The Ministry of Power has notified the third phase of Corporate Average Fuel Economy CAFE-III norms, which will apply from 1 April 2027 to 31 March 2032. The framework requires automobile manufacturers to progressively improve the average fuel efficiency of their passenger-vehicle fleets while reducing CO₂ emissions and petroleum consumption.
Understanding CAFE Norms
Introduced in 2017 under the Energy Conservation Act, 2001, CAFE norms evaluate the average fuel consumption and emissions of a manufacturer’s eligible passenger vehicles.
Unlike model-specific emission standards, CAFE measures the weighted average performance of the entire fleet. CAFE-II came into force in 2022, while CAFE-III will operate for five years and cover M1-category passenger vehicles sold in India.
Progressively Stricter Fuel Efficiency Targets
CAFE-III aims for approximately 16.7% improvement in fuel efficiency over the five-year period.
The annual target is determined using a formula based on the manufacturer’s weighted average vehicle weight. The reference weight has been revised from 1,082 kg to 1,229 kg.
The baseline fuel-consumption target will progressively decline from 3.996 litres/100 km in 2027–28 to 3.3273 litres/100 km in 2031–32, requiring manufacturers to improve fleet efficiency over time.
Small Cars vs Large Cars
The treatment of lightweight vehicles was a major issue during the formulation of CAFE-III.
The earlier draft proposed an additional 3 g CO₂/km relaxation for petrol cars weighing below 909 kg. The final framework has removed this separate concession but modified the weight-adjustment formula.
Thus, lighter vehicles receive relatively different targets based on the manufacturer’s overall fleet characteristics, rather than being placed in a separate small-car regulatory category.
Incentives for Electric Vehicles and Alternative Fuels
CAFE-III encourages cleaner technologies through super credits and carbon-neutrality factors.
Battery electric vehicles and range-extended electric vehicles receive a volume derogation factor of 3, while plug-in hybrids and certain flex-fuel hybrids receive lower multipliers.
The framework also recognises vehicles using ethanol-blended and flex-fuel technologies, encouraging manufacturers to diversify beyond conventional petrol and diesel technologies.
Flexible Compliance Mechanism
The new framework introduces a credit-debit mechanism. Manufacturers exceeding their efficiency targets can earn credits, while those falling short accumulate debits.
Credits can be carried forward and traded between manufacturers. Deficits can also be addressed through credit purchases, with the prescribed buyout price increasing from ₹2,500 per g CO₂/km in 2027–28 to ₹4,500 in 2031–32.
Incentives for Technological Innovation
Manufacturers can claim efficiency improvements from technologies such as:
- Start-stop systems
- Regenerative braking
- Efficient transmissions
- Tyre-pressure monitoring
- LED lighting
- Improved air-conditioning systems
- Electric water pumps
Eligible technologies can provide 1 g CO₂/km reduction each, subject to an overall limit of 9 g CO₂/km.
Significance and Way Forward
CAFE-III links energy efficiency, climate action and automotive innovation. It can help reduce petroleum consumption, strengthen energy security and encourage investment in EVs, hybrids and cleaner fuels.
At the same time, manufacturers will need to manage technological costs while keeping cleaner vehicles affordable, particularly in the price-sensitive passenger-car market.
Conclusion
CAFE-III represents a further shift towards more fuel-efficient and lower-emission mobility in India. Its effectiveness will depend on technological innovation, credible compliance mechanisms and the ability of manufacturers to combine environmental performance with consumer affordability.
5 FAQs – CAFE-III Norms 2027
What are CAFE-III norms?
CAFE-III norms are fuel-efficiency and CO₂-emission standards for passenger vehicles in India, applicable from 1 April 2027 to 31 March 2032.
What is the main objective of CAFE-III?
CAFE-III aims to improve fleet-wide fuel efficiency by approximately 16.7%, while reducing petroleum consumption and CO₂ emissions.
Which vehicles are covered under CAFE-III?
The norms cover M1-category passenger vehicles sold in India and assess the weighted average performance of a manufacturer’s fleet.
How does CAFE-III encourage electric and alternative-fuel vehicles?
CAFE-III provides super credits and carbon-neutrality factors for technologies such as battery electric vehicles, range-extended EVs, plug-in hybrids and certain flex-fuel vehicles.
What is the credit-debit mechanism under CAFE-III?
Manufacturers exceeding their efficiency targets can earn credits, while those falling short accumulate debits. Credits can be carried forward or traded, providing flexibility for compliance.
