Global Warming in Arauco’s Corporate Policy of Sustainable Development

1. Global Warming in Arauco’s Corporate Policy of Sustainable
Development
Christian Albert Patrickson Croxatto
Av. El Golf 150, 7th floor, Las Condes, Santiago, Chile.
cpatrickson@arauco.cl
ABSTRACT
Celulosa Arauco and Constitución S.A. (Arauco) is a major player in the forest industry in Chile and a leading
pulp, sawn-timber and wood-panel producer in the world. At an early stage, Arauco decided to incorporate
Global Warming in its Corporate Policy of Sustainable Development and adopted a strategy that consisted in the
use of the cogeneration technology for generating power using renewable biomass residues from the forest
industry. First, the company implemented energy-efficiency improvements in its existing facilities, and then it
used the Clean Development Mechanism to leverage this technology to generate power at a larger scale in its
new facilities. Since the carbon neutral power displaces fossil fuel-based power from the grid, there is a
decrease of GHG emissions. With this strategy, Arauco has been able to decrease its reliance in fossil fuels,
optimize the utilization of forestry resources, contribute to the diversification of the Chilean energy matrix,
while at the same time, mitigating Global Warming. This is a good example of how a company can conciliate
sustainability with a sound business model.
KEYWORDS
Arauco, Clean Development Mechanism of the Kyoto Protocol (CDM), energy efficiency,
global warming, greenhouse gases (GHG), sustainable development.
INTRODUCTION
Global Warming has become a major environmental issue globally, as countries have began
searching ways to mitigate and adapt to its potential consequences. It has also become
apparent that the steep increase in the concentration of GHG in the atmosphere in the last
decades is by a large extent attributable to human activity, particularly since the beginning of
the Industrial Revolution (IPCC, 2007).
According to the last report by the International Energy Agency (Birol et al, 2008) the power
generation and the transport sectors will account for over 70% of the projected increase in
world energy-related CO2 emissions towards 2030. These industries will most likely become
–therefore- the targets for the new GHG policies that the countries will adopt to curb GHG
emissions worldwide in the coming years. Companies within these industries or highly
energy-dependant will be challenged under this new scenario (The Economist, 2007), and
will have to adapt to successfully compete under an increasingly greener and more
environmentally conscious business environment.
METHODS
Celulosa Arauco and Constitución S.A. (from now on, Arauco) is a mayor player in the forest
industry in Chile, and one of the largest pulp, sawn timber and wood panel-board producers
in the world. The Sawmill, Panel-board and particularly the Pulp industries are intensive in
the use of energy. The common practice of the Sawmill and the Panel-board industries in
Chile is the production of heat from biomass residues generated in the production processes.

2. Electric power is obtained from the grid. In the Pulp industry, the common practice is the
production of heat and power in a cogeneration power plant that is part of the Kraft producing
cycle (European Commission, 2001). Modern pulp mill facilities in Chile tend to be self-
sufficient in heat and electric power generation, and only rely on the local grid as a back-up
or for occasional power deficits.
In a first stage, and considering the great availability of biomass residues generated by the
forest industry in the south part of the country, Arauco decided to implement energy-
improvement projects inside its existing industrial facilities. These improvements consisted in
increasing the cogeneration capacity of the facilities by expanding the power boiler capacities
(in some cases) and installing new turbo-generator units. The advantage of the cogeneration
technology is that it allows for high thermal efficiency for heat and power generation. In
some cases, thermal efficiencies can reach as high as 80% (Strzalka et al, 2008). Arauco
carried out these improvements in its Arauco and Constitución pulp mills. The improvements
made the facilities not only self-sufficient in heat and electric power generation, but also to be
capable of generating approximately 10 MW of surplus power to the SIC1 grid each.
In a second stage, Arauco considered the potential implications of Global Warming and
decided to include it as one of the key aspects covered by its Corporate Policy of Sustainable
Development (Arauco, 2004). In accordance with this strategy, Arauco decided to leverage
its energy-efficiency policy considering the potential benefits of the CDM and designed its
new industrial facilities with surplus power generating capacity from the beginning. The new
grid-connected power plants built within the new facilities, supplied heat and power to the
industrial processes in the first place, and generated a sizeable amount of additional power in
the second place. This power would in some cases replace normal power consumption from
the grid or be injected to the SIC grid directly. As in the previous cases, these new power
plants functioned like any other grid-connected power plant in SIC.
Since the power generation was accomplished using renewable biomass residues from the
forest industry, the heat and power generated was carbon-neutral. Furthermore, since the
power generation displaced power from the grid and was additional from that of the business-
as-usual practice in the Panel board, Sawmill and Pulp industries, these projects qualified as
CDM project activities. As a result, during the last 6 years, Arauco has implemented 4 new
big-scale cogeneration projects: Trupan, Valdivia, and Nueva Aldea Phases 1 and 2 power
plants. At present, Arauco is developing two new big-scale cogeneration power plants: one in
the Horcones Complex in the VIII Region and the other in the Viñales sawmill in the VII
Region. These projects are shown in Table N° 1, below.
1
SIC stands for “Sistema Interconectado Central” and it is the main interconnected system of Chile. It
interconnects power plants from the 2nd to the 10th region of Chile.

