Government Proposes Tougher CAFE-III Fuel Efficiency Norms

23 Jul 2026 CW Team

The proposal outlines progressively tighter fleet-average fuel consumption targets, lowering the benchmark from 3.996 litres per 100 km, equivalent to 94.76 grams of carbon dioxide per km, in 2027-28 to 3.3273 litres per 100 km, equivalent to 78.90 grams of carbon dioxide per km by 2031-32. The phased approach is intended to give automakers regulatory certainty and time to develop and introduce more fuel-efficient models while assessing compliance on a block basis.

For the first time the draft introduces Carbon Neutrality Factors allowing specified reductions in declared tailpipe carbon dioxide emissions for vehicles using ethanol, biofuels and Compressed Bio-Gas. An eight per cent CNF has been proposed for current ethanol blending levels and reductions for CBG and other biofuels would be linked to prevailing blending levels. The draft also proposes compliance incentives of up to nine grams of carbon dioxide per km for approved fuel-saving technologies with a one gram cap per technology.

A credit-and-debit market-based compliance mechanism would allow manufacturers exceeding targets to earn credits that can be carried forward within a compliance block, while those falling short could use carry-forward provisions, voluntary pooling or purchase credits from the Bureau of Energy Efficiency. The initial buyout price is set at Rs 2,500 per compliance credit with the price rising by Rs 500 annually and credits lapsing at the end of a block. Passenger vehicle makers with annual sales of fewer than 1,000 units would remain exempt and the ministry has invited comments until August 6.

The Union Power Ministry has released draft regulations for the third phase of the Corporate Average Fuel Efficiency regime, proposing tighter fuel efficiency standards for M1 category passenger vehicles manufactured or imported for sale in India from 2027-28 to 2031-32. The draft, released for stakeholder consultation, sets compliance over two blocks comprising an initial three-year period followed by a two-year period and is intended to remain in force for five years. The proposal outlines progressively tighter fleet-average fuel consumption targets, lowering the benchmark from 3.996 litres per 100 km, equivalent to 94.76 grams of carbon dioxide per km, in 2027-28 to 3.3273 litres per 100 km, equivalent to 78.90 grams of carbon dioxide per km by 2031-32. The phased approach is intended to give automakers regulatory certainty and time to develop and introduce more fuel-efficient models while assessing compliance on a block basis. For the first time the draft introduces Carbon Neutrality Factors allowing specified reductions in declared tailpipe carbon dioxide emissions for vehicles using ethanol, biofuels and Compressed Bio-Gas. An eight per cent CNF has been proposed for current ethanol blending levels and reductions for CBG and other biofuels would be linked to prevailing blending levels. The draft also proposes compliance incentives of up to nine grams of carbon dioxide per km for approved fuel-saving technologies with a one gram cap per technology. A credit-and-debit market-based compliance mechanism would allow manufacturers exceeding targets to earn credits that can be carried forward within a compliance block, while those falling short could use carry-forward provisions, voluntary pooling or purchase credits from the Bureau of Energy Efficiency. The initial buyout price is set at Rs 2,500 per compliance credit with the price rising by Rs 500 annually and credits lapsing at the end of a block. Passenger vehicle makers with annual sales of fewer than 1,000 units would remain exempt and the ministry has invited comments until August 6.

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