UPM Annual Report 2023

BUSINESSES

UPM

BEYOND FOSSILS

RESPONSIBILITY

GOVERNANCE

ACCOUNTS FOR 2023

UPM BIOREFINING - UPM BIOFUELS GREEN GROWTH WITH ADVANCED BIOFUELS

TRANSFORMATION STORY

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

OUR DIRECTION • Unique, more sustainable, advanced biofuels and biomaterials in numerous markets and segments • Expanding the biofuels product portfolio and 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 2024 • Continue the basic engineering of a planned next-generation biorefinery in Rotterdam • Assess the growth opportunities and new sustainable feedstocks

BEAUTY INSIDE OUT

Finnish cosmetics company Lumene has launched a moisturiser packaged in a bio-attributed* jar. The jar utilises a wood-based plastic raw material made from crude tall oil, a residue from pulp production. It is reportedly the first cosmetics jar that contains renewable materials in both the pack aging and the label. The new jar reduces the use of fossil-based plastics by more than 60 tonnes a year and lowers the product’s CO 2 emissions. The 50 ml jar is the company’s most used packaging, with 1.5 million units sold annually. LUMENE’s recyclable moisturiser jars contain wood-residue-based UPM BioVerno™ naphtha, which is further processed by the chemical company SABIC. The labels are made from UPM Raflatac Forest Film™ label material. All parties in the supply chain have ISCC PLUS sustainability certification. One of the best ways to reduce the use of fossil materials is to work together in the value chain. The new 97% bio-at tributed LUMENE jar, based on a mass balance approach*, is one way to reduce the use of fossil-based plastics. * Mass balance accounting is used to trace the flow of materials through a complex value chain. It provides a set of rules for allocating the bio-based content to different products in order to claim the content as "bio-attributed".

Our renewable and sustainable biofuels help to mitigate climate change. Advanced biofuels reduce greenhouse gas emissions by more than 80% compared to fossil fuels. In addition to decarbonising road transportation, we help to defossilise various other industries by offering wood based naphtha. Naphtha is the major raw material for most chemicals and plastics. UPM Bio Verno™ naphtha is a drop-in solution for replacing fossil-based naphtha allowing the production of sustainable chemicals and plastics. Our strategy is based on pro prietary technology and UPM’s integrated feedstocks. Focus on market fundamentals In 2023, demand for advanced biofuels was good and markets continued to benefit from a dedicated and compulsory mandate for advanced biofuels based on EU-wide rules. Simultaneously, European biofuels markets faced uncertainties due to eco nomic slowdown and increased imports of biofuels labelled as advanced from China.

refinery in Rotterdam, the Netherlands. The new potential biorefinery would produce high quality renewable fuels, including sustainable aviation fuels, and raw materials for the petrochemical sector, for example in bioplastic applications. In 2023, UPM Biofuels initiated proceedings to qualify its renewable fuels as sustainable aviation fuel. Our current feedstock for biofuels in the UPM Lappeenranta Biorefinery is crude tall oil, which is a residue from pulp production. In our plans to increase production of advanced biofuels, we are also considering other residue streams and by-products of the forest industry. The planned biorefinery in Rotterdam would enhance material efficiency without com promising global food production. In the future, the path to defossilisation in different transport sectors will increas ingly rely on renewable synthetic fuels. Our extensive know-how and experience in biorefinery operations not only gives us a competitive edge but also opens up growth opportunities in the realm of green hydro gen solutions (page 91).

The longer term effect of Chinese imports remains uncertain. Input costs remained at a high level. Crude tall oil (CTO) markets continued to tighten due to the increased replacement of fossil fuels and stronger competition. In the first half of the year, the turnaround shutdown impacted production rates at the UPM Lappeenranta Biorefinery. In the sec ond half of the year, production levels were good and production efficiency improved after the shutdown. Green growth opportunities UPM aims to become a major European player in the production of advanced biofu els. Markets continue to grow and be driven by climate targets. According to estimates, around 30% of fossil-derived fuels used for transportation in the EU could be replaced with advanced biofuels by 2050. Further growth in advanced biofuels plays an important role in UPM’s Biofore strategy (page 23). We are currently con ducting the commercial and basic engineer ing study for a next-generation biofuels

Europe by 2030, reflecting a considerable increase on today’s production capacity and creating significant opportunities for new investments. Our wood-based advanced biofuels mitigate climate change.

Towards 2030 UPM’s advanced biofuels belong to the most demanding sustainability category of the Renewable Energy Directive (RED II and forthcoming RED III), which includes residues from agricultural and forestry activities. Our UPM Lappeenranta Biore finery, with an annual capacity of 130,000 tonnes, is the largest advanced biofuels-on ly refinery in the EU. The newly adopted RED III Directive includes an increased target for advanced biofuels in the transport energy mix in

www.upmbiofuels.com

52

53

UPM ANNUAL REPORT 2023

UPM ANNUAL REPORT 2023