Government Releases Revised CAFE III Draft Norms For Public Consultation

The Ministry of Power has issued a revised draft of the Corporate Average Fuel Economy Phase III (CAFE III) standards for passenger vehicles, proposed to take effect from April 1, 2027.

The updated draft adopts a more balanced stance compared to the earlier proposal, easing the overall fuel efficiency targets. Public feedback on the draft has been invited until August 6, 2026.

Updated CAFE III Norms Explained

Manufacturers will need to provide fuel efficiency data based on both the Modified Indian Driving Cycle (MIDC) and the Worldwide Harmonised Light Vehicles Test Procedure (WLTP).

A conversion factor between the two test cycles will be notified separately by the government.

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Phased Fuel Economy Targets Through FY2032

The proposal outlines progressively stricter fuel consumption targets over a five-year period. The proposed fleet-average target is 3.996 litres per 100 km (94.76 g CO₂/km) for FY2028, tightening to 3.3273 litres per 100 km (78.90 g CO₂/km) by FY2032.

These targets are less stringent than those proposed in the earlier draft. Compliance will be assessed over two blocks, with the first spanning three years and the second spanning two.

Compliance Credits And Penalty Structure

Manufacturers that exceed their prescribed fuel efficiency targets will earn compliance credits, while those falling short will accumulate debits. Credits may be traded with other manufacturers or purchased from the Bureau of Energy Efficiency (BEE).

The draft proposes a buyout price of Rs 2,500 per g CO₂/km for FY2028, rising by Rs 500 annually to Rs 4,500 per g CO₂/km by FY2032.

Unused credits will lapse at the end of a compliance block. Manufacturers with annual sales below 1,000 passenger vehicles remain exempt.

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Incentives For EVs, Hybrids, And Fuel-Saving Technologies

The draft offers super credits (volume derogation) for battery electric vehicles (BEVs), range-extended electric vehicles (REEVs), plug-in hybrid electric vehicles (PHEVs), strong hybrid electric vehicles (SHEVs), and flex-fuel vehicles (FFVs).

Separately, Carbon Neutrality Factors (CNFs) are introduced for the first time, recognising the carbon-neutrality of ethanol, compressed biogas (CBG), and biofuels by permitting reductions in declared tailpipe CO₂ emissions.

The draft also finalises the technical criteria for claiming fuel-efficiency benefits from technologies such as start-stop systems, regenerative braking, tyre-pressure monitoring systems (TPMS), electric water pumps, high-efficiency air-conditioning systems, and advanced glazing, with an overall cap of 9 g CO₂/km across all technologies.

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