Online Extra: Toyota: Greener Cars -- and Factories

In addition to its popular Prius hybrid, the Japanese carmaker is determined to reduce emissions from its plants, especially at home

Can a car company really be called green? Sure, the notion may seem far-fetched. But if anyone can, it might be Toyota (TM ). The Japanese auto maker has gotten great mileage lately out of its Prius gasoline/electric hybrid. Toyota has sold over 400,000 of these fuel-sippers and is now expanding its hybrid lineup by at least 10 other vehicles.

Less well known are Toyota's efforts to reduce emissions from smokestacks as well as tailpipes. In the past 15 years, Toyota has cut its carbon-dioxide emissions in Japan to 1.78 million tons annually, from 2.12 million tons, while globally, C02 emissions per car produced are down 15% since 2002.

This year, it announced that it plans to cut emissions per unit worldwide by 20% from 2001 levels by 2010. "We're very much focused on energy efficiency and global warming," says Kiyoshi Masuda, senior general manager in Toyota's environmental-affairs division in Tokyo.


  That puts Toyota way ahead of the targets established in the Kyoto Protocol. The treaty, which was agreed to in 1997 but didn't come into effect until this year, calls for Japan and most other developed countries to cut emissions of CO2 and other greenhouse gases by an average of 6% from 1990 levels by 2012. In addition, Tokyo has told companies that they must reduce their emissions by 8.6% from 1990 levels -- a target many in Japan Inc. fear they won't reach.

Electronics giant Matsushita Electric (MC ), for instance, says its plants producing semiconductors and plasma screens are using too much electricity. "We're having trouble in proceeding [with CO2 reduction]," Matsushita CEO Kunio Nakamura told reporters in Tokyo on Nov. 28.

Japan's Environment Ministry projects that by the deadline, the country will actually emit 4.8% more greenhouse gases, rather than 6% less, if Japanese companies don't get their act together soon. Nippon Keidanren, Japan's biggest business lobby, has recommended that Japanese companies should aim lower and try to reduce C02 emissions only to 1990 levels -- rather than 6% below that -- by 2010.


  How does Toyota manage to cut emissions where others are struggling? One explanation is better efficiency. By replacing multiple production lines with single lines capable of producing different vehicles, Toyota has decreased energy usage by as much as 40%, Masuda says. Similarly, a welding system that Toyota began rolling out to plants globally in 2003 helped speed up production, cut costs, and also led to a 50% reduction in C02 emissions by using less electricity.

That has been helped by Toyota's bumper profits of $10 billion for the year to March -- money that has been poured into investment in newer, cleaner factories. By contrast, the latest restructuring plans of cash-strapped GM (GM ) involve reducing capacity but not increasing much-needed investment in new production technologies, says Andrew Phillips, an analyst at Nikko Citigroup in Tokyo.

"Five or six years ago, when a lot of the Japanese companies were reducing capacity in Japan, companies like Honda (HMC ) and Toyota were overhauling what was left," Phillips says.


  Make no mistake: Plenty of people question Toyota's green credentials. In October, Bluewater Network, an environmental group, launched an ad depicting Toyota CEO Katsuaki Watanabe as a wolf in a sheep costume. The group complains that Toyota's hybrids don't have much better fuel economy than regular gasoline engines and that Toyota's fuel economy per vehicle has worsened as the company has increased the proportion of larger vehicles it sells in the U.S. Toyota has also received brickbats for opposing -- along with Detroit auto makers -- tougher fuel-economy standards in the U.S.

And while Toyota may be a leader in cutting emissions from production, it still has plenty of room for improvement. In fact, even as Toyota's CO2 emissions have fallen in Japan, they've climbed worldwide as Toyota makes more cars. Last year it emitted 6.4 million tons of CO2 equivalent, up from 5.9 million tons in 2001. And Masuda acknowledges that plants in developing markets will continue to spit out more pollutants than those in Japan, Europe, or the U.S. "We set standards for each region or country by looking at what our competitors are doing and aiming to be the top performer," he says.

And Toyota isn't the only Japanese company that has made progress in cutting greenhouse gas emissions. By 2010, copier maker Ricoh expects to reduce C02 output to 12% below 1990 levels. Drinks maker Kirin expects to cut CO2 emissions at its breweries by at least 25% from 1990 levels by 2007.


  Other auto makers are also increasing energy efficiency. Nissan (NSANY ) is aiming to reduce C02 output by 10% from 2000 levels by next year. And Honda has already cut C02 emissions in Japan by 24% from the 1990 level and is targeting a 30% reduction by 2010. "We've set a high target and will do our utmost to solve the problem," Honda CEo Takeo Fukui said in early November at an environmental summit for business leaders.

Sure, green auto makers may sound a bit oxymoronic. But if more Japanese companies were to follow the lead of Toyota and other big Japanese car manufacturers, meeting the requirements of the Kyoto Protocol may yet be achievable.

By Ian Rowley in Tokyo, with Hiroko Tashiro

Edited by David Rocks

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