analysis and experts’ judgement. Feedback received was reviewed and cross-referenced with responses collected from various engagement methods in order to validate and assess its quality and identify any possible trends and patterns or highlight inconsistencies. This allowed to ensure that the data and evidence on which the assessment is based is good.

·Robustness

There are clear limitations to the analysis, which can be only as strong as the data and evidence behind it. Where assumptions were made in the absence of hard data and/or to allow calculations, the caveats are explained in the Impact Assessment. The assumptions made impact calculation made. The Impact Assessment does not provide precise calculations, it rather provides an order of magnitude of problems and impacts and their expected direction of travel. This provides sufficiently robust information for the decision making process.

Annex 4 Detailed screening of measures

[The notes in this annex are end notes at the end of the document. This formatting issue will be solved.]

1.1    1. Deforestation-free requirement or standard

Measure

A deforestation-free standard that products and commodities linked to deforestation and forest degradation must comply with to be placed on the EU market, as well as a prohibition, in line with EU international commitments 5 , of placing on the market products that do not comply with the standard.

Who does what

The European Commission proposing the standard. The EU would need to define the standard and the criteria behind it (on the basis of a clear and verifiable “deforestation free” definition) and establish a framework/legislative basis in which products that do not comply with the given standard would be prohibited on the internal market.

Member States (public authorities) in the implementation of this standard. This would include monitoring and compliance checks by a competent authority.

Economic operators (businesses) placing products on the EU internal market would have to make sure their products, sourcing and production processes comply with the European standard.

What/ type of instrument

The standard may be accompanied by a binding, regulatory process.

Legal and technical feasibility

Standards are already present in European legislation, suggesting a high legal and technical feasibility (see Regulation (EU) 1025/2012 on European standardisation and the Communication "A strategic vision for European standards"). 6  They are tools that generally aim at achieving a high level of consumer and environmental protection (which is a shared competence of the EU), as well as innovation.

Also, prohibitions of commodities or products according to certain criteria already exist in the EU. For example, the Regulation 1829/2003 on Genetically Modified Food and Feed 7 ). 8 , 9 The EU’s legislation and policy on GMOs is designed to prevent any adverse effects on the environment and the health and safety of humans and animals (in line with Articles 168, 169, and 191 of the TFEU, and the precautionary principle embodied in EU legislation). 10  

A monitoring structure would have to be defined. There are different examples to draw lessons from. In the GMO system, the European Food and Safety Authority (EFSA) conducts the risk assessments on a case by case basis. In the EU rules on pesticide residues in food (MRL legislation), the EFSA sets the level of pesticides accepted and MS competent authorities analyse pesticide residue levels to ensure compliance. 11  In the EU regulation to prevent, deter and eliminate illegal, unreported and unregulated fishing (IUU Regulation, see below), third countries are responsible for issuing catch certificates of vessels under their banner, while MS competent authorities and the Commission control those catch certificates and the monitoring systems in place in third countries. In due diligence systems (DDS), such as the EU Timber Regulation and the Conflict Minerals Regulation, private companies are required to apply risk assessment and mitigation tools to ensure compliance of products with certain criteria, whereas MS competent authorities are tasked with monitoring the actions taken by private companies.

Furthermore, economic operators may face technical constraints to apply the standard in complex and long supply chains where information may be difficult to gather and traceability difficult to attaint. It could also require producers to adapt and shift their supply chains. Depending on the coverage of products and commodities (and the geographic areas in which the latter are grown), economic operators may face difficulties accessing resources that are not linked to deforestation and forest degradation. A potential shift in demand from one sourcing region to another may also affect third countries.

Coherence with EU and international policy commitments and objectives

No issues of compatibility with EU and international legislation were detected. To meet the requirements of the World Trade Organisation (WTO), the measure would need to be non-discriminatory (to avoid an unfair advantage to commodities or products produced domestically, the criteria should apply both abroad and domestically) and be based on concrete, science-based considerations.

Effectiveness

A deforestation-free requirement could be effective, particularly if it is mandatory (and linked to prohibition in cases of non-compliance), and depending on the scope of products and commodities covered as well as the enforcement system in place. As an example based on other policy instruments in place, the EU sets limits on the maximum residue levels (MRLs) for pesticides and other active substances in and on food products that are placed on the market. Out of 91,015 samples analysed in 2018, 4.5% exceeded the MRL, of which, 2.7% were considered non-compliant. 12 A similar level of compliance was found in 2015. 13  

Effectiveness will also depend on the scope of the products and commodities covered and the enforcement system selected (see above legal and technical feasibility.)

Efficiency

The resources required to implement this measure will depend on its design features, such as the scope of products targeted, enforcement mechanisms and the complexity of the standard’s requirements. In other examples of mandatory standards in the EU (e.g. MRLs or GMOs), the EU and MS are responsible for authorising the placement of products (e.g. containing or having residues of certain pesticides or contaminants) on the EU market, and for conducting regular checks to verify compliance. However, compliance checks for deforestation-free products will not be conducted in laboratories. The methods used to verify links between products and deforestation/forest degradation may have implications on the resources needed to successfully monitor compliance with the standard.

Compared to measures based on the legality in the country of origin, compliance with a deforestation-free standard could be relatively more straightforward (see section 4.4), relying on traceability and satellite monitoring tools. In spite of that, private operators and public authorities in charge of enforcement could face a relatively high administrative burden and costs to ensure compliance. This is because economic operators would have to review complex supply chains to be able to trace the commodities that are included in their products. Producers of raw commodities may also face a burden to demonstrate compliance with the standard. Costs for monitoring and enforcing the policy measure could rise as well if a third-party auditor will be involved.

Risks around implementation

Potential risks could include the lack of unanimity on a deforestation-free standard, which could lead economic operators and third countries to challenge the standard chosen by the EU. This sort of difficulty could be overcome by relying as much as possible on criteria that already have the backing of the international community via international organizations (such as the FAO) or international treaties (such as the United Nations Framework Convention on Climate Change, UNFCCC.)

Moreover, it could be difficult to monitor compliance with the standard, including the difficulties to trace the origins of certain commodities. The potentially large scope of products that could be covered by this measure may place a large burden and cost on affected economic operators and can be seen as a risk of implementation.

Leakage concerns (with deforestation and forest degradation shifting to substitutes that are not covered by the standard) may also arise, for example using agricultural lands to produce commodities destined to the EU market and further deforestation of other agricultural production.

Finally, product prices may increase due to the standard’s implementation (particularly if alternative options that are not linked to deforestation and forest degradation are limited). SMEs may have difficulties to fulfil environmental criteria as set out by the standard. 14

Compatibility to be combined with another measure

A standard per se could hardly work as a stand-alone measure. Rather, it will rely on other policy measures that would guarantee enforcement. These could be verification/certification schemes (that would certify some of the requirements of the standard), mandatory labelling (to communicate compliance with the standard), DD (that would task private operators with implementing the standards), and measures relating to trade agreements (where the standard could bind third countries.)

Feedback

A deforestation-free standard was the object of abundant feedback from stakeholders. This was the most popular policy measure (among the 14 proposed) in the open public consultation of the impact assessment, with 74% of respondents considering it “completely suitable” to address the problem of deforestation (higher than any other.) The measure has also received feedback via targeted consultation interviews, position papers and the workshops organized within the Commission Expert Group/Multi-Stakeholder Platform on Protecting and Restoring the World’s Forests, including the EU Timber Regulation and the FLEGT Regulation. This forum channelled discussions on the best options for deforestation-free criteria that the EU should uphold, with many stakeholders voicing support for the criteria of the FAO and those of the Accountability Framework. The EP report calls for setting a uniform standard based not only on legality, but also on sustainability.  15

Overall assessment

Positive. This policy measure is part of all proposed policy mixes in section 5.3.

1.22.    Voluntary labelling

Measure

Voluntary labelling (e.g. similar to organic labels for organic products)

Who does what

The EU would define the label and the deforestation-free criteria on which it will be based, as well as the monitoring and enforcement system, possibly issuing EU wide guidance on the use of the label for those who decide to employ it (similar to the organic food label 16 , 17 ).

Economic operators (businesses) placing products on the EU internal market that seek to apply the label would have to make sure their products, sourcing and production processes comply with the deforestation-free criteria.

Member States (public authorities) would be responsible to monitor (only) those economic operators that decide to employ voluntary labelling.

Consumers would be entrusted to boost demand for deforestation-free products based on knowledge. EU-wide information campaigns might be needed to increase the intake of labels by companies and the consumption of labelled products by citizens.

What/ type of instrument

In the example of the EU organic label, the principles, aims and means of labelling was defined through a binding regulation.  18 , 19

Legal and technical feasibility

There are already a number of labelling systems in place in the EU, such as the EU Ecolabel or the Organic Logo, suggesting high feasibility.

Informing consumers about products that exist on the internal market or that enter the internal market and that have an impact on deforestation and forest degradation is a shared competence of the EU, in line with its environmental objectives. In this sense, the subsidiarity principle would be met. Regarding the proportionality principle, the label must demonstrate that it is relevant, that it can have a positive impact on decreasing deforestation and forest degradation, and that there are no less restrictive means available to achieving the same results. Furthermore, in line with the EU Unfair Commercial Practices Directive (2005/29/EC), environmental claims must be specific, accurate, and unambiguous, and must be supported by evidence. 20

Producers would need to amend their packaging and be able to support the claims they make with evidence, to be presented to a competent authority if/when requested. If certification is involved, certification would be done by certification bodies, while monitoring and supervision would be attributed to public authorities (in MS and third countries) and the EC. In the case of the EU organic label, products go through nearly 60 certification companies that the EU has licensed around the world. The EC supervises these companies to see if they comply with EU rules. Another enforcement possibility would be for companies willing to use the label to be required to conduct DD and mitigate risks along the supply chain according to rules set up by the EU and for MSs and the Commission to monitor enforcement.

Coherence with EU and international policy commitments and objectives

No issues of compatibility with EU and international legislation were detected, although the measure might present a partial overlap with the EU Ecolabel for certain product categories (such as paper).

Otherwise, according to EU legislation, labelling, advertising and product presentation must not be such as it could mislead a purchaser to a material degree (as per the EU Unfair Commercial Practices Directive 2005/29/EC and Communication on EU best practice guidelines for voluntary certification schemes for agricultural products and foodstuffs 21 ).

Additionally, the requirements of the WTO would need to be respected (cf. p. 137 ).

Effectiveness

The overall effectives of the measure will depend on two factors: Company intake and consumer awareness — as well as how much that awareness influence consumption patterns.

For companies, voluntary labelling could be a tool to entice more environmentally conscious consumers by means of distinguishing their products from those of companies without deforestation-free supply chains. The level of acceptance among companies could likely depend on the costs of compliance with the requirements as well as the potential benefits. As an example, around 70,000 products and services, from baby clothes to electrical appliances, carry the EU Ecolabel. The 2017 Fitness Check (FC) of the EU Ecolabel notes that there is higher uptake of the label in countries with strong national and regional labels and that uptake is higher for some product categories than for others (there is limited information as to why this is the case). Barriers to uptake include: costs of compliance, lack of recognition, and lack of awareness.

As for consumers, evidence suggests that they generally trust food-related labelling (which will be relevant for any deforestation-related scheme), particularly when it is based on a third-party certification scheme (as opposed to self-certified schemes). 22 At the same time, consumer knowledge of associated EU rules is often low, and labelling can sometimes confuse consumers. 23 ,  24 Furthermore, the proliferation of both public and private labels adds complexity to consumer choices, a phenomenon known as labelling fatigue. Several experiments in the USA suggested sales of the two most popular coffees rose by almost 10% when they carried a Fair Trade label as compared to a generic placebo label 25 ,  26 .

Efficiency

The costs of the system will likely depend on company intake as well as the compliance and monitoring system put in place.

The FC on the EU Ecolabel notes that the cost is relatively low for MS, and does not highlight a significant burden for companies and the European Commission although the Commission's costs result from communication activities and criteria development/revision, and the latter is time consuming. 27  In contrast, the organic food label has been found to require a lot of manpower to enforce and monitor – the organic food certification system relies on certification by nearly 60 certification companies that the EU licences, that are in turn supervised by the EC through annual audits of all actions undertaken by the certification bodies. In addition, DG AGRI undertakes on-the-ground audits annually. It is reported that this structure requires significant resources for monitoring by the EC. 28 Costs to companies are likely to vary but since this would be a voluntary scheme, only those that consider the cost-benefit ratio to be appealing would implement the measure. 

Risks around Implementation

Low company intake and lack of awareness by consumers — and therefore extremely low impact of the policy measure to curb the EU’s forest consumption footprint — are obvious risks this measure will face. .

There are also risks related to potential loopholes and uneven implementation, if insufficient resources are allocated to monitoring and supervision (both at MS and EC levels). The experience of the organic food label shows that the system is as reliable as the ability of the Commission to effectively monitor certifying organisations and ensure that they comply with the required standards when certifying organic products sold on the EU market.

Compatibility to be combined with another measure

Voluntary labelling would need to rely on other policy measures for ensuring compliance. The measure can be implemented as part of verification systems (with/without minimum requirements for placing on the market based on an EU standard), which can include labelling (and also certification), both public and private. It could also be implemented via a that the companies taking part in the scheme would need to implement, and which public authorities will need to oversee.

