Small Car Manufacturers Confront Regulatory Challenges Under Proposed CAFE-3 Standards
Manufacturers of small cars in India may encounter heightened regulatory obstacles if the revised draft of the Corporate Average Fuel Efficiency (CAFE-3) norms is implemented. The latest proposed modifications, which aim to enhance vehicle fuel efficiency and reduce carbon emissions, are expected to disproportionately support larger vehicles, particularly electric and hybrid electric models, according to sources familiar with the deliberations.
PMO Intervention and Multi-Ministry Involvement
With the CAFE issue remaining unresolved due to ongoing disputes among car manufacturers, the Prime Minister's Office has stepped in to mediate. In addition to the ministries of road transport and power, the petroleum and heavy industries ministries have been roped in to help finalize the norms. This marks the third draft of CAFE-3 in the past two years, highlighting the complexity and significance of the regulatory framework.
Understanding CAFE Standards
CAFE refers to government-regulated standards that mandate a minimum average fuel efficiency and maximum CO2 emission level for the entire fleet of vehicles sold by a car manufacturer. Rather than assessing individual models, it measures the weighted average of all cars produced by a company, encouraging overall environmental performance across product lines.
Key Changes in the Latest Draft
As per the unreleased latest draft of CAFE-3, the Bureau of Energy Efficiency (BEE) has proposed eliminating derogation or relief for small car makers. This removal of extra allowances is anticipated to increase the prices of entry-level petrol cars, potentially impacting affordability for budget-conscious consumers.
Simultaneously, the draft introduces a Range-Extended Electric Vehicle (REEV) category, which would receive the same Volume Derogation Factor (VDF) of 3 as electric cars. VDF is a targeted government measure designed to promote the sale of less polluting vehicles, including EVs, REEVs, and hybrids.
Rationale Behind REEV Inclusion
Sources indicate that the inclusion of REEVs addresses current challenges in the EV market, such as low penetration of charging infrastructure, range anxiety among buyers, and uncertainties regarding battery life. However, this move has sparked debate, as REEVs produce tailpipe emissions when their engines are running, unlike fully electric vehicles, raising questions about their environmental equivalence.
Potential Market and Consumer Impacts
Industry experts warn that if car manufacturers are discouraged from producing small cars that meet CAFE regulatory norms, the transition gap for consumers migrating from two-wheelers to cars could widen. This could affect mobility options for lower-income groups and alter market dynamics.
According to industry executives, new cars under the proposed CAFE-3 regime may see cost increases of approximately 10%. Manufacturers would need to incorporate additional fuel-saving technologies to comply with the stricter standards or face penalties, potentially driving up vehicle prices across segments.
The ongoing revisions to CAFE-3 underscore the government's push towards greener transportation, but they also highlight the balancing act between environmental goals and economic accessibility in the automotive sector.
