Government releases revised CAFE III draft

The Ministry of Power has released a revised draft of the third phase of the Corporate Average Fuel Economy norms (CAFE III) for passenger vehicles, proposed to take effect from April 1, 2027. According to industry experts, the revised draft adopts a more balanced approach than the earlier proposal by relaxing the overall fuel efficiency targets. Public comments on the draft have been invited for 21 days before the rules are finalised.

1. Fuel consumption target to tighten progressively until FY2032
2. Manufacturers can trade compliance credits or buy them from the Bureau of Energy Efficiency

Under the proposal, manufacturers will have to submit fuel efficiency data under both the Modified Indian Driving Cycle (MIDC) and the Worldwide Harmonised Light Vehicles Test Procedure (WLTP). The ministry said a conversion factor between the two test cycles will be notified separately.

Proposed fuel efficiency targets

The draft proposes progressively stricter fuel efficiency targets over five years. The fleet-average target is proposed at 3.996 litres per 100km (94.76g CO₂/km) for FY2028, tightening to 3.327 litres per 100km (78.90g CO₂/km) by FY2032. According to industry experts, these targets are less stringent than those proposed in the earlier draft.

Credit trading mechanism retained

Manufacturers that exceed their prescribed fuel efficiency targets will continue to earn compliance credits, while those falling short will accumulate debits. These credits can either be traded with other manufacturers or purchased from the Bureau of Energy Efficiency (BEE).

The draft proposes a buyout price of Rs 2,500 per gCO₂/km for FY2028, increasing gradually to Rs 4,500 per gCO₂/km by FY2032.

The revised draft also finalises the technical criteria for claiming fuel-efficiency benefits from technologies such as start-stop systems, regenerative braking, tyre-pressure monitoring systems (TPMS), electric water pumps, high-efficiency air-conditioning systems and advanced glazing.

It also retains incentives for battery electric vehicles, plug-in hybrids, strong hybrids and flex-fuel vehicles through super credits and carbon neutrality factors.