Feedback from stakeholders, MSs, third countries and the EP  29

Voluntary labelling was the object of abundant feedback from stakeholders. It was widely rejected in the open public consultation, with 56% of respondents stating the measure was either “not suitable at all” or “somewhat not suitable.” The measure is widely opposed by stakeholders in general, and particularly NGOs, as reflected on the position papers analysed and targeted interviews conducted within this impact assessment. There is broad consensus that voluntary schemes, such as voluntary DD or voluntary labelling, have failed to attain the desired results in terms of reducing deforestation.

The EP report also opposes voluntary labels, stating that policy measures that depend only on consumer choice unduly shift the responsibility to purchase deforestation-free products to consumers. Nonetheless, deforestation-free labelling and certification are considered a potential means to increasing supply-chain transparency.

Overall assessment

Negative.

1.33.    Mandatory labelling

Measure

Mandatory labelling (e.g. similar to nutritional information labels on food products)

Who does what

The European Union would be in charge of defining the content of the label and the requirements for its use (i.e. scope of commodities to be covered, definition of deforestation-free, enforcement mechanisms, as well as EU-wide guidance on the use of the label to support implementation at MS level, possibly issuing harmonised pictograms to be used throughout MSs (e.g. size and design).

MSs (public authorities) would be responsible for implementing and enforcing the legislation, checking that products are correctly labelled. They could also be required to communicate on the new label to support education of the general public.

Economic operators (businesses) placing products on the EU internal market that seek to apply the label would have to make sure their products, sourcing and production processes comply with the deforestation-free criteria. They would be required to amend their packaging to include the new label. Depending on the enforcement mechanism selected, the choice of the correct label to apply would require a verification of their supply chain or it could be done via DD obligations for companies.

Consumers would be entrusted to boost demand for deforestation-free products based on knowledge about their potential impacts on deforestation and forest degradation.

What/ type of instrument

A mandatory labelling requirement would require a binding legislation.

Legal and technical feasibility

Mandatory labels are already implemented in the EU in some sectors such as energy-related products or allergen declarations on food and cosmetic products, which suggests high feasibility.

Informing consumers about products that exist on the internal market or that enter the internal market is shared competence of the EU, in line with its environmental objectives. In this sense, the subsidiarity principle would be met. Regarding the proportionality principle, the label must demonstrate that it can have a positive impact on decreasing EU-driven deforestation and forest degradation, and that there are no less restrictive means available to achieving the same results. Furthermore, in line with the EU Unfair Commercial Practices Directive (2005/29/EC), environmental claims must be specific, accurate, and unambiguous, and must be supported by evidence. 30  The criteria to assign the label must be verifiable and implemented at MS level and by economic operators.  

Coherence with EU and international policy commitments and objectives

No issues of compatibility with EU and international legislation were detected. However, the WTO requirements would need to be respected (cf. p. 137 ).

Effectiveness

Studies show that mandatory labelling on food products has led to healthier food choices and product reformulations by the industry 31 , but their power to nudge consumers can sometimes be seen as limited 32 .

Based on the experiences of other labels, factors that influence the effectiveness of mandatory labelling include consumer awareness about the problem that the label is trying to address (in this case deforestation and forest degradation), as well as awareness about the label (and harmonisation across the EU) 33 . This appears to be a success factor of the energy efficiency label for household appliances (consisting of a comparative scale from A to G). According to a Special Eurobarometer study, the label is recognised by 93% of consumers and 79% consider it when they are buying energy efficient products. 34

Although mandatory labelling may be more effective than voluntary labelling (which is dependent on market uptake), experts are still concerned whether labels alone can deliver on EU deforestation and forest degradation reduction ambitions. 35 , 36 There is also concern that the multitude of existing labels can cause confusion amongst consumers, and that relying on consumer choice shifts the burden of responsibility away from producers. 37

Efficiency

The cost-benefit balance may be problematic due to the need to monitor and audit the use of the label and the wide-ranging products/commodities that the label would have to be placed on. Costs may outweigh the benefits if consumers are not aware of the label and if they do not value its message (as an important decision-making factor in comparison to price)

The efficiency of the measure may be challenged if many products are included in the scope for which low risk of deforestation is expected in their region or product category.

Furthermore, in the context of combining it with a deforestation-free requirement whereby only compliant products could be placed on the market, the labelling would only be used for information purposes, and its costs more difficult to justify.

Risks around Implementation

Monitoring issues are similar between voluntary and mandatory labelling, but mandatory labelling requires a larger quantity of products to be labelled and its mandatory component is expected to increase enforcement needs.

If the labelling scheme’s design relies a lot on the Commission’s monitoring ability this will substantially increase the workload of the Commission. Furthermore, monitoring the enforcement of the labelling requirements will increase MS workload. Both might result in a weak monitoring system, loopholes and fraud. A key issue is how to build up economic incentives for operators to comply with the rules.

Moreover, there is a risk for economic operators to be disproportionately affected.

On the consumer side, there is a risk of overloading them with labels and in consequence, a risk of the label not providing sufficient incentives to consumers. Moreover, it could shift the responsibility away from producers.

Compatibility to be combined with another measure

A mandatory labelling requirement could be implemented as part of a verification system (with/without minimum requirements for placing on the market) based on an EU standard. The measure can also be combined with DD, an IUU-like instrument, or country benchmarking, in support of transparency, communication, and outreach to consumers.

Feedback

Mandatory labelling was the object of abundant feedback from stakeholders. In the Open Public Consultation, 47% of respondents judged the measure to be “completely suitable” to address the issue of deforestation and forest degradation and another 21% considered it “somewhat suitable”.

The EP’s report takes the view that labelling is not sufficient to halt deforestation on its own: “third-party certification and labels alone are not effective in preventing forest and ecosystem-risk commodities and products from entering the Union internal market; […] third-party certification can only be complementary to, but cannot replace, operators’ thorough mandatory DD processes”.  38

Overall assessment

Positive. The measure could be more efficient when combined with other measures (for example mandatory due diligence).

1.44.    IUU like approach

Measure

Public national legality verification schemes, prohibited operators list, country carding system and a potential export ban to the EU (a replication, with the necessary adaptations, of the EU legislation in place for illegal, unreported and unregulated (IUU) fishing)

Who does what

The European Union will be responsible to set up the legislation and relevant provisions. The system will be composed of several parts: deforestation-free criteria; a requirement for producing countries to establish a 'sustainable origin' certification scheme (mirroring the catch certification of the IUU), a monitoring system of the certificate, a list of contravening operators (principle of “name and shame”, also, additional penalties could be attached to being listed) and a country carding system. The latter will allow for the EU to issue formal warnings (yellow card) and to ban from the EU market (red card) products from countries that fail to comply with provisions of the certification scheme. Yellow cards do not have legal consequences but rather trigger a dialogue process between the country and the Commission

Producer countries will need to issue and validate certification, guaranteeing for example the origin and weight of each consignment, the geo-location of the plantation, etc., along with in agreement with a ‘deforestation free’ standard defined at EU level; EU authorities will check these certificates to verify that shipments are lawful.

The MSs will monitor the sustainable origin certification scheme.

Economic operators are responsible for providing making sure their products comply the deforestation-free criteria, for providing the documentation to obtain certification in the country of origin and for trading only with products having the sustainable origin certificate in order.

What/ type of instrument

This would take the form of a new mandatory legislation.

Legal and technical feasibility and proportionality

The EU IUU fishing system is unique in its kind, hinting at some difficulties to replicate the system for the objectives set out in this impact assessment. In addition, the problem of deforestation differs from that of illegal fishing in several key features: a) Production of several key commodities linked to deforestation is much more concentrated in a few countries, making an import ban more consequential; b) There is no international treaty on deforestation setting out obligatory provisions for countries to comply with; c) supply chains associated with deforestation are generally more complex, making monitoring and enforcement more difficult.

However, no obstacle that cannot be overcome has been detected. There is an existing body of international law addressing deforestation and forest degradation and while these are not legally-binding, they could enable the EU to address these issues through regulatory measures.

Coherence with EU and international policy commitments and objectives

No issues of compatibility with EU and international legislation were detected. However, the WTO requirements would need to be respected (cf. p. 137 ). The lack of a multilateral agreement to rely on is not an insurmountable obstacle. .

Effectiveness

The IUU system enjoys a good reputation among NGOs and other stakeholders but there is a lack of precise quantitative information on its effectiveness. The only reports identified related to its performance are from NGO IUU Watch. This factor has limited potential effectiveness forecasts for an adaptation of this system to the forest field (see section 6.6.) It is worth noting, however, that the country card system is credited by DG MARE as having the biggest impact in the fight against illegal, unregistered fishing.

Efficiency

The costs of this system – as compared to DD or public certification, for example – will partially be outsourced to producing countries in charge of establishing robust certification systems that make sure commodities sold within the EU comply with certain criteria. Some economic operators will also have comparatively lower costs as they will only check the certificates already attributed (rather than verifying themselves via due diligence that the bought products comply with those criteria.) The EU and MSs will bear the implementation, monitoring and enforcement costs.

Some information has been identified on the personnel and other implementation costs of the current IUU Regulation (applied to fishing). It is reasonable to assume that an IUU like provision for fighting against deforestation and forest degradation would have requirements in the same order of magnitude, although we do expect efficiency gains due to replicating an existing and successful system.

Risks around implementation

As described above in the feasibility analysis, there are substantial differences between the fishing market and the global product market potentially considered by this EU intervention on deforestation. The risks identified relate to those differences: a) Potential rifts with trade partners; b) challenges before the WTO; c) or the difficulty for the European companies of finding new supply chains if big producers are imposed an import ban.

The current IUU Regulation system for fisheries is seen positively by the Commission and NGO (IUU Watch) as it does not overload European companies and operators with excessive administrative burdens and legal uncertainties generally linked to DD obligations. 39 The system established by the IUU Regulation puts responsibility on third countries to do the necessary reforms and enforcement work.

A key benefit of this measure is that it replicates an existing regulatory mechanism that has already been in place for a decade, from which the Commission, as well as MSs can learn in terms of preparing a legislation and setting up the system.

Compatibility to be combined with another measure

The approach presented in the IUU Regulation could work as a stand-alone measure or be combined with other measures.

Feedback

The IUU fishing approach is not considered as part of the EP report. In the Open Public Consultation, nearly 50% of respondents judged the measure to be “completely suitable” to address the issue of deforestation and forest degradation and another 23% considered it “somewhat suitable”. Feedback from stakeholders in several workshops indicated that the adaptation to the forest field may be challenging but not impossible.

Overall assessment

Positive.



1.55.    Voluntary due diligence

Measure

Voluntary due diligence

Who does what

There are a range of ways a voluntary DDS could be established.

A group or a range of representative economic operators could establish a voluntary framework covering the main provisions and standards of a voluntary DDS, including relevant provisions for monitoring. Design within a stakeholder platform may ensure participation and uptake of the system. Alternatively, the DDC could be designed by the European Commission. The enforcement could relate to the granting of a voluntary DDS status or removing this status in the case of non-reporting. To ensure accountability, a publicly available registry of participating operators would be established.

The European Commission could provide technical support in developing the DD framework principles and reporting requirements to ensure the approach of the voluntary DDS is appropriate and would lead to effective changes.

Economic operators would voluntarily establish a DDS following the given framework and reporting requirements. They would not be legally obliged to set in place a DDS, but would be encouraged to and provided with guidance by the economic operators group and/or the European Commission.

Competent Authorities (CAs) could, depending on the chosen framework, involved as well, i.e. be assigned audit responsibilities, to conduct spot checks confirming that voluntary DDS participation status is being correctly allocated and that the DDS principles are upheld.

What/ type of instrument

A voluntary DDS would be defined under an agreed voluntary DDS framework. Reporting requirements would be standardised. This would not be legally binding.

Legal and technical feasibility

There is no experience to date of WTO dispute cases dealing with similar issues, so WTO risk would be low. Although not legally binding, the voluntary system would still need clarity to ensure universal understanding of the requirements. This would include clarity and narrowness of the definitions of key concepts: e.g. definition of sufficient/good DD, definition of ‘negligible risk’.

Voluntary DD has already been carried out by leading companies, i.e. to fit the UN Guiding Principles for Business and Human Rights or the OECD's DD Guidance for Responsible Business Conduct - two global frameworks that set out broad rules for corporate DD.

Coherence with EU and international policy commitments and objectives 

Operating a voluntary DDS scheme would raise coherence issues with other EU commitments and might neither reflect the strong ambitions set out in the European Green Deal, the new EU Forest Strategy or the new EU Biodiversity Strategy. These strategies all include EU leadership on international action for global public goods and sustainable development goals. The voluntary measures may fall short of the combined objectives in these strategies as it does not guarantee a significant uptake of the DDS.

Effectiveness

Voluntary approaches have shown abundant shortcomings in the past decades of implementation. The most relevant problem might be the level of industry uptake and the incentives it might create for free-riding. A recent report 40 focusing on 500 relevant corporations and financial institutions concluded that 43% of them did not have in place any deforestation commitments. This means companies aiming to clean their supply chains and prevent deforestation and forest degradation are forced to compete on the EU market with companies that do not implement sustainability considerations in their supply chains and face at the same time the increased costs of sourcing sustainably. A study reviewing the effectiveness of more than 150 voluntary schemes suggests the impact of most voluntary schemes is limited, with over 80% performing poorly on at least one performance indicators 41 .

