Draft CAFE-III norms: What's changing in India's fuel-efficiency rules?

The Centre has released draft CAFE-III norms for passenger vehicles. Here's what the proposed fuel-efficiency rules change, and what they could mean for carmakers and buyers

Weeks after waiving penalties for carmakers that missed fuel-efficiency targets under the Corporate Average Fuel Efficiency (CAFE)-II regime, the Centre on Thursday released draft CAFE-III norms for public consultation.

 

The proposed rules will apply to passenger vehicles from FY2027-28 to FY2031-32. They set the next phase of India's fuel-efficiency standards and aim to reduce fuel consumption and carbon emissions from cars while cutting dependence on imported crude oil.

 

The Bureau of Energy Efficiency (BEE) has invited comments from industry and other stakeholders before the norms are finalised.

What are CAFE norms?

CAFE norms set fuel-efficiency targets that every passenger vehicle manufacturer must meet across the cars it sells in a financial year. 

Unlike standards that apply to an individual model, CAFE measures the average performance of an automaker's entire fleet. Companies can sell larger or less fuel-efficient vehicles, provided the overall average of all their vehicles remains within the prescribed limit.

   

In India, compliance is measured using carbon dioxide emissions, which directly correspond to the amount of fuel a vehicle consumes. Lower fuel consumption means lower carbon emissions.

 

The Bureau of Energy Efficiency administers the programme under the Energy Conservation Act.

 

India introduced the first phase of CAFE norms in FY2017-18. The second phase came into effect in FY2022-23 with tighter limits. According to BEE, the standards apply to petrol, diesel, CNG, LPG, hybrid and electric passenger vehicles with a gross vehicle weight below 3,500 kg.

 

The government says fuel-efficiency standards serve multiple purposes. Besides lowering greenhouse gas emissions, they help reduce oil imports, improve urban air quality and lower fuel costs over a vehicle's lifetime. The transport sector is among the country's largest consumers of petroleum products, which makes fuel efficiency an important part of India's energy security strategy. 

How is CAFE-III different from CAFE-II?

The draft proposes several changes beyond simply tightening emission targets.

 

The biggest change is the testing method.

 

CAFE-II uses the Modified Indian Driving Cycle (MIDC), an older laboratory test that estimates fuel consumption under predefined driving conditions. Under the draft, India will shift to the Worldwide Harmonised Light Vehicles Test Procedure (WLTP) for type approval from March 31, 2027. WLTP is considered closer to real-world driving conditions and is already used in several global markets.

 

The draft also changes the compliance period.

 

Instead of shorter assessment cycles, CAFE-III will operate as a five-year block covering 2027-2032. BEE has proposed another five-year block for CAFE-IV covering 2032-2037. While penalties would continue to be calculated for the entire cycle, manufacturers' performance would be assessed and reported every year.

 

The proposed carbon target under CAFE-III is 91.7 grams per kilometre under the WLTP cycle. BEE has proposed reducing it further to 70 grams per kilometre under CAFE-IV.

 

Another change relates to incentives for cleaner vehicles.

 

CAFE rules allow manufacturers to earn "super credits", which count low-emission vehicles more than once while calculating fleet averages. Under the draft, hydrogen fuel-cell vehicles receive a higher credit multiplier of five. Battery electric vehicles retain a multiplier of four under CAFE-III, while the incentives for plug-in hybrids and strong hybrids become smaller than under the existing regime.

 

The draft also revises credits for technologies that reduce carbon emissions, such as regenerative braking, start-stop systems and vehicles with six or more gears. It proposes a new derogation factor for ethanol-compatible vehicles, subject to the outcome of a BEE study.

What exactly has the government proposed?

The draft places greater emphasis on reducing fleet-wide emissions while aligning India's testing system with international practices.

 

According to the proposal circulated by BEE, CAFE-III and CAFE-IV will both follow the WLTP cycle instead of MIDC. The proposal assumes a weighted average unladen vehicle mass of 1,170 kg for calculating fleet targets.

 

The draft also proposes:

 

- A five-year compliance period for CAFE-III (2027-2032).

 

- Annual monitoring of each manufacturer's performance.

 

- Revised super-credit multipliers for hydrogen, battery electric, plug-in hybrid and strong hybrid vehicles.

 

- Updated technology credits for carbon -reducing features.

 

- A lower fleet-average carbon target than the existing regime.

 

The government has sought comments from industry, experts and the public before issuing the final notification.

What could it mean for carmakers?

The proposal gives manufacturers nearly two years before the new regime takes effect.

 

The shift to WLTP is likely to require changes in vehicle testing and certification because the procedure measures fuel consumption differently from MIDC.

 

Companies with a larger share of electric or hydrogen-powered vehicles may find it easier to meet fleet-average targets because of the super-credit system. At the same time, the reduced incentives for plug-in hybrids and strong hybrids could influence product strategies if the draft remains unchanged.

 

Manufacturers that sell larger SUVs or premium vehicles may need to improve fuel efficiency across their portfolio or increase sales of lower-emission models to meet fleet averages.

Will buyers notice any difference?

The draft does not introduce any direct obligations for consumers.

 

However, over time, stricter fuel-efficiency standards generally encourage manufacturers to improve engine efficiency, reduce vehicle emissions and introduce more fuel-saving technologies.

 

Depending on how companies respond, buyers could see more hybrid and electric models, improved fuel economy in petrol and diesel vehicles, and wider use of technologies such as regenerative braking and automatic engine start-stop systems.

 

Whether the changes affect vehicle prices will depend on how manufacturers choose to meet the new standards after the rules are finalised.