News & Press: Industry News

EC investigates complaints regarding Finland and Sweden's classification of tall oil

Monday, December 29, 2014  
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BRUSSELS, Dec. 12, 2014 (RISI) - The European Commission (EC) has contacted Finland and Sweden by letter, requesting that they change their classification of tall oil from its current status as a residue. Were this to happen, it could weaken the competitiveness of UPM's new biorefinery at its Kaukas mill in Lappeenranta, Finland, the Finnish newspaper Helsingin Sanomat reported.

UPM completed construction of the biorefinery in July and began commissioning it in autumn. The Euro 175 million ($217 million) biorefinery will make approximately 100,000 tonnes/yr of biodiesel for the transport sector using crude tall oil (CTO) from five to six pulp mills.

When tall oil is classified as a residue, it receives tax relief and other competitive advantages. It is also subject to so-called double counting. The EC has received complaints about the classification from Arizona Chemical and Forchem, which both buy tall oil from pulp mills and distill it at sites in Finland. Arizona Chemical also distills tall oil in Sweden, Helsingin Sanomat reported.

The two firms argue that tall oil is of short supply in Finland and that it has to be imported. They are afraid that UPM's biorefinery will intensify competition for the raw material, which will also be noticeable in pricing. According to them, UPM is currently getting some Euro 20 million annually in additional tax and competitive benefits from this system, the daily said.

"The European Commission is indeed in contact with Finland and Sweden concerning the treatment of crude tall oil under the Finnish and Swedish legislation implementing the EU Renewable Energy Directive," an EC spokesperson said.

She went on to say that the EC could not disclose the content of the correspondence, but added that the aim of the EC is to "seek further information arising in relation to the conformity of national law with EU law or the correct application of EU law."

UPM vice president for the biofuels business Petri Kukkonen said that UPM's investment in the biorefinery in Lappeenranta was based on the decision made by Finnish authorities. "We trust these kinds of decisions are carefully considered and that they are decisions we can rely on," Kukkonen said, adding that the reasoning behind Finland's classification is very strong and that Sweden has applied this classification for tall oil since before Finland decided on the matter.

As for the objections made by Arizona Chemical and Forchem, according to Helsingin Sanomat, Kukkonen said that a big portion of the tall oil UPM uses at the Lappeenranta facility comes from its own Finnish pulp mills. "As we see it, there is enough tall oil raw material for several types of uses, varying from printing inks and lipsticks to renewable diesel," he commented.

Referring to a study from the energy consultancy firm Ecofys, Kukkonen said there is currently a surplus of over 200,000 tonnes of CTO. "This capacity figure could be increased to over 800,000 tonnes if CTO production capacity were to increase at the expense of burning crude sulphate soap (CSS), [from which CTO originates], in the pulp recovery boiler," Kukkonen said.

Furthermore, Kukkonen noted that lower quality CTO is "in very little demand in the current market" but that UPM could use this in its diesel production process.

In addition to the biorefinery, UPM's Kaukas mill has a capacity of 560,000 tonnes/yr of coated mechanical paper on two machines and some 740,000 tonnes/yr of bleached hardwood and softwood kraft pulp. The site's sawmill can churn out some 530,000 m³/yr of sawn products and sawn timber.

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