Research also demonstrates that commonly used voluntary DD tools are not very effective at improving respect for rights 42 . For voluntary measures where expulsion is the ultimate sanction but the actual impacts are negligible (e.g. the economic operator can effectively trade regardless), most collective voluntary initiatives are vulnerable to failure. This is also because of the lack of common standards and an inability to effectively monitor the application of the requirements of the scheme. Another problem may be that the added value that the operator gains (the competitive edge or differentiation) decrease as the proportion of operators partaking in the DDS increases. Hence, this may discourage companies from joining the scheme or drive participants to cut corners in order to out-compete one another once again.

Efficiency

In theory, the enforcement and monitoring cost of voluntary schemes should be lower than or similar to that of a mandatory scheme. Due to the measure being voluntary, there would be no enforcement costs for public authorities. The compliance costs of the private sector would be broadly similar to those incurred by a mandatory regime, with the difference that they would apply only to the operators that voluntarily take up the obligation to perform DD. In the DD scheme, operators have to prove that timber placed on the EU market does not come from illegal sources. This can be a challenging exercise and operators may have varying abilities to meet this obligation. In particular, the burden on operators who have not set up a DDS before might be proportionally higher than for larger operators.

Risks around Implementation

The potential inability of operators to collect and reasonably check all relevant information, particularly SMEs who may be expected to have less understanding of the DD requirements and its needs, and therefore uneven and ineffective implementation, are the main risks of this measure. There may also be a risk of different interpretations of the voluntary DDS, if it is not sufficiently clear enough.

Additionally, there is a risk that increasing participation may reduce the competitive differential aspect of having voluntary DDS participation status, and drive companies to cut corners. Given the approach would be voluntary there is a risk of lack of monitoring and enforcement. This could occur if whoever is responsible for monitoring misses resources and/or political will to monitor regular implementation, or if audit checks are not carried out frequently enough. If the voluntary DDS entails high additional costs, operators might be incentivised to under-report the risks associated with their current supply chain.

Compatibility to be combined with another measure

The uptake might increase as a consequence of other measures around consumer awareness and information availability. Consumer awareness may in turn influence demand and likelihood of operators participating in a voluntary DDS. Measures include benchmarking or country assessments (e.g. index) showing which countries are exposed to and effectively combat deforestation, promotion through trade and investment agreements of trade in legal and sustainable products, mandatory disclosure of information (including corporate non-financial reporting) and consumer information campaigns in the EU.

Feedback 43

Voluntary DD was the object of abundant feedback from stakeholders. It was widely rejected in the open public consultation, with 56,9% of the stakeholders considering it “not at all suitable” or “somewhat not suitable”. Overall, the EP assessment finds that “voluntary anti-deforestation commitments have not yet been sufficient”. EP view is that third-party certification can only be complementary to a mandatory DD 44 .

Overall assessment

Negative. The effectiveness is likely to be low.

1.66.    Mandatory due diligence

Measure

Mandatory Due Diligence

Who does what

The European Commission will establish a legislative framework covering the main provisions of a DDS, including relevant provisions for monitoring and enforcement. Key insights and lessons learnt from the DDS under the EUTR should feed the development of a new DDS for commodities linked to deforestation and forest degradation.

Economic operators will be obliged to set in place a DDS able to capture a wide variety of commodities that may be associated with deforestation or forest degradation.



Competent Authorities (CAs) will be responsible for monitoring and enforcing the DDS and will ensure that businesses/suppliers in third party countries provide necessary information to prove the DD requirements. Competent authorities could be responsible to carry out audit checks where economic operators will need to demonstrate their DDS compliance with the official requirements.

What/ type of instrument

A mandatory DDS will be defined under an EU-wide legislation (most likely a Regulation, rather than a Directive), that will further need to be calibrated to the commodities they import and their relevant supply chain.

Legal and technical feasibility

Regulations like the EUTR and the Conflict Minerals already have in place a mandatory due diligence system, suggesting high feasibility.

Coherence with EU and international policy commitments and objectives

No issues of compatibility with EU and international legislation were detected. There is however a wide variety of existing EU standards for DD checks across different scopes, be it either for products (e.g. timber, mineral) or for broader corporate behaviour or provision of financial services. It is necessary to avoid duplication of checks and thus incorporate as many as possible of these schemes within the overarching DDS. The ongoing proposal 45 from DG JUST will have to be considered in this analysis.

Effectiveness

Overall, the effectiveness will depend on many factors. Challenges of implementability undermining the effectiveness of the EUTR have been detected in the Fitness Check. New due diligence designs would need to build on those lessons learnt. Some of those challenges detected relate to uneven implementation, insufficient penalties or difficulties of tracing products to the area.

Effectiveness might also rely on definitions of key terms – e.g. negligible risk and the way MSs and operators will interpret the provisions as DD is understood differently based on the legislative tradition of the country. The successful implementation of the measure relies on effective communication between and data availability to CAs, which is not always given (e.g. communication with customs). In addition, it relies on effective national legal systems to ensure enforcement is taking place, along with prosecution of those breaching the mandatory provisions (which appears to be a challenge under the EUTR DDS).

Efficiency

DDS requirements impose a substantial cost to CAs and enforcement authorities for performing the necessary checks as well as carry out prosecution, as assessed in the EUTR. However, when assessed in terms of share of the trade value that this costs represent, they don’t seem disproportionate.

Due diligence obligations also creates costs for companies being required to create and use these due diligence systems. Depending on the complexity and risks of their supply chains, this costs can be higher or lower. Some mitigating measures, such as simplified requirements for low risk areas, could be conceived. The advantage of mandatory DD vis a vis voluntary DD is that it doesn’t allow for free-riding.

Risks around Implementation

Some MSs have voiced concerns that increased DDS complexity might reduce implementation. There are also concerns that SMEs will find implementation more difficult. As is the case with many policy measures, reliance on effective and even implementation and enforcement across MSs might prove difficult.

An advanced DDS should entail high additional costs, operators might be incentivised to under-report the risks associated with their current supply chain

Compatibility to be combined with another measure

DD mandates are reported to promote the use of certification schemes, and possibly voluntary/mandatory labelling systems. Operating a DDS would also benefit from developed country benchmarks and mandatory disclosures of information.

Feedback from stakeholders, MSs, third countries and the EP  46

Mandatory DD was the object of abundant feedback from stakeholders. It was widely supported in the open public consultation, with 69% of the stakeholders considering this measure to be “completely suitable” or “somewhat suitable”. The overwhelming majority of qualified stakeholders — businesses associations and NGOs — supported a mandatory due diligence regime, although the details of this system vary from one organization to another. The EP report calls for the European Commission to present an EU-legal framework based on a mandatory DD approach to ensure sustainability and deforestation-free supply chains for products placed in the EU market.

Overall assessment

Positive.

1.77.    Mandatory public certification 

Measure

Mandatory public certification

Who does what

The Commission would be responsible for introducing this scheme, and MS would be involved in the enforcement of the measures. Industry would have to comply with certification in order to trade its products in the EU (ban for products without certification). The roles in the establishment and functioning of the scheme would be as follows:

The EU establishes deforestation-free criteria and a product scope and requires that all products within the scope sold in the EU should comply with the criteria. Products that do not comply with the criteria are not authorised to be placed on the EU market.

Member States or third countries could apply for the EU to review and approve mandatory public certification systems on a country level. The approval would be contingent on the reliability of such a system in ensuring compliance with the requirements of the EU policy intervention, in particular the deforestation-free definition. This would include specific requirements in terms of transparency and reliability.

Another possibility would be for the EU to outsource the verification that the products meet these criteria to a public body or one of its agencies, for example the European Environment Agency. The EU controls the quality and reliability of the certification.

Individual companies seek public certification for their products prior to placing on the market. Financial support can be granted for SMEs. A degree of self-certification accompanied by submission of information could be considered.

What/ type of instrument

Mandatory legislation.

Legal and technical feasibility

As such a mandatory certification requirement should meet the subsidiarity criteria.  
Regarding the proportionality principle, it will be necessary to demonstrate that a mandatory certification scheme would be relevant and would have a positive impact on decreasing deforestation and forest degradation, and that there are no less restrictive means available to achieving the same results.
 One key issue with certification is the challenge of monitoring, disclosure and enforcement. A recent study by Bager et al on political feasibility for EU policy options gives this policy option a Medium score on advocacy (actors supporting a given policy option), medium score on institutional complexity, and low score for cost. 47

Coherence with EU and international policy commitments and objectives

No issues of compatibility with EU and international legislation were detected, although the measure falls under the scope of the WTO TBT Agreement. The latter potentially restricts the scope of natural resources sustainability certification systems. Developing countries increasingly see certification as a de facto barrier to trade and have been quick to voice their concerns in the WTO deliberations, particularly those by the Committee on Trade and Environment. In order to respect the WTO requirements mentioned above (cf. p. 137 ) voluntary certification should inform consumers about risks to deforestation/forest degradation in regions (as opposed to countries) that are prone to such risks, and domestic (EU) deforestation/forest degradation should be covered as well.

Effectiveness

It will very much depend on the type of enforcement system selected. In the case of national systems that are approved by the EU, it will also rely on the willingness of third countries and member states to set up their own public certification systems. If a central authority was to be given the role of certifying, appropriate resources would be needed.

Some previous examples could be used to assess the potential effectiveness. The effectiveness of the car safety related legislation has been found to be credited for the large reduction in fatal and serious injury risk amongst car occupants, followed by measures targeting drink-driving and road safety engineering measures. 48

Efficiency

Certification can be a complicated and costly process and resources expended to certify operations and to support the various schemes’ managerial structures could be used for other ends. Monitoring would be assumed by public administrations rather than private companies, such as in the due diligence system. An EP analysis notes that while policy options including mandatory certification are the most costly, the costs remain overall proportional when considering overall GDP share.

Risks around Implementation

Countries may not be willing to set up national certification systems. If, on the other hand, it relies on an EU public body and its monitoring ability, this will substantially increase the workload potentially resulting in a weak monitoring system, loopholes and fraud if no adequate resources are given. There are also challenges in the implementation due to the fact that the mandatory certification standards are a ‘de facto ban’ for those products that are not certified. 49

Suppliers incur both direct and indirect costs in pursuing certification. Direct costs include those associated with the certification process – such as the fees paid to certifiers to conduct initial assessments and subsequent audits, hold stakeholder consultations and prepare reports. Achieving certification may also require investments in machinery, staff training, infrastructure and logistics to comply with the certification standards; these indirect costs could be much higher than direct costs, depending on the gap between the existing quality of management and that required to meet the certification standards.

Compatibility to be combined with another measure

This measure is compatible with other measures.

Feedback from stakeholders, MSs, third countries and the EP  50

Mandatory public certification system was the object of abundant feedback from stakeholders, who approved it by the majority. 67% of them think the measure to be “completely suitable” or “somewhat suitable”.

Corresponds to the EP report policy option 2 ‘mandatory certification standards’ and policy option 3 ‘mandatory certification standards with DD’. The EP analysis assessed the effectiveness of measures containing mandatory certification standards and noted that these measures were the most effective in eliminating deforestation and associated carbon emissions. It estimated that avoided deforestation due to reducing EU imports of commodities associated with deforestation would result in 197 500 hectares of avoided deforested land and 56 million tonnes of avoided CO2 emissions. 51  

Overall assessment

Positive (option 3)

1.88.    Private voluntary certification systems either new or those already in place

Measure

Private voluntary certification systems, new and the ones already in place

Who does what

European Commission would guide the development of private schemes by ‘encouraging’ such development in a political declaration (e.g. COM DOC).

MSs could also be required to communicate on the existence of certification schemes to further disseminate their use to the general public.

Economic operators would voluntarily decide whether or not to amend their packaging to include the information on certification and go through the whole certification process, which would require a verification of their supply chain.

Consumers would be entrusted to boost demand for deforestation-free products based on knowledge about their potential impacts on deforestation and forest degradation.

What/ type of instrument

A non-binding instrument would be sufficient for this measure as the Commission would only ‘encourage’ such private / voluntary schemes.

Legal and technical feasibility

No legal instrument would be required for this measure. There are many existing voluntary private schemes and more could be created without technical limitation.

Coherence with EU and international policy commitments and objectives

No issues of compatibility with EU and international legislation were detected, although non-EU countries increasingly see certification as a de facto barrier to trade. In order to respect the WTO requirements (cf. p. 137 ), .

Effectiveness

There are numerous concerns about the effectiveness of this policy measure. The first, as with any other voluntary system, is the risk of minimal uptake by companies and the potential incentive for free-riding.

Second, there is abundant literature on certification schemes’ shortcomings in terms of governance, transparency, clarity of standards, reliability of monitoring systems, etc. The consensus is that these schemes on their own have not been able to provide the changes needed to prevent deforestation. The EP study notes that the effectiveness of many voluntary commitments remains to be established, and results are non-conclusive on whether deforestation is actually reduced. Over the past years, concerns have been raised over the efficiency and integrity of chain of custody (CoC) systems. Some see these systems as open to fraud given that certified companies may easily mislead their auditors although the audit is conducted with the greatest care and according to all procedures. A company may be selling products containing a volume of “certified” timber material that exceeds the volume of certified raw material that they are buying. The current CoC systems seem to only work for companies not committing deliberate fraud. Concerns about the integrity of CoC systems are mounting, and therefore discussions over this gap in the CoC systems have grown in strength in recent years.