3. Table N° 1 Big-scale cogeneration projects by Arauco
RESULTS AND DISCUSSION
As a result of the implementation of Arauco’s strategy, the total installed capacity of
biomass-based power capacity available to the SIC has grown twofold from the one observed
in 2003. This is shown in the Table N° 2 below.
Table N° 2 Net biomass installed power capacity in the SIC grid
The cogeneration facilities have been incorporated as self-producers (CNE, 2001)2 in the SIC
grid, relieving the power consumption in the system and supplying low-cost power to the
system.
The strategy followed by Arauco has positively contributed to diversify the Chilean energy
matrix, which is still considerably dependant on hydroelectric power (CNE, 2009)3. This
2
“Self-producer” is a modality contemplated in the CDEC-SIC regulation, under which a company that has
surplus power generating capacity, is allowed to function as a grid-connected power plant in the grid, declaring
only its surplus power capacity to the system.
3
Approximately 42% of the total electric power generated in 2008 in Chile came from hydro sources.

4. initiative is not only consistent with the current energy policy applied in Chile (CNE, 2008)
but also with the current energy policies applied in other countries worldwide.
The low-cost energy supplied by Arauco’s cogeneration plants to the SIC grid has implied a
social benefit derived from a lower spot price of the SIC system as a whole. Table N° 3
shows a simplified calculation to estimate these savings derived from the operation of some
Arauco’s latest power plants.
Table N° 3 Estimated savings to the SIC grid
Since a fraction of the additional power generated by some of the Arauco plants is not
supplied to the grid, but consumed inside the industrial facilities, there is another saving
component derived from the amount of power consumed internally, which in the absence of
Arauco’s power generation projects, it would have been sourced from the grid. Table N° 4
shows an estimation of these savings, assuming that this power would have been taken from
the spot market at marginal cost.
Table N° 4: Avoided power purchases from the SIC grid
As a reference, Arauco’s cogeneration power plants have been capable of supplying a
significant fraction of the power consumption of towns and cities in nearby locations. This is
shown in Table N° 5, below.

5. Table N° 5: Arauco’s power plants capacities and the power demand of nearby locations
Arauco’s grid-connected power plants allow for a decentralization of power generation, thus,
minimizing the transmission losses and the costs and externalities of having to transmit the
power to far away locations.
Leveraging the cogeneration technology to generate additional power has allowed Arauco not
only to become self-sufficient in heat and electric power generation in its industrial facilities,
but also to significantly diminish its reliance in fossil fuels, particularly compared to other
industry players in the forest industry, either in Chile or worldwide.
During 2006, Arauco registered 3 cogeneration projects under the CDM: Trupan, Nueva
Aldea Phase 1 and Nueva Aldea Phase 2. During 2007, Arauco issued 482,129 CERs 4,
becoming the first forestry company to generate CERs from biomass cogeneration projects in
Chile.
Arauco’s registered CDM projects have allowed the company to accomplish real and
quantifiable GHG emission reductions, making a concrete contribution to mitigating climate
change. As of February, 2009, Arauco was the leading issuer of CERs from renewable power
generation projects in Chile and the leading issuer of CERs among forestry companies
worldwide. Arauco also ranked third as issuer of CERs from forestry biomass power
generation projects worldwide. This is shown in Tables N° 6 and N° 7, below.
Table N°6: Performance of CDM power generation projects, Chile
4
“CER” stands for Certificate of Emission Reduction and it corresponds to 1 ton of CO2 equivalent.

6. Table N° 7: Performance of forestry-biomass CDM power generation projects, worldwide
Arauco’s experience with the CDM has certainly established a precedent in the forest
industry, as it has demonstrated that with the aid of this mechanism it is possible to take
advantage of technologies that are widely used in this industry, such as cogeneration, and use
it to achieve long-term sustainable development in a viable way. These good results have
gradually motivated other players in this industry to follow Arauco’s lead in this area, as they
have also started to use the CDM to expand the cogeneration capacity of their industrial
facilities to generate additional electric power (UNFCCC, 2009)5.
In addition to the direct benefits derived from the utilization of biomass residues for power
generation purposes, the utilization of these types of residues brings other environmental
benefits such as the decrease of the risk of forest fires, the emission of particulate material
due to uncontrolled burning of biomass residues, the avoidance of underground water courses
contamination with biomass percolates, the utilization of agriculture-apt soil for biomass
piling and visual contamination among others.
CONCLUSIONS
Global Warming has certainly become one of the main challenges that the world is now
facing. Coping with this new challenge will bring some new regulations and rules which will
most likely change the business landscape of some industries, particularly of those that are
more related to GHG emissions. Surviving companies within these industries will have to
adapt.
In many ways, the success of a company is determined by its capacity to adapt quickly to
changes in its environment and particularly, to internalize the new threats and challenges in
its business model. In some cases, a potential threat can be turned into an advantage, if the
company management makes the right choices in the right moments. Arauco’s strategy to
respond to the potential threats posed by Global Warming is a good example of this.
The strategy followed by Arauco in Global Warming has given the company the chance to
benefit from an ad-hoc market mechanism such as the CDM, take advantage of the synergies
between the forest and the power industries while at the same time, mitigating Global
Warming in a viable and effective way. As such, Arauco regards its experience with
cogeneration and the CDM as a truly success story, as it has proved to be an effective way to
5
Please see validated project activities of Forestal Russfin Ltda. and Forestal y Papelera Concepción S.A..

7. conciliate an efficient and sound business model with the principles of sustainable
development.
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