India Unveils Revised CAFE-III Norms: Key Changes and Industry Impact
The central government has released the third draft of the Corporate Average Fuel Efficiency (CAFE-III) norms for passenger vehicles, proposing significant changes in how automakers can comply with emission targets. The draft, published on July 17, 2026, and open for stakeholder comments until August 6, introduces recognition of biofuels such as ethanol and compressed biogas (CBG) in compliance calculations.
The new norms follow months of negotiations between manufacturers of small cars and larger SUVs. A key change from the original September 2025 proposal is a flatter weight-adjustment curve, which reduces the compliance advantage for heavier vehicles while easing targets for lighter ones. Overall fleet-wide emission targets have been relaxed by about 21% compared to the initial proposal.
Under the draft, manufacturers must progressively improve fuel efficiency, with targets tightening 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. Compliance will be assessed over two blocks—an initial three-year period followed by a two-year period—instead of annually.
The draft introduces Carbon Neutrality Factors (CNFs), allowing specified reductions in declared CO₂ emissions for vehicles running on ethanol, flex-fuel ethanol, CBG, and other biofuels. It also proposes compliance incentives for approved fuel-saving technologies and continues super credits for electric, plug-in hybrid, strong hybrid, and flex-fuel vehicles. Manufacturers exceeding targets can earn tradable credits, while those falling short can purchase credits from other manufacturers or the Bureau of Energy Efficiency (BEE).
The weight-adjustment curve, a major point of contention, has been flattened further. The slope changes from 0.00158 in the first year to 0.00131 in the fifth year, compared to the uniform 0.002 initially proposed. Additionally, a previous relaxation of 3 g CO₂/km for small cars under 909 kg with sub-1200 cc engines has been removed, addressing a key divide among automakers.
The differences between manufacturers centered on this 3 g benefit for small cars. Tata Motors opposed it, arguing there was no justification when larger vehicle manufacturers were investing in electrification. Maruti Suzuki defended it, calling criticisms based on incorrect facts. The final draft removes this concession, reflecting a compromise.
The CAFE-III norms will be valid for five years, until 2031-32, and aim to reduce overall vehicular emissions while promoting fuel-efficient technologies.