Efficiency

Certification will only represent a cost for companies using the systems. The cost-benefit balance could in any case be problematic because the costs of monitoring and auditing for certification may outweigh the benefits if consumers are not aware of the certification scheme and do not value its message. For producing companies or smallholders willing to get certified, these systems can be complicated and costly. These costs can be prohibitive in particular for SMEs that could resist going through the certification process on this basis. Many private certification schemes already exist however, so the encouragement of and awareness rising about pre-existing certification schemes would not be as costly as implementing new ones.

Risks around Implementation

Since economic operators have the choice of being certified or not, businesses who do not employ these certifications might be affected in a disadvantageous way. Some companies might also have a harder time tracing their supply chain (e.g. products using palm oil) in comparison to others (e.g. coffee), depending on their supply chain’s length and complexity. For instance, a manufacturing company producing lotions which include a small portion of palm oil might be less familiar with suppliers compared to a coffee company which sells the commodity directly in a less processed state.

There is an important risk that producers around the world might respond by creating their own national certification schemes, as happened in reaction to the FSC. 52  

Another challenge of private certification is the competition it creates with other schemes including public certification schemes. This can undermine the effectiveness of some schemes, or at least challenge its implementation as shown in the context of the FLEGT.

Particularly important are also definitional issues and internal variations in definitions among the schemes (e.g. on ‘what is a forest?’ and ‘what is deforestation?’). Weak thresholds or unclear definitions can allow for compliance-creep and make verification difficult. The challenge is difficult to work with, and stricter definitions may just lead to some companies opting out or not seeking certification in the first place.

Regarding issues for SMEs, first movers who shape the rules of certification schemes can tailor the provisions to match their technical and operational requirements, leaving late movers with higher switching costs. This can seriously disadvantage SMEs in developing countries where low labour costs and low capital investments may serve as the basis of an operation’s cost advantage in the market. 53

One main concern with certification of individual producers or supply chains is that they fail to see the full context and surroundings. Even if most agricultural farms in an area are certified, land tenure can still be weak, poverty increasing, and legal and illegal deforestation taking place. To accommodate this, a few certification schemes provide add-ons, such as ‘RSPO NEXT’ that includes a voluntary addendum focusing on avoiding deforestation and protecting indigenous people. Conceptually, recent thinking talks of a Jurisdictional Approach to Zero Deforestation Commodities (JA-ZDC) in which the supply chain certification is expanded to cover the entire administrative region or unit that it is situated in.

Compatibility to be combined with another measure

Yes.

Feedback

The measure got rather negative reactions in the open public consultation. Almost 40% of the widely responding stakeholders considered “Private certification systems, new and the ones already in place in the EU market” as “not at all suitable” or “somewhat not suitable”. The EP report calls to not consider voluntary (private) certification measure as these are seen as insufficient. 54

Overall assessment

Negative.

1.99.    Benchmarking

Measure

Build benchmarking or country assessments (e.g. index) rating countries according to deforestation and forest degradation

Who does what

The European Commission: would need to establish the criteria for benchmarking a country’s performance; collect and process data; and publish results. Countries would receive a score, which could then be compared against other countries. A review of the criteria at a set period of time (e.g. 2 years) and updated data would need to be collected to ensure benchmarking and/or country assessments represent the existing scenario. The quality and accuracy of information may need to be evaluated, as well as the enforcing the provision of information from third countries and/or producers.

Others: Depending on how the assessments are conducted and then used, other stakeholders may be involved (e.g. MSs providing evidence or assessments).

What/ type of instrument

Depending on the effects of the benchmarking considered, the measure could be a non-binding/non-regulatory instrument or a binding regulatory instrument.

Legal and technical feasibility

The feasibility and proportionality would vary based on the effects of the benchmarking (i.e. information purpose vs access to EU market). For this measure to be a workable option, the data on which the benchmarking is based would need to be transparent, objective and scientifically-based.

Coherence with EU and international policy commitments and objectives

No issues of compatibility with EU and international legislation were detected. To meet the requirements of the World Trade Organisation (WTO), the measure would need to be non-discriminatory (to avoid an unfair advantage to commodities or products produced domestically, the criteria should apply both abroad and domestically) and be based on concrete, science-based considerations.

National forest monitoring may already exist in some countries. The OECD also undertakes Environmental Performance Reviews of individual OECD countries, 55 where assessments of a country’s progress in achieving environmental and sustainable development objectives are reviewed, with elements such as peer reviews included.

Effectiveness

Whilst there is limited evidence concerning the use of benchmarking for policies relating to deforestation, the application of the IUU fishing regulation country carding system is thought to be the most relevant tool in providing incentives to country exporting to the EU but also for those not exporting to the EU that do not want to lose the possibility of future trade partnerships. In addition, dialogues opened as part of the red carding system are found to further the knowledge and understanding of the IUU fishing regulation. 56

The measure’s implementation could identify and propagate best practice. Benchmarking or country assessments would also enable the ranking of countries and would be available to all stakeholders, which would facilitate consumer choice and have the potential to impact decisions made at global, regional and national level surrounding deforestation and forest degradation.

Efficiency

Regarding costs, if information is readily available through existing monitoring and data collection processes, costs may be relatively low, compared to if new monitoring and data collection approaches had to be undertaken. Costs will be associated with the identification and review of criteria, benchmarking methodology and publishing of the compiled information. Information will also need to be updated on a regular basis to ensure accuracy of a country’s assessment/benchmarking which will lead to additional costs.

Risks around Implementation

The burden placed on the European Commission (and MSs) for compiling the assessments could be manageable, with the country assessments needing to be updated regularly. The risks are more around the criteria and thresholds selected to benchmark countries and the potential diplomatic issues that those decisions may entail. Objective, transparent and science-based data to underpin the benchmarking system could be appropriate risk mitigating tools.

If country assessments are used to impact decisions concerning trade, such an application may require an assessment of WTO compliance. Further investigation into the criteria which could be used for benchmarking and the intended use of the information is required for greater consideration of the benefits.

Compatibility to be combined with another measure

This measure is likely compatible to be combined with other measures and in theory, this could complement any measure by providing some additional information / incentives to the overall measure.

Feedback

“Benchmarking or country assessments” were the object of abundant feedback from stakeholders, who by their majority approved these measures. 55% considered it to be “completely suitable” or “somewhat suitable”. The EP report does not consider benchmarking measure.  57

Overall assessment

Positive. Likely useful as a combination measure.

1.1010.    Promotion through trade and investment agreements of trade in legal and sustainable products

Measure

Promotion through trade and investment agreements of trade in legal and sustainable products

Who does what

The European Commission will be responsible to set up the trade and investment agreements with third party-countries. Furthermore, the European Commission could improve effectiveness of Sustainable Development chapters to included deforestation-free commitments, the include Trade and Sustainable Development (TSD) provisions and promote ‘Sustainable Forest Management' in EU Free Trade Agreements (FTAs)

Economic operators and third-party countries would be responsible for providing the documentation to obtain benefits from FTA.

What/ type of instrument

International Trade Agreements including FTAs.

Legal and technical feasibility

The largest constraints to trade policies might be political rather than legal. There is an existing body of international law addressing deforestation and forest degradation and while it is not binding, it does provide a legal basis for the European Commission to act. Most FTAs hold sustainable development provisions on sustainability and environmental governance, hence set a good frame for addressing deforestation. TSD chapters envisage trade and investment as a means to support and pursue sustainable development objectives and include provisions on the conservation and sustainable management of biodiversity.

A recent report from the EP considered a range of possible trade related options for instruments to halt deforestation and forest degradation, these are declined at unilateral, bilateral and multi-lateral levels 58 .

Coherence with EU and international policy commitments and objectives

No issues of compatibility with EU and international legislation were detected. However, the WTO requirements would need to be respected (cf. p. 137 ).

Recent EU trade deals, including the EU-Mercosur provisions on trade in goods, set out that ‘environmental measures, such as measures taken to implement multilateral environmental agreements’ fall within the general exception, as such we consider this is coherent with other trade legislation.

Effectiveness

TSD has been under scrutiny recently with criticisms highlighting it lacks an enforcement mechanism and therefore had little impact on sustainability. More ambitious implementation has been supported by many stakeholders. An increasing number of experts are also of the opinion that, in order to be effective, the sustainability related provisions of EU trade agreements should not be dealt through a separate process but that they should be part of the formal dispute settlement mechanism between the trade parties. 59


The existing evidence indicates that the assessment of environmental impacts linked to EU FTAs is not (yet) able to treat the environment with the comprehensiveness and robustness it requires. Consequently, dedicated efforts are needed to ensure that the information underpinning EU FTA negotiations and implementation can correspond to the challenges linked to trade liberalisation. 60

Efficiency

Trade agreements’ negotiation costs vary but remain limited to administrative costs for negotiating (including travels) and developing supporting studies. Application costs depend on the provision’s impacts on business. There could be no costs for business for clauses dealing (exclusively) with general commitments, information exchange and dialogue. 61 These would include adding provisions regarding sustainability in FTAs, and possibly re-negotiating trade agreements with third-party countries.

No comprehensive overview of trade agreement negotiation costs has been identified; however, the CETA trade agreement between the EU and Canada was reported to have cost a total of EUR 1,031,452.26. This estimate covers the 2009-2016 period. 62

Risks around Implementation

The inclusion of commitments to improve trade in deforestation-free produced commodities and products and of provisions for dialogue and cooperation is clearly feasible; several new FTAs already include them. Negotiating reductions in tariffs for sustainably produced commodities would be distinctly more complex but less so at a bilateral than a multilateral level. 63

Some of these agreements are very lengthy to negotiate and adopt, leading to even longer time before results are visible (e.g. MERCOSUR trade agreement took c. 20 years to agree).

Compatibility to be combined with another measure

Bilateral Trade Agreements related measures are compatible with all other measures.

Feedback

This measure was the object of abundant feedback from stakeholders, who mostly approved it. 75% of the stakeholders consider it to be “completely suitable” or “somewhat suitable”. The EP report does not consider trade agreements as a separate measure / option.  64

Overall assessment

Negative for the aims of this initiative.

1.1111.    A VPA-like approach in combination with possible legislative measure(s)

Measure

Development and cooperation assistance to producing countries

Who does what

The European Commission and third countries engage in negotiations regarding the design of a licensing system certifying that products exported to the EU comply with certain requirements agreed between the EU and partner countries, inspired by the Voluntary Partnership Agreements of the FLEGT Regulation.

Stakeholder consultations are organised to define the exact scope of products to fall under the scheme as well as a set of EU level defined sustainability criteria with which products need to comply in order to be certified by the product assurance scheme.

VPA countries are called to set up a robust and credible assurance scheme including effective supply chain controls and mechanisms for verifying products compliance with the criteria set earlier

An independent party is appointed to conduct audits to assure the proper functioning of the assurance scheme.

Exporters of relevant products need to certify them before exporting to the EU.

What/ type of instrument

Voluntary Partnership Agreements (VPAs)

Legal and technical feasibility

No issues related to legal feasibility identified at an EU level. Similar to the functioning of the existing scheme set up by the FLEGT for timber-product, conducting VPAs for a wider scope of products should be possible. However, in contrast with the FLEGT approach, the different viewpoint taken focusing on the sustainability of products rather than on their legality in each of the partner countries might cause internal coherence issues as legally produced products would not necessarily meet the sustainability criteria set. Furthermore, the question is, how these criteria would interplay with the criteria defined at the EU level, since it is not clear what would be negotiated.

Experience from the timber-product VPAs highlights the difficulties entailed not only in concluding VPA agreements but also in developing and implementing a product assurance system afterwards. In the 15 years of implementation of the regulation, only 15 countries have engaged in the VPA process at all (implementing and negotiating), only 7 have signed VPAs and only one (Indonesia) has and operating system and reached the phase of issuing FLEGT licences. For the countries which have not reached licencing (14 out of 15), but are still covered by the EUTR, the MSs’ CAs stated that often it is more difficult to gather the necessary information for the EUTR implementation than in non-VPA countries.

Most importantly though, the current VPA scheme of FLEGT has resulted in a very poor coverage of EU timber-based imports having no effect on the grand majority of EU imports. As such a large fraction of relevant imports to the EU is not captured by the VPAs while the investments and efforts at EU level are important. Not all potential partner countries were willing to engage in this kind of negotiations.

Coherence with EU and international policy commitments and objectives

By focusing on legality only this measure would fall short of addressing the central challenges at the EU level such as protecting biodiversity and long-term decarbonisation.

While the current experience with FLEGT focusing on timber legality has brought no conflict with WTO, an approach based on a set of EU-defined sustainability criteria may be more challenging to uphold against WTO rules. In specific, in the absence of a globally accepted definition of sustainability production criteria, a set of sustainability criteria defined unilaterally by the EU can be challenged as unevenly discriminating against imports from specific countries.

Effectiveness

The overall global effectiveness of the FLEGT approach to VPA agreements is assessed as very low.

