Nissan sought to cut carbon emissions by 27% at all of its manufacturing sites by 2016, from a 2005 baseline, but it was concerned its payback period requirements and limited funding sources for energy efficiency projects were hindering its ability to meet this goal. As a result, Nissan benchmarked industry funding practices for energy efficiency projects in an effort to determine how its policies compared to other companies’ guidelines. Based on its findings, Nissan determined that its 1-year payback requirement and limited investment funds were generally more restrictive than those employed by industry peers and would make it difficult to meet its emissions reductions goal.
Nissan’s carbon emissions goal came from its sustainability plan, entitled the Nissan Green Program, which the company updates every 3–6 years. In the 2011 Nissan Green Program, the company established new goals for 2016 (NGP2016) focused on reducing the environmental impact of its global corporate activities. This included the goal to cut carbon emissions by 27% (tons of CO2/vehicle) at all manufacturing sites from a 2005 baseline. However, Nissan recognized that its project payback period requirements and limited funds posed a challenge, so the Nissan North America (NNA) energy team began laying the groundwork for revised policies that would help capital flow more freely to energy projects. The NNA energy team is a cross-functional team comprising energy managers and representatives from manufacturing, purchasing, and maintenance.
As a result of the benchmarking process, Nissan extended its required payback period from 1 year to 3 years, and also set up a $2 million per year capital set aside fund—essentially a special pool of dollars reserved for energy efficiency projects. To date, the capital set aside fund has been more impactful than the relaxed payback rules in getting projects funded. While the average payback period on approved energy projects is now about 1.5 years, the company is not regularly implementing projects with greater than a 2-year payback. The capital set aside fund, however, has been critical in getting projects funded that would have otherwise failed to secure capital.
The capital set aside funding is available to all global Nissan facilities, so plants compete with each other for available funding. Energy project proposals are submitted, judged, and ranked based on cost, monetary savings, and CO2 savings. In order to determine the amount of funds to set aside for energy efficiency purposes, the company conducts a project portfolio analysis, looking at tons of CO2 saved per dollar spent. Nissan then uses this data to estimate the required spending rate to achieve NGP2016 goals. As a side benefit, plants now get to see projects submitted by other plants and approved through the process, which helps provide internal benchmarking for project planning.
As part of the industry benchmarking process, the NNA energy team conducted a general comparison poll of the payback thresholds of 20 domestic and international companies across a variety of industry sectors. The team provided the polling information to management in Japan, who was persuaded to lift the company’s threshold and set aside funds specifically to implement projects for energy and CO2 reductions.
Data for this poll was gathered in a number of ways. During Nissan’s first annual America’s Energy and Sustainability Summit in December 2011, internal division staff, U.S. Environmental Protection Agency ENERGY STAR partners, Better Plants companies, the regional utility, and distributors were asked to complete an event evaluation that included questions on simple payback. Additionally, once or twice a month, Nissan benchmarked its best practices against other companies through informal conversations, surveys, and visits to those companies’ sites. Nissan recorded best practices for behavior changes, employee engagement, and payback for energy projects. This process took six months to a year to complete.
The benchmarking data came from five other auto manufacturers, four of which were part of the ENERGY STAR Motor Vehicle Focus; several tire manufacturers; and companies in the chemical, aerospace, industrial machinery, computer, and electronics industries.
Polling indicated the following:
- Paybacks for companies based outside of the United States were higher than those based in the United States.
- Not all companies based their threshold on simple payback or set aside funds specifically for energy projects.
- All but six of the polled companies provided a simple payback threshold.
- Only one other company had a 1-year simple payback.
- The average payback threshold for energy projects was 3 to 5 years. However, the range for energy projects was 1 to 8 years.
- The typical range was 1 to 4 years for a general, non-energy capital project, with an overall average of 2 years.
Through the polling, Nissan learned that some companies have different thresholds based on the type of project. For example, HVAC projects may have a 10-year payback period in some instances.
Nissan also learned that many companies have some sort of capital set aside program for energy efficiency projects, which is a special pool of dollars reserved for energy efficiency or greenhouse gas reduction projects. Some have an energy intensity impact rating—an internal weighting based on the company’s internal priorities such as safety, emissions, or BTUs—based on the program’s overall value to the company.
Armed with the data, the NNA energy team worked to disseminate the findings, get feedback from internal and external stakeholders, and build a case for change with their management. For example, the North American Executive team presented at the Annual Nissan Global business meeting for all company executives and included a slide with summary information of the benchmarking data. This was done to help build the case for extending the payback threshold and establishing a capital set aside fund for energy projects.
Tools:
The benchmarking process was deemed successful because it provided informative, actionable data that guided Nissan to revise its payback period restrictions and establish the set aside fund. Nissan also measures the success of the new policies by tracking the company’s overall corporate progress toward NGP2016 sustainability targets.
Another aspect of the new policy is that Nissan is now allowed to bundle energy efficiency projects in ways that can help them meet investment requirements and allow for more project approvals than otherwise would have been the case. Project bundling is when two or more projects with differing payback periods are grouped together with a calculated payback period that is an average of the individual projects within the group. Many bundled energy projects are being submitted for 2015.
The benchmarking process was critical in guiding Nissan to extend its payback requirements and establish a capital set aside fund, which have led to the company implementing a burst of new energy efficiency projects. The number of approved energy efficiency projects has tripled since the beginning years. These programs are proving essential to helping Nissan meet its ambitious 2016 sustainability goals. Projects resulting in nearly 17,500 tons of CO2 have already been implemented while projects are underway in 2015 that will save another 17,000 tons of CO2 annually. Due to its successful track record over its three years of existence, Nissan’s global capital set aside program was just approved for additional funding. It started at approximately $2 million per year, has increased each year, and hit $6 million in 2015, and continued annual increases are planned.
By moving beyond a 1-year payback threshold and ensuring adequate investment through a special fund, Nissan has also promoted the importance of the Nissan Green Program by making it more accessible. Many projects still meet the original 1-year payback period requirement, but the average simple payback for implemented energy projects is now around 1.5 years. It is clear that increasing the payback threshold has provided Nissan’s energy team with more authority to implement energy efficiency opportunities. Additionally, capital improvement funds previously went primarily toward “emergency projects” such as preventing plant shutdowns, but with a separate energy fund, energy projects now do not have to compete with emergency projects for funding.
