Auto industry is buckling down to decarbonize everything

Editor's note: This is the first of several articles that will publish on Sunday about the auto industry's carbon neutrality mission and its plan of action for cutting emissions.

WASHINGTON — Automakers and suppliers for years have been devising action plans, collaborating on best practices and setting ambitious but measurable targets as they aim to reduce and eventually eliminate carbon dioxide emissions from their manufacturing operations and supply base.

But unlike the effort to slash emissions from vehicles, the U.S. auto industry is working to decarbonize its factories and overall supply chain without direct regulation from the federal government forcing it to do so.

To be sure, a forthcoming rule from the Securities and Exchange Commission would require all publicly traded companies to have certain climate-related disclosures including greenhouse gas emissions in their registration statements and periodic reports. The rule, which has not yet been finalized, also would require information on climate-related targets but still would not mandate carbon emission reductions.

"This is not new to us," said Kevin Butt, chair of Suppliers Partnership for the Environment, whose members include global automakers and their suppliers. "We've been working to do the right thing for a long time, whether it be in manufacturing or continuing to improve our tailpipe emissions."

President Joe Biden often has leaned on executive action to address climate issues and reduce U.S. greenhouse gas emissions broadly. That includes rejoining the Paris Agreement, an international treaty encouraging nations to reduce their economywide emissions and, subsequently, limit the severity of global warming.

Biden has committed the U.S. to reducing emissions by at least 50 percent below 2005 levels by 2030, reaching 100 percent carbon pollution-free electricity by 2035 and achieving net-zero emissions economywide by 2050. He has set a nonbinding target for zero-emission vehicles to make up half of all new-car sales by 2030.

However, neither the Biden administration nor Congress has mandated that the auto industry specifically reduce its carbon emissions across its manufacturing sites and supply chain by a certain percentage, or require carbon neutrality by a certain date.

Still, Biden's climate-related orders — coupled with provisions in both the Inflation Reduction Act and Infrastructure Investment and Jobs Act aimed at reducing emissions and supporting a transition to electrification — provide some longer-term direction.

"Those actions are a signal of where we're headed, and so we are, of course, responding to the signals because manufacturing is a very capital-intensive industry," said Jennifer Thomas, vice president of corporate affairs at American Honda Motor Co. "We can't turn things on a dime, so we need as much runway as possible in order to get to where we need to go."

Without a direct regulatory force in the U.S., automakers such as Honda are setting their own carbon reduction and neutrality targets, many of which require their suppliers to track and identify ways for them to reduce CO2 emissions as both parties work to achieve the goals.

Honda has been tracking and reporting on greenhouse gas emissions for several years as it works to achieve carbon neutrality for all products and corporate activities, including its manufacturing operations and supply chain by 2050.

The automaker also wants to achieve 100 percent utilization of renewable energy and sustainable materials, referred to as "resource circularity," by midcentury.

In North America, Honda has been studying carbon emissions at all of its plants, procuring renewable electricity to cover emissions from electricity usage and engaging with its suppliers about their own carbon emissions and net-zero plans.

"We're not doing this in response to any government action," Thomas said. "We're doing this to be a good corporate citizen. Our philosophy is to be a company that society wants to exist, and our actions in this area are very much consistent with that."

While Honda is not advocating for any particular policy regarding the regulation of emissions from stationary sources such as manufacturing plants, there is a need for "certainty and consistency," Thomas said.

"It impedes progress when we see conflicting policies in place or backtracking on progress," she said. "We are constantly relaying the need for clear and consistent policies in this area."

Ford Motor Co. has committed to carbon neutrality no later than 2050 for three of its biggest CO2 emitters: vehicles, buildings and suppliers.

Those commitments — part of the Science Based Targets initiative, a partnership that helps companies set reduction goals in line with climate science — are much more than self-regulation, said Mary Wroten, Ford's director of sustainability and ESG.

"You actually have to submit data to this organization, and they formally approve your targets and your glide paths," she said. "Once stakeholders see that we set these aggressive targets, they also hold us accountable."

Magna International, a major global auto supplier, is setting aggressive targets as it strives for carbon neutrality in its global operations by 2030.

"It's not just the right thing to do from an environmental perspective and to really alleviate and mitigate the impacts of climate change, but also it's the right thing to do for our business," said Ahmed Elganzouri, Magna's sustainability director. "It reduces risk and makes the business more resilient."