With VPA negotiations initially taking too long to conclude, the import volumes from all VPA-engaged countries represents about 7.5% of the total EU imports of relevant products. 65  Hardly culminating in a functioning TLAS (functioning only for Indonesia currently) and eventually covering only a fraction (3%) of EU timber-based product imports, the overall footprint of the approach in tackling EU-induced deforestation is assessed as being marginal.

Moreover, in the absence of a functioning TLAS, there is no indication that the VPA process leads to either a reduction of illegal timber harvesting activities or a reduced deforestation rate in these countries: the engagement in VPA agreements has not necessarily led to a reduced risk-profile for illegally harvested timber for most of the partner countries.

The most successful example of implementation of the VPA agreements when it comes to the FLEGT Regulation precedent is the agreement concluded with Indonesia, the only country that is currently fully implementing the FLEGT VPA agreement by means of issuing legality certificates for timber products has improved access of its products to the EU market. Nevertheless, even in the case of Indonesia, the proper functioning of the agreement has been jeopardised in the past by political developments in the partner country as overall there is no means of guaranteeing that implementation of the VPA by partner countries is in line with the agreement.

Given the broader scope of products addressed under this new measure, and the continuing decline of the EU as a key importer globally, it is expected that the conclusion of negotiations might be an even more challenging and long-term process. Similarly to FLEGT, it might be challenging to conclude VPAs that cover a significant part of the EU imports of relevant products and problematic to assure a continuous correct implementation by the partner countries.

Efficiency

The implementation of the, usually lengthy, FLEGT VPA negotiation processes with partner countries is reported to require a significant amount of resources from the European Commission while, as seen earlier, the process hardly culminates in the development of a functioning TLAS.

Commission data from 2015 shows EU and MS expenditures close to €620m spend on the VPA processes (covering a period from 2003-14). Given only 3 % of EU import is so far covered by a FLEGT license, it appears much cheaper (per unit volume of imports) to place a requirement on EU market operators to ensure legality of imports (i.e. through EUTR) relative to seeking to put in place licencing agreements with multiple exporting countries (noting the implicit assumption that this equates coverage of imports to effectiveness of tackling illegal logging.) The cost of reaching agreements on broader product scopes will possibly be significantly larger.

Risks around Implementation

Even when considering partner countries willing to enter in VPA negotiations, these are not guaranteed to reach a conclusion (in a reasonable timeframe) or even when they do so, to be implemented as per the agreement. Getting partner countries to agree to an EU-definition of sustainably sourced products will be an additional negotiation challenge as this might be conflicting with their definition of legal timber. Eventually this approach does not guarantee that a good part of the EU imports of products causing a deforestation risk are eventually covered by the VPAs.

Additionally, local regulation might evolve to undermine the implementation of the Regulation (e.g. allowing the legalisation of confiscated illegally harvested timber).

This policy measure, if applied in the deforestation context, would need to involve an approach in which an EU-level definition of sustainability of production conditions for products related to deforestation. This is different from the VPA approach implemented in the FLEGT where the emphasis is placed on the legality of timber products, a definition that can differ from country to country.

It is not guaranteed that the main EU trading partners of the selected products will have any interest in entering a VPA agreement with the EU. The EU’s relatively reduced importance as a trade partner globally is likely reducing the incentives of trade partners to enter into a VPA, reducing thus the overall potential of the VPA approach.

On the benefits side, for the countries where an assurance scheme is eventually installed, there is the opportunity to certify the origin of products exported to the EU.

Compatibility to be combined with another measure

For this measure to produce an impact, it would have to be combined with demand-targeting measures. Once the standards are defined at the EU level, however, the question arises on what would actually be negotiated in this kind of agreements.

Feedback

This measure was not amongst those evaluated by the open public consultation. The EP report mentions VPA agreements as a possibility; however, it does not develop on this. The EP report does not take into account previous experience nor is it based on a cost-benefit analysis.  66

Overall assessment

Negative. Even in combination with demand-side measures, this measure seems to be a low-ranked option for reducing EU-induced deforestation.

1.1212.    Mandatory disclosure of information (including corporate non-financial reporting)

Measure

Mandatory disclosure of information (including corporate non-financial reporting)

Who does what

Companies: would need to report information linked to deforestation and forest degradation which will require an input of resources. A process will need to be set up to collect and store the information. It could benefit those companies who have already engaged in disclosing and being transparent with such information. 67  

CAs: would need to ensure companies provide the required information and enforce this measure at national level. Therefore, they would need to set up a system/the tools to disclose information and information would need to be checked/audited/monitored by a CA to ensure that the correct information is being reported. These actions require vast input of resources. The Feasibility Study suggests that “a template for the disclosure should be developed to ensure that specific and comparable information is provided.”

The European Commission would need to manage the regulation and set out the format and elements of reporting.

What/ type of instrument

A mandatory requirement to disclose information would require regulatory, binding legislation.

Legal and technical feasibility

Existing EU legislative acts require companies to disclose certain information on environmental protection (and other areas). For example, Directive 2014/95/EU of the EP and of the Council 68 (the Non-financial Reporting Directive). It has been suggested that a revision of Directive 2014/95/EU could introduce standards for deforestation risk or impact (Bager et al. 2020), with the EP resolution. It also recommends that the Commission ‘promotes the integration of forest-related considerations into corporate social responsibility’. Currently, EU rules on non-financial reporting only apply to large public-interest companies with more than 500 employees. This covers approximately 6,000 large companies and groups across the EU.

An existing initiative for a legislative proposal on substantiating green claims 69 suggests that companies could substantiate their environmental claims using the EU Product and Organisation Environmental Footprint (PEF/OEF) 70 . This has the potential to be applied to this measure as a method for companies to report and disclose information. Regarding timescales, these are likely to be an annual disclosure and included as part of companies’ annual reports. The Feasibility study also advocates for the mandatory disclosure template to integrate content and elements from the Soft Commodities Forest Risk Assessment Tool commissioned by UN-REDD for investors 71 . Key commodities could also be targeted.

The Feasibility Study highlights that some banks and financial institutions already have guidelines and voluntary commitments, however these are of limited effect. It is also reported that recent assessments show a low commitment in the financial sector to current initiatives, and therefore suggested that this measure will contribute to creating public and peer pressure on investors to proof investments, with the expected behaviour change linked to reducing deforestation. 72 A balance between business confidentiality and practical feasibility will also be needed.

Finally, feasibility depends on the level of detail required and the number of inputs based on the scope of the measure. Existing methods to report under the Non-financial Reporting Directive are flexible, and European and national guidelines have been provided to help companies produce their statements. For example, the UN Global Compact, 73 the OECD guidelines for multinational enterprises 74 and the ISO 26000. 75 The European Commission has also published guidelines on reporting climate-related information in 2019, 76 and guidelines to help companies disclose environmental and social information in 2017. 77

Coherence with EU and international policy commitments and objectives

The reporting itself should not be considered as a barrier to trade by the WTO, however any restriction placed on investments could be, particularly if these are investments from specific countries/areas.

Effectiveness

It is questionable whether information requirements imposed on investors will actually result in reduced or halted deforestation and forest degradation. The scoping of the size of investments/ operators /companies included would need to be determined and may have an impact on effectiveness.

Whilst compliance checks and verification that information has been disclosed may increase effectiveness, this will also increase the administrative burden. The measure will create public and peer pressure on investors to proof investments, rather than avoiding deforestation itself. It therefore requires behaviour change to actually reduce/halt deforestation and forest degradation.. The regulating of the investments themselves or banning certain investments may result in a greater impact/meeting of objectives, but such a measure would have its own downsides and implications (outlined in the Feasibility Study).

Efficiency

This would not be a very efficient measure because it would trigger administrative costs for very uncertain benefits.

Risks around Implementation

If SMEs are included in the measure and required to report, there is the risk that the administrative burden may outweigh the achievement of reducing or halting deforestation or forest degradation. The Feasibility Study also highlights the risk associated with business confidentiality, should a high level of detail be required to be reported on.

The commodity linked to the investment could not be produced on land or facilities located within risk geographies and it is suggested that both illegal and legal deforestation are included in the reporting of risk and mitigations taken. Whilst such investments taking place in risk geographies would not be prohibited under this measure, the information on this investment must be reported to the European Commission, and likely published. The Soft Commodities Forest Risk Assessment Tool is comprised of three categories (policy scope, policy strength and implementation, monitoring & reporting) and has 18 individually-weighted indicators, presented in the footnote. 78 Benchmarking can also take place using such a system, so that financial institutions (and other actors) can be ranked against one another.

Companies already engaged in reporting and transparency activities would benefit, as reporting would likely already being accounted for in their business model.

Compatibility to be combined with another measure

This measure can be combined with other measures, such as voluntary DD, voluntary and mandatory labelling, as well as provide some support/be supported by promotion through trade and investment agreements of trade in legal and sustainable products.

Feedback

This measure was the object of abundant feedback from stakeholders. Their opinion on it was mostly positive with 70.7% of them considering the measure as “completely suitable” or “somewhat suitable”. The EP report does not consider mandatory disclosure in its policy options.  79

Overall assessment

Negative. Likely not effective as a standalone measure, as whether its implementation will result in achieving the objectives is uncertain. Some elements of this measure may be included in the revision of the Non-Financial Reporting Directive.

1.1313.    Consumer information campaigns in the EU

Measure

Consumer information campaigns in the EU

Who does what

The European Commission would be in charge of defining an EU wide model. An EU wide campaign declined in all EU languages could also be implemented.

MSs would be in charge of running campaigns.

Consumer awareness would be raised through education and awareness campaigns.

What/ type of instrument

A non-legislative instrument would involve awareness raising campaigns and education on sustainable diet, health/nutrition and consumption, e.g. about meat and dairy alternatives, reducing unsustainable consumption of commodities and products.

Legal and technical feasibility

It is legally feasible to introduce education campaigns, these are used often at EU level to guide consumer behaviour. Every year, the European Commission's Civil Protection and Humanitarian Aid Operations runs high impact communication campaigns to raise awareness and enhance understanding and support of humanitarian aid values among the EU citizens. The campaigns also inform citizens about the EU’s role in civil protection. These can be done for sustainable consumption of food fighting deforestation. On average, a recent study on sustainable food found that most consumers find that their government is not doing enough to encourage/ promote food sustainability. (BEUC, 2020)

Implementation of this option would be straightforward - campaigns can be run through regular advertisement (i.e. posters), social media, education in schools, TV, Media and so on.

Coherence with EU and international policy commitments and objectives

Introducing information-based campaigns can complement other policies to spur sustainable consumption. Consumer information and education tend to be non-invasive policy instruments which do not conflict with other policies.

Effectiveness

In terms of the success of campaigns to promote greater consumption of fruit and vegetable, an evaluation of the five-a-day campaign in the UK has shown that, on the one hand the message remains one of the most memorable and simplest diet related advertising in the country, but on the other hand, a decade after its introduction only about a third of UK adults consume five portions of fruit and vegetables per day. Evidence also shows that consumer choices are not only made based on best available information, but consumer behaviour is constrained and formed by many actors and aspects which are together referred to as ‘food environment’, and include e.g. the choice architecture (i.e. the way in which food choice is presented to nudge consumers towards preferred choices), norms and conventions, cost, convenience, and habit. For this reason, information provision, fact-based education, and awareness campaigns are on their own insufficient to achieve the required behavioural change towards sustainable consumer choices. 80  

Efficiency

Costs of a campaign, depending on its scope, type of media utilised, length and reach, vary greatly. An example is "Stoptober" for smokers, a campaign launched in 2012 by the UK government. The campaign costs were £5.8 million in total and the breakdown as follows: Media advertising (television, radio, press, digital, outdoor, media partnerships) £3380,000; Public relations activity £70,000; Local and regional activation of the campaign among participating organisations including the national Stop Smoking Services £500,000; Fees for development and fulfilment of all creatives and products including advertising, website, and digital tools £1820,000; Follow on communications £30,000. This campaign led to more than 300,000 smokers to try to quite in October 2012, with the overall estimate of additional past-month quitting attributed to the campaign being 4.15%, and the incremental cost-effectiveness ratio being £557.90 for the population, suggesting that the campaign was efficient. 81


To implement an effective awareness campaign at the European level, several aspects must be considered: the content, the messenger, the choice of media and tone; targeting a specific audience with a specific message, as it is cheaper and more effective than extensive advertising campaigns. It is important to be able to identify key consumer segments and markets for tailor made information campaigns and adapt campaigns by using relevant communication channels (i.e. social marketing websites for younger consumers). Furthermore, information campaigns are in general more costly to implement than tools such as an environmental tax or product standard. Awareness campaigns are usually short-term, media-oriented actions that focus on a specific issue. Despite their high initial implementation costs, awareness campaigns can be quite effective under certain conditions. Research shows that rather than governments alone launching an information campaign, joint initiatives can be particularly effective. This is because the partners can often more effectively communicate with target audiences, drawing on specific experiences, resources, and knowledge. Collaboration with NGOs could render information campaigns more effective as NGOs usually have in-depth knowledge of local and/or specific communities. 82

Risks around Implementation

The behavioural approach may lead policy makers into competition with commercial marketing. Most actions targeting consumers therefore require careful adaptation, which can vary according to the country or even by region. This is an obstacle to centralized European action on consumer behaviour. Moreover, the social incentives for sustainable consumption often develop at the local level or by the action of communities of citizens. 83

Otherwise, there are not many risks associated with information campaigns. Benefits of information campaigns can include the generation of widespread interest in the issue of deforestation and sustainable consumption. Most importantly, studies have shown that increased awareness also leads to increased acceptance to other policy options on behalf of consumers. Awareness-raising and information campaigns targeted at a wide range of stakeholders including farmers, food providers, restaurants and retail (for example lifelong learning schemes for farmers and making citizens aware of the real prices of food) are key. Behavioural change campaigns can be used to reinforce and propose morals associated with food. 84

Compatibility to be combined with another measure

Education and information do not have to be used as stand-alone policies, in fact evidence has shown that these alone are not enough to change consumption patterns. They should be complemented with other proposed policy options

Feedback

The measure as not been addressed in the EP legislative report.

