The following table sets out our pulp production and pulp revenues for the periods indicated:

Our modernWe serve pulp mills generate electricity, which is surplus to their operating requirements, providing our mills with a stable revenue source unrelated to pulp prices. Additionally, our German pulp mills generate tall oil from black liquor, which is sold to third parties for use in numerous applications includingbio-fuels. Since our energy and chemical production areby-products of our pulp production process, there are minimal incremental costs and our surplus energy and chemical sales are highly profitable. All of our mills generate and sell surplus energy to regional utilities. Our German mills benefit from special tariffs under Germany’sRenewable Energy Sources Act, referred to as the “Renewable Energy Act”, which provides for premium pricing on green energy. Our Celgar mill is party to a fixed electricity purchase agreement with the regional public utility provider for the sale of surplus power through 2020.

The following table sets out the amount of surplus energy we produced and sold and revenues from the sale of suchsurplus energy and chemicals in our pulp segment for the periods indicated:

Our strategic pulp mill locations position us well to serve customers in Europe, Asia and North America. We primarily work directly with customers to capitalize on our geographic diversity, coordinate sales and enhance customer relationships. We believe our ability to deliver high-quality pulp on a timely basis and our customer service makemakes us a preferred supplier for many customers.

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Wood Products Segment

We entered into theOur wood products business with the acquisitionsegment consists of the Friesau Facility. As a result, we manufacture, sellsale and distributedistribution of lumber, electricity and other wood residuals.residuals at our Friesau mill. It is one of Germany's largest sawmills.

Our Friesau mill has an annual production capacity of approximately 550 MMfbm of lumber and 13 MW of electrical generation from a modern biomass fueled cogeneration power plant built in 2009. The Friesau Facility can producemill is located approximately 16 kilometers west of our Rosenthal mill and has historically been one of the Rosenthal mill’s largest fiber suppliers.

The mill produces lumber for European, U.S. and other lumber export markets.

During the two years prior to our acquisition of the Friesau Facility, it was being operated on a restricted basis and well below its production capacity. Since our acquisition, we have been ramping up the mill’s lumber production and capitalizing on synergies. In the Friesau Facility’s fiber region, major sawlog contracts are generally awarded on a yearly basis. As a result, we initially expected our ramp up to materially increase at the start of 2018 when new contracts are awarded.

However, due to the successful procurement of wood, the mill’s ramp up proceeded faster than we initially budgeted and began generating positive operating income in the second quarter of 2017. The ramp up of production steadily improved our operating efficiency and costs. In the third quarter of 2017, we

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commenced lumber sales into the U.S. market which accounted for approximately 31% of our lumber sales volumes in the fourth quarter of 2017 while substantially all the rest were to Europe. Depending on market conditions, we intend, over time, to have a diverse geographic mix for our lumber sales, primarily focused on the European, U.S. and Japanese markets.

Our acquisition of the Friesau Facility has allowed us to expand into the German lumber business and further grow ourbio-mass energy profile. It has also created operating synergies relating to the sharing of wood andbio-mass fuel resources and the optimization of staffing and services with our Rosenthal mill.

The European and U.S. lumber markets are very different. In the European market, lumber is generally customized in terms of dimensions and finishing, whereas thefinishing. The U.S. market is driven primarily by demand from new housing starts and home renovation activities and dimensions and finishing are generally standardized.

Additionally, lumber production and sales in Europe are commonly measured in cubic meters, whereas in the U.S. they are measured in thousand board feet or Mfbm.

For the purposes of this annual report on Form10-K, we have converted our lumber metrics from cubic meters to Mfbm using a conversion ratio of 1.6 cubic meters of lumber equaling one Mfbm, which is the ratio commonly used in the industry.

The following table sets out our lumber production and lumber revenues from April 12, 2017, beingfor the date we acquired the Friesau Facility, to December 31, 2017:periods indicated:

The Friesau Facilitymill generates electricity for minimal incremental costs, all ofwhichof which is sold,providing a stable revenue source unrelated to lumber prices. The Friesau Facility’smill’s modernbio-mass biomass fueled cogeneration power plant has an annual production capacity of approximately 13 MW of electricity. The plant sells electricity pursuant to a long-term fixed price green power tariff that runs to 2029. From its acquisition date

The following table sets out the amount of April 12, 2017 to December 31, 2017, the Friesau Facilitysurplus energy we produced and sold 73,698 MWhand revenues from the sale of surplus energy by our Friesau mill for revenues of $8.9 million.the periods indicated.

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Corporate Structure, History and Development of Business

Mercer Inc. is a corporation organized under the laws of the State of Washington whose common stock is quoted and listed for trading on the NASDAQ Global Select Market (MERC).

The following simplified chart sets out our principal operating subsidiaries, their jurisdictions of organization, their principal activities and their annual pulp and lumberproductionor lumber production and electrical generation capacity:

We acquiredentered into the pulp business in 1994 by acquiring our Rosenthal mill and in 1994. In 1999 we completed a major capital project to convertconverted it to the production of kraft pulp, increase production and improve efficiencies at a cost of approximately $385.7 million, of which approximately $100.8 million was financed through government grants. Subsequent capital investments and efficiency improvements have reduced emissions and energy costs, increased the mill’s annual production capacity and enabled the production of tall oil.

pulp. In September 2004, we completed construction ofexpanded our pulp operations by constructing the Stendal mill at a cost of approximately $1.1 billion, which was financed through a combination of government grants of approximately $332.0 million,low-cost, long-term project debt, which was largely severally guaranteedbillion. We further expanded our pulp operations by governments in Germany, and equity. Subsequent capital investments and efficiency improvements have increased the mill’s annual production capacity and its generation of green energy. We initially had a 63.6% interest in Stendal which increased over time through acquisitions and/or further investments until September 2014, when we acquired all of the economic interest in Stendal.

In February 2005, we acquiredacquiring the Celgar mill for $210.0 million plus defined working capital. Since its acquisition, we have effected several capital projectsin 2005 and other initiatives at the CelgarPeace River mill to increase its annual production capacity and its generation of green energy.in 2018.

In April 2017, we entered into the wood products segment when we acquired the Friesau Facilitymill.

In October 2018, we acquired the Santanol Group, which operates Indian sandalwood plantations and an oil extractives plant in Australia.

In August 2021, we acquired a cross-laminated timber facility referred to as the “CLT Facility” located near Spokane, Washington, for $61.6 millionapproximately $51.3 million. The facility is a state-of-the-art, near-new facility that produces cross-laminated timber, or “CLT”, for use in cash.construction and home building. It has a capacity of approximately 140,000 cubic meters of CLT. We believe it is one of the largest CLT facilities in North America and that it currently represents approximately 30% of North American manufacturing capacity. CLT is a wood panel product, made from adhering layers of solid-sawn lumber and is used as a more sustainable alternative to steel and concrete in building projects. We are currently ramping up the operations of the CLT Facility. Currently, its results are reflected in our financial results in “Corporate and Other Revenues”.