Another major motivation? The ever-rising cost of energy, said Butt, who also is senior director of environmental sustainability at Toyota Motor North America. Toyota aims to make all corporate and manufacturing sites carbon neutral by 2035 and to eliminate CO2 emissions from energy use at those sites by 2050.

"It makes business sense," Butt told Automotive News, adding that despite these commitments by automakers and suppliers to achieve carbon neutrality, getting there will be "really, really difficult."

"There's no magic widget out there, so we have to be very creative and innovative in trying to achieve this," he said. "Nobody has put a gun to our head and said, 'You've got to do this by X date.' We're doing this because it's the right thing to do."

Groups such as Suppliers Partnership for the Environment are helping automakers and their suppliers navigate this space by sharing industry-backed guidance documents and best practices for tracking, reporting and reducing emissions.

"The education piece is so important," Butt said. "Some of them are really big suppliers — very mature — and understand a lot of this, but there are others that are new to the game."

In January, MEMA established the Center for Sustainability to help educate and support its more than 1,000 members throughout their sustainability journeys.

"The goal is for our members … to work together and to find solutions for cleaner manufacturing," said Julie Fream, CEO of MEMA's Original Equipment Suppliers group. "We continue to push for that, and the suppliers recognize they need to do that as well."

Several automakers and Tier 1 suppliers have joined Manufacture 2030, a software-as-a-service platform that enables companies to measure, manage and reduce carbon emissions with their customers at each manufacturing site.

"It's not just a platform that captures the carbon footprint, creating visibility for reporting purposes so you can use our data for reporting," Manufacture 2030 CEO Martin Chilcott said. "It's all really focused on how do you generate the right sort of data to enable you to make targeted interventions to accelerate reductions?"

Five vehicle manufacturers — Ford, General Motors, Honda, Oshkosh Corp. and Toyota — have joined the platform as supply chain owners, said Aaron Mason, Manufacture 2030's head of automotive.

"We jumped from a couple thousand … to 8,000 to 10,000 supplier locations that are now being included," Mason said. "It's in 65 different countries, from an automotive perspective."

Supply chain owners pay an annual fee — usually "tens of thousands of dollars," Chilcott said — and each supplier pays less than $1,000 per site annually.

Of the shared-cost model, Mason said it speaks to the level of collaboration required as companies seek to decarbonize their supply chains.

"Instead of it being 'I'm mandating something, you have to do it as a cost of doing business,' it is more 'We're investing alongside you in the decarbonization of this entire value chain,' " Mason said. "That is a much rosier picture."

Meanwhile, several voluntary initiatives from the federal government seek to encourage automakers and their suppliers to reduce emissions from manufacturing operations.

Through its Energy Star industrial program, for example, the EPA has been working with automakers to reduce emissions associated with energy use at their plants.

GM, Nissan and Honda all had manufacturing plants that earned the agency's 2022 Energy Star certification, a designation reserved for sites in the top 25 percent of energy efficiency in their sector.

While the EPA regulates greenhouse gas emissions from vehicles, it has not "promulgated regulations directly limiting [greenhouse gas emissions] from automotive manufacturing facilities or their materials and parts suppliers," an EPA spokesperson said.

At the Department of Energy, efforts are underway to develop technologies so automakers and companies in other industries have options as they aim to decarbonize their total footprint. That includes "technologies that reduce emissions not just from the use of the vehicle but from steel, plastics, batteries and other components used in manufacturing," said Michael Berube, deputy assistant secretary for sustainable transportation.

"The auto industry leadership recognizes the need to decarbonize," Berube said. "Our job is to help them get there."

The Energy Department's Better Buildings/Better Plants initiative and Better Climate Challenge — voluntary partnerships with specific reduction targets — are examples of working with the auto industry to meet energy efficiency and carbon reduction goals.

"There are a lot of challenges, but I feel there's a real cooperative sense across industry and government to identify the challenges and address them together," Berube said.

Butt, of Suppliers Partnership for the Environment and Toyota, also pointed to the industry's collaborative relationship with the federal government as it balances manufacturing costs, product affordability and environmental concerns.

"We're already making a tremendous impact across industry in moving in that direction without being regulated into it. … If at some point we're not getting there, then who knows where that might end up," he said. "But right now, we're moving, and we're moving at a pretty good pace."