The Ministry of Energy has released the draft Corporate Average Fuel Economy (CAFE)-III standards, proposing stricter fuel efficiency standards for passenger vehicles from April 1, 2027. The project was put out for public consultation and will replace the existing CAFE-II standards, which are expected to be in force until March 31, 2027.The proposed regulations will apply to M1 category passenger vehicles manufactured or imported for sale in India between FY2027-28 and FY2031-32. This category includes passenger vehicles with up to eight seats, apart from the driver’s seat. Stakeholders and members of the public can send their suggestions and feedback to the Ministry of Power 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 bill proposes to reduce the target from 3.996 liters per 100 km (94.76 gCOâ‚‚/km) in FY2027-28 to 3.3273 liters per 100 km (78.90 gCOâ‚‚/km) by FY2031-32. According to the government, this phased approach is intended to give vehicle manufacturers a clear roadmap to develop and introduce more fuel-efficient models.Compliance under the new standards will be assessed in two phases. The first block of compliance will cover an initial period of three years, followed by a second block of two years. The government believes that this structure will allow OEMs to gradually adapt to the stricter efficiency requirements.The bill also proposes to recognize the carbon neutrality of alternative fuels for the first time. If implemented, ethanol, biofuels and compressed biogas (CBG) will receive specified reductions in declared tailpipe carbon dioxide emissions before compliance is assessed. For current ethanol blends, a Carbon Neutrality Factor (CNF) of 8 percent has been proposed, while the reduction for CBG and other biofuels will depend on prevailing blend levels.Another key benefit is the incentive for fuel-saving technologies. Manufacturers will be allowed to claim compliance benefits of up to 9 gCOâ‚‚/km for approved technologies, although the benefit will be limited to 1 gCOâ‚‚/km per technology.