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Corporate Strategy

Our corporate strategy is to expand our asset and earnings base through organic growth and acquisitions, primarilygrow in Europe and North America. We pursue organic growth through active management and targeted capital expenditures to generate a high return by improving efficiency, reducing costs and increasing production of pulp, lumber, energy andby-products such as chemicals. We are also leveraging our fiber and process expertise to develop innovative new products based on other derivatives of the kraft pulping process. We seek to acquire interests in companies and assets primarily in the forest

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products business and related wood extractive businesses where we can leveragehave clear competencies while maintaining modern facilities and managing the integrity of our experiencebalance sheet and expertise in adding value throughliquidity, with a focused management approach.high standard of environmental, social and governance performance. Key elements of our strategy include:

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The Pulp Industry

General

Pulp is used in the production of paper, tissues and paper-related products. Pulp is generally classified according to fiber type, the process used in its production and the degree to which it is bleached. Kraft pulp, a type of chemical pulp, is produced through a sulphate chemical process in which lignin, the component of wood which binds individual fibers, is dissolved in a chemical reaction. Chemically prepared pulp allows the wood’s fiber to retain its length and flexibility, resulting in stronger paper products. Kraft pulp can be bleached to increase its brightness. Softwood kraft pulp is noted for its strength, brightness and absorption properties and is used to produce a variety of products, including lightweight publication grades of paper, tissues and other paper-related products.

There are two main types of bleached kraft pulp, being softwood kraft made from coniferous trees and hardwood kraft made from deciduous trees. Softwood species generally have long, flexible fibers which add strength to paper while fibers from species of hardwood contain shorter fibers which lend bulk and opacity.

We primarily produce and sell NBSK pulp, which is a bleached kraft pulp manufactured using northern softwood and is considered a premium grade because of its strength. It generally obtains the highest price relative to other kraft pulps. Southern bleached softwood kraft pulp is kraft pulp manufactured using southern softwoodOur Peace River mill produces both NBSK and does not possess the strength found in NBSKNBHK pulp. NBSK pulp is the sole pulp product of our mills.

Most paper users of market kraft pulp use a mix of softwood and hardwood grades to optimize production and product qualities. In 2017,2021, market kraft pulp consumption was approximately 55%57% hardwood bleached kraft and 42%39% softwood bleached kraft, with the remainder comprised of unbleached pulp. Over the last several years, production of hardwood pulp, based on fast growing plantation fiber primarily from Asia and South America, has increased much more rapidly than that of softwood grades, based on fiber that hasbecause of longer growth cycles. Hardwood kraft generally has a cost advantage over softwood kraft as a result of lower fiber costs, higher wood yields and, for newer hardwood mills, economies of scale. As a result of this growth in supply and lower costs, kraft pulp customers have substituted some of the pulp content in their products to hardwood pulp.

Counteracting customers’ ability to substitute lower priced hardwood pulp for NBSK pulp isHowever, the requirement for strength and formation characteristics in finished goods.goods counters customers’ ability to substitute cheaper hardwood pulp for NBSK. Paper and tissue makers focus on larger paper machines with higher speeds and lower basis weights for certain papers which require the strength characteristics of softwood pulp. Additionally, where paper products are lightweight or specialized, like direct mail, magazine paper or premium tissue, or where strength or absorbency are important, softwood kraft forms a significant proportion of the fiber used. As a result, we believe that the ability of kraft pulp users to further substitute hardwood for softwood pulp is limited by such requirements.

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Kraft pulp can be made in different grades, with varying technical specifications, for different end uses. Softwood kraft pulp is an important ingredient for tissue manufacturing and tissue demand tends to increase with living standards in developing countries. Softwood kraft pulp is also valued for its reinforcing role in mechanical printing papers and is sought after by producers of paper for the publishing industry, primarily for magazines and advertising materials. Softwood kraft pulp is also an important ingredient for tissue manufacturing and tissue demand tends to increase with living standards in developing countries. NBSK pulp produced for reinforcement fibers is considered the highest grade of kraft pulp and generally obtains the highest price.

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Markets

We believe that over 135145 million ADMTs of chemical pulp are converted annually into tissues, printing and writing papers, carton boards and other specialty grades of paper and paperboard around the world. We also believe that over 40%approximately 45% of this pulp is sold on the open market as market pulp, while the remainder is produced for internal purposes by integrated paper and paperboard manufacturers.

The pulp business is highly cyclical in nature and markets are characterized by periods of supply and demand imbalance, which in turn affect prices. Pulp markets are highly competitive and are sensitive to cyclical changes in the global economy, industry capacity and foreign exchange rates, all of which can have a significant influence on selling prices and our operating results. The length and magnitude of industry cycles have varied over time but generally reflect changes in macro-economic conditions and levels of industry capacity. Pulp is a commodity that is generally available from other producers. Because commodity products have few distinguishing qualities from producer to producer, competition is generally based upon price, which is generally determined by supply relative to demand.

Between 20082012 and 2017,2021, worldwide demand for chemical market pulp overall for such period grew at an average rate of approximately 2% annually, with worldwide demand for bleached softwood kraft market pulp having grown at an average of approximately 2%1% per annum.

The following chart illustrates the global demand for chemical market pulp for the periods indicated:

Estimated Global Chemical Market Pulp Demand

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Key macro-economic trends in worldwide NBSK pulp demand overis significantly impacted by global macro-economic trends.

Over the last several years include:there have been several key macro trends that have had a material effect on global pulp demand. Some of the trends have had a positive effect while others have had a negative effect on pulp demand.

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In late 2017, demand for NBSK pulp tightened primarily as a result of steady demand and a reduction in China’s imports of recovered or waste paper which resulted from a major policy shift announced by China in the third quarter of 2017 to reduce and phase out imports of solid waste and scraps, including those within recovered or waste paper. In late 2017, China also announced goals to stop imports of unsorted paper, solid waste and scrap importsapproximately 7.7 million ADMTs over the next twolast five years.

Since 2008, demand for chemical softwood market pulp has grown in the emerging markets of Asia, Eastern Europe and Latin America. In China, in particular has experienced substantial growth and its imports of chemical softwood market pulp grew overall by approximately 12%6% per annum between 2008for the period from 2012 to 2021 and 2017.it is a key driver of pulp demand and consumption. We believe the emerging markets now account for approximately 54%58% of total worldglobal demand for bleached softwood kraft market pulp.pulp and China itself now accounts for approximately 32% of global bleached softwood kraft market pulp demand, compared to only 17% in 2008. Western Europe currently accounts for approximately 24%33% of global bleached softwood kraft market pulp demand compared to approximately 34%28% in 2008. The2012.

Another positive macro trend affecting pulp demand has been the increase in usage and demand for tissue and hygiene products, particularly in China and emerging markets generally. This trend was further accelerated by the COVID-19 pandemic. A further positive trend affecting pulp demand was an increase in the global reliance on online delivery of products which has increased demand for packaging and specialty products.

An important negative in pulp demand has been the material decline in graphic and printing and writing paper demand. We believe a material portion of this decline will not return.

Further, paper demand in mature markets of Europe, North America, Europe and Japan has been declining or stagnating, which negatively impacts pulp demand in 2017 declined bythose markets. Western Europe currently accounts for approximately 1.5 million ADMTs from 2008.22% of global bleached softwood kraft market pulp demand compared to approximately 28% in 2012.

The following chart sets forth industry-wide bleached softwood kraftreflects NBSK pulp deliveries to China for the periods indicated:

12 Month Rolling Bleached Softwood Kraft Pulp Deliveries to China

Growth in NBSK pulp demand in China and other emerging markets has, to a large extent, been driven by increased demand from tissue and specialty paper producers, as a result of economic growth and rising income levels and living standards in such markets. These factors generally contribute to a greater demand for personal hygiene products in such regions. In China alone, tissue production capacity has increased by approximately 4.7 million ADMTs over the last five years. Additional tissue capacity increases of 0.5 million ADMTs have been announced for 2018. At this time there can be no assurance as to when and how much of such capacity expansion will be implemented.

This has also led to an overall shift in demand for NBSK pulp, as demand from tissue producers has increased, while demand from printing and writing end uses has decreased.Between 2003 and 2015, NBSK pulp demand for tissue production increased by approximately 206%, an approximate 10% compound annual growth rate. From 2003 to 2015, a period very affected by “digital substitution” of traditional paper grades, total NBSK demand grew by 15%.

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The following chart comparestrends and changes in NBSK pulp demand by end use are reflected in each of 2003 and 2015 (the latest yearthe following chart which compares worldwide NBSK pulp demand by end use for which figures are currently available):the periods indicated:

NBSK Pulp Demand by End Use

We believe 20172021 NBSK demand by end use was generally consistent with the trend in the chart above.

A measure of demand for kraft pulp is the ratio obtained by dividing the worldwide demand of kraft pulp by the worldwide capacity for the production of kraft pulp, or the “demand/capacity ratio”. An increase in this ratio generally occurs whenIn 2021, there iswas an increase in global and regional levelspulp capacity of economic activity. An increase in this ratio also generally indicates greater demand as consumption increases, which often results in rising2.8 million ADMTs, primarily of hardwood kraft pulp prices and a reductionpulp. Currently, we are aware of inventories by producers and buyers. As prices continue to rise, producers continue to run at higher operating rates. However, an adverse change in global and regional levels of economic activity generally negatively affects demand for kraft pulp, often leading buyers to reduce their purchases and rely on existing pulp inventories. As a result, producers run at lower operating rates by taking downtime to limit thebuild-up of their own inventories. The demand/capacity ratio for bleached softwood kraft pulp was approximately 93%, 92% and 92% in 2017, 2016 and 2015, respectively.

Between 2013 and 2017, we believe approximately 0.52.9 million ADMTs of pulpannounced capacity was idled or shut down through mill closures or curtailments. Further, in efforts to improve environmental and safety standards, China closed “old” mills and removed about 15.6 million ADMTs.

In 2017, chemical pulp capacity increased by approximately 2.3 million ADMTs, consistingincreases primarily of increases of 1.1 million ADMTs and 1.2 million ADMTs of softwood and hardwood kraft pulp respectively. Further bleached hardwood kraft pulp capacity increases of about 2.0 million ADMTs have been announced for 2018. The increase in bleached hardwood kraft pulp is largely targeted at the growing demand for pulp in developing markets, particularly in China, by producers of tissues, specialty papers and packaging. Although not a direct competitor to NBSK pulp, if such additional bleached hardwood kraft pulp supply is not absorbed by such demand growth, as a result of generally lower prices for bleached hardwood2022.

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kraft pulp, this supply increase could put downward pressure on NBSK pulp prices. However, we believe customers’ ability to further substitute lower priced bleached hardwood kraft pulp for NBSK pulp is limited by the strength characteristic of NBSK pulp which is required by large modern paper machines to run lower basis-weight paper products efficiently.

Producers have publicly announced an additional 1.0 million ADMTs of NBSK pulp capacity to come online in Europe inmid-2018 pursuant to modernization and expansion projects. However, at this time, we cannot predict which of the publicly announced expansion projects will be completed or how much additional NBSK pulp production capacity may come online and when. As pulp prices are highly cyclical, there can be no assurance that NBSK pulp prices will not decline in the future as a result of increases to the supply of kraft pulp.

In addition, certain integrated pulp and paper producers have the ability to discontinue paper production by idling their paper machines and selling their NBSK pulp production on the market, if market conditions, prices and trends warrant such actions.

NBSK Pulp Pricing

Kraft pulp is a globally traded commodity and prices are highly cyclical and volatile.cyclical. Kraft pulp prices are generally quoted in dollars. Pricing is primarily influenced by the balance between supply and demand, as affected by global macro-economic conditions, changes in consumption and capacity, the level of customer and producer inventories and fluctuations in exchange rates. Generally, we and other producers consider global NBSK pulp supply and demand to be evenly balanced when world inventory levels are at about 3032 days’ supply.

General macro-economic conditions are closely tied to overall global business activity, which helps determine pulp demand and, in turn, impacts pricing.

As the majority of market NBSK pulp is produced and sold by Canadian and Northern European producers, while the price of NBSK pulp is generally quoted in dollars, pricing is often affected by fluctuations in the currency exchange rates for the dollar versus the euro and the Canadian dollar. As NBSK pulp producers generally incur costs in their local currency, while pulp is quoted in dollars, a dollar strengthening generally benefits producers’ businesses and operating margins. Conversely, a weakening of the dollar versus the local currency of producers generally adversely affects producers’ businesses and operating margins.

As a corollary to changes in exchange rates between the dollar and the euro and Canadian dollar, a stronger dollar generally increases costs to customers of NBSK pulp producers and results in downward pressure on prices. Conversely, a weakening dollar generally supports higher pulp pricing. However, there is invariably a time lag between changes in currency exchange rates and pulp prices. This lag can vary and is not predictable with any certainty.

AsAlthough China is now the largest market globally for pulp, Northern Europe has also historically been the world’s largest market anda significant market. As NBSK pulp is thea premium grade of pulp, the European market NBSK list price is generallyat times used by the industry as a benchmark price by the industry.reference price. The third party industry quoted average European list prices for NBSK pulp since 20082012 have fluctuated between a low of approximately $575$760 per ADMT in 20092012 and a high of $1,030$1,345 per ADMT in late 2017.2021.

