EU Regulation on Deforestation-Free Products: A potential game-changer for commodity-driven deforestation

The document analyzes the EU Regulation on Deforestation-Free Products (EUDR), highlighting its shift toward mandatory due diligence for commodities like cattle, cocoa, coffee, oil palm, rubber, soya, and wood. It argues that while the EUDR is a significant step, it contains gaps regarding ecosystem coverage and the exclusion of financial institutions. The paper recommends expanding the regulation to include high-carbon biomes (such as savannahs and grasslands) and financial institutions to ensure capital flows toward sustainable agriculture. It also warns of a 'two-tier commodity trading system' where high-risk products are diverted to markets with less restrictive rules, such as the US and China, and emphasizes the need for collaborative frameworks with producer countries like Brazil, Indonesia, and Malaysia. Finally, it suggests using transition plans and third-party certifications, including the Climate Bonds Standard, to facilitate compliance and mobilize investment for a net-zero transition.

• The EUDR establishes a mandatory due diligence system for operators and traders of specific commodities—cattle, cocoa, coffee, oil palm, rubber, soya, and wood—regardless of whether the deforestation was legal under local laws, which distinguishes it from the previous EU Timber Regulation (EUTR).
• The current definition of deforestation in the EUDR is considered too narrow because it only covers the conversion of natural forests, thereby omitting other high-carbon and high-biodiversity ecosystems such as peatlands, wetlands, grasslands, and savannahs.
• Financial institutions are currently excluded from the EUDR, which the author argues prevents the regulation from effectively directing capital away from deforestation and toward sustainable agriculture, and hinders compliance with the EU Sustainable Finance Disclosure Regulation (SFDR).
• There is a significant risk that the EUDR will create a 'two-tier commodity trading system,' where producers reroute high-risk commodities to markets with less stringent requirements, specifically mentioning the US and China.
• The effectiveness of the EUDR relies on a three-tier risk rating system for source countries, which determines the frequency of compliance checks: 9% for high-risk, 3% for standard, and 1% for low-risk areas.
• Non-compliance with the EUDR can lead to severe penalties, including fines starting at 4% of an operator's annual EU turnover, product confiscation, and temporary or permanent bans from trading in the EU.

APA

Pulido, M. A., & Hemingway, R. (2024). EU Regulation on Deforestation-Free Products: A potential game-changer for commodity-driven deforestation. Climate Bonds Initiative. https://www.climatebonds.net/files/documents/publications/EU-Regulation-on-Deforestation-Free-Products-A-potential-game-changer-for-commodity-driven-deforestation-Paper-II.pdf

Chicago

Pulido, María Alejandra, and Rachel Hemingway. EU Regulation on Deforestation-Free Products: A potential game-changer for commodity-driven deforestation. Climate Bonds Initiative, 2024. https://www.climatebonds.net/files/documents/publications/EU-Regulation-on-Deforestation-Free-Products-A-potential-game-changer-for-commodity-driven-deforestation-Paper-II.pdf.

Wikipedia

{{cite report |last1=Pulido |first1=María Alejandra |last2=Hemingway |first2=Rachel |title=EU Regulation on Deforestation-Free Products: A potential game-changer for commodity-driven deforestation |publisher=Climate Bonds Initiative |date=January 2024 |url=https://www.climatebonds.net/files/documents/publications/EU-Regulation-on-Deforestation-Free-Products-A-potential-game-changer-for-commodity-driven-deforestation-Paper-II.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{pulido2024regulation, author = {Pulido, María Alejandra and Hemingway, Rachel}, title = {{EU Regulation on Deforestation-Free Products: A potential game-changer for commodity-driven deforestation}}, institution = {Climate Bonds Initiative}, year = {2024}, month = jan, url = {https://www.climatebonds.net/files/documents/publications/EU-Regulation-on-Deforestation-Free-Products-A-potential-game-changer-for-commodity-driven-deforestation-Paper-II.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }