CAFE III Norms Notified: EVs Get 3x Fuel-Efficiency Credit, Credit Trading Allowed

The government has notified the final CAFE III norms, setting progressively tighter fuel-efficiency targets for passenger vehicle makers from April 2027. The rules give manufacturers multiple compliance routes, including higher credit weightage for electric and hybrid vehicles.

The new rules apply to M1 category passenger vehicles manufactured or imported in India from April 1, 2027 to March 31, 2032, per a Ministry of Power notification. Compliance will be calculated at the manufacturer level using sales-weighted average fuel consumption.

CAFE III Targets Tighten Through FY2032

The permitted fleet-average fuel consumption falls every year, calculated using the formula a×(W-1,229)+c, where W is the weighted average unladen mass of all eligible vehicles an OEM sells or imports.

For a manufacturer with a reference fleet weight of 1,229kg, the target drops from 3.996 litres of petrol equivalent per 100km in FY2028 to 3.3273 litres per 100km in FY2032. That corresponds to roughly 94.8g CO2/km in FY2028 and 78.9g/km in FY2032.

*For a manufacturer with a reference fleet weight of 1,229kg

Targets are calculated across a manufacturer's eligible fleet, so sales of more efficient vehicles can offset higher-consuming models in the same portfolio. Small-volume manufacturers selling fewer than 1,000 eligible vehicles a year are exempt from meeting the specific target, though they must still report fuel-consumption performance.

EVs and Hybrids Get Super Credit Multipliers

Battery electric and range-extended electric vehicles receive a 3.0 super credit multiplier under CAFE III. Plug-in hybrids and flex-fuel strong hybrids get a 2.5 multiplier, strong hybrids get 1.6, and flex-fuel ethanol vehicles get 1.1.

The final rules drop an additional 3g CO2/km benefit for certain sub-four-metre petrol cars that had featured in an earlier CAFE III draft.

Alternative Fuels and Efficiency Tech Also Earn Credits

A Carbon Neutrality Factor gives further credit to alternative-fuel vehicles. Cars running on E20 or higher ethanol-petrol blends, including strong and plug-in hybrids, get an 8 percent carbon-neutrality factor on tailpipe CO2.

Flex-fuel ethanol vehicles get a 22.3 percent carbon-neutrality factor, CNG vehicles get 5 percent or the notified CBG blending percentage, whichever is higher, and diesel vehicles get a benefit linked to the notified biofuel blending level.

Manufacturers can also claim a 1g CO2/km reduction for each eligible efficiency technology, up to a maximum of 9g CO2/km. The 12 eligible technologies include start-stop systems, tyre-pressure monitoring, regenerative braking, six-speed-or-higher transmissions, efficient alternators, motor-generators, LED exterior lighting, advanced glazing, electric water pumps and high-efficiency air-conditioning.

Credit Trading and WLTP Reporting Begin

CAFE III formalises a credit-and-debit system where compliance performance carries financial value. Manufacturers beating their target generate credits, while those exceeding their permitted fuel-consumption level accumulate debits, tracked in a manufacturer-specific compliance passbook.

Surplus credits can be traded between manufacturers on mutually agreed terms, or bought from the Bureau of Energy Efficiency to offset debits. The price rises from Rs 2,500 per g CO2/km in FY2028 to Rs 4,500 per g CO2/km in FY2032.

The five-year period splits into two compliance blocks, FY2028-FY2030 and FY2031-FY2032. Credits and debits carry forward within a block, but unused credits lapse once the block ends.

CAFE III also begins India's shift to the Worldwide Harmonised Light Vehicles Test Procedure (WLTP) for efficiency calculations. From April 1, 2027, manufacturers must declare CO2 performance under both the existing Modified Indian Driving Cycle (MIDC) and WLTP, though the MIDC-to-WLTP conversion factor is yet to be notified.