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The following chart sets out the changes in third party industry quoted list prices for NBSK pulp in Europe, as stated in dollars, Canadian dollars and euros for the periods indicated:

NBSK Pulp Price History (European Delivery)

The following table sets out list prices for NBSKOur pulp in the regions indicated at the dates indicated:

A producer’s net sales realizations in Europe and North America are third party industry quoted list prices, net of customer discounts, rebates and other selling concessions. Over the last three years, these have increased as producers compete for customersOur sales to China and sales. The nature of the pricing structure in Asia is different in that, while quoted list prices tendgenerally are closer to bea net price with significantly lower than Europe, customeror little discounts and rebates are much lower, resulting inrebates. As a result, our net sales realizations thatin China are generally similar to other markets.

(14)The following table sets out third party industry quoted list prices for NBSK pulp in Europe and North America and net prices for NBSK pulp in China as of the dates indicated:

The following chart sets forth changes in FOEX PIX Pulp Index prices for NBSK pulp in Europe and global bleached softwood kraft inventory levels between 2004 and 2017:for the periods indicated:

Pulp Price and Global Inventory History

Seasonality

We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors. These factors are common in the NBSKkraft pulp industry. We generally have weaker pulp demand in Europe during the summer holiday months and in China in the period relating to itsthe lunar new year.year and in Europe during the summer holiday months. We typically have a seasonalbuild-up in raw material inventories in the early winter months as our mills build up their fiber supply for the winter when there is reduced availability.

Competition

Pulp markets are largeThe pulp market is highly fragmented and highly competitive.competitive with many producers competing globally. Producers ranging from small independent manufacturers to large integrated companies produce pulp worldwide. OurPulp is generally a commodity product and our pulp and customer services competecompetes with similar products manufactured and distributed by others.many other producers. While many factors influence our competitive position, particularly in weak economic times, a keyprimary factor is price. Other factors include quality, service, qualityaccess to reasonably priced fiber and convenience of location. Some of our competitors are larger than we are in certain markets and have substantially greater financial resources. These resources may afford those competitors more purchasing power, increased financial flexibility, more capital resources for expansion and improvement and enable them to compete more effectively.

Our key NBSK pulp competitors are principally located in Northern Europe and Canada and include Canfor Pulp, Stora Enso, Metsä Fibre, Ilim, Södra Cell, and AsiaIlim, Paper Excellence, Canfor Pulp, and Paper.SCA.

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Pulp Production

OurThe following table sets out our pulp production capacity and actual production by mill for the periods indicated is set out below:indicated:

Softwood kraft pulp is valued for its reinforcing role in mechanical printing papers and is sought after by producers of paper for the publishing industry, primarily for magazines and advertising materials. Softwood kraft pulp is also an important ingredient for tissue manufacturing, and tissue demand tends to increase with living standards in developing countries. NBSK pulp produced for reinforcement fibers is considered the highest grade of kraft pulp and generally obtains the highest price.(13)

The NBSK pulp produced at the Rosenthal mill is a long-fibered softwood pulp produced by a sulphate cooking process and manufactured primarily from wood chips and pulp logs. A number of factors beyond economic supply and demand have an impact on the market for NBSK pulp, including requirements for pulp bleached without any chlorine compounds or without the use of chlorine gas. The Rosenthal mill has the capability of producing both “totally chlorine free” and “elemental chlorine free” pulp. Totally chlorine free pulp is bleached to a high brightness using oxygen, ozone and hydrogen peroxide as bleaching agents, whereas elemental chlorine free pulp is produced by substituting chlorine dioxide for chlorine gas in the bleaching process. This substitution virtually eliminates complex chloro-organic compounds from the mill’s effluent. The Rosenthal mill produces pulp for reinforcement fibers to the specifications of certain of our customers. We believe that a number of our customers consider us their supplier of choice.

The NBSK pulp produced at the Stendal mill is of a slightly different grade than the pulp produced at the Rosenthal mill as the mix of softwood fiber used is slightly different. This results in a complementary product more suitable for different end uses. The Stendal mill is capable of producing both totally chlorine free and elemental chlorine free pulp.

The Celgar mill produces high-quality NBSK pulp that is made from a unique blend of slow growing/long-fiber Western Canadian tree species. It is used in the manufacture of high-quality paper and tissue products. We believe the Celgar mill’s pulp is known for its excellent product characteristics, including tensile strength, wet strength and brightness. The Celgar mill is a long-established supplier to paper and tissue producers in Asia.

Generation and Sales of Green Energy and Chemicals at Our Mills

General

Our pulp mills are large scalebio-refineries that, in addition to pulp, also produce surplus “carbon neutral” or green energy. As part of the pulp production process, our mills generate green energy using carbon-neutralcarbon neutral bio-fuels such as black liquor and wood waste. Through the incineration ofbio-fuels in the recovery and power boilers, our mills produce sufficient steam to cover all of our steam requirements and

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allow us to produce surplus electricity which we sell to third party utilities.third-party utilities or into the regional electricity market. As a result, we have benefited from green energy legislation, incentives and commercialization that have developed over the last decadedecades in Europe and Canada. In addition, in recent years we have applied considerable resources to increasing our capacity to produce and sell chemicals, primarily tall oil for use in numerous applications includingbio-fuels.

Our Friesau Facilitymill also generates and sells green energy produced from itsbio-mass biomass cogeneration power plant.

Our surplus energy and chemical sales provide us with a stable revenue source unrelated to pulp or lumber prices. Since our energy and chemical production areby-products of our production processes, there are minimal incremental costs and our surplus energy and chemical sales are highly profitable. We believe that this revenue source gives our mills a competitive advantage over other older mills which do not have the equipment or capacity to produce and/or sell surplus power and/or chemicals in a meaningful amount.

The following tablechart sets out our electricity generation and surplus electricity sales for the five years ended December 31, 2017:periods indicated:

Electricity Generation and Exports

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The following chart sets forthout our consolidated revenues from electricity and chemical sales for the five years ended December 31, 2017:periods indicated:

Energy and Chemical Revenue

Germany

Until December 31, 2020, all of our German Pulp Mills and Friesau Facility

Our German pulp mills and the Friesau Facility participateparticipated in a program established pursuant to the Renewable Energy Act, which requires that public electric utilities give priority to electricity produced from renewable energy sources by independent power producers and pay a fixedprovides for stable pricing on green energy. As of January 1, 2021, the prior special tariff for such electricity for a periodin respect of 20 years. Such tariff expires December 31, 2019 for our Rosenthal mill December 31, 2024expired and it has since sold its surplus power at market rates which fluctuate over time. The special tariff for our Stendal mill andis in 2029 for the Friesau Facility. Recent amendments to the Renewable Energy Act will extend the initial termseffect until December 31, 2024 and for our pulp mills for a further10-year period, based upon the price received in the last year prior to renewal regressing at a rate of 8% per annum. Such amendments are subject to compliance with EU state aid rules. While we expect them to be effective, we can provide no assurance of the same.

Since 2005, our German mills have received emission allowances under the European Union Carbon Emissions Trading Scheme, referred to as the “EU ETS”. However, our eligibility for special tariffs under the Renewable Energy Act has reduced the amount of emissions allowances granted to our German mills under the EU ETS.Friesau mill until 2029.