Overall assessment

Negative.

1.1414.    Green Diplomacy

Measure

Green Diplomacy

Who does what

The European Commission will be responsible to promote sustainable forest management through green diplomacy internationally.

NGOs and International Organisations will be involved in collaborating with nations and the EU in order to achieve consensus on issues related to deforestation.

What/ type of instrument

International sustainability initiative.

Legal and technical feasibility

No issues related to legal feasibility were identified in regard to green diplomacy.

The Green Diplomacy Network, established in 2003, could be used as a platform to use green diplomacy as a measure to reduce deforestation worldwide. However there is no specific relation to deforestation identified to date. Furthermore, there is no global legal instrument in which forests are the main subject; nor there is any international treaty in which all environmental, social and economic aspects of forest ecosystems are included. However, some international agreements on other topics such as Climate Change have been established, e.g. the Stockholm convention on Persistent Organic Pollutants (2001), the Paris Agreement (2015) and the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITIES Convention, 2015).

Recurring meetings which could take place on an annual or bi-annual basis could be set-up to establish goals and track progress with regards to deforestation. International cooperation could either cover all commodities or it could cover single commodities.

Coherence with EU and international policy commitments and objectives

No issues of compatibility with EU and international legislation were detected. Policy-wise, the fact that there are existing multilateral agreements related to deforestation and forest degradation is beneficial as it shows likely acceptance of regulatory measures and the reduced likelihood of a challenge in front of the WTO.

Effectiveness

While EU policies can promote environmentally and socially sustainable practice and avoid precipitating damage beyond its borders, the EU can also learn from other countries’ and regions’ experiences and approaches to address environmental challenges. Furthermore, since the EU only accounts for 9% of global emissions, achieving real impact worldwide will require strong collective action. In EU circles, the Green Diplomacy Network is seen as a successful example of how to combine the strength of EU diplomatic structures overseas in favour of more effective outreach and intelligence activities. The Green Development Network could thus serve as a model to tackle problems related to deforestation. Engaging jointly in outreach activities and intelligence gathering in this domain would allow the EU to raise the profile of deforestation globally. 85 Evidence from other green diplomacy initiatives such as the Paris Agreement shows that this agreement set in motion a set of irreversible mechanisms pertaining to the creation of new climate policies, such as the five-year cycle of Nationally Determined Contributions (NDCs) which embody efforts by each country to reduce national emissions and adapt to the impacts of climate change. 86  Other successful international agreements aimed at tackling environmental challenges include the CITIES and the Stockholm Convention on Persistent Organic Pollutants. These show that international agreements and cooperation represent a potentially effective tool in addressing environmental challenges, suggesting that an international treaty aimed at tackling deforestation could also represent an effective policy measure to tackle this complex international problem.

Efficiency

This measure can be considered efficient. Whilst there will likely be high administrative costs and resources required to set up international agreements or to set up an international treaty on deforestation, it is likely that there will be a reduction in deforestation and forest degradation due to international commitment in resolving the product. Clearly, this may take some time; but by themselves, they require fewer resources than many of the other policy measures. 87

Risks around Implementation

The EU encourages dialogue and international cooperation with other major producer and consumer countries of commodities which might be linked to deforestation to increase awareness, profile, understanding and convergence on zero-deforestation and sustainability definitions and standards and to encourage similar actions to those described in relevant interventions elsewhere. This would include in particular partnership agreements on commodities, public procurement policies, encouragement for business initiatives, and transparency platforms. This helps to reduce leakage and increases the global impact of interventions. Overall, supply-side interventions would clearly benefit from additional involvement and support from other development cooperation partners. Considering demand-side interventions these will be more effective if other consumer countries adopt them or similar measures. In the absence of action by other major consumer countries, the risk of ‘leakage’ or trade diversion to less scrupulous markets could undermine the effectiveness of EU action. 88

Compatibility to be combined with another measure

Green diplomacy can be easily combined with other measures

Feedback

The measure was the object of abundant feedback from stakeholders. Their feedback was notably positive since 65,5% considered the measure as “completely suitable” or “somewhat suitable”. Green diplomacy has not been addressed in the EP legislative report as a possible measure.

Overall assessment

Negative.

1.1515.    Other  EUTR Plus – US approach – Schatz Bill

Measure

Other – US approach – Schatz Bill

Who does what

This would consist of a similar system as the EUTR based on legality rather than on a deforestation-free definition. (The draft Schatz bill in the U.S. proposes exactly this, addressing illegal deforestation.)

The EU would need to provide the legislative framework for MSs to operate in and provide clear guidance for national governments and competent authorities to enforce the measure. A review of the list of commodities and countries would need to be undertaken over a given period of time.

Economic operators would be required to provide proof that the products they import do not come from areas subjected to deforestation.

CAs: the legislation would need to be enforced at national level by customs and border forces. The checking of certifications and approvals would also need to be undertaken. Communication between national governments and customs and/or border forces would need to be sufficient.

What/ type of instrument

This would be a legislative, binding measure.

Legal and technical feasibility

This measure would draw on the burden of proof, with importers required to prove that their products do not come from areas subject to illegal deforestation. Customs controls throughout the EU would need to enforce and follow the same standards, with the Commission perhaps needing to set up a customs partnership within the Union. 89 It is uncertain whether the existing EU-level framework has the foundations to support such a measure, in the same way the US legislative framework does. This measure is proportional and conforms with the subsidiarity principle, by reason of scale.

Regarding technical feasibility, the EU has to provide a list of commodities which can only be imported where a person can certificate that reasonable care has been taken to identify the commodity’s point of origin and it not being an area of illegal deforestation.

Furthermore, a list of high-risk countries is maintained where commodities can only be imported provided information shows supply chain information relating to the point of origin, and that the point of origin has not seen illegal deforestation. The list of commodities can be determined, but the draft Schatz Bill includes palm oil, soy products, beef and cattle products, pulp and paper, although another source suggests that cocoa and rubber may also be included. 90

In order to dress these lists and to keep them updated, supply chains will have to be analysed to ensure compliance with the law. It may be a challenge to collect such information, as well as enforcing the measure.

Coherence with EU and international policy commitments and objectives

The precedent of the EUTR suggests high feasibility. This measure will need to be assessed for WTO compliance, for potentially being a protectionist measure. For the US, the draft Schatz Bill draws upon the US Lacey Act that bans trafficking in illegal wildlife, plant and plant products. 91 The WTO allows for exemptions where the protection of human/plant/animal and lift (Article XX(b)), as well as Article XX (g) allowing for the conservation of exhaustible natural common resources. This measure would need to be based on concrete, science-based considerations and restrictions would need to apply both abroad and domestically.

Effectiveness

The measure would likely be come short of being effective at achieving a reduction in deforestation and forest degradation. The reasons are manifold: First, available reports confirm that a sizable part of ongoing deforestation is legal according to the laws of the country of production. Forest Trends estimated in 2014 that almost half of all tropical deforestation between 2000 and 2012 was driven by the illegal conversion of forest lands for commercial agriculture. The same organization estimates that between 2013 and 2019, around 69% of deforestation destined to commercial agriculture in tropical countries was illegal. These reports tend to focus on countries with weak governance — the global share of deforestation that is illegal might be lower —, but already provide clear data signalling that leaving out deforestation that is legal in the country of production would undermine the effectiveness of the policy measures.

Second, focusing only on legality would make the intervention rely on the stringency of non-EU countries’ requirements and their enforcement. This would make it dependent on the decisions taken in third countries and their potential political turns. This could also potentially encourage a race to the bottom in countries highly dependent on agricultural exports that may be tempted to lower their environmental protection with a view to facilitating the access of their products to the EU market. Exports from a country with stricter environmental controls could therefore be adversely affected when compared to those of countries with less demanding controls, regardless of whether the latter presents a higher risk in terms of deforestation. This type of requirement could therefore discourage the adoption of more effective environmental controls.

Third, establishing a deforestation definition could facilitate the implementation of the measures. Results from the Fitness Check that looked at the due diligence implemented under the EUTR suggests that due diligence obligations only relying on the laws of the country of origin are sometimes difficult to implement, as companies and public authorities in charge of enforcement need to find their way among foreign documents, certificates and laws, written in foreign languages, and sometimes produced in countries with high levels of corruption where ascertaining the reliability of documents may also be very difficult. A deforestation-free definition opens a new, more straightforward way of checking compliance, whereby an operator or a public authority could check whether a product is deforestation-free by resorting to widely-available satellite monitoring tools (provided that the exact area of production can also be ascertained).

Efficiency

This measure is expected not be efficient as it is expected to bring lower results than mandatory due diligence based on a deforestation-free definition, while the costs would be similar.

Risks around Implementation

With this measure, access to the market is restricted through the prohibiting of products. There is a risk that MS customs and border controls would not enforce the same rules and protectionism occurs, where domestic and international imports and not treated the same. Where products cannot be substituted and with a decline in supply, a potential increase in product price for consumers in the EU may occur.

Wider benefits could be the enforcement of human rights and a decline in forced labour (dependent on these aspects being included in the definition of ‘deforestation’ and/or ‘illegality’).

Feedback 92

Stakeholder feedback and the EP were consistent on the requirement for the intervention to be based on a deforestation-free definition.

Overall assessment

Negative.

1.1616.    Other – FATF

Measure

Measure similar to the Financial Action Task Force (FATF)

Who does what

The European Commission would need to set up an organisation similar to the FATF, which would provide guidance and recommendations for governments to combat deforestation and forest degradation. The European Commission would need to assess compliance with its recommendations at a country (and/or regional) level and list those countries not following recommendations, those that are trying to follow recommendations and those that are following recommendations.

There are 51 staff members at the FATF Secretariat 93  and for the financial year 2020, the FATF budget was around 11.8 million EUR, of which around 8.2 million EUR dedicated for staff and 1.6 million EUR for travel costs. The budget is funded by annual membership fees, by the European Commission and Gulf Co-operation Council, as well as by voluntary contributions for specific projects. The OECD calculates the membership fees which are related to the size of a country’s economy. 94

Producer countries would need to commit to the recommendations and facilitate the assessments carried out by the FATF-equivalent organisation.

What/ type of instrument

The measure itself is non-binding and non-regulatory, but draws on EU regulation, legislation, and available techniques (e.g. voluntary labelling) to provide guidance, monitor country progress and list countries in terms of compliance.

Legal and technical feasibility

The environment is a shared competence of the EU and MSs; therefore, the measure is legally feasible and proportionate.

The measure would assess countries’ implementations of measures to prevent deforestation and forest degradation. This includes the assessments of whether producer countries have developed sound laws and regulations and whether these are being implemented and enforced. The latter two may be challenging to monitor where sufficient information is not available. Also, the question remains which laws, objectives etc. (i.e. both international and EU legislation and objectives) to include in the guidance by which countries are assessed.

Coherence with EU and international policy commitment and objectives

This measure is voluntary for countries to become members of and therefore should not, in principle, cause conflict with WTO legislation. However, it will need to be ensured that the reporting required does not duplicate efforts from the outcome of the revision of the non-Financial reporting directive. Similarly, if other measures were to be implemented, this measure’s coherence would need to be evaluated, in particular, with a benchmarking measure. If standards are introduced as part of the measure, these would need to be assessed against the WTO trade rules, in particular the exemptions relating to the protection of human/plant/animal health and life. 95

Effectiveness

It could not be determined whether an assessment of the effectiveness of FATF has been undertaken. It was set up in 1989 by the G7 and in April 2019 an open-ended mandate was adopted with which they recognised that there was a need for FATF to continue its action. It could therefore be accepted that FATF, overall, has been effective. 96 Although it should be noted that FATF operates in the financial sector and concerns money laundering and terrorist financing, and different challenges will be faced relating to deforestation and forest degradation.

Additionally, the measure would create an international policy-making body that does not undertake activities relating to law enforcement, investigations or prosecutions. Local CAs would still be required to operate in these areas.

Efficiency

Administrative costs of FATF could not be identified. However, a Secretariat would need to be established for this measure and there would be administrative costs.

Risks around Implementation

There is a risk that a lack of membership may undermine the effectiveness of the measure. However, jurisdictions may commit to meeting the Recommendations without becoming a member. This would still allow for an assessment to take place.

