Summary
Demand-side trade regulation is promoted as a policy tool to reduce negative environmental and socioeconomic footprints associated with global commodity supply chains. We present a theory of change (ToC) that explains how the economics of pro-environmental trade regulation can be expected to work, using the recent EU Regulation on Deforestation-free products (EUDR) as a topical illustration. Along this complex ToC, we review and characterize multiple factors that might either constrain overall policy effectiveness or enhance it. Evidence suggests that, in addition to land-use leakage (the displacement of environmental pressures to unregulated domains), predictably strong market-segregating responses might rearrange sourcing and trading patterns, especially where EU commodity import shares are low. Lacking observable and attributable land-use changes, segregation spillovers are harder to document. We outline an economically informed interdisciplinary research agenda around the potential impact pathways of demand-side trade regulations. However, our ex-ante conceptual policy assessment also cautions of potential functional shortcomings in reaching the desired global forest-protective goals.