1. What’s going to happen? 

The plan is to stop the felling of forests to grow products sold in Europe. Those include palm oil (which is found in thousands of everyday items including ice cream, shampoo and fuel), soy, beef, wood, rubber, cocoa and coffee and some manufactured products such as chocolate, leather and furniture. To send them into the EU or export them from the bloc, companies must show they weren’t made on land that was deforested or degraded since Dec. 31, 2020. They will also need to prove they were produced in compliance with local human rights laws and laws protecting the rights of indigenous peoples. The measures are expected to take effect in May or June. Companies will then have 18 months to comply, with a further six-month grace period for small businesses. 

Importers must collect precise data identifying the plots of land where the goods were grown. The location coordinates would be checked off against historical land-use information gathered via satellite imaging and other sources. A traffic light system will assign a score for each country based upon the perceived risk of deforestation there. High-risk countries will face a stricter level of checks — 9% of traders and commodities — compared with 1% for those deemed to be low-risk. 

3. How significant are the new rules? 

Up to this point, efforts to stop the destruction of the world’s forests focused largely on persuasion and positive incentives. Now one of the most important players in the global economy is resorting to force. Companies that fail to meet the rules could face fines of at least 4% of their annual turnover in the EU. It’s not the only area where the bloc is using trade in pursuit of climate goals beyond its borders. It’s also agreed to a carbon levy on imports of goods like steel and aluminum from countries with less strict environmental rules. 

4. What’s the EU’s motivation?

Burning or cutting down rainforests releases greenhouse gases and deprives the ecosystem of carbon-absorbing trees. Much of the cleared land is used to grow export crops and raise livestock, generating even more climate-warming emissions. The EU was responsible for 16% of deforestation associated with international trade in 2017, surpassed only by China, at 24%, according to a 2021 report by the World Wide Fund for Nature. Efforts to re-grow Europe’s own forests have little impact on the region’s overall carbon footprint as so much of what its population and industries consume comes from elsewhere. Europe’s demand for rubber alone has been linked to the deforestation of 520 square kilometers (201 square miles) of West Africa since the end of the last century. 

5. What’s been the reaction to the EU’s plan?

The measures will have a disproportionate impact on the relatively small number of countries that are home to the world’s rainforests, such as Indonesia and Malaysia — the biggest suppliers of palm oil to the EU. Their governments say much of what they produce is already sustainable and traceable. The Roundtable on Sustainable Palm Oil, an industry group that promotes standards for “certified sustainable” products, said the EU measures could have unintended consequences for vulnerable farmers worldwide, and disproportionately impact growers that can afford it the least. Producer nations are looking to retaliate, with Malaysia weighing potential trade curbs that would slow the flow of commodities to Europe and reviewing imports from the bloc. Environmentalists have lauded the EU plan, with the WWF calling it “goundbreaking.” and Greenpeace saying it would mean some chainsaws “fall silent.” They hope the rules will be expanded to other ecosystems such as savannas. 

6. What does it mean for Europeans?

If the system holds up and importers comply, consumers will be able to enjoy their morning coffee in the knowledge that no trees were cut down to grow the beans. Economists will pay close attention to the potential impact on shopping bills. One study published in 2022 found the new measures would create compliance costs equivalent to as much as 3.5% of palm producers’ revenue. Advocates of the new rules say the companies will recoup those costs as consumers will be ready to pay more if they know the goods are environmentally sustainable. 

More stories like this are available on bloomberg.com