Should regulators demand assurance of good forestry practice at a plot or jurisdictional level?

In developing “legal and deforestation-free” commodity regulations in consuming countries, there has been debate over the relative merits of:

1. laws that require tracking to the extent necessary to confirm a negligible risk of commodity-driven forest conversion, which may be demonstrated by proving that the regulated commodity derives from a specific jurisdiction; and
2. laws that require tracking to individual plots of land where production has taken place and for which satellite data may be used to confirm that no deforestation has taken place.

The first approach mirrors that adopted for legal timber supply in the U.S. Lacey Act, the 2013 EU Timber Regulation, the UK Timber Regulation, and the Australian Illegal Logging Prohibition Act. Its main advantage is that it avoids imposing unnecessary trade burdens on products where there is negligible risk of illegal harvesting or deforestation. It also provides market incentives, both for government action to improve forest regulation, and thereby reduce national-level risk; and for the development of flexible private-sector assurance mechanisms operating at property, landscape and/or jurisdictional level in regions identified as high-risk.

The downside of this approach is complexity, and the challenge presented—both to traders and regulators – to assess which systems effectively mitigate risk and which do not. Demonstrating provenance only as far as countries judged to be low-risk is also viewed as insufficient by many buyers and other stakeholders, providing too many opportunities for mixing of products from illegal operations or deforested land with legally sourced and deforestation-free products.

The second approach, focused on individual production plots and adopted in the EU Deforestation Regulation (EUDR), offers advantages of apparent simplicity, total transparency regarding product origin, a clear technical pathway for enforcement, and ease of communication. To exploit these advantages, EUDR links the requirement for plot-level traceability to a prohibition on trade in regulated commodities from any plot where deforestation has taken place after a specific cut-off date (31 December 2020), irrespective of whether deforestation was legal or illegal according to laws in the producer country.

However, there are disadvantages of the plot-level approach including:

• the challenge of traceability, which is significantly more pronounced for commodities derived from smallholders compared to those derived from large state and industrial holdings;
• the difficulty of coming up with a definition of the production plot of land which is universally applicable – in EUDR it is tied to individual “real estate properties”, which may be appropriate for agricultural commodities from farms, but not for forest products, the majority of which come from the 75% of forest area worldwide that is publicly owned;
• the imposition of additional bureaucracy and costs on supply chains, irrespective of the level of risk;
• concerns around sovereignty and the possibility that there may be legitimate reasons for converting some small proportion of forest area to other uses, such as to increase supply of food or minerals and other legitimate developments;
• the challenges of operators and regulatory authorities in importing countries verifying the accuracy of claims that commodities derive from specific properties;
• the potential for inconsistent and inaccurate interpretation of satellite data by importers and regulatory authorities in consuming countries that may have only limited understanding of land use categories and management practices in producer countries;
• for forest products, the difficulty of determining whether harvesting will induce deforestation in the future—something that cannot be predicted with certainty and which typically will not become evident in satellite data until several years after the event (particularly when logs are from family forest owners that are free agents, over whom purchasing mills may have only limited leverage).

Therefore, both the jurisdictional and plot-based approach have distinct advantages, but each also has very significant limitations seen by their respective detractors as rendering them unfit for purpose.

The debate has become particularly polarised in the EU. Many industry interests have argued that the sheer amount of aggregating, mixing, and sorting required to manufacture composite products means that the plot-based approach is, at best, extremely costly and, in some cases, impossible. Some ENGOs and regulators are equally assertive that requiring products to be traced only as far as a particular jurisdiction, no matter how low the risk in that area, leaves the door open to mixing of high-risk commodities brought in from elsewhere.

The SHC resolves this dilemma through development of a “micro-jurisdictional” approach. It will provide a robust assurance of provenance to individual counties, the smallest and most fundamental administrative divisions in the U.S. which are sufficiently compact to ensure a homogenous level of deforestation risk. The assurance of county provenance will be delivered by combining a rigorous independently audited chain-of-custody framework with the latest technical developments in plant-chemistry-based techniques for source identification.

SHC is cooperating with the U.S. Forest Service International Programs’ Wood Identification and Screening Center (WISC) in their work to develop Laser-induced Breakdown Spectroscopy (LIBS) to allow testing of finished products on-site, using portable hand-held devices. Use of this technology requires the prior establishment of a comprehensive database of timber samples covering a variety of commercial species from across the U.S. hardwood production area. The larger and more representative the database, the higher the resolution and confidence of the provenance test. Work on this is already well underway and early indications are that it will be able to reliably identify the county of origin of U.S. hardwoods contained in finished products (although not the individual property which is beyond the ability of any technology where ownership is as fragmented as in the U.S.).  

The SHC assurance of county provenance is combined with comprehensive independent expert analysis of the risk of commodity driven deforestation in individual U.S. counties through regular monitoring of satellite data, and of illegality risk through assessments at state level (since state authorities have primary responsibility for forest regulation in the U.S.). The chain of custody standard will require that primary hardwood processors and exporters of logs and other unprocessed hardwood material develop and implement targeted plans to mitigate illegality risks in the states and deforestation risks in the counties from which they are sourcing timber.  

SHC believes this “micro-jurisdictional” program combines the best of the plot-level and jurisdictional approaches, while overcoming the pitfalls of both. It is robust, effective, efficient and equitable in the context of U.S. hardwoods sourced from non-industrial family forest owners. It may well have wider relevance for the development of policies and regulations promoting legal and deforestation-free commodities in other parts of the world.