Govt proposes tougher CAFE 3 fuel efficiency norms for PVs, special recognition to ethanol and biofuel cars

The Indian Government has released a draft Corporate Average Fuel Efficiency (CAFE)-III norms policy for stakeholder consultation, proposing tighter fuel efficiency and carbon emission standards for passenger vehicles, slated to be effective from April 1, 2027. For the first time, the draft proposes special recognition for ethanol and other biofuels while assessing manufacturers’ compliance by allowing them to claim lower-than-actual tailpipe emissions. The new draft CAFE 3 norms policy has proposed stricter carbon dioxide emission targets, incentives for cleaner technologies, and a market-based compliance mechanism.

The Union Ministry of Power on Thursday released draft CAFE 3 norms for stakeholder consultation, proposing that the new norms take effect from April 1, 2027, after the current CAFE 2 regime is slated to expire on March 31, 2027. The CAFE 3 norms will remain in force for five years. The new draft has been released for public consultation for 21 days. The industry stakeholders will have time till August 6 to respond to the latest draft. The latest draft policy comes as a revised one after the pushback from the automobile industry on the steep targets outlined in the previous draft released in September 2025.

The proposed CAFE 3 norms have sharply divided the automobile industry in the country, with manufacturers of smaller and larger vehicles taking opposing positions and competing proposals emerging over how the regulations should be framed.

According to the latest draft policy, compliance would be assessed over two blocks, an initial three-year period followed by a two-year period. The proposed regulations would apply to M1 category passenger vehicles having not more than eight seats in addition to the driver's seat that are manufactured or imported for sale in India between 2027-28 and 2031-32.

The draft has proposed progressively tighter fleet-average fuel consumption targets, reducing the benchmark from 3.996 litres/100 km (94.76 grams CO2/km) in 2027-28 to 3.3273 litres/100 km (78.90 grams CO2/km) by 2031-32. This phased approach is intended to provide the automakers with greater regulatory stability while allowing them time to develop and introduce more fuel-efficient models.

Special recognition to cleaner fuel cars

The draft for CAFE 3 norms has proposed specific reductions in declared tailpipe CO2 emissions for vehicles that use ethanol, biofuels, and Compressed Bio-Gas (CBG). Such a move of introducing Carbon Neutrality Factors (CNF) comes for the first time in the history of CAFE norms.

The draft has proposed an 8% CNF for current ethanol blending levels, while reductions for CBG and other biofuels would be linked to prevailing blending levels.

The draft also proposed compliance incentives of up to 9 grams of CO2/km for approved fuel-saving technologies, subject to a cap of 1 gram per technology, and retains volume-based super credits for battery electric vehicles, range-extended electric vehicles, plug-in hybrids, strong hybrids and flex-fuel vehicles while calculating fleet-average fuel consumption.

Credit and debit mechanism for OEMs

The draft policy has proposed a credit-and-debit mechanism under which the auto OEMs exceeding their prescribed targets would earn compliance credits that can be carried forward within a compliance block. The automakers falling short of their targets could meet their obligations through carry-forward provisions, voluntary pooling arrangements with other manufacturers or by purchasing compliance credits from the Bureau of Energy Efficiency (BEE).

The proposal sets an initial buyout price of ₹2,500 for each compliance credit for the OEMs, with the price rising by ₹500 annually. Credits would lapse if left unused at the end of a compliance block.

The auto manufacturers failing to comply with the norms would be liable for penalties under the Energy Conservation Act, while passenger vehicle makers with annual sales of fewer than 1,000 units would remain exempt.

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