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The Ministry of Power has released the third draft notification of the Corporate Average Fuel Efficiency (CAFE) III norms for public consultation. The proposed norms, to be implemented from FY 2027–28 to FY 2031–32, aim to tighten fleet-wide carbon emission standards for passenger vehicles. The framework is administered by the Bureau of Energy Efficiency (BEE) under the Energy Conservation Act, 2001.

What are CAFE Norms?

Corporate Average Fuel Efficiency (CAFE) norms prescribe fleet-wide average carbon dioxide (CO?) emission limits that automobile manufacturers must achieve across all passenger vehicles sold in a financial year. Instead of regulating individual vehicle models, the standards assess the average emissions of the manufacturer's entire fleet, encouraging the production of more fuel-efficient and low-emission vehicles.

Key Features of Draft CAFE III

The proposed norms seek to reduce the average fleet-wide CO? emissions from around 113 gCO?/km to nearly 77 gCO?/km by FY 2031–32.

The framework provides flexibility through mechanisms such as carbon credits, fleet averaging, and super credits for cleaner technologies. Manufacturers unable to meet emission targets may purchase compliance credits from the Bureau of Energy Efficiency (BEE).

The norms cover the period FY 2027–28 to FY 2031–32 and are intended to accelerate the transition towards electric, hybrid and alternative-fuel vehicles.

Why are CAFE III Norms Important?

• Reduce greenhouse gas emissions from the transport sector.
• Lower India's dependence on imported crude oil and improve energy security.
• Promote electric mobility and cleaner automotive technologies.
• Support domestic manufacturing under initiatives such as PLI and PM E-DRIVE.
• Contribute towards India's Panchamrit commitments and Net Zero by 2070 target.

Major Challenges

Despite tighter emission targets, experts have raised concerns that several compliance provisions could dilute the effectiveness of the norms.

Manufacturers may prefer purchasing low-cost compliance credits instead of investing in cleaner technologies. Super-credit provisions for hybrid vehicles and compliance benefits for E20-compatible vehicles may also reduce the incentive to shift towards fully electric vehicles. Additionally, India's continued use of the Modified Indian Driving Cycle (MIDC) testing cycle may not accurately reflect real-world emissions.

Way Forward

Experts suggest adopting a dual-credit system similar to China's model by setting separate targets for fuel efficiency and electric vehicle production. Compliance credit prices should better reflect statutory penalties to discourage easy buyouts. Gradual adoption of Worldwide Harmonised Light Vehicles Test Procedure (WLTP) standards would improve emission measurement, while rationalising incentives for hybrids and ethanol-based vehicles can ensure that regulatory benefits correspond to actual emission reductions.