In 2017,2021, energy sales for our German pulp mills and the Friesau Facilitymill were as follows:approximately $82.4 million or 616,033 MWh.

In 2017,connection with our Rosenthalfocus on the growing bio-energy market, we sell tall oil, a by-product of our pulp production process which is used as both a chemical additive and Stendal millsas a green energy source. In 2021, we generated $2.3approximately $7.3 million and $11.2 million, respectively, from the sale of tall oil aby-product ofand other chemicals from our production process.pulp segment.

Canada

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Celgar Mill

TheOur Celgar mill hasis party to an electricity sales agreement with the British Columbia Hydro and Power Authority, referredprovincial energy utility for a ten-year term that expires in October 2030. Pursuant to as “B.C. Hydro”, for the sale of power generated, pursuant to whichagreement, the mill agreed to supply a minimummaximum of approximately 238,000127,000 MWh of surplus electrical energy annually to the utility over aten-year term. utility. We are pursuing “market” sales and other strategic initiatives with respect to the remainder of the mill’s surplus power.

The agreement expires in 2020.Peace River mill sells its surplus electricity into the Alberta market.

In 2017,2021, our Celgar millCanadian mills sold approximately 147,294160,586 MWh of renewable electricity for proceeds of approximately $12.4$15.5 million.

In 2015, we completed a hearing relating to our claim against the Government of Canada under the North American Free Trade Agreement, referred to as “NAFTA”, regarding our investment in Celgar and unfair and discriminatory treatment regarding its ability to purchase and sell energy. See Item 3. “Legal Proceedings”.(15)

Cash Production Costs

Consolidated cash production costs per ADMT for our pulp mills are set out in the following table for the periods indicated:

Production Costs

Our major costs of pulp production are fiber, labor, chemicals and energy.

Fiber

General

Fiber, comprised of wood chips and pulp logs, is our most significant operating expense for our pulp segment, representing about 56%45% of our pulp cash production costs in 2017.

2021. Further, fiber, in the form of sawlogs, represents about 80%75% of lumber cash production costs.costs in 2021.

Given the significance of fiber to our total operating expenses and our limited ability to control its costscost compared with our other operating costs, volatility in fiber costs can materially affect our margins and results of operations.

Fiber

Our mills are situated in regions which generally provide a relatively stable supply of fiber. The fiber consumed by our pulp mills consists of wood chips produced by sawmills as aby-product of the sawmilling process and pulp logs. Wood chips are small pieces of wood used to make pulp and are either

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wood residuals from the sawmilling process or pulp logs chipped especially for this purpose. Pulp logs consist of lower quality logs not used in the production of lumber. The Friesau Facilitymill consumes sawlogs and waste wood, which are cyclical in both price and supply.

Generally, the cost of wood chips, pulp logs and sawlogs is primarily affected by the supply and demand for lumber. Additionally, regional factors such asincluding harvesting levels, and weather conditions and insect infestations can also have a material effect on the supply, demand and price for fiber.

In Germany, the priceWhile fiber costs and supply of wood chips has been affected by increasing demand from alternative or renewable energy producers and government initiatives for carbon neutral energy. Declining energy prices, weaker economies or warm winters such as in 2014, 2015 and 2016 tempered the demand for wood chips resulting from initiatives by European governmentsare subject to promote the use of wood as a carbon neutral energy. Over the long-term,cyclical changes, we expect thisnon-traditional demand for fiber is likelythat we will be able to continue to remain strong.obtain an adequate supply of fiber on reasonably satisfactory terms for our mills due to their locations and our long-term relationships with suppliers. We have not historically experienced any significant fiber supply interruptions for our operations.

During the past few years, certain customers have endeavored to purchase pulp that is produced using fiber that meets certain recognized wood certification requirements from forest certification agencies like FSC, PEFCthe Forest Stewardship Council (FSC), the Programme for the Endorsement of Forest Certification (PEFC), the Sustainable Forestry Initiative (SFI) andSFI-CSA. the Canadian Standards Association (CSA). If the fiber we purchase does not meet certain wood certifications required by customers, it may make it more difficult to, or prevent us from, selling our pulp to such customers. The chain of custody wood certification process is a voluntary process which allows a company to demonstrate that they use forest resources in accordance with strict principles and standards in the areas of sustainable forest management practices and environmental management. In an effort to procure wood only from sustainably managed sources, we employ an FSC Chain of Custody protocol for controlled wood and PEFC certification, which requires tracking of fiber origins and preparing risk based assessments regarding the region and operator. In the areas where we operate, we are actively engaged in the further development of certification processes. However, there is competition among private certification systems along with efforts by supporters to further these systems by having customers of forest products to require products to be certified to their preferred system. Such wood certification standards continue to evolve and are not consistent from jurisdiction to jurisdiction or how they are interpreted and applied. We currently do not expect certification requirements to have a material adverse impact on our fiber procurement and sales. However, if sufficient marketplace demand requires wood raw materials to be sourced from standards that are inconsistent with those in our fiber supply regions, it could increase our operating costs and available harvest levels.

Offsetting some of the increases in demand for wood fiber have been initiatives to increase harvest levels in Germany particularly from small private forest owners. We believe that Germany has the highest availability of softwood forests in Europe suitable for harvesting and manufacturing. We believe private ownership of such forests is approximately 48%. Many of these forest ownership stakes are very small and have been harvested at rates much lower than their rate of growth.

In 2017, our per unit pulp fiber costs in Germany were flat compared to 2016, primarily as a result of a balanced wood market in Germany. In 2016, our per unit fiber costs in Germany were 9% lower than in 2015, primarily as a result of a balanced wood market in Germany. In 2015, our per unit fiber costs in Germany decreased by approximately 17% due to the strength of the dollar and as a result of a generally balanced wood market.

We believe we are the largest consumer of wood chips and pulp logs in Germany and often provide the best long-term economic outlet for the sale of wood chips in Eastern Germany. We coordinate the wood procurement activities for our German mills to reduce overall personnel and administrative costs, provide greater purchasing power and coordinate buying and trading activities. This coordination and integration of

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fiber flows also allows us to optimize transportation costs, and the species and fiber mix for bothour mills. In addition, in 2016, we entered intoWe are also party to a joint wood purchasing arrangement with another significantone of the largest wood consumerconsumers in Europe, being the Mondi Group.Europe.

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In 2017, the Rosenthal mill2021 our German pulp mills consumed an aggregate of approximately 1.94.9 million cubic meters of fiber. Approximately 63%58% was in the form of such consumptionpulp logs and approximately 42% was in the form of sawmill wood chipschips.

In 2021, our per unit pulp fiber costs in Germany decreased compared to 2020, primarily as a result of the availability of beetle damaged wood and approximately 37% was in the form of pulp logs. Thestrong sawmill production.

