Centre floats another draft of CAFE-III; gives special recognition to ethanol and bio fuel cars

The Center has released the draft Corporate Average Fuel Efficiency (CAFE)-III norms for stakeholders’ participation and proposes stricter fuel efficiency and carbon emission standards for passenger vehicles from April 1, 2027. For the first time, the draft also proposes special recognition for ethanol and other biofuels and assesses manufacturers’ compliance by allowing producers to claim lower than actual tailpipe emissions.

Industry stakeholders have until August 6 to respond to the latest draft. The proposed CAFE norms have sharply divided the auto industry, with smaller and larger vehicle manufacturers taking opposing positions and competing proposals emerging on how the regulations should be framed.

According to the proposed norms, manufacturers will be required to gradually improve the fuel efficiency of their fleets. Target fuel consumption is proposed to be reduced from 3.996 liters per 100 km (94.76 gCO₂/km) in 2027-28 to 3.327 liters per 100 km (78.90 gCO₂/km) by 2031-32.

“The gradual tightening of targets will provide OEMs with a clear and predictable regulatory pathway, allowing them to develop and introduce increasingly fuel-efficient vehicle models,” government sources said.

Unlike the current framework, compliance will be assessed in two blocks rather than annually; an initial three-year period followed by a second two-year block.

A key feature of the bill is the introduction of Carbon Neutrality Factors (CNFs), which recognize the lower lifecycle carbon footprint of renewable fuels such as ethanol, compressed biogas (CBG) and other biofuels. Under the proposal, manufacturers would be allowed to reduce their vehicles’ declared tailpipe carbon dioxide emissions before compliance is assessed. An eight percentage point reduction is proposed for the current ethanol blending level, while the reduction in CBG and other biofuels will depend on current blending levels, sources said.

The draft also proposes additional incentives for manufacturers who adopt fuel-saving technologies. They can claim compliance benefits of up to 9 gCO₂/km, subject to a maximum benefit of 1 gCO₂/km for each approved technology.

It also proposes super credits for Battery Electric Vehicles (BEVs), Range Extended Electric Vehicles (REEVs), Plug-in Hybrid Electric Vehicles (PHEVs), Powerful Hybrid Electric Vehicles (SHEVs) and Flexible Fuel Vehicles (FFVs) when calculating the average fuel consumption of the fleet, thereby encouraging the adoption of cleaner vehicle technologies.

Official sources explained that manufacturers who achieve better performance than the set targets will earn compliance credits that can be carried forward within the determined compliance blocks.