Standards, laws, regulations and measures intending to combat deforestation and forest degradation would need to be identified and listed. These would include elements relating to international co-operation as well as EU initiatives (listed below in the ‘Coherence’ rows). As for FATF, there would be members of the organisation developed by the measure, which may include both member jurisdictions and regional organisations, observer organisations may also join, such as the UN, World Bank and IMF. When the organisation undertakes an assessment, evidence will be looked for to demonstrate that key components (determined when recommendations are established) are being met, with example factors for assessment including the level of risk, policy and co-ordination in the country; the level of international co-operation; preventative measures in place; legal persons and arrangements; intelligence; and deforestation investigation and prosecution [obtained and adapted from FATF immediate outcomes]. 97 This assessment is done via peer reviews/mutual evaluations of each member. The detailed process used for this in FATF can be found in the footnoted source. 98  

Compatibility to be combined with another measure

The FATF Recommendations are also recognised as global standards, therefore it is unlikely that it would be combined with a deforestation free requirement or standard as there would be some overlap. Similarly, there may be some overlap if combined with benchmarking or the Schatz Bill, as elements of this measure are similar to these (e.g. lists). However, this measure may go beyond the list of countries provided by the Schatz Bill as the present measure also takes into account wider compliance with international laws and standards, rather than illegal deforestation alone. This measure could be combined with other measures and monitor the progress of countries in adopting, implementing and auditing the EU legislation introduced.

Feedback

The EP report does not consider this measure.  99

Overall assessment

Negative.

1.1717.    Other – Kimberley process

Measure

Measure similar to the Kimberley process

Who does what

The European Commission would need to set up the organisation responsible for implementing the process/certification. If built directly upon the workings of the Kimberley Process, currently undertaken to regulate trade in rough diamonds, this would neither require a permanent office nor permanent staff.

MSs and producer countries: would have the option to agree to the terms of the measure to achieve certification.

CAs and in particular importing authorities, would be encouraged to inspect the contents of shipments and to verify that a shipment arrives with a valid certificate. 100  

Industry and civil society groups: may participate as ‘Observers’ which contribute to monitoring and establishing the effectiveness of the measure, playing and active role.

As with the Kimberley Process Certification Scheme, this measure would allow for ‘candidates’ a country having expressed an interest in adhering to the measure but not yet meeting the minimum criteria. 101

What/ type of instrument

Non-binding and non-regulatory. This would be a voluntary measure that countries could choose to participate in.

Legal and technical feasibility

This measure would be implemented through the national legislations of its participants (producer countries). 102  

Similar to other certification systems, definitions and criteria must be established to allow for verification and monitoring to take place. The scope of the commodities to be included (for example, one certification per commodity type) also needs to be determined.

Coherence with EU and international policy commitment and objectives

As this certification would only allow participants to trade with other members who satisfy the requirements of the agreement/certification, WTO compliance may not be met. Although, as the Kimberley Process was established in 2003 and is still in operation, it is possible that WTO compliance may be met for deforestation and forest degradation as it has been for “conflict free” rough diamonds.

Effectiveness

There has been some criticism over the effectiveness of the Kimberley Process by several NGOs, including Global Witness, 103 although these are not recent. It has also been argued that the achievements of the Kimberley Process are undermined by poor reporting and a lack of transparency when non-compliance is present, which in turn undermines assurances that 99% of diamonds are conflict-free.

It is reported that the Kimberley Process is responsible for stemming 99.8% of the tide in conflict diamonds, however its effectiveness is not discussed. 104

Efficiency

The Kimberley Process has no permanent offices or permanent staff. It is an organisation that relies on contributions from participants and ‘burden-sharing’. 105 This measure would be a consensus-based body and rely on the engagement from all participants, costs would therefore be distributed amongst the voluntary participants. Customs and boarder control authorities would need to be engaged to undertake certificate checks on imports.

Risks around Implementation

There is a risk that fake certificates could be produced, as occurs with the Kimberley Process. 106 This would undermine the effectiveness of the measure in combatting deforestation and forest degradation.

As countries can only trade with other members (under the measure’s commitments), there is a risk of supply being impacted on countries which cannot yet meet the commitments or are not party to the organisation. Other certification systems relating to deforestation and forest degradation are also already known amongst consumers.

Compatibility to be combined with another measure

This certification focuses on shipment, import and export of commodities. It could be made compatible with labelling systems and the information generated through achieving the certification used to demonstrate compliance, as well as assist with informing consumers about the supply chain of the commodity. This measure would have some overlap with other certification schemes.

Feedback

This measure has not been assessed in the open public consultation. The EP report does not consider this measure either.  107

Overall assessment

Negative.



Annex 5: Satellite monitoring tools

Figure 1:    Free-access (Earth Observation) satellite imagery most commonly used for monitoring deforestation and degradation at global or pan-tropical levels

Name of the data source

Geographic Coverage

Data since?

Type of information

Sentinel’s imagery from Copernicus programme 108

Global – resolution up to 10 m x 10 m

2014 (Sentinel-1) ; 2015 (Sentinel-2) 5-days revisiting time

Radar imagery (sentinel-1) or Optical imagery (sentinel-2)

Landsat imagery from NASA 109

Global – resolution 30 m × 30 m

1972 (several Landsat missions – presently Landsat 7 and 8) 8-days revisiting time

Optical imagery

Planet imagery from Norway’s International Climate and Forest Initiative 110

Tropics, 5 m × 5 m resolution

2015 (biannual) – 2020 (monthly)

Optical imagery (mosaics of Planet imagery)

Figure 2    Overview of most well-known datasets regarding the monitoring forest cover at global, pan-tropical or national (Brazil) levels

Name of the tool

Geographic Coverage

Data since?

Type of information

Copernicus Land Monitoring service 111

Global maps at 100

m resolution

Pan-European maps at 10 m resolution

2015 - Annual for global level

Every 3 years for pan-Europe (2015, 2018, 2021)

Land cover (global)

Land Cover, Tree cover density & forest type products (pan-Europe) operational products, e.g. land use.

Copernicus Emergency Management service 112

Global maps at 250

m resolution

Pan-European maps at 180 m resolution

2018- Global (GWIS)

2015 for pan-Europe (EFFIS)

Active Fires, Burned areas (Global)

Forest Fires, Burned forest areas (Pan European)

FAO Global Forest Resource Assessments (FRA) 113

Global data reported at national level

1990 (varies depending on type on information required) – reported every 5 years

Land use change

Forest coverage

Growing stock

Biomass stock

Carbon stock

Global Forest Watch (GFW) from World Resources Institute (WRI) 114

Global maps at 30 m resolution

2001

(2001-2010 and 2011-2019 methodologies differ)

Annual maps of Tree cover

Canopy density

FAO – State of World’s Forests 115

Global map at 100 m resolution

2015

Forest Fragmentation

Tropical Moist Forest system from JRC 116

Pan-Tropical humid domain maps at 30 m resolution

1990

Annual maps of tree cover disturbances in tropical moist forests

PRODES 117 and DETER 118 Systems from INPE (Brazilian Research Space Agency)

Brazilian Amazon maps at 30 m res. (PRODES) or 250 m resolution (DETER)

1988 – annual (PRODES)

2004 - daily (DETER)

Deforestation (PRODES)

Forest cover disturbance alerts (DETER)

Figure 3    Overview of most well-known systems or tools for monitoring commodity flows or environmental values

Name of the tool

Geographic Coverage

Data since?

Type of information

TRASE 119

Some countries in Tropics – national and sub-national scale

Varies by commodity and country selection

Key commodities flows

Supply chain mapping

National exports

Agroideal 120

Brazil, Argentina, and Paraguay

2008

‘Risk exposure maps’ for Soy and beef

Deforestation

Global Risk Assessment Services (GRAS) 121

48 countries

2000

Geo-Spatial tool for sustainability assessments

High Carbon Stock Approach (HCSA) 122

Tropics

Varies by area

Methodology to assess high Carbon & Biodiversity value

High Conservation Value (HCV) 123

Various levels - HCV can range in size from single trees to entire landscapes

Varies by area

Tool to achieve certification by voluntary sustainability schemes

THE ATLAS OF ECONOMIC COMPLEXITY 124

Global (country level), 6000 goods and services

1995 (varies by country)

Global trade flows; country profile



Annex 6: Additional information and case studies on potential impacts on third countries 

Contents of the annex:

A)Overview of countries potentially impacted by the initiative.

B)Case study 1: cocoa from West Africa

C)Case study 2: beef from Brazil

D)Case study 3: palm oil from Asia

E)Case study 4: soy from South America

A)Overview of countries potentially impacted by the initiative.

The following tables include average annual imports of beef, coffee, soya, palm oil, cocoa and timber/timber products into the EU-27 over the period 2015-2019, by a) quantity, b) value, c) focal commodities as % of overall trade to the EU (all commodities), and d) importance of EU imports for partner exporting country GDP. All data are based on mean annual EU-27 reported import data from the Eurostat ComExt database 125 . GDP values from World Bank Open Data.

a. Top 20 countries by quantity

Country

Quantity

(million kg)

Top commodities quantity (%)

Brazil

18415.86

Soy (67.3%); Timber (26.8%); Coffee (4.7%); Beef (1%); Palm oil (0.1%); Cocoa (<0.1%)

Russia

12494.62

Timber (97.6%); Soy (2.2%); Beef (0.1%); Cocoa (0.1%); Coffee (<0.1%); Palm oil (<0.1%)

United States of America

10675.25

Soy (58.8%); Timber (40.4%); Beef (0.7%); Cocoa (0.1%); Coffee (<0.1%); Palm oil (<0.1%)

Argentina

7404.12

Soy (99.2%); Beef (0.7%); Timber (0.1%); Cocoa (<0.1%); Coffee (<0.1%); Palm oil (<0.1%)

Norway

6487.77

Timber (96.2%); Soy (3.6%); Beef (0.1%); Cocoa (0.1%); Coffee (<0.1%); Palm oil (<0.1%)

Belarus

6390.24

Timber (99.8%); Soy (0.1%); Beef (0.1%); Cocoa (<0.1%); Coffee (<0.1%)

Indonesia

5152.98

Palm oil (89.2%); Timber (8.6%); Coffee (1.8%); Cocoa (0.5%); Beef (<0.1%); Soy (<0.1%)

United Kingdom

4757.53

Timber (87.1%); Soy (4.1%); Cocoa (3.8%); Beef (3.7%); Palm oil (0.8%); Coffee (0.7%)

Ukraine

4622.02

Timber (84.1%); Soy (15.3%); Cocoa (0.3%); Beef (0.3%); Palm oil (<0.1%); Coffee (<0.1%)

Switzerland

3089.17

Timber (94.7%); Cocoa (2.7%); Coffee (1.9%); Beef (0.6%); Soy (0.1%); Palm oil (<0.1%)

Uruguay

2432.06

Timber (82%); Soy (16.3%); Beef (1.7%); Cocoa (<0.1%); Palm oil (<0.1%); Coffee (<0.1%)

Malaysia

2225.73

Palm oil (90.2%); Timber (9.7%); Cocoa (0.2%); Soy (<0.1%); Beef (<0.1%); Coffee (<0.1%)

China

2095.15

Timber (88.2%); Soy (9.9%); Coffee (1.7%); Cocoa (0.2%); Beef (<0.1%); Palm oil (<0.1%)

Canada

1915.81

Soy (58.2%); Timber (41.4%); Beef (0.4%); Cocoa (<0.1%); Coffee (<0.1%); Palm oil (<0.1%)

Paraguay

1774.37

Soy (98.1%); Beef (1.8%); Timber (0.1%); Coffee (<0.1%); Cocoa (<0.1%)

Country

Quantity

(million kg)

Top commodities quantity (%)

Bosnia and Herzegovina

1216.17

Timber (98.3%); Beef (1.4%); Soy (0.2%); Cocoa (0.1%); Coffee (0.1%)

Côte d'Ivoire

1196.22

Cocoa (87.9%); Timber (5.8%); Palm oil (4.9%); Coffee (1.4%); Soy (<0.1%); Beef (<0.1%)

Chile

907.54

Timber (99.5%); Beef (0.5%); Cocoa (<0.1%); Coffee (<0.1%); Soy (<0.1%); Palm oil (<0.1%)

Viet Nam

789.27

Coffee (84.7%); Timber (15.2%); Beef (0.1%); Cocoa (<0.1%); Palm oil (<0.1%); Soy (<0.1%)

Serbia

745.12

Timber (74.5%); Soy (23.5%); Beef (1.5%); Cocoa (0.4%); Coffee (0.1%); Palm oil (<0.1%)

b. Top 20 countries by value

Country

Value (million EUR)

Top commodities value (%)

Brazil

9983.81

Soy (44.3%); Timber (26.5%); Coffee (21.1%); Beef (7.7%); Palm oil (0.2%); Cocoa (0.1%)

United States of America

5621.27

Timber (52.2%); Soy (39.8%); Beef (6.9%); Cocoa (0.8%); Coffee (0.2%); Palm oil (<0.1%)

United Kingdom

4479.21

Timber (60.9%); Cocoa (16.6%); Beef (15.5%); Coffee (4.7%); Soy (1.7%); Palm oil (0.6%)

China

3740.72

Timber (93.8%); Soy (3.4%); Coffee (2.3%); Cocoa (0.2%); Beef (0.2%); Palm oil (<0.1%)

