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Toyota has always believed that one of its primary purposes is to contribute to society by manufacturing high quality, dependable vehicles. In the seven decades since the company's founding, we have produced a wide range of vehicles that have helped society meet its mobility needs. This has been achieved primarily through one basic technology: the gasoline combustion engine. This technology, however, has resulted in environmental impacts such as air quality degradation and greenhouse gas (GHG) emissions that contribute to climate change. We also recognize that using gasoline as an energy source for vehicles is not sustainable, as petroleum is a limited resource and subject to rapidly increasing global demand and rising prices.

Toyota believes that these impacts must be reduced while maintaining the benefits that automobiles provide us. We cannot do this overnight, but we can find ways to use petroleum products more efficiently in our conventional vehicles, develop vehicles that are less dependent on petroleum, and create new vehicles that use different energy sources. This must be done in a way that is technologically feasible, acceptable to our customers, and supported by the appropriate infrastructure.

We are also committed to reducing our energy use and decreasing our greenhouse gas emissions in our operations, from manufacturing to sales and distribution. Toyota's employees are the key to this effort. By identifying inefficient practices and creating innovative solutions, we have saved, and will continue to save, substantial amounts of energy.

Our performance against EAP targets in the areas of energy and climate change are listed above, and described in this chapter.

NEW FUEL ECONOMY AND GHG EMISSIONS STANDARDS

This past April, the U.S. Environmental Protection Agency (U.S. EPA) and National Highway Traffic Safety Administration (NHTSA) jointly finalized a coordinated national program for fuel economy and greenhouse gas emissions standards for passenger cars and light trucks. The new requirements cover the 2012 through 2016 model years. By 2016, the new vehicle fleet must meet a GHG standard of 250 grams of CO2 per mile under U.S. EPA's program and a Corporate Average Fuel Economy (CAFE) standard of 34.1 miles per gallon under NHTSA's program.

The requirements are the product of an historic partnership between the automakers, the federal government, and the state of California. This diverse group sought to create regulations that offer more certainty for automakers, provide significant environmental and energy benefits for the U.S., and preserve vehicle choice for consumers. Prior to this collaboration, automakers faced overlapping and/or conflicting regulations from two separate federal agencies and over a dozen states. Such a patchwork of requirements would have required a unique design for the same vehicle model depending on where it was sold in the U.S. As a manufacturer that distributes and sells the same full lineup of vehicles across the country, and across much of North America, this would have created serious complications for technology development and vehicle distribution across the country.

The process used to develop these regulations provides a notable example of how government and industry can — and should — work together. Building off this success, Toyota and other automakers have already started working with federal and state regulators to consider the next round of standards covering 2017–2025 model years. Such forward looking requirements will necessitate careful consideration of all aspects of advanced technology readiness, including supporting infrastructure and consumer acceptance.

VEHICLE EFFICIENCY

At Toyota, we focus on producing products that meet our customers' expectations and needs while lessening impacts to the environment. One of the most direct ways of doing this is to increase the fuel efficiency of our vehicles and, in FY2010, Toyota offered the most fuel-efficient products of any full-line manufacturer (please see Figure E). Fuel efficiency, simply stated, is the distance a vehicle can be driven on a certain amount of fuel. In the U.S., we measure this in miles per gallon (mpg); in Canada it is liters of fuel/100 kilometers traveled (L/100km). The farther you can travel on a given amount of fuel, the more fuel-efficient the vehicle, the lower the cost to the owner, and — since roughly 19 pounds of CO2 are emitted per gallon of gasoline combusted with air — the less greenhouse gases.

Figure E - Fuel Efficiency of Toyota's Gasoline Vehicles by Class

Currently, fuel efficiency of new cars and trucks is regulated through the CAFE standards in the U.S., set at 27.5 mpg for cars and 23.5 mpg for trucks. Canada's Company Average Fuel Consumption (CAFC) targets are 8.6 L/100km for cars and 10.0 L/100km for trucks. As shown in Figure F, we exceeded CAFE standards and CAFC targets for both passenger cars and light-duty trucks for model year 2010. (Target 1.1)

Figure F - U.S. Car CAFE; U.S. Truck CAFE; Canadian Car CAFC; Canadian Truck CAFC

Both the U.S. EPA's Fuel Economy Guide and the Natural Resources Canada Fuel Consumption Guide for model year 2010 list the Toyota Prius as the most fuel-efficient vehicle available for sale in both countries. Natural Resources Canada recognizes the manufacturers of the most fuel-efficient new light-duty vehicles in their class sold in Canada each model year by presenting the ecoENERGY for Vehicles awards. In model year 2010, the Toyota Yaris and Toyota Prius again received the award for the subcompact and midsize classes, respectively. The Toyota Yaris has won this award for the fifth straight year, and the Toyota Prius has won the award for the tenth straight year.

