New CAFE-III norms proposed for passenger vehicles: key details

The Department of Energy released the draft Corporate Average Fuel Economy (CAFE)-III norms, proposing stricter fuel efficiency standards for passenger vehicles starting April 1, 2027. The draft is out for public comment and will replace the existing CAFE-II standards, which are expected to remain in effect until March 31, 2027.The proposed regulations will apply to M1 category passenger vehicles manufactured or imported for sale in India between FY 2027-28 and FY 2031-32. This category includes passenger vehicles with up to eight seats, excluding the driver’s seat. Stakeholders and the public can submit their proposals and feedback to the Ministry of Energy until August 6, 2026.One of the biggest changes under the proposed CAFE-III framework is the gradual tightening of fuel consumption targets over five years. The draft proposes to reduce the target from 3.996 liters per 100 km (94.76 gCO₂/km) in FY 2027-28 to 3.3273 liters per 100 km (78.90 gCO₂/km) by FY 2031-32. According to the government, this phased approach aims to give vehicle manufacturers a clear roadmap for developing and introducing more fuel-efficient models.Compliance with the new norms will be assessed in two stages. The first block of compliance will cover an initial period of three years, followed by a second block of two years. The government believes that this structure will allow OEMs to gradually adapt to stricter efficiency requirements.The draft also proposes to recognize the carbon neutrality of alternative fuels for the first time. If implemented, ethanol, biofuels and compressed biogas (CBG) will receive certain reductions in declared tailpipe carbon dioxide emissions before compliance is assessed. A carbon neutrality factor (CNF) of 8 percent has been proposed for current ethanol blends, while reductions for CBG and other biofuels will depend on prevailing blending levels.Another key provision is the incentive for fuel-saving technologies. Manufacturers will be allowed to claim compliance benefits of up to 9 gCO₂/km for approved technologies, although the benefit will be limited to 1 gCO₂/km per technology.