Can Trade Restrictions in Europe Reduce Deforestation in Indonesia?

December 15, 2021. Consumer countries are increasingly attempting to combat tropical deforestation by restricting their imports of palm oil, soy, beef, and other commodities that are grown with high levels of tropical deforestation. However, such policies may have a much smaller effect on deforestation than their authors hope.

If Europe had banned imports of high-deforestation palm oil from 2000-2015, then deforestation in Indonesia over that time period would have only been 1.6% less than it actually was, while the carbon dioxide emissions from deforestation would have only been 1.9% less.

These are the findings of a new study published today in Environmental Research Letters that I wrote with co-authors at Conservation International, Earth Innovation Institute, Purdue University, Research Triangle Institute, and University of Mainz.

Trade restrictions as climate policy

Tropical deforestation is the second-leading cause of climate change behind burning fossil fuels. And the leading cause of tropical deforestation is conversion of forests to land used to grow commodities such as palm oil, soy, and beef that end up consumed on dinner plates far outside the Tropics.

So it’s understandable that consumer countries seeking to reduce global forest loss to zero by 2030, as leaders of more than 100 countries pledged last month at the Glasgow climate summit, should scrutinize their connection to tropical deforestation through the food they import.

The European Union recently proposed restricting imports of commodities grown with high or illegal levels of deforestation. Similar policies have already been enacted in the United Kingdom, Netherlands, Norway, and France. In Washington, DC, Senator Brian Schatz (D-HI) has introduced a bill prohibiting imports of commodities produced on land undergoing illegal deforestation. And in California where I live, the Legislature passed a bill prohibiting state contractors from selling commodities grown on recently deforested land (subsequently vetoed by Governor Gavin Newsom).

Such import restrictions shift the costs of assuring that globally traded agricultural commodities are deforestation-free from relatively wealthy consumers in Europe and North America to farmers in the Tropics. Unsurprisingly, such restrictions are viewed unfavorably by commodity-exporting tropical nations. Indonesia and Malaysia perceived (earlier) European restrictions on palm oil as protectionism for northern farmers, and brought legal challenges to the World Trade Organization.

Modeling the effects of import restrictions on deforestation and emissions

Despite the central—and controversial—role of import restrictions in consumer countries’ climate policies, their effectiveness at reducing deforestation has not been modeled until now. Previous economic studies of palm oil import restrictions (such as this, this, this, and this) did not distinguish whether palm oil was produced with high or low deforestation. The current wave of public policies makes this distinction, and our model does as well.

My co-authors and I modeled the effects of import restrictions in Europe on deforestation and emissions in Indonesia by combining a global trade model with a model of land-use change in Indonesia. We distinguished palm oil grown with high and low levels of deforestation using satellite-derived maps of forest and oil palm plantations over time.

We chose to study palm oil because this commodity is one of the biggest contributors to tropical deforestation and has seen some of the sharpest pressure campaigns from activists. We studied exports from Indonesia because it grows more than half of the world’s palm oil, and because its deforestation routinely puts it in the top five countries for climate-changing emissions. And we studied imports to Europe, the consumer of 10% of the world’s palm oil, because European countries have been at the forefront of imposing import restrictions.

Not just confrontational, but also ineffective

We estimated that if Europe had banned imports of high-deforestation palm oil from 2000-2015, deforestation in Indonesia would have only been 1.6% (21,400 hectares per year) less than what actually occurred over that time period, while emissions from deforestation would have been 1.9% (21.1 million tons of carbon dioxide per year) less.

The impacts of a ban would be small for three reasons. First, about half (52%) of the high-deforestation palm oil that would have been exported to Europe would shift to other regions instead (see Figure). Second, even big changes in the price of palm oil barely budge deforestation—every 1% decrease in the price of palm oil was associated with just a 0.13% decrease in conversion of forest to oil palm cropland in Indonesia. And third, only one-third (32%) of deforestation in Indonesia was due to oil palm, with the rest due to pulp and paper plantations, small-scale agriculture, conversion to grasslands, and other uses.

Changes in trade flows of high-deforestation palm oil and low-deforestation palm oil resulting from European demand-side restrictions on high-deforestation palm oil, 2001–2015. Volumes represent monetary value of trade measured in million USD at 2011 constant prices.

