India’s passenger vehicle industry is set for a new fuel-efficiency regime, with the government notifying Corporate Average Fuel Economy (CAFE-III) norms that are set to come into force from April 1, 2027. The framework, which will remain applicable until March 31, 2032, covers new passenger vehicles manufactured or imported for sale in India.The ministry of power has laid down fuel consumption and energy consumption standards for M1 category motor vehicles under the Central Motor Vehicle Rules, 1989.The new framework changes how manufacturers can meet their fuel-efficiency requirements. Along with annual fuel-consumption targets, it provides for credit trading, super credits for cleaner vehicles, carbon-neutrality factors for certain fuels and credits for specific fuel-saving technologies.Here is what changes under the new CAFE norms:
1. New fuel-efficiency targets
From April 1, every manufacturer’s Annual Average of Actual Fuel Consumption Standard will be calculated in petrol-equivalent litres per 100 kilometres using the Modified Indian Driving Cycle (MIDC).The calculation will take into account the weighted average unladen mass of the manufacturer’s new vehicles, along with a fixed constant, b, of 1,229 kg.The multiplier “a” and constant “c” used in the calculation will decline each year during the five-year period.
| Financial year | a | c |
| FY 2027-28 | 0.00158 | 3.9960 |
| FY 2028-29 | 0.00152 | 3.8600 |
| FY 2029-30 | 0.00148 | 3.7585 |
| FY 2030-31 | 0.00139 | 3.5313 |
| FY 2031-32 | 0.00131 | 3.3273 |
From April 1, 2027, a manufacturer’s annual average actual fuel consumption must be less than or equal to the standard prescribed for that financial year.
2. Compliance into two blocks
The new framework divides compliance into two blocks. The first runs for three years from FY 2027-28, while the second begins in FY 2030-31.Manufacturers will have a passbook in which credits and debits are recorded. If a manufacturer’s actual fuel consumption is better than its target, the difference will be treated as a credit. If actual consumption exceeds the target, the resulting shortfall will be recorded as a debit.
3. Manufacturers can pool or trade credits
The framework allows manufacturers to pool their credits. They can exchange or trade credits with other manufacturers on mutually agreed terms.A manufacturer with a debit balance can also offset it by purchasing credits from the bureau of energy efficiency. The notified prices per g CO₂/km will rise each year:
| Financial year | Amount |
| FY 2027-28 | Rs 2,500 |
| FY 2028-29 | Rs 3,000 |
| FY 2029-30 | Rs 3,500 |
| FY 2030-31 | Rs 4,000 |
| FY 2031-32 | Rs 4,500 |
However, credit exchange, buyout or a combination of the two will be allowed only during a specified 30-day trading window, from October 1 to October 31 of each assessment year.
4. Cleaner vehicles get ‘super credits’
The new rules allow manufacturers to apply volume derogation factors to individual models, effectively providing additional credit for cleaner vehicles.Battery electric and range-extended electric vehicles will have a factor of 3.0. Plug-in hybrid and strong hybrid vehicles using flex fuel ethanol will have a factor of 2.5.Strong hybrid vehicles will get a factor of 1.6, while flex fuel ethanol vehicles will have a factor of 1.1.According to the ministry, this framework gives manufacturers greater flexibility to adopt cleaner technologies, alternative fuels and other innovative solutions.
5. Alternative fuels get a carbon-neutrality benefit
The norms introduce a Carbon Neutrality Factor (CNF) for petrol, CNG and flex fuel ethanol vehicles. The factor discounts the manufacturer-declared CO₂ emissions for a model.For ethanol-blended petrol vehicles, including E20 or such blends as specified, as well as SHEV and PHEV vehicles, the discount will be 8 per cent on tailpipe CO₂.Flex fuel ethanol vehicles will get a 22.3 per cent discount on tailpipe CO₂.For CNG vehicles, the factor will be 5 per cent or the CBG blending percentage notified by the Ministry of Petroleum and Natural Gas, whichever is higher.For diesel vehicles, the factor will be based on the actual biofuel blending percentage specified by the Ministry of Petroleum and Natural Gas.
6. More fuel-saving technologies can earn credits
Manufacturers can also claim a derogation for specified efficiency technologies installed in vehicles.The credit is 1.0 g CO₂/km for each eligible technology, equivalent to 0.0422 litre/100km. The overall limit for such claims is 9.0 g CO₂/km, equivalent to 0.3795 litre/100km.The eligible technologies include:
- Start-stop system
- Tyre pressure monitoring system
- Regenerative braking system
- Six-speed or higher transmission
- 12V/48V efficient alternator
- 12V/48V motor-generator or micro-hybrid
- Exterior LED lighting
- Advanced glass/glazing with a minimum Solar Heat Gain Constant of 58 per cent or less
- Electric water pump
- High-efficiency air-conditioning system
- Solar-reflective paint
- PWM-controlled radiator fan
The ministry of road transport will develop certification methods for these technologies.During the first compliance block, energy savings claimed by manufacturers will be based on self-declaration. In the second block, claims will have to be supported by validated test results generated using the methods and procedures specified by the ministry.For high-efficiency air-conditioning and solar-reflective paint, manufacturers’ self-declarations will be benchmarked after the first compliance block.
7. Fuel consumption will be converted into petrol equivalents
The framework sets specific factors for calculating fuel consumption from measured tailpipe CO₂.The factors are 0.04217 for petrol, 0.03776 for diesel, 0.06150 for LPG and 0.03647 for CNG.Electric vehicles will be measured in kWh per 100km. Fuel consumption for diesel, LPG, CNG and electric vehicles will then be converted into petrol equivalents using separate factors:
- Diesel: 1.1168
- LPG: 0.6857
- CNG: 1.1563
- Electricity: 0.1028
8. MIDC and WLTP performance
For every model sold from April 1, 2027, manufacturers will have to declare performance under both the existing MIDC and the Worldwide Harmonised Light Vehicles Test Procedure (WLTP), as notified by the Ministry of Road Transport and Highways.The conversion factor for CAFE targets from MIDC to WLTP will be notified separately by the ministry of power in consultation with the bureau of energy Efficiency. This conversion factor will be based on data reported to the bureau.
9. Reporting and compliance
Manufacturers will have to provide the designated Agency with state-wise sales data every year along with their final compliance report. The agency will compile the data and submit it to the bureau of energy efficiency by September 30 of each assessment year.The agency will then submit the final passbook within one month of the trading window closing, which means before November 30.Although compliance will be assessed annually, any contravention will be dealt with at the end of the relevant compliance block after credits and debits have been settled.At the end of a block, non-compliance in litres per 100km will be calculated by dividing the total debit in g CO₂/km by total sales during the block and multiplying the result by 23.7135.
10. Small-volume manufacturers exempted
Manufacturers whose manufactured or imported volume of eligible vehicles is below 1,000 units in a reporting period will be treated as small-volume manufacturers and will be exempt from the specific emission target. However, they will still have to report their annual average actual fuel consumption to the bureau of energy efficiency.The ministry of road transport and highways is set to enforce provisions relating to testing and calculation methodologies, reporting, conformity of production, derogation, the carbon-neutrality factor for biofuels, volume derogation factors and the petrol-equivalent fuel-consumption-reducing technology derogation factor. These provisions will be enforced in consultation with the concerned ministries and departments.