Our Rosenthal mill sources wood chips for the Rosenthal mill are sourced from approximately 4627 sawmills located primarily in the German states of Bavaria,Baden-Württemberg and ThüringiaThuringia and primarily within a 300 kilometer radius of the Rosenthal mill. Within this radius, the Rosenthal mill is the largest consumer of wood chips. Given its location and size, the Rosenthal mill is often the best economic outlet for the sale of wood chips in the area. In 2017,2021, approximately 73%90% of the fiber consumed by the Rosenthal mill was spruce and the remainder was pine. While fiber costs and supply are subject to cyclical changes largely in the sawmill industry, we expect that we will be able to continue to obtain an adequate supply of fiber on reasonably satisfactory terms for the Rosenthal mill due to its location and our long-term relationships with suppliers. We have not historically experienced any significant fiber supply interruptions at the Rosenthal mill.

Wood chips for the Rosenthal mill are normally sourced from sawmills underone-year contracts with quarterly adjustments for market pricing. Substantially all of our chip supply is sourced from suppliers with which we have long-standing relationships. Pulp logs are sourced from the state forest agencies in Thüringia,Thuringia, Saxony and Bavaria and from private and municipal forest owners. In addition, the Rosenthal mill buys relevant volumes from traders and via imports from the Czech Republic and Poland.Republic.

In 2017, the Stendal mill consumed approximately 3.4 million cubic meters of fiber. Approximately 26% of such fiber was in the form of sawmill wood chips and approximately 74% was in the form of pulp logs. The core wood supply region for the Stendal mill includes most of the NorthernNortheastern and Western part of Germany, primarily within an approximate 300400 kilometer radius of the mill. We also purchase wood chips from Southwestern and Southern Germany as well as the Baltic Sea region. The fiber consumed by the Stendal mill consisted of approximately 49%63% spruce, 35% pine 49% spruce and 2% other species in 2017.2021. The Stendal mill has sufficient chipping capacity to almost fully operate solely using pulp logs, if required. We source pulp logs from private forest holders,and municipal forest owners and from state forest agencies inSaxony-Anhalt, Mecklenburg-Western Pomerania, Saxony, Lower Saxony, North Rhine-Westphalia, Hesse, Brandenburg, Schleswig-Holstein, Rhineland Palatinate and the City of Berlin. The volumes are distributed at optimal costs between the mills. In addition, over the last three years, theagencies. Our Stendal mill has historically also imported fiber from Poland and the Baltic Sea region.

Our Friesau mill is dependent on the consistent supply of sawlog fiber. Wood fiber is the single largest input cost and accounts for about 75% of its cash costs of producing lumber in 2021. Our Friesau mill is located in an area where there is a significant amount of high-quality fiber within economic reach. The wood fiber requirements of the Friesau mill are met primarily through open market purchases and contract purchases from state forestry agencies and private and municipal forest owners.

In Germany, over the last several years, the price and supply of wood chips has been affected from time to time by increasing demand from alternative or renewable energy producers and government initiatives for carbon neutral energy. In 2021, increasing energy prices and a stronger economy increased the demand for wood chips resulting from initiatives by European governments to promote the use of wood as a carbon neutral energy.

Offsetting some of the increases in demand for wood fiber have been initiatives to increase harvest levels in Germany, particularly from small private forest owners whose forests have been harvested at rates much lower than their rate of growth.

Additionally, over the last three years, there has been a material increase in the availability of harvestable wood as a result of beetle infestation of German forests. Generally, beetle-infested wood is harvested more rapidly so as to be useable before deterioration makes the wood unsuitable for its intended purposes. Most of such beetle-infested wood has now been harvested and processed. While such beetle-infested wood can increase fiber supply and lead to lower prices in the short-term, such increased harvest levels can lead to challenges in maintaining a sustainable harvest level over the long-term and can lead to periods of reduced harvest levels in the future.

We believe that Germany has the highest availability of softwood forests in Europe suitable for harvesting and manufacturing.

Canada

In 2021, our Celgar and Peace River mills consumed approximately 4.1 million cubic meters of fiber. Approximately 66% of such fiber was in the form of sawmill wood chips and the remaining 34% came from pulp logs processed through their woodrooms or chipped by a third-party. Our Canadian mills’ woodrooms are able to process about 24% of their fiber needs. The source of fiber at the mill is characterized by a mixture of species (aspen, spruce, pine, hemlock, douglas fir and cedar) and the mill sources fiber from a number of Canadian and U.S. suppliers.

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In 2021, our Canadian pulp mills’ per unit fiber costs modestly increased compared to 2020, due to the negative impact of a weaker dollar on our Canadian dollar denominated fiber costs.

The availability of fiber for the Celgar millour mills is in large part influenced by the strength of the lumber market. Lumber markets are primarily driven by U.S. housing starts, home renovation activities and, to a lesser degree, demand from China.

In 2017,2021, our Celgar mill’s per unit fiber costs were flat comparedCanadian mills had access to 2016, due to a balanced wood marketover 30 different chip suppliers, most of whom are in Canada and, in the Celgar mill’s fiber basket. In 2016, our Celgar mill’s per unit fiber costs were 6% lower than in 2015, due to strong sawmilling activity in the Celgar mill’s fiber basket. In 2015, our Celgar mill’s per unit fiber costs were flat compared to 2014, as the strengtheningcase of the dollar largely offset higher prices in local currency terms.

In 2017, the Celgar mill, consumed approximately 2.5 million cubic meters of fiber. Approximately 72% of such fiber wasare also in the form of sawmill wood chips and the remaining 28% came from pulp logs processed through its woodroom or chipped by a third party. Celgar’s woodroom is able to process about 40% of the mill’s fiber needs. The source of fiber at the mill is characterized by a mixture of species (pine,

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douglas fir, hemlock, cedar and spruce) and the mill sources fiber from a number of Canadian and U.S. suppliers.

In 2017, the Celgar mill had access to approximately 27 different chip suppliers from Canada and the United States. Chips are purchased in Canada and the United States in accordance with chip purchase agreements. Generally, pricing is reviewed and adjusted periodically to reflect market prices. One ofconditions. The contracts for the longer-term contracts is aso-called “evergreen” agreement, where the contract remains in effect until one of the parties elects to terminate after providing the stipulated notice. All other contractsCelgar mill are generally for one year with quarterly adjustments or on three-month terms. The chip contracts for Peace River are generally for three to five years with monthly adjustments indexed to the average pulp price.

To secure the volume of pulp logs required by its woodroom and field chippers, the Celgar mill has entered into pulp log supply agreements. Such agreements which can range from three-month toone-year terms, with a number of different suppliers, many of whom are also contract chip suppliers tofor the mill. All of the pulp log agreements can be terminated by either party for any reason, upon seven days’ written notice. The Celgar mill also purchased twonon-renewable licenses at a cost of $1.3 million, which will provide saw logs to sawmills in the area and pulp logs for the Celgar mill to use. The Celgar mill also bids on British Columbia timber sales from time to time.

