Will India’s New CAFE III Norms Accelerate the Shift Towards Cleaner and More Fuel-Efficient Cars?
The Ministry of Power has released the Draft Corporate Average Fuel Economy (CAFE III) Norms, proposing stricter fuel efficiency and carbon emission standards for passenger vehicles manufactured or imported in India from FY28 to FY32. The ministry has invited suggestions and feedback from automobile manufacturers, industry bodies, experts, and the general public before finalising the regulations.
The proposed framework will replace the existing CAFE II norms, which are scheduled to expire on March 31, 2027, and aims to progressively improve fuel efficiency while supporting India’s broader climate and energy conservation goals.
What Are the Proposed CAFE III Norms?
According to the Ministry of Power, the draft norms will apply to M1 category passenger vehicles, which include vehicles carrying up to eight passengers in addition to the driver.
The regulations will cover passenger vehicles manufactured or imported for sale in India between 2027-28 and 2031-32.
Stakeholders can submit their comments to the Ministry of Power or the Bureau of Energy Efficiency (BEE) until August 6, 2026. The draft regulations will also be published on the official websites of both departments.
Progressively Stricter Fuel Efficiency Targets
The proposed CAFE III framework introduces progressively tighter fuel consumption and carbon emission targets over the next five years.
According to the draft:
- 2027-28: Fuel consumption target of 3.996 litres per 100 km, equivalent to 94.76 gCO₂/km
- 2031-32: Tightened to 3.3273 litres per 100 km, equivalent to 78.90 gCO₂/km
The phased approach is intended to provide automobile manufacturers with a predictable regulatory roadmap, allowing them sufficient time to develop and introduce more fuel-efficient vehicle technologies.
An official familiar with the proposal said compliance will be evaluated in two phases:
- An initial three-year compliance block
- Followed by a two-year compliance block
Recognition for Ethanol, Biofuels and Compressed Bio-Gas
One of the most significant changes proposed under CAFE III is the formal recognition of carbon-neutral alternative fuels.
For the first time, the regulations propose allowing manufacturers to account for the carbon-neutral nature of fuels such as:
- Ethanol
- Biofuels
- Compressed Bio-Gas (CBG)
Under the proposal:
- Vehicles running on current ethanol blends will receive an 8% Carbon Neutrality Factor (CNF).
- For CBG and other biofuels, the reduction in tailpipe CO₂ emissions will depend on the prevailing blending levels.
The move is expected to encourage greater adoption of cleaner fuels while supporting India’s ethanol blending programme and broader decarbonisation strategy.
Additional Incentives for Fuel-Saving Technologies
The draft also proposes incentives for manufacturers adopting advanced fuel-saving technologies.
Automakers will be eligible to claim compliance benefits of up to 9 gCO₂/km, subject to a maximum credit of 1 gCO₂/km per approved technology.
These incentives are aimed at encouraging investment in innovations that improve fuel efficiency without compromising vehicle performance.
Technologies qualifying for such benefits are expected to include advanced engine management systems, lightweight materials, energy recovery systems, and other approved efficiency-enhancing solutions.
Why Are CAFE Norms Important?
Corporate Average Fuel Economy (CAFE) norms establish fleet-wide fuel efficiency targets that automobile manufacturers must meet across all passenger vehicles they sell.
Instead of prescribing efficiency standards for individual models, the regulations require manufacturers to achieve a specified average fuel consumption level across their entire passenger vehicle portfolio.
The framework encourages companies to:
- Develop more fuel-efficient vehicles
- Invest in cleaner technologies
- Reduce fleet-wide carbon emissions
- Improve energy efficiency
- Support India’s climate commitments
Manufacturers that fail to meet the prescribed standards may face regulatory penalties.
Industry Impact
The proposed CAFE III norms are expected to accelerate investments in:
- Hybrid vehicles
- Electric vehicles
- Flexible-fuel vehicles
- Lightweight vehicle platforms
- Advanced engine technologies
- Alternative fuels
The recognition of ethanol and compressed bio-gas could particularly benefit manufacturers already investing in flex-fuel technologies and India’s expanding biofuel ecosystem.
The phased implementation is also expected to provide OEMs with sufficient planning certainty while supporting the government’s objective of reducing emissions from the transport sector.
What Happens Next?
The Ministry of Power will review feedback received from stakeholders before finalising the CAFE III regulations.
Once implemented after the expiry of CAFE II in March 2027, the new framework will serve as India’s primary fuel efficiency standard for passenger vehicles through FY32.
The proposed norms represent another step in India’s transition towards cleaner mobility by encouraging greater fuel efficiency, recognising low-carbon fuels, and providing manufacturers with a long-term roadmap for reducing emissions.
