India's Fuel-Efficiency Rules Get a New Tune as CAFE-III Norms Come into Force

India's passenger vehicle industry is set to undergo a significant change with the introduction of new fuel-efficiency norms. The Corporate Average Fuel Economy (CAFE-III) framework. This will come into effect from April 1, 2027, aims to reduce the country's carbon footprint.

The framework will remain applicable until March 31, 2032, covering new passenger vehicles manufactured or imported for sale in India.

The Ministry of Power has established fuel consumption and energy consumption standards for M1 category motor vehicles under the Central Motor Vehicle Rules, 1989. The new framework introduces a more flexible approach to meeting fuel-efficiency requirements, with annual targets and credit trading mechanisms in place. Additionally, it provides for carbon-neutrality factors for certain fuels and credits for specific fuel-saving technologies.

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From April 1, manufacturers will be required to calculate their Annual Average of Actual Fuel Consumption Standard in petrol-equivalent litres per 100 kilometres using the Modified Indian Driving Cycle (MIDC). The calculation will take into account the weighted average unladen mass of the manufacturer's new vehicles. Along with a fixed constant of 1,229 kg.

The multiplier used in the calculation will decline each year during the five-year period. With the following values: FY 2027-28: 1.583, FY 2028-29: 1.523, FY 2029-30: 1.483, FY 2030-31: 1.393, and FY 2031-32: 1.313.

The new framework divides compliance into two blocks. With the first running for three years from FY 2027-28 and the second beginning in FY 2030-31. Manufacturers will be required to maintain a passbook to record credits and debits, with any excess credits treated as a pass.

Manufacturers will be able to pool their credits and exchange them with other manufacturers on mutually agreed terms. A manufacturer with a debit balance can also offset it by purchasing credits from the Bureau of Energy Efficiency.

The norms introduce a Carbon Neutrality Factor (CNF) for petrol, CNG, and flex fuel ethanol vehicles. The factor will discount the manufacturer-declared CO₂ emissions for a model. With a discount of 8 per cent on tailpipe CO₂ for ethanol-blended petrol vehicles and SHEV and PHEV vehicles.

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Fuel consumption will be converted into petrol equivalents using specific factors, with electric vehicles measured in kWh per 100km. The Ministry of Road Transport will develop certification methods for fuel-saving technologies.

Under the new regulations, manufacturers with fewer than 1,000 eligible vehicles produced within a reporting cycle will be classified as low-volume producers, thereby exempting them from the stringent emissions standards.

The Ministry of Road Transport and Highways will enforce provisions relating to testing and calculation methodologies. Reporting, conformity of production, derogation, the carbon-neutrality factor for biofuels, volume derogation factors, and the petrol-equivalent fuel-consumption-reducing technology derogation factor.