1 | © UPM

Marko Janhunen, Vice President, Stakeholder Relations, UPM Biorefining TransSmart-loppuseminaari 16.02.2017

Biopolttoaineet: ohituskaista vähähiilisyyteen

EU’s greenhouse gas reduction targets cannot be met without significant emission cuts in transport – actions needed in all sectors

25%

Biofuels are needed in short and long-term to meet EU’s ambitious greenhouse

gas reduction targets

of total emissions in Europe from

transport

Transport emissions by sector

Drop-in biofuels are a solution for GHG reduction in all

transport sectors

Electric vehicles can be applied in light-duty road

transport

- 40%

- 60%

- 80%

by 2030

by 2040

by 2050

EU’s overall GHG reduction targets

Source: European Comission, Climate action

EU targets 40% reduction in GHG emissions by 2030 to keep global warming below two degrees Targets cannot be met without significant emission cuts in transport

3

Decarbonizing European

transport requires effective

use of all energy and

technology options –

Renewable drop-in fuels:

a fast-lane solution

* Calculated based on ”Global EV sales outlook to 2040” by Bloomberg New Energy Finance * Assuming EV’s represent 38% of new car sales in Europe by 2040 + EV’s are fully emission free ** Assuming annual energy efficiency improvement of 2% in light-duty, 0,5% in heavy-duty

UPM BIOREFINING

UPM ENERGY

UPM RAFLATAC

UPM SPECIALTY PAPERS

UPM PAPER ENA

UPM PLYWOOD

UPM BIOCOMPOSITES UPM BIOCHEMICALS

UPM today

Wood is a unique and excellent raw material for mitigation of global challenges

5

SUSTAINABLE

VERSATILE

RENEWABLE NON-FOOD

NON-GMO RECYCLABLE COMPETITIVE

LOW MARKET VOLATILITY

Wood raw material is the basis of many different businesses at UPM

6

Bark and branches to biofuels and energy

Fibres to pulp

Lignin to biochemicals

Extractives to renewable diesel or biochemicals

Logs for sawn goods and plywood

Fibres to biofibrils

Cellulose or hemicellulose to biochemicals

Fibres to biocomposites

New business opportunities for UPM

7

• Auxiliary for pharma R&D

• Industrial Applications

• Performance chemical

• New applications

• New material • End-user product

• High volume products • Economies of scale • Drop-in applications

Biofuels Biofibrils

Biocomposites Lignin

Biochemicals

Biorefinery Chemicals Biorefinery Chemicals

Market entry 100 kt renewable diesel Renewable naphtha

2 production sites

Opportunities in Advanced Biofuels

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Capturing synergies by full integration into UPM Kaukas mill site in Lappeenranta, Finland

RESEARCH CENTRE

BIOREFINERY

SAW MILL

PAPER MILL

BIOMASS POWER PLANT

PULP MILL

1 3

4

5

6

2

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UPM Lappeenranta Biorefinery

Key facts • Product: Renewable diesel

• UPM investment: 179 M€

• Capacity: 100,000 tonnes/a

• UPM patents and applications: 200

• Employs 250 persons (incl. indirect)

10 | © UPM 25 November 2015 10 | © UPM

UPM BioVerno – Renewable diesel

RENEWABLE FEEDSTOCK

100 % CO2 EMISSIONS (VS. FOSSIL FUEL)

-80 %

11 | © UPM

IN FOOD CHAIN

0 %

OXYGEN FREE HYDROCARBON

100 %

UPM Lappeenranta biorefinery – all streams add value

12 | © UPM

Renewable gasoline component in road transport

Feedstock for bioplastics production or biochemical use

Renewable drop-in diesel for

road and marine use

Bio-based aroma chemical for fragrance

industry

Renewable fuel or applications in Chemical industry

Reducing agent in pulp and chemical

industry

UPM BioVerno diesel

UPM BioVerno naphtha

Turpentine Pitch Sodium

bisulphate

Renewable wood-based chemicals

Biorefinery processes Raw materials from UPM’s own pulp production: Crude tall oil

UPM Biofuels in existing and future end-use

13

Fuel retail Dedicated green fleets Marine/Aviation

UPM BioVerno renewable diesel - passenger car fleet tests

Fleet testing with 20% UPM BioVerno renewable diesel with 4 Volkswagen cars • Independent testing by

experienced test drivers of Technical Research Centre of Finland (VTT)

• Investigating fuel functionality in engine, emissions and fuel consumption

Material & laboratory testing

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Summer and winter conditions, various distances 4 Volkswagen cars,

20 000 km/car

Functions as premium fossil diesel

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UPM BioVerno renewable diesel - bus fleet tests

• Phase II in TEKES BioPilot by VTT • Laboratory tests with Euro III busses • 4 Volvo EuroVI busses operated by

Transdev – 2 reference & 2 UPM BioVerno busses – 20%, 50% & 100% UPM BioVerno – 1 year, 100.000 km/bus

• HSL Helsinki-Kerava bus route

UPM BioVerno renewable diesel - bus test results

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9,08,2 8,5 8,4

10,39,5 9,1 9,3

0

2

4

6

8

10

12

Diesel GTL HVO BioVerno

g/km

Fuel effects on NOx and PM emissionsEuro III level bus

NOx PM*100

~ -10 % ~ -95 %

UPM BioVerno renewable diesel & Euro VI vehicles - very good solution for local as well as greenhouse gas emissions!

Functions as premium fossil diesel

Driving cleaner traffic – UPM Biofuels Partner of HSL’s BioOneHundred project running on 100 % biofuels by 2020: Making strategy to a reality

17 | © UPM

Impact of Finland’s 30% blending

mandate to fuel retail price (vs. EU RED2

mandate)

+2%

€/cbm

Finland’s bio target of 30% (2030) increases fuel retail price by approximately +2% vs. RED2 EU mandate (prices calculated using three-year historical averages)

€/cbm

-1000

-600

-200

200

600

1000

1.1.2013 1.1.2014 1.1.2015 1.1.2016 1.1.2017

Blending economy Single Count. HVO

ULSD Tax diff.

TAX share of the negative bio blending economics

Blender’s share of the negative blending economics

298 397 426

214 65

456 495 506

50 50 50

244 241 236

1 263,06 1 247,53 1 217,35

0

200

400

600

800

1000

1200

1400

FIN 30% EU RED2 6,8% 0 bio

Fossil Biofuel Fuel tax Retailers margin VAT

+2 c/l (+5 c/l)

HVO price (single-counted) calculated using RME as reference

Historical prices Impact of FIN 30% target to fuel

retail price

Fossil fuel and biofuel (RME-referenced single-counted HVO) prices calculated using 2014-2016 averages

Large scale Biorefining requires new types of collaboration Chemical, petrochemical and forest industry can create new opportunities

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Access, management and sourcing of biomass

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Three areas of competence are needed for new biomass based innovations

Chemical processes

• Kraft pulping • Renewable

diesel production

Biomass handling

• Debarking • Saw mills • Mechanical

pulping

Bioenergy & Infrastructure

• Biomass boilers • CHP • Water treatment

Run sustainably large industrial processes

Processes of biomass conversion 1 2 3

Driving cleaner traffic

UPM Biofuels