The Centre has released the draft Corporate Average Fuel Efficiency (CAFE)-III norms for stakeholder consultation, proposing tighter fuel efficiency and carbon emission standards for passenger vehicles from April 1, 2027. For the first time, the draft proposes special recognition for ethanol and other biofuels while assessing manufacturers’ compliance by allowing them to claim lower than actual tailpipe emissions.

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Industry stakeholders have until August 6 to respond to the latest draft. The proposed CAFE norms have sharply divided the automobile industry, with manufacturers of smaller and larger vehicles taking opposing positions and competing proposals emerging over how the regulations should be framed.

Under the proposed norms, manufacturers will be required to progressively improve the fuel efficiency of their fleets. The target fuel consumption is proposed to be tightened from 3.996 litres per 100 km (94.76 gCO₂/km) in 2027-28 to 3.327 litres per 100 km (78.90 gCO₂/km) by 2031-32.

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“The phased tightening of the targets will provide OEMs with a clear and predictable regulatory pathway, enabling them to progressively develop and deploy more fuel-efficient vehicle models,” a government source said.

Unlike the current framework, compliance will be assessed over two blocks rather than annually – an initial three-year period followed by a second block of two years.

A key feature of the draft is the introduction of Carbon Neutrality Factors (CNFs), which recognise the lower lifecycle carbon footprint of renewable fuels such as ethanol, compressed biogas (CBG) and other biofuels. Under the proposal, manufacturers will be allowed to reduce the declared tailpipe carbon dioxide emissions of their vehicles before compliance is assessed. For the current level of ethanol blending, a reduction of eight percentage points has been proposed, while the reduction for CBG and other biofuels will depend on the prevailing blending levels, said sources.

The draft also proposes additional incentives for manufacturers adopting fuel-saving technologies. They can claim compliance benefits of up to 9 gCO₂/km, subject to a maximum benefit of 1 gCO₂/km for each approved technology.

It also recommends super credits for Battery Electric Vehicles (BEVs), Range-Extended Electric Vehicles (REEVs), Plug-in Hybrid Electric Vehicles (PHEVs), Strong Hybrid Electric Vehicles (SHEVs), and Flex-Fuel Vehicles (FFVs) while calculating fleet average fuel consumption, thereby encouraging the adoption of cleaner vehicle technologies.

Official sources explained that manufacturers who achieve performance better than their prescribed targets shall earn compliance credits, which may be carried forward within the prescribed compliance blocks.