Auto industry, govt reach consensus on CAFE-III; stricter norms from 2027

New standards related to automobile emissions in India are set to come into effect from April 2027, following the government and auto industry stakeholders reaching a broad consensus on the Corporate Average Fuel Efficiency (CAFE-III) framework. A notification is likely to be issued soon.

The new regulations under the CAFE-III system will apply for five years, beginning April 2027 to March 2032 and will cover all passenger vehicles produced or imported for sale in India.

Focus shifts to overall fleet emissions

Under the new framework, the focus will move from vehicle size to total fleet emission reduction, with manufacturers evaluated on the average fuel consumption and CO₂ emissions of their entire fleet.

As per the draft notification, fuel consumption standards for each manufacturer will be calculated using a defined formula based on the weighted average vehicle mass (reference weight 1229 kg), with constants specified for each year of the compliance period.

Credit-based compliance system

The norms introduce a credit-debit mechanism, where:

• Manufacturers earn credits if their fuel consumption is better than the prescribed target
• Debits arise if they exceed the target

These credits and debits will be recorded in a compliance “passbook” and assessed annually. While credits and debits will be calculated on a yearly basis, final compliance will be evaluated over defined block periods, with any unused credits lapsing at the end of the cycle. They can be carried forward within the compliance block, traded between manufacturers, and also purchased from the Bureau of Energy Efficiency (BEE) to offset shortfalls.

E25 fuel preparedness and carbon factors

Auto companies have been advised to begin preparations for vehicles compatible with higher ethanol blends such as E25 fuel (25 per cent ethanol blend).

The draft norms provide for Carbon Neutrality Factors (CNF), offering emission benefits for:

• Petrol vehicles using ethanol blends
• Flex-fuel ethanol vehicles
• CNG vehicles

These factors reduce the effective CO₂ emissions for compliance calculations.

Super credits for EVs and hybrids

The draft provides for super credits for electric and hybrid vehicles.

According to the draft:

• Battery electric vehicles receive a 3x multiplier
• Strong hybrid vehicles receive a 1.6x multiplier
• Flex-fuel vehicles receive a 1.1x multiplier

These multipliers increase the effective volume of such vehicles in compliance calculations.

Technology-linked benefits

Manufacturers can also claim benefits for adopting energy-efficient technologies, including:

• Start-stop systems
• Regenerative braking
• Tyre pressure monitoring systems
• High-efficiency air conditioning

Each eligible technology provides a defined reduction benefit in fuel consumption calculations.

Testing, reporting and compliance

Manufacturers will be required to report fuel consumption and emission data annually, including model-wise and state-wise sales data.

The norms require reporting under both Modified Indian Driving Cycle (MIDC) and Worldwide Harmonized Light Vehicles Test Procedure (WLTP).

Compliance will be tracked annually, with final assessment carried out at the end of the compliance block after adjustment of credits, and penalties applicable in case of non-compliance.

Industry view on compliance period

Industry stakeholders have sought that credits be applied at the end of the full five-year period instead of a 3-year plus 2-year split, a proposal that the government has agreed to following discussions.

CAFE-II vs CAFE-III: What changes?

• Time period: CAFE-III will run from April 2027 to March 2032
• Fuel consumption: Targets tighten progressively over the five-year period
• Target calculation: Based on a weight-based formula (reference weight 1229 kg)
• Testing & reporting: WLTP data to be reported along with MIDC
• EV credits: Battery electric vehicles get 3x multiplier
• Hybrid credits: Strong hybrids get 1.6x multiplier
• Flex-fuel vehicles: 1.1x multiplier introduced
• Compliance system: Credit-debit mechanism with trading, carry forward, passbook system, and block-period assessment

Key takeaway

With consensus now in place, the CAFE-III framework sets the stage for stricter fuel efficiency norms, a shift to fleet-level emission control, and a structured credit-based compliance system for the auto industry.