We recognise a strategic opportunity in the fact that all Stora Enso's products are based on renewable materials with a comparatively low carbon footprint. Examples include our renewable
packaging and wood-based construction solutions. In many cases these products can be used as substitutes for fossil fuelbased materials. We believe that the market for these products will continue to grow.
EU climate and energy policies, such as the Renewable Energy Directive, emphasise the potential for biomass-based energy production in many sectors of society including industry, transport and housing. Stora Enso works widely with forest biomass, and we can be an important contributor in the context of enabling new forms of biomass-based energy production.
Due to the energy-intensive nature of our operations, we are subject to risks related to climate change and costs related to energy and climate regulations. Climate change is expected to increase the frequency of extreme weather events such as storms, flooding and droughts in many regions. Storms can result in serious wind damage to forests, often leading to the short-term oversupply of timber, but reduced supply in the medium term.
For a full description of Stora Enso's most material risks and opportunities related to climate change see www.storaenso.com/climate.
Managing risks related to climate change
Stora Enso evaluates risks and opportunities related to climate change according to the enterprise risk management process as part of our Group-wide risk and opportunity assessment work. This process forms an integral part of our management approach.
Stora Enso's business units also follow regulatory requirements regarding environmental risk assessment. Through thirdparty-certified systems like ISO 14001 each mill has implemented procedures for the systematic identification of emergency situations and environmental risks, and for dealing with related effects.
The EU emission trading system
The European Union's emission trading system (ETS) is a cornerstone of the EU's efforts to combat climate change, and a key tool for the cost-effective reduction of industrial greenhouse gas emissions. The ETS in effect imposes a cost on all CO2 emissions.
The ETS affects Stora Enso in two main ways. Firstly, it can be expected to further intensify the competition for biomass, which may lead to higher wood prices. Secondly, the ETS will also indirectly increase energy generation costs for our electricity suppliers when emission allowances have been completely purchased from 2013 onwards.
During the second commitment period of 2008–2012 the EU ETS impacted Stora Enso indirectly through European energy prices. At the same time we were able to profit by selling emission allowances allocated to us due to the forest industry's carbon leakage status. Carbon leakage status has been granted for industries where it is expected that costs related to climate policies would cause businesses to transfer production to countries with laxer constraints on greenhouse gas emissions.
Carbon leakage status has also been granted to the forest industry for the period 2013–2014, but if this status changed for the period 2015–2019, Stora Enso would have to start purchasing
allowances leading to additional costs estimated at EUR 42 million if the system's prices are at EUR 5 per tonne of CO2 emissions.
We consistently calculate the financial impacts of potential price increases on emission allowances, including the financial impacts on our business in case of energy price increases. For more information on the financial impacts of emission allowances and on risks related to raw material and energy prices see note 5 and note 25 in our Financial Report: www.storaenso.com/annualreports.