The power ministry has proposed a tougher five-year fuel-economy regime for passenger vehicles from April 1, 2027, tightening fleet-average consumption targets while allowing carmakers to use carbon-neutrality benefits, super credits and a compliance-credit mechanism to meet the new standards.
The draft Corporate Average Fuel Economy-III norms, circulated for stakeholder consultation, will cover M1-category passenger vehicles manufactured or imported for sale in India between 2027-28 and 2031-32. The existing CAFE-II norms are likely to expire on March 31, 2027.
Under the proposed framework, the fuel-consumption target will progressively decline from 3.996 litres per 100 km, equivalent to 94.76 gCO₂ per km, in 2027-28 to 3.3273 litres per 100 km, or 78.90 gCO₂ per km, by 2031-32.
Compliance will be assessed across two blocks, comprising an initial three-year period followed by a second block of two years. The phased tightening is intended to provide automobile manufacturers a predictable regulatory path for developing and deploying more fuel-efficient models.
First-Ever Carbon Neutrality
In a significant change, the ministry has proposed Carbon Neutrality Factors for ethanol, biofuel and compressed biogas for the first time. The mechanism will permit specified reductions in declared tailpipe carbon dioxide emissions before a manufacturer’s compliance is assessed.
At the current ethanol-blending level, an 8% Carbon Neutrality Factor has been proposed. For compressed biogas and biofuel, the reduction will be linked to the prevailing actual blending level.
Manufacturers will also be eligible to claim compliance benefits of up to 9 gCO₂ per km for approved fuel-saving technologies, with the benefit capped at 1 gCO₂ per km for each technology.
Super Credits
The draft provides super credits while calculating fleet-average fuel consumption for battery electric vehicles, range-extended electric vehicles, plug-in hybrids, strong hybrids and flex-fuel vehicles, giving manufacturers additional flexibility to expand cleaner vehicle portfolios.
It also proposes a credit-and-debit system similar to the mechanism in the recently circulated draft amendment to the CAFE-II norms.
Carmakers performing better than their prescribed targets will earn compliance credits, which may be carried forward within the relevant compliance block. Those falling short may use carry-forward provisions, enter voluntary pooling arrangements with other manufacturers or purchase credits from the Bureau of Energy Efficiency.
Each credit will represent 1 gCO₂ per km. The initial buy-out price from BEE has been proposed at ₹2,500 per credit, with an annual increase of ₹500. Credits remaining unused at the end of a compliance block will lapse.
The proposed regime combines steadily tighter fuel-consumption targets with incentives for alternative fuels, electrified vehicles and fuel-saving technologies.
Manufacturers failing to comply will face penalties under the Energy Conservation Act. Companies selling fewer than 1,000 passenger vehicles annually will continue to remain exempt from the proposed norms.
