The plant at UPM's site in Lappeenranta, at an investment of 150 million euros ($198 million), will be able to produce annually approximately 100,000 tonnes of advanced second generation biodiesel for transport after its planned completion in 2014.

The plant will refine crude tall oil, which is a byproduct of processing wood pulp, mostly from pine trees.

"The biofuels business has excellent growth potential," UPM chief executive Jussi Pesonen was quoted as saying in a statement.

"The quality of our end product and its environmental characteristics have gained significant interest among a wide range of customers, and the investment is profitable," he added.

The company said it is also considering building a second biorefinery, either in Finland or France, which would use wood as the raw material and a different technology for processing into biofuel.