Proposed new CAFE-III norms for passenger vehicles: Key details

The power ministry has released draft Corporate Average Fuel Economy (CAFE)-III norms, which propose stricter fuel-efficiency standards for passenger vehicles from April 1, 2027. The draft has been put up for public consultation and will replace the existing CAFE-II norms, which are expected to remain in force till March 31, 2027.The proposed rules will apply to M1 category passenger vehicles manufactured or imported for sale in India between FY2027-28 and FY2031-32. This category includes passenger vehicles with a maximum of eight seats excluding the driver’s seat. Stakeholders and members of the public can submit their suggestions and feedback to the Ministry of Power till 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 is aimed at giving automakers a clear roadmap to develop and introduce more fuel-efficient models.Compliance under the new norms will be assessed in two phases. The first compliance block will cover an initial period of three years, followed by a second period of two years. The government believes that this framework will allow OEMs to gradually adopt stricter efficiency requirements.The draft also proposes to recognize carbon neutrality of alternative fuels for the first time. If implemented, ethanol, biofuels and compressed bio-gas (CBG) will receive specified reductions in declared tailpipe carbon dioxide emissions prior to assessment of compliance. For current ethanol blends, a carbon neutrality factor (CNF) of 8 percent has been proposed, while the reduction for CBG and other bio-fuels will depend on the current blending levels.Another key provision is incentives for fuel-saving technologies. Manufacturers will be allowed to claim compliance benefits of up to 9 gCO₂/km for approved technologies, although the benefits will be capped at 1 gCO₂/km per technology.