India's Auto Industry Welcomes Revised CAFE 3 Norms for Greener Vehicles
After prolonged negotiations, the Indian automotive sector has expressed relief over the latest draft of the Corporate Average Fuel Efficiency (CAFE 3) regulations. These government-mandated standards are designed to curb fuel consumption and carbon dioxide emissions across vehicle portfolios, with implementation slated to begin in April 2027.
Key Features and Incentives Under CAFE 3
The draft, circulated recently, introduces a system where car manufacturers can earn higher credits for vehicles with superior fuel efficiency. Additionally, super credits will be awarded for producing electric vehicles (EVs), hybrids, or flex-fuel vehicles that run on petrol or ethanol. To further encourage innovation, the use of 12 specified energy-efficient technologies—such as start-stop systems, six-speed or higher transmissions, tyre pressure monitoring systems, and high-efficiency air conditioning—can provide discounts for manufacturers.
Carmakers will also have the flexibility to purchase credits from other companies under mutually agreed terms, facilitating compliance. Unlike previous versions that allowed a five-year target period, CAFE 3 proposes a three-year block followed by a two-year phase. While annual targets can be missed, manufacturers must meet aggregate goals, with records maintained in a passbook system.
Efficiency Targets and Projected Vehicle Mix
According to the draft, the efficiency score is targeted to decrease from 113.5 at the end of 2026-27 (the terminal year of CAFE 2) to 94.8 in 2027-28, when CAFE 3 takes effect. By the terminal year of 2031-32, the score is expected to drop to 78.9. The Bureau of Energy Efficiency (BEE), which issued the draft, projects that by 2031-32, CNG vehicles will dominate the vehicle mix with a 35% share, up from 24% in the current financial year.
During this period, the share of petrol vehicles is forecasted to decline from 50% to 30.7%, while electric vehicles are anticipated to rise from 4.5% to 11%. Strong hybrids are expected to account for 12% of vehicles by 2031-32, based on a recent presentation to the cabinet secretary.
Balancing Act and Industry Response
The revised draft includes relaxations for small cars compared to earlier plans but tightens credits for hybrids and flex-fuel vehicles, seen as a strategic balancing act by the government. It also proposes lower penalties for violations. Industry executives have praised the framework, noting it strikes a balance between India's decarbonisation objectives and the transition challenges faced by manufacturers.
The framework supports the government's green goals while ensuring a practical transition path for manufacturers, an industry executive commented. The inclusion of credit trading, carry-forward provisions, and a softer penalty mechanism offers greater flexibility, aligning with both environmental and economic considerations.
