UPM Annual Report 2023

RESPONSIBILITY

UPM

BEYOND FOSSILS

BUSINESSES

GOVERNANCE

ACCOUNTS FOR 2023

One year closer to the climate targets of 2030 and fossil fuels consumption is yet to reach its peak, according to estimates from the In ternational Energy Agency (IEA). The global energy sector accounts for the majority of all greenhouse gas emissions. To cut these emis sions, more renewable and CO 2 -free energy is required. Investments in green energy are on the rise and a new record was set for global wind power capacity built in 2023. However, wind and solar power produc tion are dependent on weather conditions. This increases volatility in both electricity supply and prices. The transforming energy system needs nuclear power for stability, hydropower and thermal power plants for balance, and innovations for efficiency and electricity storage capability. The energy crisis caused by Russia’s war in Ukraine has eased, but the roots of the crisis remain. Europe is still looking for ways to replace natural gas formerly imported from Russia and the use of fossil fuels is high, especially in Central Europe. To mitigate climate change, fossil-based emissions need to be cut. This will acceler ate the electrification of society and drive the demand for low-emission electricity. Expertise in flexibility UPM is the second largest electricity pro ducer in Finland but also the largest con sumer of electricity. Being both a producer and consumer has brought us valuable ex pertise now that price and supply volatility has become the new normal on electricity markets. We contribute to maintaining the balance of the electricity system by helping when there is a risk of electricity shortag es, either by reducing consumption at our paper mills or by increasing production at our hydropower plants. This is also good business for us, as we optimise both our electricity production and consumption according to the price and demand of electricity, i.e. to meet the needs of the electricity system. We are consistently developing our energy portfolio, managing our CO 2 -free electricity generation assets in UPM Energy and switching our energy-con suming businesses to lower-emission energy sources. We are contributing to the decarbonisation of the electricity system by growing the supply of reliable, CO 2 -free electricity.

We generate significantly more electricity than we consume, and this net selling position increased to over 7 TWh with the new OL3 nu clear power plant unit in Finland and the new UPM Paso de los Toros pulp mill in Uruguay. Exploring possibilities in transformation Even though getting rid of fossil fuels means intensifying the electrification of society, electrification of the economy as a whole is 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 clean and green hydrogen and biogenic CO 2 to possibly produce synthetic fuels and chemicals in the future (page 91). The energy crisis caused energy prices 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 measures do not reduce incentives for energy invest ments that are driving 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. We favour the use of renewable and other carbon-neutral energy sources. UPM Energy is a major electricity 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 balancing power for the increased volatility of the electricity grid. UPM Energy completed the extensive modernisation of the Kuusankoski hydropower plant in the spring of 2023. Nuclear power provides reliable baseload generation of electricity; it relies on Finland’s unique and safe solution for final disposal of spent fuel. 99% of UPM Energy’s electricity is CO 2 -free. The start of operations at OL3 in May 2023 increased UPM Energy’s CO 2 -free electricity generation by nearly 50%. Energy action at our production sites The majority of our energy consumption is due to 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 76% (65%) of our fuel usage at production sites. The increase is mainly due to our new pulp mill in Uruguay. At some mills, all or part of the required energy is produced by external or co-owned power plants or provided by UPM Energy. In 2023, we invested in electric boilers for heat and steam production at our mills in Finland and Germany, mainly to replace the use of natural gas. The boilers will improve security of heat and steam gener ation and reduce emissions depending on replaced fuels and purchased electricity’s CO 2 factors (page 49). UPM Hürth’s biomass boiler, invested by E.ON, will supply carbon-neutral heat and electricity to the mill and the public power grid from 2024 onwards. The use of biomass, such as residual wood from the region, reduces fossil CO 2 emissions. A new Finnish wind farm has been supplying re newable energy to UPM’s paper mills since the beginning of 2023. We are contributing to the decarbonisation of the electricity system by growing the supply of reliable, CO 2 -free electricity. We are especially 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. Our measures in 2023 include new vac uum blowers to replace energy-consuming pump systems and a new efficient grinding stone, which will significantly reduce elec tricity use and CO 2 emissions at the UPM Caledonian paper mill in the UK. We carry out studies to evaluate the use of heat exchangers and heat storage at our paper and pulp mills. UPM Schongau con tinued with the installation of a new heat exchanger at its TMP plant. The project will be finalised in 2024. UPM Jämsänkoski has invested in a high capacity line for its TMP plant, increasing energy efficiency and decreasing the need for electricity. UPM Tervasaari replaced

TOWARDS FOSSIL-FREE ENERGY ACTIONS FOR ENVIRONMENT

Our energy portfolio consists mainly of energy sources that do not cause fossil CO 2 emissions. More fossil-free electricity as well as expertise in optimising energy use is needed as the green transition moves forwards.

IMPACT • Minimising the use of fossil fuels is the most important way to mitigate climate change • Supporting the energy transformation • 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 • Continuously improving our energy efficiency and increasing our share of renewable and low-emission energy • Market-based operations: optimising our energy use and offering flexibility for the grid and the markets • 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 45% reduction achieved

TARGETS 2030

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

17% achieved for the UPM average product

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UPM ANNUAL REPORT 2023

UPM ANNUAL REPORT 2023