Synopsis

New fuel efficiency norms for passenger vehicles are proposed by the Power Ministry. These stricter Corporate Average Fuel Efficiency III regulations will begin in April 2027. Automakers must progressively reduce fleet emissions over a five-year period. Carbon neutrality factors for biofuels and incentives for fuel-saving technologies are included. Manufacturers exceeding targets can earn compliance credits for future use.

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The Power ministry on Wednesday proposed stricter fuel efficiency norms for passenger vehicles under the third phase of Corporate Average Fuel Efficiency (CAFE) regulations, requiring automakers to progressively reduce fleet emissions over a five-year period starting April 1, 2027.

Under the draft CAFE III norms, the fuel consumption target will tighten to 3.3273 litres per 100 km (78.90 grams of carbon dioxide per kilometer) by FY32 from 3.996 litres per 100 km (94.76 gCO₂/km) in FY28.

However, the slope determining permissible emissions has been eased from what was proposed earlier, to 0.00158 for 2027-28 and 0.00131 for FY32 - pushing manufacturers to sell vehicles with relatively lesser fuel consumption.

The slope stood at 0.002 for 2027-28 in the September 2025 draft, ET reported earlier.

The comments on the draft are to be submitted by August 6.

Compliance will be assessed over two blocks involving a three-year period followed by a two-year period to give manufacturers greater flexibility in meeting the targets.

The norms are proposed to be applicable to M1 category passenger vehicles manufactured or imported for sale in India in the period.

For the first time, the government has proposed carbon neutrality factors to recognize the lower lifecycle emissions of ethanol, biofuels, and compressed biogas.

An 8% carbon reduction factor has also been proposed for the current level of ethanol blending, while reductions for compressed biogas and other biofuels will be linked to actual blending levels.

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

Similar to the proposed amendments under CAFE II, the draft introduces a credit and debit mechanism. Manufacturers exceeding their targets will earn compliance credits that can be carried forward within the compliance period.

Those falling short can meet their obligations by using carried-forward credits, entering voluntary pooling arrangements with other manufacturers, or purchasing compliance credits from the Bureau of Energy Efficiency.

The passenger vehicle segment constitutes a substantial share of the country's transport energy demand and contributes significantly to fossil fuel consumption, the notification said.

Although considerable progress has been achieved under the existing Corporate Average Fuel Economy (CAFE) regulations, rapid technological advancements, increasing adoption of alternative fuels, and the emergence of electrified vehicle technologies necessitate a comprehensive revision of the regulatory framework, it said.

Manufacturers with annual sales of less than 1,000 passenger vehicles shall continue to be exempt from the proposed norms