The impact of an import ban would be increased by expanding the set of countries who restrict imports, but not by much. Even if the whole world outside of Indonesia and Malaysia restricted imports of high-deforestation palm oil, Indonesia’s deforestation from 2000-2015 still would have only been 3.8% lower, and its emissions from deforestation 4.5% lower.

As modest as these effects are, real world impacts of import restriction would likely even smaller. Real-world restrictions cover only a fraction of palm oil imports, and only a fraction of oil-palm-associated deforestation. Furthermore, the transaction costs associated with distinguishing high- from low-deforestation commodities can be considerable, and can pose disproportionate challenges to smallholders.

If import restrictions are to succeed in substantially reducing deforestation, therefore, it would have to be through effects that are outside the scope of our economic model. These “non-price pathways” might include societal shifts such as heightened consumer awareness or changing social norms. Or big companies in commodity supply chains might apply European standards to exports to all markets and not just exports to Europe. Or import restrictions might have synergistic effects with other domestic, bilateral, or corporate forest conservation actions.

Conversely, there are also non-price pathways that could increase deforestation. For example, backlash to perceived protectionism could result in tropical countries enacting compensatory domestic price support policies, as in the case of Indonesian biofuel mandates. Such non-price effects, both positive and negative, could conceivably have a larger impact on land-use changes than the direct price effects that we modeled.

Vinegar, or honey?

So what should wealthy consumer countries do to reduce tropical deforestation?

Tropical countries’ policy options to address their own deforestation domestically are often described as positive “carrots” or punitive “sticks.” But consumer countries outside the tropics have neither option—they can only hope to persuade other sovereign nations to reduce deforestation using vinegar or honey.

Trade restrictions are sour, confrontational vinegar: "if you deforest, we’ll curtail our trade with you.” An alternative approach offers sweet, cooperative honey, in the form of international carbon payments: “if you keep your forests standing, we’ll pay for the climate benefits.” Our paper finds that hypothetical carbon payments to Indonesia for reducing emissions from deforestation could have exceeded the effects of trade restrictions at just $0.81/tCO2—an order of magnitude or two cheaper than current prices in most carbon markets.

I’ll be the first to admit these are disheartening times for proponents of international carbon payments. Since 2005, an international climate program called Reducing Emissions from Deforestation and forest Degradation (REDD+) has sought to make tropical forests worth more alive than dead through results-based payments for the carbon they store. For the more than a decade and a half, REDD+ has been hamstrung by levels of finance that are far too low and far too slow to compete with profits from deforestation. And in recent years, high-profile international results-based payment agreements between Norway and two too-big-to-fail tropical forest countries, Brazil and Indonesia, have collapsed.

Frustration with results-based payments has surely driven some of the momentum toward more confrontational approaches. And yet, in the absence of positive and cooperative approaches, international relations around tropical deforestation and climate change risks devolving into finger pointing and stone casting.

Perhaps the best we can hope for is that the vinegar of trade restrictions will be complemented with the honey of positive support for forest conservation. A sort of tangy, palatable (and ideally, deforestation-free) vinegar-and-honey vinaigrette salad dressing.

Several of the consumer countries that have imposed restrictions on imported deforestation have combined restrictions with positive approaches. Norway’s ban on high-deforestation risk palm oil in biofuel was preceded by billions of dollars of results-based payments for forest conservation. California legislators’ efforts to restrict trade were preceded by the Air Resources Board’s passage of the California Tropical Forest Standard, with the potential to financially reward tropical states that reduce deforestation.

The EU, too, states that its proposal to restrict high-deforestation imports will be complemented by “partnership with producer countries to address root causes of deforestation.” Let’s hope that such partnership includes generous support for forest conservation, whether in the form of results-based payments, or upfront financial or technical assistance.

Without positive support for forest conservation, our paper shows, trade restrictions should not be expected to do much to keep forests standing.

CITATION: Busch, J., Amarjargal, O., Taheripour, F., Austin, K.G., Siregar, R.N., Koenig, K., Hertel, T.W. (2022). Effects of demand-side restrictions on high-deforestation palm oil in Europe on deforestation and emissions in Indonesia. Environmental Research Letters, doi.org/10.1088/1748-9326/ac435e.

LINK: https://iopscience.iop.org/article/10.1088/1748-9326/ac435e