CAFE-III Draft: Carbon neutrality recognition granted to biofuels

The Ministry of Power has released the Draft Corporate Average Fuel Economy (CAFE-III) norms for stakeholder consultation, marking a significant step toward improving fuel efficiency and reducing emissions in India’s passenger vehicle segment. These proposed norms will apply to M1 category passenger vehicles manufactured or imported for sale in India between 2027-28 and 2031-32.

A key feature of the draft is the introduction of Carbon Neutrality Factors (CNFs) for the first time. These factors aim to recognise the carbon-neutral nature of alternative fuels such as ethanol, biofuels, and Compressed Bio-Gas (CBG). Under this provision, specified reductions in declared tailpipe carbon dioxide emissions will be allowed before compliance is assessed. For current ethanol blending levels, an 8% CNF has been proposed, while reductions for CBG and other biofuels will depend on actual blending levels.

The Ministry has invited suggestions and feedback from stakeholders and the public, with the deadline set for August 6, 2026. The draft norms will also be made available on the official websites of the Ministry of Power and the Bureau of Energy Efficiency (BEE).

The proposed CAFE-III norms are expected to come into effect from April 1, 2027, following the conclusion of the existing CAFE-II norms on March 31, 2027. The new norms will remain in force for five years and will be implemented in two compliance blocks—an initial three-year phase followed by a two-year phase.

Fuel consumption targets under the draft are set to become progressively stricter, improving from 3.996 litres per 100 km (94.76 gCO₂/km) in 2027-28 to 3.3273 litres per 100 km (78.90 gCO₂/km) by 2031-32. This gradual tightening is designed to provide automobile manufacturers with a predictable regulatory roadmap to develop more fuel-efficient vehicles.

Manufacturers will be allowed to claim compliance benefits of up to 9 gCO₂/km for approved fuel-saving technologies, with a cap of 1 gCO₂/km per technology. Additionally, super credits will be offered for cleaner vehicle categories such as battery electric vehicles (BEVs), plug-in hybrids, strong hybrids, range-extended electric vehicles, and flex-fuel vehicles, encouraging their adoption.

A credit and debit mechanism has also been proposed. Manufacturers exceeding their targets can earn credits, which can be carried forward within compliance blocks. Those falling short can meet obligations through credit purchases from BEE, pooling arrangements, or carry-forward provisions. Credits will be priced initially at ₹2,500 per unit, with an annual increase of ₹500.

Non-compliance will attract penalties under the Energy Conservation Act. However, manufacturers with annual sales below 1,000 passenger vehicles will remain exempt from these norms.