The Centre on Thursday released the draft CAFE-III regulations, offering relief for small petrol cars, incentives for clean alternative technologies, and flexibility through fleet pooling to help automakers meet stricter fuel efficiency targets.
The draft norms allow petrol vehicles under 909 kg, 1200 cc, and 4000 mm to deduct 3.0 g CO2/km from declared emissions, capped at 9.0 g/km per model. This provides added relief alongside existing technology-based savings.
To support compliance and accelerate the shift to cleaner technologies, the draft Corporate Average Fuel Efficiency (CAFE)-III norms introduce a super-credit system. Under this, green vehicles receive higher weight in fleet-average calculations. For instance, a battery electric vehicle (BEV) or range-extender hybrid counts as three vehicles. A plug-in hybrid or strong hybrid running on flex fuel counts as 2.5, while a regular strong hybrid counts as 2 vehicles and a flex fuel ethanol vehicle counts as 1.5. This approach significantly boosts the incentive for automakers to invest in low- and zero-emission vehicles.
‘Super-credits’ and flex fuel incentives drive green shift
The draft also includes a carbon neutrality factor (CNF) that discounts tailpipe CO2 emissions for vehicles running on ethanol blends, CNG, or flex fuels. Petrol vehicles using E20-E30 blends will get an 8% CO2 discount, while flex fuel hybrids can get up to 22.3%.
However, the draft removes hydrogen technology, which was included in the previous CAFE-III proposal released in June 2024. Under CAFE-I and II, fuel consumption limits were less than 5.5 and 4.78 litre/100 km, respectively. CAFE-III proposes a phased reduction from 3.7264 to 3.0139 L/100 km between FY28 and FY32.
The draft offers pooling flexibility as well — up to three manufacturers can combine their fleets to meet targets collectively. This is seen as a big win for companies with limited portfolios or smaller production volumes.
Flexibility and exemptions for compliance
The government has also exempted small-volume manufacturers — those selling fewer than 1,000 units annually — from CAFE-III compliance. This is expected to benefit small carmakers and niche or luxury brands, easing regulatory pressure on low-volume segments.
An industry insider said that while stricter fleet-wide fuel norms are on the way, relief measures like pooling, super-credits, and exemptions offer manufacturers a way to navigate the tougher rules — especially benefiting small carmakers.