Consensus goes for a toss over question of weight in car CAFE norms

The sudden turn of events linked to Corporate Average Fuel Efficiency (CAFE) norms has thrown the automobile industry into a tizzy. Even as CAFE norms are still two years away from implementation, the industry is learnt to be staring at uncertainty after a major carmaker recently approached the government, seeking leniency in terms of emission targets for cars weighing under about 1,000 kg.

 

The new proposal made by the auto major goes against the consensus position submitted to the government in December 2024 after months of industry-wide consultation, sources said. 

The Ministry of Heavy Industries held a meeting on June 17 to discuss the new proposal. It has asked the main industry body, the Society of Indian Automobile Manufacturers (Siam), to submit its comments. 

Almost all carmakers, except the one that made the new pitch, are backing the December consensus, according to sources. There are concerns that any deviation on such a sensitive issue could skew the level playing field, forcing some to invest hundreds of crores while allowing others to bypass the burden entirely, officials said. 

In June 2024, the Bureau of Energy Efficiency (BEE), which functions under the Ministry of Power, issued the draft norms CAFE-3 and CAFE-4 that will come into force from April 2027. Between June and December 2024, all carmakers, along with Siam, participated in discussions with the government on the draft CAFE norms. In December, Siam coordinated and submitted a unified industry proposal. The BEE was in the final stages of consultation and was expected to notify the final CAFE-3 and CAFE-4 norms soon, officials stated. 

However, earlier this month, a single carmaker approached the government asking for a carve-out: that cars under 1,000 kg be given relaxed emission targets under the CAFE-3 and CAFE-4 norms. The company argued that small cars (sedans and hatchbacks) have become unaffordable for entry-level buyers — largely due to escalating costs from increasingly stringent emission norms — and that if relief is not given, it may have to exit the segment and focus only on SUVs (sport utility vehicles) and MPVs (multi-purpose vehicles). 

Under the CAFE norms, each automaker is assigned a carbon dioxide emission target (in grams per kilometre) based on factors like the average weight of its vehicles and the emissions of individual models. Lighter fleets have stricter limits, while heavier ones that can carry more passengers get more relaxed targets. 

Since each company’s target is determined by a formula, a special dispensation for small cars would mathematically raise the target for any company that makes them, giving it more headroom to emit carbon dioxide. Industry sources said such a carve-out would unfairly benefit companies that make small cars, as it would effectively keep their corporate average emissions targets at older CAFE-2 levels. Companies that do not produce hatchbacks or small sedans would still have to spend hundreds of crores on engine redesigns and R&D (research and development) to meet the more stringent new norms. This, many believe, would tilt the playing field. 

Moreover, many carmakers argue that affordability alone is not to blame for the decline in small car sales. Changing buyer preferences — especially first-time car owners choosing compact SUVs that are spacious, have more features and have higher visual appeal — have also contributed to the shift in demand. 

The rationale of the company —which has made the new pitch — was that further investments required to comply with CAFE-3 would push up costs of entry-level cars even more, hurting demand and defeating the government’s goals of affordable mass mobility. But this logic had already been considered during the consensus-building process in 2024, industry sources mentioned. 

At the time of consultations in 2024, the lone carmaker's proposal for weight-based leniency had some backing from two other automobile companies. But after the latest development, these two automobile companies have reaffirmed their support for the December consensus. Siam is currently under intense discussions with its members, but sources said it was expected to communicate formally to the government that the industry stands by the earlier agreed position, which did not seek any weight-based exemptions.

 

One reason Siam is holding firm is also technical: there is no official definition of a “small car” based on kerb weight. While the government offers tax benefits to vehicles under four metres in length, the company pushing for relief did not propose that metric, likely because many compact SUVs also fall under that definition. Using weight alone -- especially without a regulatory precedent -- could open up room for more confusion and manipulation, industry sources said.

 

At the June 17 meeting, the Ministry of Heavy Industries asked Siam to respond to the proposal submitted by the lone carmaker. While the meeting itself did not go into technical options, a government official later told Business Standard that if the proposal had to be considered, there could be various ways to offer relief. These could include applying a multiplier (such as 0.6 or 0.7) to small cars during CO₂ calculations to reduce their influence on the fleet average, assigning a notional kerb weight (e.g. 1,000 kg) instead of the actual lower weight, or even devising a separate formula altogether for companies with a high share of small cars. All of these mechanisms, the official said, would result in a more lenient corporate-level CO₂ target for a company that is producing hatchbacks and sedans.

 

The final notification for CAFE-3 norms will be issued by the BEE, which is reviewing the matter. Siam, the Ministry of Power, and the Ministry of Heavy Industries did not respond to queries emailed by Business Standard on this matter. 

Turn of events 

June 2024: BEE issues draft CAFE-3 and CAFE-4 norms

  Jun-Dec 2024: Automakers, Siam hold consultations with govt

  Dec 2024: Siam submits unified industry proposal to govt

  Dec-Jun 2025: One carmaker goes on its own and revives pitch for special dispensation for small cars

  June 17, 2025: Heavy industries ministry holds a meeting on this exemption proposal. Industry caught off-guard