Draft CAFE-III Norms Propose Tighter Fuel Efficiency Targets For Cars

The Ministry of Power has released a revised draft of the Corporate Average Fuel Economy norms (CAFE-III) norms for passenger vehicles, proposing fuel efficiency targets from April 1, 2027.

The last date for submitting comments on the draft CAFE-III norms is August 6, 2026. The draft norms will also be uploaded on the websites of the Ministry of Power and the Bureau of Energy Efficiency.

Image Source: PTI

The new CAFE-III norms will replace the existing CAFE-II framework, which will lapse on the 31st of March, 2027, and will apply to M1 category passenger vehicles manufactured or imported for sale in India from 2027-28 to 2031-32.

CAFE-III: Fuel Efficiency Targets and Timeline

Fleet-average targets under CAFE-III will tighten from 3.996 litres per 100km, or 94.76 gCO2/km, in FY2028 to 3.3273 litres per 100km, or 78.90 gCO2/km, by FY2032. The revised curve looks to be less stringent than the fuel efficiency targets proposed in the earlier draft. Compliance with these new fleet-average targets will be assessed over two blocks, an initial three-year block followed by a two-year block, giving manufacturers a phased timeline to adapt their fleets.

Manufacturers will need to submit fuel efficiency data under both the Modified Indian Driving Cycle and the Worldwide Harmonised Light Vehicles Test Procedure. The Government has said a conversion factor between the two test cycles will be notified separately.

CAFE-III: Carbon Neutrality Factors and Technology Benefits

For the first time, the draft proposes Carbon Neutrality Factors that recognise ethanol, biofuel and Compressed Bio-Gas as carbon-neutral, allowing specified reductions in declared tailpipe CO2 emissions before compliance is assessed. An 8 percent factor applies for the current level of ethanol blending, while CBG and biofuel reductions will be based on actual blending levels.

Manufacturers can also claim compliance benefits of up to 9 gCO2/km for approved fuel-saving technologies under CAFE-III, which will be capped at 1 gCO2/km per technology. The revised CAFE-III draft also finalises the technical criteria for technologies such as start-stop systems, regenerative braking, tyre-pressure monitoring systems, electric water pumps, high-efficiency air-conditioning and advanced glazing.

The new CAFE-III draft also retains volume derogation, or 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.

CAFE-III: Compliance Credit and Penalty Mechanism

Manufacturers that exceed their prescribed targets will earn compliance credits, denominated in units of gCO2/km, that can be carried forward within a compliance block. Those manufacturers that fall short of the target can meet obligations through voluntary pooling with other manufacturers or by purchasing credits from the Bureau of Energy Efficiency.

The buyout price for the credits will start at Rs 2,500 per credit in FY2028, rising by Rs 500 annually to Rs 4,500 per credit by FY2032, with unused credits lapsing at the end of a compliance block. OEMs that fail to comply with the new CAFE-III norms face penalties under the Energy Conservation Act, while manufacturers selling fewer than 1,000 passenger vehicles annually remain exempt from the upcoming norms.