UPM Annual Report 2022

BUSINESSES

UPM

BEYOND FOSSILS

RESPONSIBILITY

GOVERNANCE

ACCOUNTS FOR 2022

GREEN GROWTH WITH ADVANCED BIOFUELS UPM BIOREFINING - UPM BIOFUELS

Our products meet the need to reduce transport emissions and find renewable alternatives to the production of various fossil-based plastics.

OUR DIRECTION • Unique, sustainable, advanced biofuels and biomaterials in numerous markets and segments • Expanding the biofuels business

OUR STRENGTHS • Established producer of renewable diesel and naphtha • Sustainable bio-based alternative to fossil feedstock in the petrochemical industry • Advanced biofuels belong to the highest sustainability class of biofuels

PLANNED ACTIONS FOR 2023 • Continue the basic engineering of a next generation biorefinery in Rotterdam • Assess the growth opportunities and new sustainable feedstocks

CASE

Our renewable and sustainable biofuels mitigate climate change. Advanced biofuels reduce greenhouse gas emissions by more than 80% compared to fossil fuels. We also offer wood-based naphtha that can be used as a low-emission biocomponent for gasoline or for replacing fossil-based raw materials in the petrochemical industry to produce mul tiple types of plastic. Our strategy based on proprietary technology and UPM’s integrated feedstocks, supplying highly sustainable renewable fuels, is truly delivering results. UPM's operations are based on a cir cular bioeconomy and the raw material, crude tall oil (CTO), is a residue from pulp production. Our biofuels production does not compete with the production of food in land-use or raw materials. Our products offer customers ways to replace fossil raw materials and reduce their carbon foot print. They meet the most comprehensive sustainability criteria and are awarded certifications including the Roundtable on Sustainable Biomaterials (RSB) certifica tion and the International Sustainability & Carbon Certification (ISCC) sustainability standards. Our main markets are in North ern and Central Europe.

Market dynamics reshaped The biofuels market remained strong in 2022, with increased tightness in Europe. Markets were supported by the supply chain impacts of Russia’s war in Ukraine as well as continuous demand growth for biofuels driven by climate targets. The year was marked by a dedicated and compulsory mandate for advanced biofuels based on EU-wide rules, which became a reality and was transposed into national legislation. Market prices were at record high level. In the normal operating months, we achieved record production and profitabili ty in the strong markets for renewable fuels. In January-May, biofuels operations were affected by the negotiations on collective labour agreements and the related strike in Finland. In the second half of the year, production rates of the UPM Lappeenranta Biorefinery stood at very high levels. Input costs increased during 2022, as market volatility and uncertainty impacted natural gas and electricity prices. In addi tion, crude tall oil (CTO) markets became tighter due to increased replacement of fossil fuels, harder competition and loss of Russian volumes.

Focus on growth Global demand for biofuels is expected to grow substantially by 2030 driven by blending mandates. UPM aims to become a major European player in the produc tion of advanced biofuels, which play an important role in UPM's Biofore strategy (page 20). We are currently investigating growth opportunities in biofuels and biochemical feedstock. In January 2021, we began con ducting the commercial and basic engineer ing study for a next generation biorefinery in Rotterdam, in the Netherlands. The planned biorefinery would improve the long-term competitiveness and sus tainability performance of UPM Biofuels. We are studying several residue-based feedstocks and technologies for the most valuable end-uses in the transport and petrochemical sectors. The use of green hydrogen is also being studied as part of the technology concept. The planned biorefin ery would enhance material efficiency with solutions based on the use of waste and residues without compromising global food production or biodiversity.

EUROPE NEEDS MORE ADVANCED BIOFUELS

A recent report has revealed that around 30% of fossil-derived fuels used for trans portation in the EU could be replaced with advanced biofuels by 2050. Globally, transport accounts for about a quarter of CO 2 emissions. Heavy-duty transport, shipping and aviation will soon require new solutions and will need to act rapidly. While electrification progresses, the legacy fleet of internal combustion engines will outnumber the electric fleet for a long time to come. In terms of meeting the 55% emission reduction target of the EU climate plan, advanced biofuels offer a fast-track solution to significantly reduce emissions. UPM's planned biorefinery would help Europe meet this target and reduce dependence on non-EU energy sources. The total annual use of biofuels in Europe is currently between 17 and 20 million tonnes. All sustainable solutions must be used to increase Europe’s energy security and reduce the use fossil fuels. Geopolitical chal lenges make this more important than ever.

Towards climate neutrality Fossil substitution plays a key role in enabling the EU's green growth and cli mate neutrality by 2050. UPM’s biofuels facilitate the EU's targets for greenhouse gas (GHG) reduction and our biofuels belong to the most demanding sustain ability category of the Renewable Energy Directive (REDII). Products eligible for this category are of premium quality and We fight climate change with advanced biofuels and bio-based raw materials.

can be classified as advanced biofuels. Our UPM Lappeenranta Biorefinery, with the annual capacity of 130,000 tonnes, is the largest advanced biofuels-only biorefinery in the EU. Predictable regulation is one of the key elements that enables green growth in vestments. We support increased emission reduction targets in transport and the in creased mandate for advanced biofuels. The EU’s target to speed up the deployment of other low-emission alternative energies for transport, such as electricity, hydrogen and renewable synthetic fuels, opens interesting growth opportunities for UPM with well-fit ting know-how and assets.

www.upmbiofuels.com

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UPM ANNUAL REPORT 2022

UPM ANNUAL REPORT 2022