Proposed new CAFE-III standards for passenger vehicles: Key details

The Department of Energy has published the draft Corporate Average Fuel Economy (CAFE)-III norms, which propose stricter fuel economy standards for passenger cars starting April 1, 2027. The draft is out for public comment and will replace the current CAFE-II standards, which are expected to remain in effect until March 31, 2027.The proposed rules will apply to M1 category passenger cars manufactured or imported for sale in India between the financial years 2027-28 and 2031-32. This category includes passenger cars with up to eight seats, excluding the driver’s seat. Interested persons and public representatives can submit their proposals and opinions to the Ministry of Energy until August 6, 2026.One of the biggest changes under the proposed CAFE-III framework is the gradual tightening of fuel consumption targets over five years. The draft proposes to reduce the target from 3,996 liters per 100 km (94.76 gCO₂/km) in FY 2027-28 to 3.3273 liters per 100 km (78.90 gCO₂/km) by FY 2031-32. According to the government, this phased approach aims to give automakers a clear road map to develop and introduce more fuel-efficient models.Compliance with the new norms will be assessed in two stages. The first eligibility block will cover an initial three-year period, followed by a second block of two years. The government believes that this structure will allow OEMs to gradually adapt to stricter efficiency requirements.The project also proposes, for the first time, recognition of the carbon neutrality of alternative fuels. If implemented, ethanol, biofuels and compressed biogas (CBG) will achieve certain reductions in declared tailpipe carbon dioxide emissions before compliance is assessed. A Carbon Neutrality Factor (CNF) of 8 percent has been proposed for current ethanol blends, while reductions in CBG and other biofuels will depend on prevailing blending levels.Another key provision is the stimulation of fuel-saving technologies. Manufacturers will be allowed to claim compliance benefits of up to 9 gCO₂/km for approved technologies, although the benefit will be limited to 1 gCO₂/km per technology.