The Ministry of Power has announced draft Corporate Average Fuel Economy (CAFE) 2027 regulations, set to introduce significantly stricter fuel-efficiency norms for passenger vehicles in India from April 1, 2027. These proposed CAFE-III norms, which will remain in force until FY32, aim to progressively enhance the average fuel efficiency of automakers' passenger vehicle fleets annually.
Technology-Neutral Compliance and Incentives
A key aspect of the new regulations is a technology-neutral compliance framework designed to reward cleaner vehicle technologies. This includes:
- Super Credits: Battery Electric Vehicles (BEVs) and Range-Extended Electric Vehicles (REEVs) will receive a multiplier of 3.0 for compliance calculations. Plug-in hybrids and flex-fuel strong hybrids get a factor of 2.5, strong hybrids 1.6, and flex-fuel ethanol vehicles 1.1. These 'super credits' significantly improve a manufacturer's fleet-average fuel consumption performance.
- Carbon Neutrality Factors (CNFs): For the first time, the CAFE framework formally recognizes renewable fuels. E20-compatible vehicles (including strong hybrids and plug-in hybrids) will see an 8% reduction in declared tailpipe CO₂ emissions. Flex-fuel ethanol vehicles and flex-fuel strong hybrids receive a larger 22.3% carbon neutrality benefit, while CNG vehicles get a 5% benefit.
Market-Based Compliance and Trading
The draft introduces a market-based compliance mechanism, allowing manufacturers to trade fuel-efficiency credits. Automakers exceeding their targets will generate credits, which can then be used to offset deficits, carried forward, pooled with another manufacturer, or sold to other companies. Conversely, manufacturers falling short can purchase credits directly from the Bureau of Energy Efficiency (BEE).
- The proposed BEE credit buyout prices start at ₹2,500 per gram of CO₂/km in FY28, rising annually to ₹4,500 by FY32.
Encouraging Fuel-Saving Technologies
Beyond electrification, the government is also promoting the deployment of various fuel-saving technologies. Manufacturers can claim compliance benefits, capped at 9 g CO₂/km, for integrating systems such as automatic start-stop, tyre pressure monitoring, regenerative braking, six-speed or higher transmissions, efficient alternators, LED lighting, advanced glazing, efficient air-conditioning, and solar-reflective paint.
Shift to WLTP and Exemptions
The regulations signal India's gradual transition towards globally harmonized testing procedures. From April 1, 2026, manufacturers will be required to report vehicle performance under both the existing Modified Indian Driving Cycle (MIDC) and the Worldwide Harmonised Light Vehicles Test Procedure (WLTP). Small manufacturers selling fewer than 1,000 passenger vehicles annually will be exempt from these fleet-average compliance obligations.