Although we are pleased with the results of our efforts thus far, we continue to push for both incremental and step-changes in our technology to improve fuel economy. (Target 1.2) This is consistent with the Toyota Way of continuous improvement. Our engineers are constantly evaluating our body design, conventional engines and transmissions to see where changes can be made for better fuel efficiency, reduced air pollutants, and lower levels of greenhouse gas emissions (please see Figure G). An example is the improved aerodynamic body design of the 2010 Prius which delivers Toyota's best coefficient of drag at 0.25, and plays a part in the 7 percent improvement in fuel economy over the second generation Prius.

Figure G - Toyota U.S. Fleet and Toyota Canadian Fleet Annual CO2 per Kilometer

The newly redesigned Sienna uses fuel more efficiently and achieved a fuel economy improvement of combined city and highway of 5 percent. Also, the Sienna includes an "Eco Telltale" feature that assists the driver in using fuel more efficiently. This feature is a light in the meter cluster and an Eco-bar graphic in the instrument panel display (shown below).

Eco-bar graphic
The new Eco-bar graphic, shown at the bottom of the display, helps drivers make adjustments to their driving habits to maximize fuel efficiency.

Other engineering changes include the use of low viscosity SAE (formerly known as the Society of Automotive Engineers) 0W-20 multigrade gasoline engine oil. This engine oil enables increased fuel economy performance over higher viscosity oils by reducing friction while maintaining necessary lubrication in the engine. Over 40 percent of our vehicle lineup uses this grade of oil. An extra environmental benefit of the SAE 0W-20 oil is that it requires 10,000 mile maintenance intervals instead of the 5,000 mile required by higher viscosity oils, as long as the driving conditions are normal.

VEHICLE FUELS DIVERSITY

Alternative Fuels

Petroleum is a finite resource that, when refined into various products like gasoline, fuels nearly all motorized personal transportation on the globe. As demand for mobility increases, so will the demand and ultimately the price of this resource. To prepare for this, Toyota is examining a range of alternative fuels, such as biofuels, hydrogen and electricity, that may play a role in the eventual transition from petroleum. Many factors must be examined and considered when assessing alternatives to petroleum. Toyota focuses on evaluating the technical, political, infrastructure and consumer acceptance factors for each alternative fuel, and promotes awareness of carbon dioxide reduction and energy security benefits of these fuels as well. (Target 2.1) This includes the entire supply chain of the fuel, from feedstock to tailpipe emissions. Toyota's views on biofuels are expressed here with a discussion of electricity and hydrogen included with the plug-in hybrid and fuel cell hybrid vehicle sections later in this chapter.

Biofuels

A biofuel is any fuel that can be produced from a renewable biological resource. In the U.S., the National Renewable Fuels Standard (RFS) program mandates that 36 billion gallons of biofuel must be blended with all transportation fuel, except jet fuel, by 2022. Canada has also finalized a Renewable Fuels Regulation (RFR) that will require the use of 5 percent ethanol from December 2010, and 2 percent biodiesel blend in transportation fuels. As corn-based ethanol predominates in the North America, increasing volumes of this fuel to meet RFS and RFR targets has raised concerns about using food crops for fuel, land use change, water consumption, fertilizer runoff and ethanol's somewhat limited carbon reduction benefit.

Further, blends of gasoline with more than 10 percent ethanol can cause drivability and component durability issues in current vehicles, and high-percentage ethanol blends (i.e., E85) can only be used in Flex Fuel Vehicles (FFVs), which are not widely available in the marketplace and suffer reduced range when using the fuel. Toyota believes that three things must happen before ethanol consumption can grow significantly: industry must be given the lead time to introduce fully compatible vehicles and infrastructure; a foolproof system to prevent misfueling of conventional vehicles must be implemented; and sustainable feedstock/production processes must be developed.

A different approach to meeting RFS and RFR requirements is to develop biofuels similar to traditional hydrocarbon fuels. These "bio-hydrocarbon" fuels are made from algae oils or thermal conversion of biomass, and can be blended into petroleum feedstocks or added to gasoline in high concentrations with no adverse effect on existing vehicles or infrastructure. The primary challenge is developing clean (low CO2) and efficient processes that can be scaled for large volume production. This compatibility with gasoline or diesel fuel makes an extremely attractive option, and is a primary reason Toyota is exploring ways to accelerate the research and development needed to commercialize bio-hydrocarbon fuels.

Toyota believes biofuel use will continue to increase, and is an effective way to reduce GHG emissions and oil consumption. This growth must be sustainable to ultimately benefit society. Energy consumption, land and water use, economics, food for fuel and process scalability issues all must be considered when evaluating and ultimately selecting a biofuel technology to pursue. Using these criteria, plus political realities, Toyota and its partners assessed a range of biofuel technologies and processes. Key conclusions include the following:

  • It is unlikely that one biofuel can meet global or even national needs as the type and quantity of biological material varies by region. In North America for example, corn is likely to continue as a significant ethanol feedstock even as other biofuels enter the market.
  • No algae, cellulosic or advanced biofuel process appears to be a clear candidate for near-term commercialization. Although some processes have been operated at commercial scale, none have shown the technical maturity or economic viability to secure the capital needed for large-scale commercialization.
  • Bioproducts or high-value advanced biofuels, like bio-jet fuel, are likely to be commercialized more quickly. These products can demand a premium price in the marketplace and lower production volumes require less startup capital.

Toyota continues to closely monitor and evaluate technical development and scale up of a range of biofuel technologies and processes.

ADVANCED VEHICLE TECHNOLOGIES

Toyota is investing in a number of advanced vehicle technologies in order to have the right products commercially available to consumers when the most promising alternative fuels and infrastructure are in place. We are following through with our plan to roll-out conventional hybrids across our entire lineup, as well as plug-in hybrids, battery electric vehicles, and fuel cell hybrid vehicles. Our strategy addresses the key issue of range associated with new energy sources for advanced vehicle technologies (please see Figure H), including research and development of improved battery technologies for these vehicles.

Figure H - Vision of Vehicle Market

In FY2010, we continued to address a number of challenges associated with full-scale commercialization of advanced vehicles, working with government agencies and other partners. (Target 2.2) We hope to address some of these challenges through our demonstration programs in North America for plug-in hybrids and fuel cell hybrid vehicles. These programs are intended to educate the public, gather real world consumer feedback, and stimulate the development of infrastructure to support deployment of our advanced vehicles. (Target 3.1)

The following sections describe Toyota's progress with conventional hybrids and advanced vehicle technologies.

Conventional Hybrid Vehicles

In 1997 we introduced the global market to Prius, the world's first mass-produced gasoline-electric hybrid powertrain vehicle. Since then, we have viewed conventional hybrids as our core powertrain technology, and the cornerstone of our efforts to improve the efficiency of vehicles that use gasoline as an energy source. Equally important, Toyota sees hybrid technology as a stepping stone to minimizing the environmental impacts, particularly the emissions of greenhouse gases, from gasoline-powered vehicles. Ultimately, we believe hybrid technology will be the foundation of future powertrains that can utilize a wide variety of energy sources and fuels, including hydrogen, biofuels, natural gas and electricity.

Toyota and Lexus offer a total of seven gasoline-electric hybrid vehicles in the North America market for model year 2011: the third generation Prius, Camry Hybrid, Highlander Hybrid, RX 450h, GS 450h, HS 250h and the LS 600hL. The Prius continued to be North America's most fuel efficient midsize vehicle for model year 2010. Toyota hopes to achieve sales of one million hybrids a year as early as possible in the 2010s and to adopt hybrid technology on all of our models as soon as feasible in the 2020s. As of September 2010, we have sold nearly 2.8 million hybrids worldwide since the first Prius was introduced 13 years ago. In calendar year 2009, Toyota sold a combined 195,545 Toyota and Lexus gas-electric hybrids in the U.S. alone.

The current Prius hybrid system was launched with the main objective of improving power performance and fuel economy while maintaining hybrid system size and weight. This was achieved by increasing engine power and motor operation voltage from 288 to 500 volts. The third generation Prius, launched in 2009, had 90 percent of its components redesigned. The engine power and electric motor power have been increased significantly, and changes in the cooling system for the battery pack have increased its useable energy. The features of the model year 2010 Prius produced a 10 percent improvement in fuel economy, raising the new U.S. EPA label for combined city/highway to 50 mpg. It also has a U.S. EPA emissions rating of AT-PZEV/Federal Tier 2 Bin 3. Increasing fuel economy — and its inverse relationship to the amount of greenhouse gases emitted — is the key environmental benefit of improvements to the Prius over time.

Also in 2009, we launched the model year 2010 Lexus HS 250h, the world's first dedicated luxury hybrid vehicle. The HS 250h is Lexus' fourth hybrid, and has a combined U.S. EPA-estimated fuel economy rating of 35 mpg utilizing regular 87-octane gasoline. The hybrid powertrain in this model results in a 74 percent better city mpg rating compared to similar vehicles. Underlying the HS 250h's forward-thinking interior design is the use of bioplastic material. Bioplastics are used in a number of injection-molded, foam and board components throughout the car, including trunk compartment trim, cowl side trim, door scuff plates, seat cushions and the package tray. Overall, approximately 30 percent of the combined interior and trunk are covered in bioplastic.

In conjunction with this announcement, Toyota unveiled the FT-CH concept car. This new compact vehicle was developed with the urban environment in mind, as its wheelbase is 22 inches less in total length than the midsize class Prius. This compact hybrid is expected to have an even better fuel economy rating than the Prius, as well as lower greenhouse gas emissions and is a consideration for inclusion in the expanding Prius family.

For more information on Toyota hybrids, please visit
www.hybridsynergydrive.com and
www.hybridsynergydrive.ca.

For more information on Lexus hybrids, please visit
www.lexus.com/hybrids/ and
www.lexushybriddrive.ca.

Plug-In Hybrid Vehicles (PHVs)

In December 2009, Toyota launched the 2010 Prius Plug-in Hybrid Vehicle (PHV) demonstration program. The Prius PHV is based on the third-generation Prius, expanding Toyota's Hybrid Synergy Drive® technology with the introduction of a first generation lithium-ion (Li-ion) drive battery that enables all-electric operation at higher speeds and longer distances than the conventional Prius hybrid.

The Li-ion batteries powering these PHVs are built by Panasonic EV Energy Company, Ltd. (PEVE), a joint venture with Toyota. When fully charged, the vehicle is designed for an electric-only range of approximately 13 miles and is capable of achieving highway speeds up to 60 mph on electricity alone. For longer distances or higher speeds, the Prius PHV reverts to "hybrid mode" and operates like a regular Prius. This ability to utilize all-electric power for short trips or hybrid power for longer drives alleviates the "range anxiety" issue of limited cruising range encountered with pure electric vehicles.

Here in North America, more than 150 PHVs will be placed in regional clusters with select partners for market/consumer analysis and technical demonstration. These regional clusters include Colorado, California, Washington D.C., New York, Oregon and Pennsylvania in the U.S., and British Columbia, Manitoba, Ontario and Québec in Canada.

A key partnership placement is with Xcel Energy's SmartGridCity program in the city of Boulder, Colorado. Eighteen PHVs are placed with Boulder residents who will participate in an interdisciplinary research project coordinated by the University of Colorado at Boulder Renewable and Sustainable Energy Institute (RASEI), a new joint venture between the U.S. Department of Energy's National Renewable Energy Laboratory (NREL) and the University of Colorado at Boulder. RASEI, Xcel Energy and Toyota will use this program to gather data on vehicle performance and charging patterns, electric utility/customer interactions, gather real world consumer feedback and spur the development of public access charging station infrastructure. The locale offers the additional benefit of monitoring high altitude and cold climate performance of Toyota's first generation Li-ion drive battery.

All vehicles in this program will be equipped with a telematics device to capture performance data. The device will monitor activities such as how often the vehicle is charged and when; whether the batteries are depleted or being topped off during charging; trip duration, all-EV driving range, combined mpg and other data. This information will be uploaded directly from the devices to Toyota's website at www.toyota.com/esq/.

In March 2010, Toyota Canada Inc. (TCI) began the first phase of a national Canadian program for demonstrations of the Prius PHV. Under this demonstration program, TCI is initially partnering with 13 organizations including academic institutions, provincial government departments, municipalities and provincial power authorities. This first phase will continue through next winter in order to assess performance of the Prius PHV under a range of driving and climatic conditions. Data from this demonstration program will be analyzed by Toyota in conjunction with the results of programs in the U.S.

Toyota believes these demonstration programs are a necessary step in societal preparation for PHVs. The programs allow Toyota the unique opportunity to inform, educate and prepare customers for the electrification of the automobile in general, and the introduction of plug-in hybrid technology. This technology will reduce the amount of petroleum needed to power a vehicle and will potentially reduce both mobile source greenhouse gas emissions and criteria pollutants. To maximize the vehicle's overall environmental benefits, clean electricity sources (wind, solar, nuclear, etc.) are required.

Battery Electric Vehicles (BEVs)

In 1997, Toyota introduced the RAV4 EV battery electric vehicle in California. Close to 1,500 large-battery electric vehicles were either sold or leased over the course of the program, and nearly half of them are still on the road today. Shortly thereafter, Toyota started a modest demonstration program with a small-battery electric urban commuter vehicle, called the e-com. This concept addressed the idea of an "on-demand" city station car that is becoming popular in large urban areas. Although shorter in range, the e-com program addressed a specific mobility niche at a much more affordable price than the RAV4 EV. The RAV4 EV and e-com programs were short lived, however, due to a lack of commitment from the market and consumer readiness.

Battery technology has progressed significantly in the time since the RAV4 EV and e-com programs, but major challenges still remain. The cost of Li-ion batteries needs to be reduced significantly, or a more affordable alternative developed. BEVs will require the creation of infrastructure to allow recharging at multiunit residences, customers' workplaces and on-the-go in order to provide for a greater range of mobility that society expects from vehicles. To work on these challenges, Toyota is engaging in partnerships to advance battery technology and to evaluate electrification infrastructure issues in urban settings.

Toyota believes that increased awareness of environmental issues and the benefits of advanced technology vehicles have reinvigorated an interest in the electric vehicle market. In May 2010, Toyota signed an agreement with Tesla Motors to initiate the development of an electric version of the RAV4. Prototypes will be made combining the Toyota RAV4 model with a Tesla electric powertrain. Toyota plans to bring the new electric RAV4 to market in 2012.

Similar to PHVs, clean electricity sources (wind, solar, nuclear, etc.) are required to maximize the BEV's overall environmental benefits.

Fuel Cell Hybrid Vehicles (FCHVs)

Since the 1990s, Toyota has been developing a vehicle that uses hydrogen. Toyota's research and development is aimed at building a practical and affordable hydrogen fuel cell vehicle, and technical advancements have moved at a rapid pace. Engineers have made strides in reducing materials and manufacturing costs, and improving system durability. Toyota is committed to bringing hydrogen-powered vehicles to global markets in 2015, and we see FCHVs as yet another critical element in our progression toward sustainable mobility.

In combined city and highway driving from Santa Monica to San Diego and back, the Highlander fuel cell hybrid vehicle-advanced (FCHV-adv) logged an estimated 68 miles per kilogram of hydrogen, the rough equivalent of 68 mpg, resulting in an estimated range of 431 miles. The cruising range is more than double that of the previous generation, due to increased efficiency and improvements in hydrogen storage capacity. It also has twice the estimated fuel economy of a conventional Highlander hybrid with a similar driving range and zero tailpipe emissions other than water vapor.

We continue to make progress toward commercialization of FCHVs through fuel cell system cost reductions and support of vehicle codes and standards activities. We participate in the SAE Codes and Standards activities to ensure that all advanced powertrains are safe, reliable, and meet the needs of consumers. Last year we remained very active in the SAE Fuel Cell Standards Committee and SAE Hybrid Vehicle Committee where standards and recommended practices were developed for the interface between electric vehicles and the grid, as well as fueling protocols for compressed hydrogen powered fuel cell vehicles.

In late 2009, we began delivering the FCHV-adv to limited test customers, and Toyota's demonstration program will provide one of the largest fleets of active fuel cell vehicles in the country. Over the course of our three-year demonstration program, we will place more than 100 vehicles for testing in an effort to demonstrate the technology's performance, reliability and practicality in everyday use. Demonstration vehicles are currently being used at universities, private companies and government agencies in both California and New York. Notably, these vehicles are in service at the University of California, Irvine, and the University of California, Berkeley, as well as New York's John F. Kennedy Airport. As new hydrogen stations come online, we expect to add new regions and partners to the program.

Photo of Toyota Fuel Cell Hybrid Vehicle
Developing infrastructure for alternative fuels will be critical to deploying advanced vehicle technologies such as hydrogen-powered fuel cell hybrid vehicles. Very few hydrogen fueling stations, such as this one at New York's JFK Airport, are operational today.

Beyond FCHV demonstration programs, we are actively working on larger hydrogen infrastructure issues. Toyota is engaged in discussions with the California Energy Commission (CEC), U.S. Department of Energy, University of California, Davis, University of California, Irvine, University of California, Berkeley, and the California Fuel Cell Partnership on approaches to expand the hydrogen refueling infrastructure to meet the needs of all automakers. Of the several dozen stations operating in California, only a small number are accessible to Toyota customers. To ensure the commercialization of fuel cell vehicles can begin in the 2015 timeframe, Toyota needs at least 20 stations across key deployment areas in California. Toyota has made its own investment in this infrastructure by partnering with Shell to build a new hydrogen-only retail station near our U.S. sales headquarters in Torrance, California. We expect this station to be online in late 2010.

Toyota would like to challenge private industry and the government to work closely with automakers to develop a clear pathway for convenient and reliable access to hydrogen for consumers. Once the broader plan is identified, we are hopeful that a balanced strategy, including private investment, can be implemented to guarantee the success of the early market period.

ADVANCED TRANSPORTATION SOLUTIONS

Sustainable mobility requires that all elements of the broader mobility system be addressed to reduce impacts. This includes how traffic moves through the system, reducing congestion and delays and increasing safety. There has been steady progress in the technology that allows vehicles to communicate with one another, as well as with roadway infrastructure.

Toyota has demonstrated applications of these technologies that were designed and developed by our engineers in Ann Arbor, Michigan. One of the applications that Toyota has demonstrated is the Green Wave Advisor. This device enables traffic signals to communicate directly with the vehicle. The signals send information to the vehicle that is translated and displayed for the driver as a suggested range of speeds. If followed, this information will allow the driver to pass through a series of green lights for a more efficient journey. Our engineers are continuing to develop and demonstrate advanced transportation solutions for our vehicles that will work in concert with public infrastructure technologies. (Target 4.1)

ENERGY AND GREENHOUSE GASES IN OUR OPERATIONS

Worldwide consumption of energy continues to rise, and with it, the emissions of greenhouse gases and prices to consumers. This trend has prompted Toyota to concentrate on reducing our own energy consumption and GHG emissions throughout all aspects of our business.

Over the past decade, individual Toyota affiliates have voluntarily measured and managed energy consumption and GHG emissions following best practices. Energy audits and 'treasure hunts' for efficiency improvements have yielded measurable results. Two years ago, we completed our first consolidated greenhouse gas inventory across our North American operations. This inventory is broad in scope, measuring not only emissions from our energy use, but also related third-party emissions like parts and vehicle logistics, employee commuting, and business travel. The process of consolidating our inventory helped us better understand our GHG footprint, and facilitated sharing information across our businesses. In FY2010 we continued this process, and we are looking for additional ways to reduce emissions.

Our efforts to reduce energy consumption have not gone unnoticed. In March of 2010, the U.S. EPA awarded Toyota Motor Engineering & Manufacturing North America, Inc., with a 2010 ENERGY STAR® Sustained Excellence Award — the sixth consecutive award under the ENERGY STAR program. Toyota was chosen as one of 50 organizations out of 17,000 in the program to receive the Sustained Excellence Award. U.S. EPA selects organizations in this category for exhibiting exceptional leadership year after year in the ENERGY STAR program while remaining dedicated to environmental protection through superior energy management.

Below we describe our FY2010 performance against targets for energy consumption and GHG emissions.

Manufacturing

Toyota's North American assembly plants spend more than $147 million annually on energy to run operations, resulting in 1.1 million metric tons of CO2 emissions per year. Running our operations more efficiently decreases the amount of CO2 emitted to the atmosphere. Since FY2000, we've reduced our total energy use by 19 percent per vehicle produced even as we have expanded and added new facilities. Collectively, energy improvements at Toyota facilities have reduced CO2 emissions by almost 150,000 metric tons since 2000.

Energy

Toyota has been an ENERGY STAR partner since 2003, and has received six ENERGY STAR awards for Partner of the Year and Sustained Excellence. In FY2010, our assembly plants in Georgetown, Kentucky and Fremont, California, earned ENERGY STAR plant awards, bringing the total number of plant awards received to 17 since 2006. To be eligible for this annual award, a plant's energy performance for the past 12 months must be in the top 25 percent of its industry, and the information used to calculate the plant's energy performance score must be certified by a professional engineer.

Using FY2002 as a base year, we have a target to reduce total energy use in our operations in North America by 27 percent per vehicle produced by FY2011. Over the past year, our overall energy use per vehicle decreased, but we will not reach our FY2011 goal of 6.3 million British Thermal Units (MMBtus)/vehicle (please see Figure I). (Target 5.1) One reason is the production volume that was assumed when the target was developed has not been reached since. However, we have reenergized our efforts to implement energy-saving measures at our facilities in North America, some of which are described below.

Figure I - Energy Consumed per Vehicle Produced in North America

Over the course of several years, Toyota has investigated, piloted, and is developing the infrastructure to eliminate centralized boilers. At most of our assembly plants, steam is generated within a central utility building to control the temperature and humidity of the air and temperature of the process water in our paint booths. A centralized steam system is generally far away from the process, and the steam loses approximately 20 percent of its heat energy during transportation from the central location to the process, and about 15 percent of heat energy due to steam boiler inefficiency. After investigating and benchmarking other manufacturers with painting operations, we found a more efficient way to deliver the same humidity and temperature control requirements for the paint booth air and process water. At one paint shop at our Georgetown, Kentucky, facility, we installed several water heaters near the process water tanks which eliminated the need for steam to heat the process water, and installed a high pressure water atomization system to control the humidity and temperature of the paint booth air. These changes have reduced energy consumption by 81,000 MMBtus per year from one paint shop. We also installed these smaller systems at our facility in Princeton, Indiana, and have plans to implement this change at other paint shops across North America. After implementation is complete, we will be able to shutdown the centralized steam boilers and therefore eliminate the need for natural gas to generate steam.

In 2009, our plant in Delta, British Columbia, partnered with their local utility company BC Hydro, to implement a Sustainable Energy Management Program under the utility's Power Smart program. Through this program, the plant committed to a 1.5 million kilowatt-hour per year reduction in electricity over a two-year period. By the end of FY2010, our plant achieved the original goal of a 3 million kilowatt-hour total ahead of schedule, and continues to save more energy. Reductions were achieved in part by a compressed air leak tag program which reduced energy consumption by 9 percent and energy costs by 8.5 percent. Team members at our plant and BC Hydro are currently working to set a new energy reduction goal for the future.

Photo of Toyota team member tagging leak
A team member from our Delta, British Columbia, facility identifies leaks in compressed air lines. Tagging leaks makes them easier to identify and repair quickly, saving more energy.

Our facility in Jackson, Tennessee has developed several options to reduce energy consumption. In FY2010, team members tested many of these options for feasibility and savings. An example is the reduction in pressure of the compressed air system. Every two pounds per square inch (psi) in pressure reduction saves 1.5 percent of operating cost, so the team dropped the set point pressure from 105 to 98 psi without losing operational efficiency. Team members also focused on lighting use, unplugging fixtures and reducing the number of lights within fixtures. They also reduced the air flow in supply and exhaust fans by 50 percent, and installed capacitors on large 500 horsepower motors.

Team members at our plant in Buffalo, West Virginia, set a goal for a 1 megawatt reduction in energy consumption. Focusing on heating, venting and air conditioning (HVAC), they noticed that the HVAC air handler fans operated at 100 percent capacity, regardless of reaching set points, because they were manually controlled. In February and March 2010, team members installed Variable Frequency Drives (VFDs) on the air supply and return fan motors. The VFDs enable a better approximation of the air flow needed based on actual conditions, and programming that optimizes energy savings. The team is now seeing a substantial improvement in HVAC power usage.

In Huntsville, Alabama, our assembly plant has made notable progress in reducing its energy consumption. In FY2010 alone, the plant saved 6,035 MMBtus of energy. These reductions were a culmination of hard work by our team members undertaking a wide variety of projects and initiatives. One of these was the shutdown of one side of the plant when not in use. Team members turned off 10 of 16 HVAC units, transformers, and compressed air header lights for 10 hours per day. Further, main compressed air headers and dump valves on compressed air lines are shut off across the plant, and only opened when needed. The ambient air temperature in the plant was also raised three degrees. Outside of the plant, the solar panel array installed the previous year has resulted in 7,248 kilowatt-hours of renewable energy put back on the grid in FY2010.

Reducing energy consumption has also been high on the priority list for our manufacturing plant in Long Beach, California. Team members evaluated and implemented a number of energy-saving projects, including: replacing older servers with more efficient models in the data center; installing unified controls for lights, fans and equipment across the plant; turning off existing lighting that was not needed in the stamping area of the plant; and replacing all energy-intensive 400-watt lighting fixtures in the plant with fixtures using less than 60 watts of energy. These efforts resulted in a savings of more than 125 megawatts in energy.

Greenhouse Gas Emissions

Using leading protocols, we compile a greenhouse gas inventory for manufacturing as part of the consolidated GHG inventory for North America. Energy use is the main source of greenhouse gases from our assembly plants.

In the U.S., as part of a voluntary program with the Department of Energy, Toyota and other automakers committed to reducing the level of GHGs emitted from manufacturing operations by 10 percent per vehicle produced by CY2012, compared to a CY2002 baseline. This reduction translates to a value of 0.98 metric tons of CO2 per vehicle produced, and we have been below this level from CY2005 to CY2008. In CY2009 our performance against this value was 1.07 metric tons of CO2 per vehicle produced. Due to similar circumstances that impacted our energy targets, we now are not on track to meet the target for CY2012 (please see Figure J). (Target 5.2)

Figure J - CO2 per Vehicle Produced in U.S.

Sales and Logistics

Toyota's efforts to reduce energy consumption and greenhouse gas emissions do not stop when our products leave our manufacturing plants. We continue to look for opportunities to improve energy efficiency, reduce overall energy consumption and lower greenhouse gas emissions from our sales offices and logistics operations across North America.

Energy

Toyota Motor Sales, U.S.A., Inc. and Toyota Canada Inc. market products and services to more than 1800 dealerships in North America. This is achieved through a network of parts and vehicle distribution centers, regional sales offices and two headquarters sites in Torrance, California and Toronto, Ontario. Toyota owns some of the buildings, equipment and vehicles necessary to conduct sales and distribution operations with the remainder owned by third parties such as trucking companies and rail carriers. As these companies are part of our larger value chain, we partner with them to help reduce their energy consumption as well.

Energy Consumption at Our Facilities

As part of our EAP, Toyota's logistics operations and sales offices in the U.S. set a target to reduce energy consumption, measured in Btus per building square foot (Btu/ft2) by 18 percent by FY2011 from an FY2001 baseline. We achieved this target in FY2007, well ahead of schedule. (Target 5.3a)

In line with our philosophy of continuous improvement, we then set another target to achieve a 26 percent reduction by FY2011. In FY2010, we exceeded this target as well, with a reduction of 31.2 percent Btu/ft2 (please see Figure K). (Target 5.3b) We have set a new goal of 32.6 percent for FY2011 and are currently working toward that reduction level.

Figure K - Energy Use at U.S. Sales and Distribution Operations

Toyota's real estate and facilities portfolio has actually grown 19.6 percent since FY2001, making it very challenging to reach and exceed targets, but we have continued to do so. During FY2010, our reductions came from kaizens (continuous improvements) at the headquarters campus and elsewhere, but some of the drop in energy consumption was due to decreased production and operating hours at most Part Centers, Parts Distribution Centers (PDCs) and Vehicle Distribution Centers (VDCs).

An example of a kaizen is our work in the Information Systems Data Center at our campus in Torrance, California. Our associates teamed with IBM and Southern California Edison to conduct a project assessing thermal readings from floor to ceiling in an effort to pinpoint power and cooling inefficiencies in the data center. The team determined that it could shut down three of 15 air conditioning units without deleterious effects, improve air flow management, reduce chilled air leak rates and match cooling capacities to the actual data center power consumption. They also installed temperature-controlled floors. The total savings from these actions are estimated at 600,000 kilowatt-hours annually.

In FY2010, we were also renovating a portion of our PDC in Torrance, California. As part of the renovation process, we conducted a lighting retrofit using high-efficiency lamps that consume less energy. We also installed motion sensors to power down the lighting in response to shift changes, breaks and downtime. At our PDC in Caldwell, New Jersey, the warehouse lighting is now controlled by an automated system, and has a schedule that matches the normal hours of operation of the warehouse, as well as shut downs for weekends and holidays. Some parts of the warehouse have motion sensors to allow for non-standard hours of work, such as those for the janitorial crew.

Toyota is also committed to supporting renewable energy development and expanding the use in our sales and logistics operations. Our PDC in Caldwell, New Jersey has a solar photovoltaic system on its roof that is owned by a third party. This array generates 1.8 million kilowatt-hours of energy making it available for the local grid. Last year we reported on the solar array installed on Toyota's Parts Center in Ontario, California. It is still performing to expectations and provides 58 percent of the warehouse's energy needs, a total of 3,071,224 kilowatt-hours in calendar year 2009. Toyota also purchased two years of Renewable Energy Certificates (RECs) for our regional Training Centers in Phoenix, Arizona, and Rancho Cucamonga, California. To meet its energy needs, our Lexus Training Center in Dallas, Texas, buys 100 percent renewable wind power from a green power utility.

Photo of photovoltaic arrays at Toyota parts center
Toyota has installed solar photovoltaic arrays at a number of its facilities in North America. In FY 2010, our Parts Distribution Center in New Jersey and our Parts Center in Ontario, California, generated over 4 million kilowatt-hours of electricity from solar energy.

In Canada, we set a target to reduce energy consumption by 10 percent from our headquarters, sales offices and logistics facilities by 2010 from a 2004 baseline. This past year, we consumed 8.3 million kilowatt-hours of energy, which was an improvement from the previous year, but not enough to meet our target. (Target 5.4) This was due to four years of significant growth in the work force. Regardless, we continue to look for opportunities to improve our performance in the area of energy efficiency and reduced consumption. An example is the replacement of existing printers, copiers, fax machines and scanners with multi-functional printers at our headquarters campus. These new units are 30 percent more energy efficient than standard printers formerly in use, and we have been able to reduce the total number of machines from 43 to 27.

Energy Consumption From Transportation

In FY2010, our road and rail logistics carriers drove over 2.5 million miles per day, transporting vehicles and parts across North America. A substantial amount of fuel is consumed from this activity, both by Toyota directly and by our third-party transport partners. As a result, we focus on using fuel more efficiently to reduce transport-related impacts to the environment. Examples of how Toyota and its transport partners reduce fuel use are provided here.

Toyota has joined the U.S. EPA's SmartWaySM Transport Partnership. This program is designed in part to improve energy efficiency in the freight sector. Companies that participate in SmartWay save money, reduce fuel consumption and are recognized for their social responsibility and leadership. Toyota Transport, our in-house trucking operation, is a certified carrier in the program, while Toyota Logistics Services (TLS) is a certified shipper, requiring reporting from all third-party carriers. As part of the program, we have committed to sourcing half of our shipping needs from third parties who are also certified under the program. We have exceeded this commitment by using certified shippers for 90 percent of our needs.

Specific fuel-saving actions included installing side tarps and underbody pans on 18 trailers; governing speed with a 5 mph reduction; auto start/stop mechanisms on seven trucks to reduce idling during hydraulic trailer lift operation from 45 minutes to 7 minutes; driver education that covers progressive shifting, gradual speed increase, driving the speed limit, eliminating fast starts/stops and a competition among drivers to see who can increase their mpg the most, with monthly recognition. Toyota's fleet mpg improved 4.5 percent from taking these and other actions in FY2010.

Starting several years ago, Toyota has worked to improve truck aerodynamics. This past year we have focused on expanding the use of aerodynamic equipment to a larger number of vehicles, and testing the equipment across the country. This includes including full rooftop fairings and cab extenders on all of Toyota's newest trucks; fitting some with gas tank covers; installing nose cones on trucks that are being tested along California's central coast; and installing boat tails and side skirts on trucks being tested in the San Diego area. Although we are still evaluating the impact of weather and driver habits on our data, we see a 5 percent overall improvement in fuel economy.

We have also been working with our rail carriers to increase fuel economy from this mode of transport. Actions taken in FY2010 include block loading of vehicles, resulting in less shunting of rail cars and less fuel use in the rail yard; using Auto-Max cars that can accommodate more than twice the number of SUVs per railcar than before; and using fuel cell and hybrid switch yard engines rather than conventional ones. These efforts have resulted in a 3 percent increase in fuel economy over the previous year.

Photo of Toyota transport truck
Toyota manages environmental impacts across all of our operations, including logistics. Modifications to our trucks, including cab extenders, side skirts, nose cones and boat tails continue to increase the fuel efficiency of our fleet.

Our energy reduction work is not just limited to land; we also evaluate our shipping methods on the seas. Toyota has an exclusive contract with the NYK Line to ship its vehicles from Japan to the U.S. on the M/V Auriga Leader — the world's first cargo ship to be partially powered by solar power. This ship is part of a demonstration project to help raise awareness about reducing fossil fuel use and greenhouse gas emissions from large ships. There are 328 solar panels on the top deck of the ship, and it receives 10 percent of its overall energy needs from this solar array. The ship's developer has set aggressive targets to reduce both the fuel consumption and the resultant greenhouse gas emissions from this vessel.

Greenhouse Gas Emissions

Over the last decade, Toyota's sales and logistics operations have accounted for our greenhouse gas emissions using The GHG Protocol® developed by the World Resources Institute and the World Business Council for Sustainable Development. The scope of our annual inventory includes GHG emissions from purchased electricity, natural gas use, business travel, employee commuting, and logistics and supply activities. We use the results of our inventory to guide our efforts to reduce energy consumption in our buildings as well as all means of transport. In particular, we track GHG emissions resulting from vehicle and parts logistics (including our third-party logistics providers) and continue to evaluate logistics-related emissions reduction methods. (Target 5.5)