The EU Deforestation Regulation Will Have Far-Reaching Effects

Even if you don't ship to Europe, if you are part of the forestry supply chain, the EUDR will probably affect you.

What will the European Union’s Regulation on Deforestation-Free Products (EUDR) mean for forest products producers around the world? It’s likely that the new regulations will affect nearly everyone in the forest industry, even those who don’t ship to Europe. The following article provides an overview of what forestry companies may expect to encounter over the next 12 months.

As its name would suggest, the EUDR is designed to ensure products entering the European Union, including forest products, soy, palm oil, cocoa, coffee, beef and rubber, and their derivatives, have not contributed to deforestation or forest degradation. As of December 30, 2024, all shipments of these products into the EU must be accompanied by a due diligence statement and detailed geolocation references, showing where the products originated. Exports from the EU will also subject to the regulation.

Environmental due diligence is not a new concept. The EUDR will replace the current European Timber Regulation (EUTR), which requires traders to identify a product’s country of origin. Traders (or “operators”) are required to carry out a risk assessment procedure, evaluating the risk of products coming from illegally harvested timber. Fortunately, environmental certification standards such as FSC, PEFC, and SFI align with EUTR requirements. Therefore, companies certified under these standards already meet most EU requirements.

Where the EUDR differs from the EUTR is that is goes much further in its reporting requirements. In particular, it will require operators to provide the digital GPS coordinates of the forests or farms where the products originated, to a 4-hectare level of detail. Given the aggregate nature of the forestry supply chain, this will mean that tracking the provenance of finished products will be very complicated.

Consider, for example, a 20-hectare forest cutblock. The logs heading to the sawmill from this cutblock will be associated with several 4-hectare polygons. At the sawmill, these logs will then be combined with logs from several other cutblocks. Next, the sawmill byproducts (such as chips and sawdust) will be combined with byproducts from several other sawmills when they arrive at pulp or pellet plants. Pulp will then go to paper manufacturers, and so on along the supply chain. Finished products may therefore contain tens of thousands of “reference numbers” linking back to the original harvested areas.

What About Companies That Don’t Export to the EU?

North American log, lumber, and panel producers ship a relatively small proportion of their products to the EU. However, the EU does import North American pulp, paper, and wood pellets. Therefore, even though sawmills may not need to provide detailed traceability information for their lumber, they may have to provide it for their byproducts such as chips and sawdust. Because pulp mills can’t separate out the raw materials they receive from different locations, all their raw materials must be traceable. And as sawmills must have viable markets for their byproducts, they must therefore be able to track where their materials come from, so they can provide this information to the companies that purchase their byproducts.

In other words, the effects of the EUDR will ripple through the supply chain, all the way back to the forest – even if only a small proportion of the products actually go to Europe.

Is All of This Tracking Actually Technically Feasible?

What this means for the forest industry is that there will be millions of unique reference numbers to track and submit. Fortunately, emerging blockchain technology can do this. Certification systems such as FSC and SFI are planning to offer their customers optional EU blockchain tracking “modules.” Implementing them won’t be simple or cheap, but at least it will be technically feasible.

Or at least, it will probably be technically feasible. Operators will have to send their due diligence reports, along with the tracking data, to the EUDR Information System. The EU tested this system in January 2024. Participating operators complained that the system functionality was too basic to handle the vast amount of information it will eventually have to process. Further, operators were concerned about whether the system had adequate data protection and back-up capacity.

The Technical Challenges Aren’t the Only Source of Uncertainty

Canadian forest products producers, and some American ones as well, have an additional concern: the EU’s vague definition of “forest degradation.” As discussed in last month’s edition of Sustainable Forests, Canadian forestry practices often involve the harvest and re-planting of forests that have never been harvested before (called “primary forests” in EU parlance). Under the EU definitions, converting a primary forest to a “planted forest” is considered to be degradation. However, converting a primary forest to a “naturally regenerated forest” is allowable. Further, the definition of “naturally regenerated forest” is quite broad: they may include “forests for which it is not possible to distinguish whether planted or naturally regenerated.” This actually describes most regenerated forests in Canada, as forests are replanted with native species and typically also contain natural regeneration.

Canada’s position on the issue is that harvesting and replanting a forest is not, in and of itself, a form of forest degradation. Nevertheless, the EU definition is vague and subject to interpretation. Without further clarification from the EU, much of the Canadian forest industry remains at risk. Further, as many US pulp and paper manufacturers use Canadian chips, they too will be affected by EU regulations.

The EU has promised to provide a guideline clarifying this and many other issues that the forest industry has identified; however, this guideline has yet to be published. In the meantime, supply chain uncertainty is building. Although the EUDR will not come into effect until December, the products that will be registered at that time will be made from raw materials that may already be moving through the supply chain. This leaves companies in the awkward position of already needing to track their raw materials, without having full clarity on how to do so.

Could the December 30 Deadline be Extended?

Given industry’s concerns (as well as those of individual countries both within and outside the EU), is it possible that the EU could delay its implementation plans, or even change them altogether?

With the EU Parliament heading into an election in June, a delay could make sense. Time is running out for the current EU Parliament to complete its EUDR guidance document. Also, given the current political climate, actions taken to shift to a more pragmatic, less burdensome regulatory approach would be welcome by many in the industry.

So how will this all pan out?  Only time will tell. The EUDR will definitely provide yet another challenge for our oft-beleaguered industry.