UPM Annual Report 2019

UPM Biorefining | Biofuels

OUR DIRECTION • Unique, sustainable, advanced biofuels and biomaterials in various markets and segments • Opportunities for scaling up the biofuel business OUR STRENGTHS • Established producer of low-emission renewable diesel and naphtha • Sustainable bio-based alternative to fossil feedstock in the petrochemical industry • Certified with international sustainability standards ISCC and RSB

DRIVING CLEANER TRAFFIC

UPM is producing renewable diesel and naphtha fromwood-based residue at the UPMLappeenranta Biorefinery, Finland. The biorefinery’s processes transform crude tall oil, a residue of pulp making, into renewable diesel for road transport. UPMBioVerno drop-in diesel is a competitive and sustainable alternative to fossil fuels or first-generation biofuels. The process also generates renewable UPMBioVerno naphtha, which can be used either as a low-emission biocomponent for gasoline or as feedstock for replacing fossil rawmaterials in plastics and other chemical industry solutions. By collaborating with other sustainability frontrunners, UPMhas launched innovations such as a 100% wood-based, fully recyclable milk carton created in collaboration with Dow and Elopak. Another outcome of partnering is UPMRaflatac Forest Film™, a 100%wood- based label material made fromUPM BioVerno naphtha. In addition to renewable diesel and naphtha, the biorefinery produces wood- based chemicals. For example, UPM’s turpentine can be used in the production of bio-based aroma chemicals for the fragrance industry. Another residue from the biorefinery, wood-based pitch, can be used to produce inks, bitumen for roads and roofs, or used as bioliquid.

UPMBioVerno renewable diesel produces over 80% lower greenhouse gas emissions during its lifecycle, compared with fossil diesel, and significantly reduces tailpipe emissions. Future demand for high quality, advanced biofuels is predicted to be strong, driven by climate change mitigation targets and stricter environmental standards. In 2019, for example, the Finnish Parliament approved a law to gradually increase the use of biofuels to 30% and advanced biofuels to 10% by 2030. This is a world-leading target for advanced biofuels. Other EU member states are setting similar targets. Future plans for decarbonisation In 2019, UPM continued to evaluate future opportunities to scale up the biofuels business with new types of technology and rawmaterials. UPM is planning a second biorefinery in Kotka, Finland, with a 500,000-tonne annual production of advanced biofuels for use in road transport, aviation and petrochemicals. The potential new biorefinery would utilise several feedstocks, such as solid wood residues and residual oils. UPM Biofuels has also been developing a new climate positive farming concept by growing Brassica carinata as a secondary crop in Uruguay with local farmers. The annual cultivation area has reached 10,000 hectares, demonstrating that the system works on a commercial scale.

The carinata crop produces non-edible oil, a feedstock for biofuel and protein for animal feed. Brassica carinata not only reduces greenhouse gas emissions when converted into fuel, but also absorbs a large quantity of carbon dioxide and stores it in soil, when cultivated on existing farmland during underutilised periods of winter. Unique sustainability certifications UPM’s biofuel production is certified for meeting the RSB (Roundtable on Sustaibale Biomaterials) and ISCC (International Sustainability and Carbon Certification) international sustainability standards. We have also taken a step further with our RSB low indirect land use change (ILUC) risk certification, to show that our products have minimal risk of causing indirect emissions. All our products satisfy the sustainability and traceability criteria of the EU Renewable Energy Directive, as well as the EU’s chemicals legislation based on a regulation concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH).

UPM Raflatac Forest Film on page 44 Developing a fully renewable beverage carton on page 23 Biofuels development on page 52 upmbiofuels.com

CASE

Wood-based plastic coating for liquid cartons reduces the fossil materials used and the carbon footprint.

ON THE ROAD TO CLIMATE-POSITIVE FUELS Transportation accounts for 25% of greenhouse gas emissions in Europe. In order to decarbonise the industry, it is important to increase energy efficiency, advance public transport and electric vehicles and replace fossils with renewables. One way to do this is by producing advanced biofuels from sustainable feedstocks. In the UPM – Climate Positive Fuels ® concept we are not only replacing fossil fuels with renewables but also removing CO 2 from the atmosphere by storing carbon in soil. Soil and plants bind atmospheric CO 2 . Biosequestration of carbon has the additional benefit of increasing soil fertility, productivity and nutrient retention. Even a small increase in soil carbon stocks can have a huge impact on compensating for the increase of human-caused CO 2 emissions.

In Uruguay, UPM is developing a climate-positive farming system using Brassica carinata oilseed plant for the sustainable production of biofuels. Carinata sequesters carbon to the soil through its large root structure and aboveground biomass. The fuel derived from Carinata seed oil is considered climate positive. UPM Biofuels received the RSB certificate for the cultivation of Carinata in 2019. It was also recognised with the world’s first RSB low ILUC (Indirect Land Use Change) risk certification for Carinata oil, which shows that using UPM’s Carinata oil from Uruguay has a low risk of generating indirect emissions elsewhere. UPM’s efforts to create a sustainable chain from farm to biorefinery is a big step towards decarbonising the transport industry.

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UPM ANNUAL REPORT 2019

UPM ANNUAL REPORT 2019

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