UPM Annual Report 2022

RESPONSIBILITY

UPM

BEYOND FOSSILS

BUSINESSES

GOVERNANCE

ACCOUNTS FOR 2022

ACTIONS FOR ENVIRONMENT

however, not possible. We also need other solutions to mitigate climate change. UPM Biofuels is supplying renewable fuels for decarbonising traffic. We are also studying business cases for utilising green hydrogen and biogenic CO 2 to possibly produce syn thetic fuels and chemicals in the future. The energy crisis has caused energy pric es to rise in Europe. It has also increased the risks related to political interventions and changes in energy market regulation and taxation. It is crucial that such mea sures do not reduce the incentives for ener gy investments that drive the transition to a low-carbon economy. Regulatory measures should not interfere with the market price signal, which is needed to balance the elec tricity markets in all circumstances. Several ongoing projects We favour the use of renewable and other carbon-neutral energy sources. UPM Energy is a major energy provider in Finland with assets in Finnish hydropower and nuclear power, as well as thermal power to a lesser extent. Hydropower is the most effective and sustainable method of producing balanc ing power for the volatile electricity grid. Nuclear power provides a reliable baseload generation of electricity; it relies on Finland’s unique and safe solution for the final disposal of spent fuel. 95% of UPM Energy’s electric ity is emission-free. The start of OL3 in April 2023 will increase UPM Energy’s CO 2 -free electricity generation by nearly 50%. UPM Energy also completed the exten sive modernisation project of the Kuu sankoski hydropower plant in early 2023. Ultracapacitors have been installed at two

Electricity generation and consumption by country TWh

TAKING CLIMATE ACTION WITH ENERGY We are seeking new solutions and optimising energy sources and generation methods. Our energy portfolio consists mostly of energy sources that do not cause fossil CO 2 emissions.

0 1 2 3 4 5 6 7 8 9

Finland

Germany

China

Uruguay

Austria

US

UK

Other

Electricity consumption Electricity generation, mills Electricity generation, UPM Energy

IMPACT • Minimising the use of fossil fuels is the most important way to mitigate climate change • Supporting the transition to a low-carbon economy • Decarbonising traffic TARGETS • Significantly cut fossil CO 2 emissions across the whole supply chain and increase energy efficiency • Minimise other air emissions in production and transportation

OUR WAY • Committed to the UN Business Ambition for 1.5°C and The Climate Pledge • Committed to continuous improvements in energy efficiency and to an increased share of renewable and low-emission energy • Optimising our energy use and offer flexibility • Science-based targets of our CO 2 emissions reduction • Use of Best Available Techniques (BAT) • Focus on 2030 responsibility targets

65% reduction of UPM's total CO 2 emissions (Scope 1 and 2) from 2015 level 34% reduction achieved

TARGETS 2030

by external or co-owned power plants or provided by UPM Energy. Continuous improvement in energy efficiency We are looking for ways to improve our energy efficiency across our operations with audits, innovations and investments. Improvements usually lead to a reduction in CO 2 and other air emissions as well. We took a number of measures at many paper mills in 2022. In Germany, we imple mented evaporative cooling of the intake air on the gas turbine at UPM Plattling, an ad vanced process control for process optimis ation at UPM Augsburg’s deinking plant and a new heat exchanger for one paper machine at UPM Schongau. At UPM Caledonian in

hydropower plants to provide energy stor age for rapid reaction to demand changes. Also, four new dual-fueled LNG vessels have been taken in use in European sea routes during 2022, and three of them will be in service by end of the first quarter in 2023. The majority of our energy consumption is due to the production processes at the paper and pulp mills, where electricity and heat are needed for mechanical pulping, pumping and drying. We generate steam and electricity through combined heat and power (CHP) plants. Biomass-based fuels account for 65% (70%) of our fuel usage at production sites. The temporary decrease is due to the strike at the Finnish mills at the beginning of the year. At some mills, all or part of the required energy is produced

TARGETS 2030 20% reduction of acidifying flue gases from 2015 level

28% achieved for the UPM average product

We generate significantly more elec tricity than we consume, and this net selling position will increase to over 7 TWh when the OL3 nuclear power plant unit in Finland and the new UPM Paso de los Toros pulp mill in Uruguay are fully operational. Flexibility in the electricity market Energy is no longer just a raw material. Managing the whole electricity system is now essential. That requires more flexibil ity from households and industries, and a well-functioning, open market that ensures supply and demand stay in balance. This is also good business for us, as we time electricity generation to the high-con sumption hours and electricity consumption to the low-consumption hours. Electrification of the whole economy is,

The global energy sector accounts for over 70% of all greenhouse gas emissions. To cut the emissions from fossil fuels, more renew able and low-emission energy is needed. Wind and solar power are growing exponen tially, but they are dependent on weather conditions. This increases volatility in both electricity supply and prices. Therefore, the transforming energy markets need nuclear energy for stability, hydropower and natural gas for balancing, and innovations for elec tricity storage capability. Managing electrici ty markets has become a balancing act. Russia’s war in Ukraine pushed the energy markets into crisis as several former supply channels were no longer available. Fossil-based emissions need to be cut and therefore the electrification of society with low-emission sources is accelerating. At the same time, the security of the electricity

supply has become more important. All this drives demand for low-emission electricity. A unique dual role UPM is the second largest electricity pro ducer in Finland but also the largest con sumer of electricity. We contribute to main taining the balance of the electricity system by helping when there is a risk of electricity shortages, either by reducing consumption at our paper mills or by increasing produc tion at our hydropower plants. We are consistently developing our energy portfolio, growing our CO 2 -free electricity generation in UPM Energy and switching our energy-consuming business es to lower-emission energy sources. We are contributing to the decarbonisation of the electricity system by growing the supply of reliable, emission-free electricity.

CASE

WE PARTICIPATE IN ENERGY ACTIONS

UPM Hürth’s biomass boiler, installed by E.ON, will supply carbon-neutral heat and elec tricity to the mill and the public power grid from 2023 onwards. The use of biomass, i.e., residual wood from the region, reduces greenhouse gas emissions and slows down global warming. At UPM Tervasaari, we are now using an electric boiler alongside the gas boiler to pro duce the steam required for the mill’s production

processes. The new boiler will improve steam production efficiency and reduce CO 2 emissions. Heat recovery will also be improved. At the beginning of 2023, a new Finnish wind farm will begin supplying renewable energy to UPM’s paper mills. These investments are expected to lead to a reduction of, at minimum, 300,000 t of fossil CO 2 emissions.

We invest in sustainable energy supply, which supports the transformation of energy systems in Germany and Finland. UPM Nordland Papier’s new combined heat and power plant enables us to reduce dependency on the ener gy grid and actively participate in the German electricity market.

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UPM ANNUAL REPORT 2022

UPM ANNUAL REPORT 2022