Peace River holds two 20-year renewable governmental forest management agreements and three deciduous timber allocations in Alberta with an aggregate allowable annual cut of approximately 2.4 million cubic meters of hardwood, of which it currently harvests approximately 44%, and 400,000 cubic meters of softwood, which it sells or trades to sawmills surrounding the Peace River mill in exchange for wood chips. The Celgarforest management agreements were last renewed for a 20-year term expiring in 2029. While our Peace River mill has also commenced second pass harvesting in certain locales to increase harvesting of pulp logs that have traditionally been left as waste after harvesting operations.

Our Friesau Facility is dependent on the consistent supply of sawlog fiber. Wood fiber is the single largest input cost and accounts for about 80%can satisfy all of its cash costs of producing lumber. Our Friesau Facility is located in an area where there is a significant amount of high quality fiber within economic reach. The woodhardwood fiber requirements from its forest management agreements and timber allocations, in order to optimize its fiber flow, it satisfies a small portion of the Friesau Facility are met primarily through open market purchases and contract purchasesits needs from state forestry agencies and private timberland owners.third-party owned timberlands. Softwood fiber supply is from residual sawmill chips from local surrounding sawmills.

Labor

Our labor costs are generally steady, with small overall increaseshave increased over time due to inflation in wages and health care costs. Over the last three years, we have been able to largely offset such increases by increasing our efficiencies and production and streamlining operations.

Energy

Our energy is primarily generated from renewable carbon neutral sources, such as black liquor and wood waste. Our mills produce all of our energy requirements and generate excess energy which we sell to third party utilities. In 2017, we generated 1,961,975 MWhthird-party utilities and sold 895,818 MWh of surplus energy. See also “– Generation and Sales of Green Energy and Chemicals at our Mills”.to regional markets. We utilize fossil fuels, such as natural gas, primarily in our lime kilns and we use a limited amount forstart-up and shut-down operations. Additionally, from time to time, mill process disruptions occur and we consume small quantities of purchased electricity and fossil fuels to maintain operations. As a result, all of our mills are subject to fluctuations in the prices for fossil fuels.

Chemicals

Our pulp mills use certain chemicals which are generally available from several suppliers and sourcing is primarily based upon pricing and location. Our chemical costs have remained stable over the last threeincreased in recent years.

In connection with our focus on the growingbio-energy market, we sell tall oil, aby-product of our pulp production process which is used as both a chemical additive and as a green energy source. In 2017, we generated $14.2 million from the sale of tall oil and other chemicals.(18)

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Sales, Marketing and Distribution

Our pulp revenues by geographic area are set out in the following table for the periods indicated:

The following charts illustrate the geographic distribution of our pulp revenues as a percentage of our total pulp revenues for the periods indicated:

2017 Geographically Segmented Pulp Sales		2016 Geographically Segmented Pulp Sales		2015 Geographically Segmented Pulp Sales

*Excluding Germany and Italy.

The distribution of our pulp sales by end use are set out in the following table for the periods indicated:

In 2017, our wood products segment revenues were: (i) 39% from Germany; (ii) 29% from other European Union countries; (iii) 24% from the United States; and (iv) 8% from other countries.

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Our global sales and marketing group is responsible for conducting all sales and marketing of the pulp produced at our mills and currently has approximately 1525 employees. This group largely handles all European and North American sales directly. Sales to Asia are made directly or through commission agents overseen by our sales group. The global sales and marketing group handles sales to approximately 200over 250 customers. We coordinate and integrate the sales and marketing activities of our German mills to realize on a number of synergies between them. These include reduced overall administrative and personnel costs and coordinated selling, marketing and transportation activities. We also coordinate pulp sales from the Celgar mill withacross our German mills on a global basis, thereby providing our larger customers with seamless service across all major geographies. In marketing our pulp, we seek to establish long-term relationships by providing a competitively priced, high-quality, consistent product and excellent service. In accordance with customary practice, we maintain long-standing relationships with our customers, pursuant to which we periodically reach agreements on specific volumes and prices.

Our lumber sales are handled by our sales teamteams in Germany and Vancouver. We also sell lumber through commissioned agents in certain markets.

The following table sets out our pulp revenues by geographic area for the periods indicated:

The following charts set out the geographic distribution of our pulp revenues as a percentage of our total pulp revenues for the periods indicated:

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The following table sets out the distribution of our pulp sales volumes by end use for the periods indicated:

The following table set out our lumber revenues by geographic area for the periods indicated:

The following charts set out the geographic distribution of our lumber revenues as a percentage of our total lumber revenues for the periods indicated:

Our pulp and lumber sales are on customary industry terms. AtAs of December 31, 2017,2021, we had no material payment delinquencies. In 2017, one2021 and 2020, no customer accounted for 10% or more of our pulp segment through several of its operations accounted for 13% of our revenues. In 2016, two customers through several of their operations accounted for 19% and 10%, respectively, of our pulp sales. In 2015, one customer through several of its operations accounted for 16% of our pulp sales. We do not believe our pulp or lumber sales are dependent upon the activities of any single customer and the loss of any single customer would not have a material adverse effect on us.

Our sales to tissue and specialty paper product manufacturers were approximately 50% of our pulp sales in 2017, 2016 and 2015. Generally tissue producer customers are not as sensitive to cyclical declines in demand caused by downturns in economic activity. The balance of our sales was to other paper product manufacturers.

Transportation

We transport our NBSK pulp and lumber generally by truck, rail and ocean carriers through third-party carriers. We have a small fleet of trucks in Germany that deliver some of our German mills’ pulp.

Our German pulp mills are currently the only market kraft pulp producers in Germany, which is the largest import market for kraft pulp in Europe. We therefore have a competitive transportation cost advantage compared to Canadian and Northern European pulp producers when shipping to customers in Europe. Due to the location of our German mills, we are able to deliver pulp to many of our customers primarily by truck and rail. Most trucks that deliver goods into Eastern Germany generally do not have significant backhaul opportunities as the region is primarily an importer of goods. We are therefore frequently able to obtain relatively low backhaul freight rates for the delivery of our products to many of our customers.

The Celgar mill’s(20)

Our Canadian mills’ pulp is transported to customers by truck, rail truck and ocean carrier to ensure timely delivery. The majority of Celgar’sour Canadian mills’ pulp for overseas markets is initially delivered primarily by rail to the Port of Vancouver for shipment overseas by ocean carrier. Based in Western Canada, the Celgar mill isour Canadian mills are well positioned to service Asian customers. The majority of the Celgar mill’sour Canadian mills’ pulp for domestic markets is shipped by rail directly to the customer or to third partythird-party warehouses in the United States. In 2015, we establishedWe also operate a logistics and reload center near Trail, British Columbia. The center providesColumbia to provide us with additional warehouse space for our Celgar mill and greater transportation flexibility in terms of access to rail and trucking options.

