The move comes after the implementation of CAFE-II, which had drawn mixed responses from automakers
A day after issuing draft amendments to the existing CAFE-II regulations, the Ministry of Power (MoP) on Thursday released the draft Corporate Average Fuel Economy (CAFE-III) norms for 2027 and invited comments from stakeholders. The new norms, which will replace CAFE-II after March 31, 2027, seek to progressively tighten fuel efficiency standards while retaining the fleet-average compliance approach.
The move comes after the implementation of CAFE-II, which had drawn mixed responses from automakers. While the industry broadly accepted stricter fuel-efficiency targets, it had expressed concerns over compliance costs and the pace of transition to cleaner technologies.
fleet emissions
The proposed CAFE-III framework retains the government’s emphasis on reducing overall fleet emissions, rather than regulating vehicles based on size. To reach net-zero goals, the framework introduces a market-based credit trading system, besides incentivising the shift to electric, hybrid and flex-fuel vehicles.
It also introduces a market-based credit trading mechanism that will allow manufacturers exceeding their targets to earn tradable credits. The proposal, however, is likely to revive the debate over carbon credits, with critics arguing that such mechanisms could allow some manufacturers to continue emitting more by purchasing credits, instead of making technological improvements. Tata Motors has opposed the Bureau of Energy Efficiency’s (BEE) compliance credit mechanism, arguing that allowing BEE to directly sell carbon credits will compromise its neutral status and disrupt fair price discovery.
According to the newly-released CAFE III norms, manufacturers will continue to be regulated on the basis of annual fleet-average fuel consumption, with progressively tighter standards. “The proposed CAFE 2027 regulations establish a modern, technology-neutral and performance-based regulatory framework applicable to all M1 category passenger vehicles manufactured or imported for sale in India during FY28 to FY32,” said the Ministry.
Manufacturer-specific Annual Average Fuel Consumption Standards will continue to be based on the weighted average unladen mass of vehicles sold during each reporting year, while fleet performance will be assessed using a sales-weighted average petrol-equivalent fuel consumption methodology.
The Ministry said the existing CAFE framework was designed primarily for internal combustion engine vehicles, but the rapid growth of electric, hybrid and flex-fuel vehicles now necessitated a new framework that accommodates greater fuel diversity and advances in automotive technology.
The draft norms also provide incentives for cleaner technologies. Manufacturers can claim up to 9 gCO2/km in fuel consumption reductions for approved technologies such as automatic start-stop systems, regenerative braking, tyre pressure monitoring systems, efficient alternators, LED lighting and advanced air-conditioning systems. Battery electric, plug-in hybrid, strong hybrid, range-extended electric and flex-fuel vehicles will receive volume-based super credits while calculating fleet-average fuel consumption, encouraging faster adoption of low-emission vehicles.
Published on July 16, 2026