Switzerland

3419.76

Coffee (41.7%); Timber (40.5%); Cocoa (15.9%); Beef (1.8%); Soy (0.1%); Palm oil (<0.1%)

Indonesia

3182.91

Palm oil (70.7%); Timber (20.7%); Coffee (6.1%); Cocoa (2.3%); Beef (0.1%); Soy (<0.1%)

Argentina

3045.82

Soy (82.8%); Beef (17%); Timber (0.1%); Cocoa (0.1%); Coffee (<0.1%); Palm oil (<0.1%)

Côte d'Ivoire

2877.64

Cocoa (95.7%); Timber (2.4%); Coffee (1%); Palm oil (0.9%); Soy (<0.1%); Beef (<0.1%)

Russia

2618.88

Timber (91.9%); Soy (4.8%); Beef (2.5%); Cocoa (0.7%); Coffee (<0.1%); Palm oil (<0.1%)

Viet Nam

1492.64

Coffee (79.5%); Timber (20.2%); Beef (0.3%); Cocoa (<0.1%); Palm oil (<0.1%); Soy (<0.1%)

Malaysia

1486.65

Palm oil (79.4%); Timber (19.7%); Cocoa (0.9%); Beef (<0.1%); Coffee (<0.1%); Soy (<0.1%)

Ukraine

1391.07

Timber (72.1%); Soy (20.6%); Beef (4.7%); Cocoa (2.6%); Palm oil (<0.1%); Coffee (<0.1%)

Uruguay

1280.68

Timber (61.2%); Beef (27.4%); Soy (11.4%); Cocoa (<0.1%); Coffee (<0.1%); Palm oil (<0.1%)

Norway

1259.43

Timber (86.3%); Soy (9.6%); Cocoa (1.9%); Beef (1.8%); Coffee (0.3%); Palm oil (<0.1%)

Ghana

1173.15

Cocoa (97.2%); Timber (2.3%); Palm oil (0.5%); Coffee (<0.1%); Soy (<0.1%); Beef (<0.1%)

Canada

885.51

Timber (50.5%); Soy (45.7%); Beef (3%); Cocoa (0.7%); Coffee (0.1%); Palm oil (<0.1%)

Colombia

849.00

Coffee (61.6%); Palm oil (32.9%); Beef (2.9%); Cocoa (2.4%); Timber (0.2%); Soy (<0.1%)

Belarus

803.46

Timber (97.4%); Beef (2%); Soy (0.4%); Cocoa (0.1%); Coffee (<0.1%)

Honduras

793.10

Coffee (71.1%); Palm oil (28.6%); Timber (0.2%); Cocoa (0.1%); Beef (<0.1%); Soy (<0.1%)

India

775.26

Coffee (38.2%); Timber (29.2%); Soy (17.7%); Beef (13.6%); Cocoa (1.1%); Palm oil (0.2%)

c. Top 20 countries with the highest % value of focal commodities as a % of total imports to the EU from that country

Country

Value of focal commodities as a % of total trade (all commodities) from the country into the EU

Top commodities value (million EUR)

Burundi

46.55

Coffee (28); Beef (<1); Timber (<1); Palm oil (<1)

Sao Tome and Principe

41.54

Cocoa (7); Coffee (<1); Timber (<1)

Paraguay

41.45

Soy (652); Beef (82); Timber (1); Coffee (<1); Cocoa (<1)

Central African Republic

40.80

Timber (11); Coffee (<1); Beef (<1)

Uruguay

40.22

Timber (784); Beef (351); Soy (146); Cocoa (<1); Coffee (<1); Palm oil (<1)

Honduras

38.94

Coffee (564); Palm oil (227); Timber (2); Cocoa (1); Beef (<1); Soy (<1)

Côte d'Ivoire

33.65

Cocoa (2753); Timber (68); Coffee (30); Palm oil (26); Soy (<1); Beef (<1)

Uganda

32.28

Coffee (272); Cocoa (25); Beef (3); Soy (1); Timber (<1); Palm oil (<1)

Papua New Guinea

28.44

Palm oil (332); Coffee (60); Cocoa (12); Timber (1)

Ghana

25.49

Cocoa (1140); Timber (27); Palm oil (6); Coffee (<1); Soy (<1); Beef (<1)

Nauru

25.01

Beef (<1); Coffee (<1); Timber (<1)

Rwanda

24.16

Coffee (25); Beef (<1); Timber (<1); Cocoa (<1); Soy (<1)

Heard island and McDonald islands (AU)

22.07

Coffee (<1)

Ethiopia

21.80

Coffee (241); Soy (1); Beef (<1); Timber (<1); Cocoa (<1)

Argentina

20.16

Soy (2522); Beef (518); Timber (4); Cocoa (2); Coffee (<1); Palm oil (<1)

Cameroon

18.53

Cocoa (404); Timber (250); Coffee (34); Palm oil (<1); Beef (<1); Soy (<1)

Guatemala

18.48

Palm oil (212); Coffee (113); Timber (2); Cocoa (<1); Beef (<1); Soy (<1)

Timor-Leste

17.93

Coffee (4); Timber (<1)

Brazil

17.66

Soy (4421); Timber (2650); Coffee (2108); Beef (773); Palm oil (17); Cocoa (14)

Nicaragua

16.56

Coffee (93); Beef (6); Cocoa (4); Palm oil (1); Timber (<1); Soy (<1)

d. Top countries by importance of EU imports for the exporting country’s GDP (GDP >0.5%)

Country 

Value as % of GDP

Top commodities value (million EUR)

% deforestation of natural forest 2015-2020 126

[% net change in extent of natural forest (2015-2020)]*

Côte d'Ivoire

6.03

Cocoa (2753); Timber (68); Coffee (30); Palm oil (26); Soy (<1); Beef (<1)

[-16.66%]

Honduras

3.78

Coffee (564); Palm oil (227); Timber (2); Cocoa (1); Beef (<1); Soy (<1)

1.79%

Bosnia and Herzegovina

3.04

Timber (456); Beef (45); Coffee (3); Cocoa (2); Soy (2)

**

Uruguay

2.50

Timber (784); Beef (351); Soy (146); Cocoa (<1); Coffee (<1); Palm oil (<1)

[0%]

Top commodities value (million EUR)

Value as % of GDP

Top commodities value (million EUR)

% deforestation of natural forest 2015-2020 127

[% net change in extent of natural forest (2015-2020)]*

Ghana

2.18

Cocoa (1140); Timber (27); Palm oil (6); Coffee (<1); Soy (<1); Beef (<1)

[+0.90%]

Cameroon

2.14

Cocoa (404); Timber (250); Coffee (34); Palm oil (<1); Beef (<1); Soy (<1)

1.41%

Paraguay

2.12

Soy (652); Beef (82); Timber (1); Coffee (<1); Cocoa (<1)

8.03%

Sao Tome and Principe

2.12

Cocoa (7); Coffee (<1); Timber (<1)

5.64%

Papua New Guinea

1.95

Palm oil (332); Coffee (60); Cocoa (12); Timber (1)

0.47%

Belarus

1.56

Timber (783); Beef (16); Soy (4); Cocoa (1); Coffee (<1)

0.27%

Serbia

1.51

Timber (467); Soy (91); Beef (54); Cocoa (9); Coffee (2); Palm oil (<1)

0.01%

Liberia

1.33

Cocoa (35); Timber (3); Palm oil (1); Coffee (1)

1.95%

Ukraine

1.32

Timber (1003); Soy (287); Beef (65); Cocoa (36); Palm oil (<1); Coffee (<1)

0.01%

Gabon

1.26

Timber (175); Palm oil (1); Cocoa (<1); Coffee (<1)

0.41%

Uganda

1.03

Coffee (272); Cocoa (25); Beef (3); Soy (1); Timber (<1); Palm oil (<1)

12.00%

Burundi

1.02

Coffee (28); Beef (<1); Timber (<1); Palm oil (<1)

0%

Sierra Leone

0.98

Cocoa (32); Coffee (3); Palm oil (1); Timber (<1)

[-3.90%]

Nicaragua

0.87

Coffee (93); Beef (6); Cocoa (4); Palm oil (1); Timber (<1); Soy (<1)

13.58%

Solomon Islands

0.83

Palm oil (11); Timber (<1); Cocoa (<1)

[-0.10%]

Togo

0.80

Cocoa (17); Soy (13); Coffee (5); Palm oil (1); Timber (<1)

2.12%

Congo

0.79

Timber (69); Coffee (10); Cocoa (7); Palm oil (<1)

0.31%

Viet Nam

0.73

Coffee (1186); Timber (302); Beef (4); Cocoa (1); Palm oil (<1); Soy (<1)

0.08%

Central African Republic

0.61

Timber (11); Coffee (<1); Beef (<1)

0.67%

Argentina

0.60

Soy (2522); Beef (518); Timber (4); Cocoa (2); Coffee (<1); Palm oil (<1)

2.42%

Brazil

0.58

Soy (4421); Timber (2650); Coffee (2108); Beef (773); Palm oil (17); Cocoa (14)

1.72%

Switzerland

0.54

Coffee (1427); Timber (1383); Cocoa (545); Beef (62); Soy (2); Palm oil (<1)

0.61%

Guatemala

0.51

Palm oil (212); Coffee (113); Timber (2); Cocoa (<1); Beef (<1); Soy (<1)

1.68%

Malaysia

0.50

Palm oil (1181); Timber (292); Cocoa (13); Beef (<1); Coffee (<1); Soy (<1)

[-1.91%]

* Where deforestation data were not available, % net change in extent of natural forest was provided in square parentheses. Whilst net change differs from deforestation because it also includes gains in forest cover through natural regeneration, these data were included for countries without deforestation data to maximise data coverage.

** 2015 but not 2020 data were available for Bosnia and Herzegovina

Table 2 Least Development Countries’ importance of exports of commodities in terms of percentage of GDP.

Top 10 least developed countries by importance of EU imports for the exporting country’s GDP

Country 

Value as % of GDP

Top commodities values (million EUR)

% deforestation of natural forest 2015-2020 128

[% net change in extent of natural forest (2015-2020)]*

Sao Tome and Principe

2.12

Cocoa (7); Coffee (<1); Timber (<1)

5.64%

Liberia

1.33

Cocoa (38); Timber (3); Palm oil (1); Coffee (1)

1.95%

Uganda

1.03

Coffee (272); Cocoa (25); Beef (3); Soy (1); Timber (<1); Palm oil (<1)

12.00%

Burundi

1.02

Coffee (28); Beef (<1); Timber (<1); Palm oil (<1)

0%

Sierra Leone

0.98

Cocoa (32); Coffee (3); Palm oil (1); Timber (<1)

[-3.90%]

Solomon Islands

0.83

Palm oil (11); Timber (<1); Cocoa (<1)

[-0.10%]

Togo

0.80

Cocoa (17); Soy (13); Coffee (5); Palm oil (1); Timber (<1)

2.12%

Central African Republic

0.61

Timber (11); Coffee (<1); Beef (<1)

0.67%

Ethiopia

0.33

Coffee (241); Soy (1); Beef (<1); Timber (<1); Cocoa (<1)

2.79%

Guinea

0.31

Cocoa (27); Coffee (2); Timber (1); Palm oil (<1); Beef (<1)

[-3.22%]

* Where deforestation data were not available, % net change in extent of natural forest was provided in square parentheses. Whilst net change differs from deforestation because it also includes gains in forest cover through natural regeneration, these data were included for countries without deforestation data to maximise data coverage.



B)Case study 1: cocoa from West Africa

1)Production and import pattern context

Global cocoa production is concentrated in a small number of tropical countries (Fig. 1), which primarily export raw beans (~70% for both Ghana and Côte d’Ivoire) (Trase, 2021). The EU-27 is the biggest importer of cocoa (importing 22.38% of international exports by value in 2019, source: UN Comtrade). The EU-27 imported the majority of its cocoa 2015-2019 from West Africa, including from Côte d’Ivoire (44%), Ghana (17%), Nigeria (8%) and Cameroon (7%) (Source: Eurostat ComExt, importer-reported data on quantity, downloaded 12.02.2021). Hence the EU relies on a small number of countries to meet its demand for cocoa, all of which are associated with commodity-driven deforestation (World Resources Institute, 2021, Fig. 3). Three quarters of cocoa imported into the EU 2015-2019 entered via the Netherlands, Germany and Belgium (Fig. 2).

Cocoa supplies from West Africa are essential to produce the standard-quality chocolates made by most large companies worldwide, whereas speciality and fine flavour cocoa is mainly sourced from Latin America (CBI, 2020a). Industry specialists have voiced concern over possible shortages of cocoa, particularly high quality beans (Teye and Nikoi, 2021).

The world market price for cocoa is determined as an average price for cocoa futures in the New York and London commodity exchanges. Historically cocoa prices have been volatile and subject to shocks ranging from oversupply, pests and disease, weather patterns and civil war (Bakhtary et al., 2020).

Cocoa supply chain: The international cocoa market is hourglass shaped – on one side almost 90% of production relies on 5-6 million smallholders in developing countries, at the other side are billions of final consumers, mostly in high income countries. In between, the supply chain is highly concentrated with a few giant traders and processors producing semi-finished and finished goods, accompanied by thousands of small traders, processors and grocer