One of the policy failures of the new EU Deforestation Regulation (EUDR) is that it’s likely to increase supply chain carbon emissions. How? By encouraging the import of raw materials into the EU market at the expense of value-added ones. If the EU market for US hardwoods responds to the EUDR by shipping logs instead of lumber, supply chain CO2 could increase 4x for some species. This article is Part (1) in a series exploring how the EUDR encourages the shipment of US hardwood logs to the EU at the expense of lumber, and the subsequent increase in EU supply chain carbon emissions. In this article, we look at how the EUDR will encourage the U.S. hardwood log trade at the expense of value-added products, like lumber.
A forest of smallholders
The US hardwood forest is owned by many smallholders. In the eastern US, which accounted for 98% of all U.S. hardwood harvested in 2012, there are over 9 million forest owners. Each of these owners holds only about15 hectares of forest on average. This means that sawmills need to buy timber from many timber harvest sites. And, according to the American Hardwood Export Council (AHEC):
Because harvest volumes from each plot of land are so small, a typical hardwood mill needs to purchase logs from as many as several hundred forest owners each year within a 25 to 150 mile radius. The following year, that same mill will purchase from a different set of several hundred owners.
Hundreds of GPS coordinates
As a sawmill accumulates logs, sorts and mills them, and then does the same with the lumber, maybe multiple times, a single export consignment of U.S hardwood lumber could originate from tens, if not hundreds of timber harvest locations. The EUDR requires importers of wood products into the European Union to provide the GPS coordinates of the real estate property(s) from which all trees used in making the product were harvested.
As AHEC explains in its July 2022 comment on the EUDR:
… even a small U.S. hardwood mill would likely be under an obligation to provide a list of at least several tens, and probably hundreds, of geolocations to identify the “plots of land” from which wood in each individual consignment might be derived. An exporter operating a concentration yard – purchasing from a range of sawmills and where additional sorts are often made to ensure each customer is supplied with wood of specific species, quality, size, and color – will be required to provide a list of several hundred, perhaps even thousands, of plots of land with each consignment.
High-risk comes with a heavy cost
Not only does the EUDR require that buyers know and document the GPS coordinates from each plot of land where the trees used in making the product were harvested, but a process of due diligence involving risk-analysis and mitigation is required for product originating in countries labeled “high risk” by the EU.
Based on the criteria that the European Commission will use to determine risk, it’s likely that US hardwoods will be labeled high risk. (For more on this, see: Will the EUDR label US hardwood lumber high-risk?) Providing geolocation data for hundreds of plots of land for a single shipment is not viable, especially if a due diligence process is required to determine a negligible risk of deforestation, forest degradation, and/or illegality for each site. This is, in part, why AHEC claims that only 10% of US hardwood lumber production can meet EUDR requirements. (That which originates from large corporate or government-owned forests).
EUDR will replace lumber with logs
So, what happens if 90% of US hardwood lumber production cannot comply with the new EUDR law? There are several scenarios. One, US hardwood lumber will be imported into the EUDR illegally in a new black market created by the law. Two, US hardwoods will be substituted with lumber (or lumber species) from other countries of origin that do not face the same traceability challenges that the United States does. Three, wood products will be substituted with plastics, metals, concrete or other non-wood products. Or four, instead of buying value-added US hardwood lumber products, the EU will purchase US hardwood logs instead.
While a mix of all of the above is likely to occur as the EUDR law goes into effect, the easiest and least risky of market responses is scenario (4) – replacing containers of lumber with logs. Shipping containers of logs will require only a single, or several, sets of geolocations and due diligence processes versus potentially hundreds for containers of lumber.
Conclusion
Under the new EU Deforestation Regulation, a single US hardwood export lumber consignment could require hundreds of sets of GPS coordinates and complex due diligence processes. Because of this, the American Hardwood Export Council claims that only 10% of American lumber production will be legally available to the EU market. To replace this shortfall in supply, the EU market will likely turn to importing more logs, since containers of logs will be easier to trace, be EUDR compliant, and not carry the immense due diligence costs that value-added products (like lumber) will. Shipping logs is much more carbon intensive than shipping lumber, increasing the carbon emission of EU’s forest commodity supply chains – exactly the opposite of what the EUDR intends to do.
Stay tuned for Part (2): Replacing U.S. hardwood lumber with logs in the EU market: The case of Walnut
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