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The Friesau Facility’smill’s lumber is transported to customers by truck, rail and ocean carriers through third-party carriers.

In each of 2017, 20162021 and 2015,2020, outbound transportation costs comprised approximately 9%, 8%12% and 9%13%, respectively, of our total consolidated cost of sales. Generally, in recent years, our transportation costs have been stable despite growing overseas shipments due to higher shipping capacity and we have also taken initiatives to target sales to the most “freight logical” customers.expenses.

Capital Expenditures

We have continued to make capital investments designed to increase pulp, green energy and chemical production, reduce costs and improve efficiency and environmental performance at our pulpmills.pulp mills. The improvements made over the years have increased the competitive position of our pulp segment. Since its acquisition, we have also made capital investments to optimize sawmill production at the Friesau Facility.mill.

TotalThe following table sets out the total capital expenditures at our millsby segment (excluding any related governmental grants) are set out in the following table for the periods indicated:

Capital

In our pulp segment, capital investments at theour Rosenthal mill in 20172021 and 2020 primarily related to the purchase of additional land for raw material storagewastewater improvement and a railcar acceptance system for logs. In 2016, they related to a railcar acceptance system for logs and a lime kiln retrofit and, in 2015, they related to a wastewater reduction project consisting of an evaporation plant upgrade and completion of an automated chip storage project.maintenance projects.

Capital investments at the Stendal mill in 2017 included a project2021 primarily related to reduce nitrogencapacity expansion projects. In 2020, they primarily related to capacity expansion, land for fiber storage and maintenance projects.

Capital investments at the Celgar mill in wastewater2021 primarily related to upgrades to the woodroom and smallermaintenance projects. In 2020, they primarily related to fiber consumption improvement projects and maintenance projects.

Capital investments at the Peace River mill in 2016 they2021 primarily related to a wastewater reduction project consistingthe recovery boiler rebuild, which was financed with insurance proceeds of an evaporation plant upgrade$21.5 million and a project to reduce chloride levels in the process water and, in 2015, they related primarilyupgrades to the evaporation plant upgrade.woodroom. In 2020, they primarily related to large maintenance projects.

Certain ofIn our capital investment programswood products segment, in Germany were partially financed through government grants made available by German federal2021, we completed expansion and state governments. Under legislation adopted by the federal and certain state governments of Germany, government grants are provided to qualifying businesses operating in Eastern Germany to finance capital investments. The grants are made to encourage investment and job creation. For example, the government grants received in connection with our main capital project completedoptimization projects at the StendalFriesau mill in 2013 require us to, maintain the employment of core employees for five years after completion of the project, among certain other terms. Previously, government grants were available for up to 35% of the cost of qualified investments. These grants at the 35% of cost level required that at least one permanent job be created for each €0.5 million ($0.5 million) of capital investment eligible for such grantsthings, increase annual lumber production and that such jobs be maintained for a period of five years from the completion of the capital investment project. Generally, government grants are not repayable by a recipient

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unless such recipient fails to complete the proposed capital investment or, if applicable, fails to create or maintain the requisite amount of jobs or comply with other applicable terms. In the case of such failure, the government is entitled to revoke the grantsimprove production grade capabilities and seek repayment unless such failure resulted from material unforeseen market developments beyond the control of the recipient, in which case the government may refrain from reclaiming previous grants. Pursuant to legislation in effect at the time, the Stendal mill recorded approximately $350.0 million of government grants. We believe that we are currently in compliance in all material respects with all of the terms and conditions governing the government grants we have received in Germany.efficiencies.

The following table sets out, as at the dates indicated, the effect of government grants on the recorded value of such assets in our Consolidated Balance Sheets:

The following table sets forth, as at the dates indicated, the gross amount of all government grants we have received and capitalized in our balance sheet, the associated amortization and the resulting net balance we include in our property, plant and equipment:

Qualifying capital investments at industrial facilities in Germany that reduce pollutants in the effluent dischargesdischarge offset wastewater fees that would otherwise be required to be paid. For more information about our environmental capital expenditures, see “– Environmental”.

In 2017, capital investments at the Celgar mill included apre-bleach press system upgrade and large maintenance projects. In 2016, they included new wood harvesting equipment, a logistics and reload center and other maintenance projects and, in 2015, they included the logistics and reload center and other maintenance projects.

Capital investments at the Friesau Facility in 2017 primarily related to a saw line improvement project.

In 2018,2022, excluding amounts being financed through government grants and expected insurance proceeds, we currently expect our totalcapitaltotal capital expenditures to be approximately $85$175.0 million to $95$200.0 million.

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In 2022, we currently expect our capital expenditures in our pulp segment plannedcapital expenditures in 2018 areto be principally comprised of approximately:

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In our wood products segment,2022, we currently expect capital expenditures in 2018 atour wood products segment to be for further upgrades to our Friesau Facility, principally comprised of approximately:

In addition, in 2018, our Stendal mill plans to enter into capital leases aggregating approximately $30 million for customized railcars.

Innovation

We are well positioned to capitalize onutilize our expertise with fiberwood, its processing and its processingby-products to expand our product mix and into new markets. Accordingly,mix. As a result, we have a number of initiatives focused on developing innovativeseek to develop new products that are based on our expertise in wood processing and working with derivatives of the kraft pulping process and wood processing.process. Currently these processes are focused on:

We are working on some of these initiatives on our own, with others and somein conjunction with industry associations and others withor joint venture partners. Currently, one of the better-developed of these projects is a cellulose derivative generally referred to in the industry as “cellulose filaments”. Cellulose filaments are the result of

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a new process that unbinds the individual filaments that make up a cellulose fiber. In northern softwoods, there are approximately 1,000 filaments making up a single fiber. The filaments resulting from this patented process are long, ribbon-like structures that have unique strength characteristics similar to other chemical derivatives, such as aramids. We believe that this material may have commercial potential in many applications, including strength enhancers, solution stabilizers and specialty solutions for numerous other products and applications.

Through an industry association, we are developing a proven manufacturing process able to supply commercial quantities of cellulose filaments. We, along with other member companies, including certain other NBSK producers, have license rights to further develop and market existing intellectual property registered under patent to our industry association. Through joint development arrangements with potential end customers, we have been developing numerous applications and end uses for cellulose filaments. While there remains much work to be done, we continue to be encouraged with the results to date and intend to continue to expend resources to develop this technology, both individually and in joint development arrangements with third parties. We currently estimate expenditures totaling approximately $1.0 million in 2018.

We are also researching potential higher use products that may be derived from processing different species of trees.trees and plants.

Such research and development of various end use applications are at different levels of development with one such application being tested atpre-commercial stages. However, there has been no commercialization of any products to date. We currently estimate it may take about two years before we can determine if the first product applications in the development pipeline can be commercialized. However, there can be no assurance that such research and development will ever result in commercialization or the production or sales of any products by us at a profit or at all.

Environmental

Our operations are subject to a wide range of environmental laws and regulations, dealing primarily with: