Honda Announces Major Investments in Renewables, Sets the Bar for Others to Follow

Last week, Honda Motor Co. announced a major renewable power deal for its manufacturing plants in Ohio, Indiana and Alabama. The automaker said it would acquire the power from wind and solar farms in Oklahoma and Texas, and aim to increase its renewable energy consumption from 21 percent of its current portfolio to 80 percent by the end of 2021, making this the largest renewable energy purchase in the auto industry.

The purchase agreement will be arranged with a “collar structure,” a financial strategy that guarantees a floor price for the buyer and ceiling price for the seller, thus significantly reducing risk. This deal is important for three reasons: transportation emissions, water impacts and corporate leadership.

Transportation is largest contributor to greenhouse gas emissions in the U.S.

In 2017, transportation overtook power generation as the largest contributor to climate-warming greenhouse gas emissions in the U.S. (29 percent and 28 percent, respectively). These past few years have seen a rash of policy and technology solutions as a result. California passed the country’s strictest vehicle emissions standards, with several states following suit. While those regulations are currently under threat of rollback from Washington, it seems difficult to imagine that the long-term trajectory will continue toward relaxing regulations that limit pollution and emissions.

In addition to regulations such as these, the hybrid and electric vehicle (EV) segment of the auto industry has surged in recent years. With the price of EVs dropping, the thirst for these new cars continues to grow. While there has been some infrastructure installed in key regions, to really reach a tipping point, significant investments are still needed nationwide.

Large renewable energy projects can be good for water

Wind and solar photovoltaic (PV) energy sources use negligible amounts of water. Coal- and gas-fired power plants are incredibly thirsty resources. In a changing climate, with many parts of the country seeing more water stress, increasing the use of these low-water energy sources will be critical.

The Honda agreement is a little complicated, so let’s break it down. Honda will purchase renewable energy to offset electricity it will buy from the grid in the three states where its manufacturing plants are located. All three states generate or consume the bulk of their electricity from coal and natural gas. Alabama and Ohio also have nuclear power, which generates no emissions but consumes vast amounts of water. While neither of these states are in the crosshairs of water scarcity like some others, they have suffered an increasing number of droughts over the past decade.

In turn, the wind and solar power outlined in the agreement will be purchased from Oklahoma and Texas, respectively. Both states are squarely in the water scarcity bucket. Details about the solar power purchases will be revealed next year, and depending on the type of facility, it could be a high- (concentrating solar) or low-water (PV) facility. The point is, because of the impacts of climate change on water, and the variable nature of those impacts depending on location within the country, every energy investment decision should consider water in its calculus. It is no longer possible to think about energy in isolation from water.

Corporate leadership in climate change action matters

There is no silver bullet to solving climate change. It will take smart policy, technological innovation, behavioral changes and corporate leadership. When major companies like Honda make significant investments in clean energy, whether from an economic or environmental standpoint, it not only sends a clear message, but it sets the bar for other companies who compete in the same space to meet it. Consumers are more cognizant of the environmental and social actions of the businesses where they spend money.

Further, with this decision, Honda is making a statement in states like Alabama, which sits in a region that will bear the brunt of climate change impacts and is arguably not adequately preparing for that scenario. As a nation, we are a driving culture. With a changing climate, it is good business for automakers to invest in clean power and clean technology, as their leadership is one key to solving the challenges brought on by climate change.

Image credit: Honda