CAFE-III norms tighten targets, reward small cars and electrified vehicles

The Ministry of Power on September 29 notified India’s final Corporate Average Fuel Economy (CAFE) III norms for passenger vehicles, easing the compliance burden on lighter fleets compared with its September 2025 draft even as it tightens industry-wide fuel-efficiency targets by nearly 17 per cent through FY32.

The revised weight formula potentially benefits Maruti Suzuki , Renault and Nissan, while generous credits for EVs, strong hybrids, CNG and ethanol give Tata Motors , Toyota and Mahindra additional compliance routes; manufacturers dependent on heavier petrol and diesel SUVs face greater pressure as the targets tighten.

At the reference fleet weight of 1,229 kg, the target falls from about 94.8 g of CO₂/km in FY28 to 78.9 g/km in FY32.

The final rules remove the draft’s separate small-car concession but flatten the weight curve: compared with the September draft formula, a 909-kg average fleet gets about 9 per cent more allowance in FY28 and nearly 17 per cent more in FY32, while at 1,800 kg the final standard is about 1.8 per cent tighter in FY28 and 4.6 per cent tighter in FY32.

These are manufacturer fleet averages, not limits on individual models. The Gazette sets progressively tighter coefficients for each year through FY32.

Yet the headline tightening may overstate the reduction ultimately required on the road. “The headline stringency is real, but the flexibilities stack up,” said Amit Bhatt, Managing Director, International Council on Clean Transportation (ICCT). Super credits, carbon-neutrality factors and technology credits could combine to make actual reductions in fuel use and emissions considerably smaller than the headline targets suggest, he said.

The change in the weight formula reshuffles the pressure across manufacturers.

Maruti Suzuki stands to benefit from a portfolio weighted towards lighter cars, supplemented by CNG models and strong hybrids. Renault and Nissan also have relatively light products. But the benefit depends on sales mix: a growing share of heavier SUVs would erode some of the advantage.

At the other end, manufacturers with heavier conventional SUV portfolios have less room from the revised weight curve. Mahindra, however, has another lever — electric SUVs that can pull down its calculated fleet consumption.

Compact SUVs aren’t automatically winners or losers. Their contribution depends on weight, certified fuel consumption, powertrain and sales volume.

EVs and hybrids get powerful credits.

The final CAFE III rules offer manufacturers several ways to offset their conventional vehicles.

Battery-electric vehicles and range-extended EVs receive a 3x volume multiplier, meaning 10,000 qualifying EVs would count as an effective 30,000 units in that part of the compliance calculation. Plug-in hybrids and flex-fuel strong hybrids get 2.5x, conventional strong hybrids 1.6x and flex-fuel ethanol vehicles 1.1x.

That gives Tata Motors, with its combination of small cars, CNG and EVs, several compliance levers. Mahindra can use BEVs to counterbalance its conventional SUVs, while Toyota gets support from its strong-hybrid portfolio.

The final rules cut the strong-hybrid multiplier from 2x in the September draft to 1.6x. But hybrids retain other benefits, including their inherent fuel efficiency and, where applicable, the ethanol allowance.

CAFE III also gives conventional powertrains considerable room to adapt.

E20- or higher petrol vehicles, including strong hybrids and plug-in hybrids, get an 8 per cent carbon-neutrality factor on tailpipe CO₂. Flex-fuel ethanol vehicles receive 22.3 per cent, while CNG gets 5 per cent or the notified compressed-biogas blending percentage, whichever is higher. Diesel gets a benefit corresponding to its actual notified biofuel blend.

Manufacturers can claim another 1 g CO₂/km for each eligible efficiency technology deployed, subject to a 9 g/km ceiling. The 12 technologies include start-stop systems, regenerative braking, six-speed transmissions, micro-hybrids, LED lighting and electric water pumps.

For the first FY28-FY30 compliance block, those technology savings can be based on manufacturers’ self-declarations. Validated test results become mandatory during FY31-FY32.

Bhatt said the cumulative effect could allow manufacturers to meet the standard while still relying heavily on combustion engines, potentially slowing EV adoption and making India’s electrification targets harder to reach.

The rules also put a clearer price on missing the target.

Manufacturers can trade compliance credits with one another and carry credits and debits within a compliance block. Any unused surplus expires at the block’s end. Companies still carrying a deficit can buy credits from the Bureau of Energy Efficiency.

The BEE price rises from ₹2,500 per g CO₂/km in FY28 to ₹4,500 in FY32. A 1 g/km deficit across one lakh vehicles would therefore imply a ₹25-crore credit buyout at the FY28 rate before other offsets.

One important piece remains unfinished.

From April 2027, manufacturers must report each model’s performance under both the Modified Indian Driving Cycle and the Worldwide Harmonized Light Vehicles Test Procedure. The Power Ministry will separately notify the conversion factor for moving CAFE targets from MIDC to WLTP after receiving testing data. cafe3 final notifction

That transition, along with certification methods and how biofuel benefits are measured, could determine how demanding CAFE III ultimately becomes.

“The WLTP transition is also the next opportunity to strengthen the norms,” Bhatt said.