Accounting for trade in derived products when estimating European Union's role in driving deforestation

Governments across the world are increasingly seeking to ensure that the products consumed in their countries meet certain sustainability standards. However, the places of production—where major impacts occur—are often distant from the places of consumption. Physical trade models are suited to estimate the link between consumption and production impacts for individual commodities, but often ignore trade in derived products, obtained by processing primary commodities, especially for non-food products. Derived products which are manufactured using multiple primary commodities, such as shoes containing leather, rubber, as well as other textile materials, pose a special challenge for these models. This can lead to biased assessments of sustainability risks and obscure leverage points to address them. To mitigate the risk of bias, here we present an approach for assessing the importance of accounting for trade in derived products when attributing impacts. We apply the approach to trade in rubber and bovine hide products and associated deforestation to assess the coverage of relevant products included in the European Union (EU) regulation on deforestation-free products (EUDR), as well as to inform future revisions of the regulation's scope. We consider trade flows for 135 types of rubber products and 37 types of products derived from bovine hides. We find that rubber and bovine hides enter the EU at different stages of the supply chain. While natural rubber enters the EU at an early processing stage, through imports of raw natural rubber, most products derived from bovine hides enter the EU either as processed products or as consumer goods. Our results thus highlight that depending on the product, the share of total deforestation attributed to the EU's consumption could be significantly affected by choices in which derived products are accounted for. Weighting the costs and benefits of the inclusion of derived products for each commodity is therefore key to designing demand-side policies that cost-effectively and successfully address the deforestation risk associated with consumption.