New CAFE norms: How the Centre plans to make cars more fuel-efficient from 2027

The new corporate average fuel efficiency (CAFE) norms, set to take effect from April 2027, require automakers to declare the carbon dioxide (CO₂) emissions of each vehicle model. These figures, measured in grammes per kilometre, will be used to calculate the overall fuel efficiency of an automaker's entire fleet.

Mint explains how the Centre plans to make vehicles more fuel efficient with the new formula, supercredits, carbon neutrality factors, and everything that has changed in the last year.

What are CAFE norms?

CAFE norms, which limit fuel consumption, have been implemented in major economies worldwide (in some cases with different names). Broadly, these regulations drive automakers to use cleaner and more fuel-efficient technology in their cars.

When such regulations were first introduced in the US in the early 1970s, automakers said car prices would shoot up, and sales would decline. This has been the Indian automakers' cry ever since CAFE norms were first introduced in 2017.

Hybrid, electric, and even flex-fuel cars, as mentioned even in the latest CAFE-3 draft, reduce vehicular carbon emissions and fuel consumption. Therefore, automakers are nudged towards selling more such cars instead of petrol and diesel units.

What does the new draft say?

In an older draft in June 2024, BEE had set a cap on vehicle emissions at 91.7g of CO₂ emitted per km. That meant every carmaker's fleet could, on average, emit this much CO₂, or face heavy penalties.

The metric has been revised under the CAFE-3 norms. The latest draft sets a fuel consumption cap of 3.726 litres per 100km for 2027, which will gradually be tightened to 3.013L per 100km by 2032, as each iteration of these regulations is enforced for half a decade.

BEE has asked all carmakers to assess their vehicular emissions via testing agencies and report them to the government. These emissions will be noted in units of grammes of CO₂ emitted per kilometre.

Then, the government will multiply that figure by a multiplier, which will be constant for each powertrain, to get the actual fuel consumption of each vehicle.

For example, the emissions of petrol vehicles will be multiplied by 0.04217, while diesel vehicles will be multiplied by 0.03776. The government has also calculated similar figures for LPG- and CNG-run vehicles.

For electric vehicles, the actual fuel consumption will be measured in kilowatt-hours of battery storage needed to cover 100km.

Next, the actual fuel consumption will be multiplied once again to convert each powertrain into petrol consumption terms. For instance, the actual fuel consumption of a diesel vehicle will be multiplied by 1.1168 to get the petrol equivalent of fuel consumption.

This figure will be the one evaluated under CAFE 3 norms.

What is in it for small cars?

First, a clear definition. The draft defines small cars as those that weigh less than 909 kilogrammes, are under 4 metres in length, and have an engine capacity under 1,200cc.

These cars will get a 3g of CO₂ per km reduction in their fuel emission assessments.

But no carmaker will receive deductions of more than 9g of CO2 per km, the BEE proposal said.

This proposal is likely to benefit companies that make small cars, such as Maruti Suzuki India Ltd. Maruti had earlier sought an exemption for small cars weighing under 1,000kg.

What else?

BEE has made some changes to the supercredit system, which was also part of the earlier CAFE norms.

Supercredits are used to provide incentives for cleaner and more fuel-efficient vehicles. They count each unit as multiple units to reduce the average fuel emissions and consumption of an automaker’s entire fleet.

Under the latest proposal, each EV unit will be counted as three units, each strong hybrid flex-fuel car and plug-in hybrid car sold will be counted as 2.5 units, strong hybrids as 2, and flex-fuel cars as 1.5 units.

Earlier in June 2024, BEE suggested different supercredits—hydrogen fuel cell cars as 5, electric cars as 4, plug-in hybrids as 2, strong hybrids as 1.2, and flex-fuel cars as 0.95 units.

To be clear, flex-fuel vehicles are those that can run on ethanol blending of up to 85% or 100%.

Similarly, carbon neutrality factors (CNF) have been introduced to incentivize flex-fuel vehicles, strong hybrids, and CNG vehicles—the government will discount a portion of their emissions.

For instance, flex-fuel vehicles and strong hybrid electric vehicles receive a 22.3% CNF under the CAFE-3 norms, meaning manufacturers can discount 22.3% of these vehicles’ emissions when calculating their fleet-average CO₂ performance.

The new BEE draft also created an option for automakers to pool their fleets together to meet CAFE norms. Up to three OEMs can pool their fleets and be treated as a single entity for compliance. Experts said this was a standout feature.

“This enables strategic partnerships where manufacturers can balance fleet emissions, reduce compliance costs, and jointly meet regulatory targets. The designated pool manager will be legally accountable for any penalties under the Energy Conservation Act, 2001, adding a layer of governance and responsibility," said Saket Mehra, partner and auto and EV industry leader, Grant Thornton Bharat.

What prompted the revision?

The automobile lobby, Society of Indian Automobile Manufacturers (Siam), had called the energy efficiency agency’s draft proposals very aggressive.

“Siam would like to reiterate that the proposed BEE norms are too aggressive and risk the sustainability of the Indian auto industry," the lobby said in a letter to the power ministry in December 2024.

Moreover, the old consensus of the group, which was later abandoned in June as differences on benefits for small cars emerged, said the norms were stricter than European standards.

“It is also important to highlight that the proposed CAFÉ III norms are more stringent than existing norms in Europe (110.1g/km on WLTP/95g/km on NEDC). Also, Europe is only able to achieve this target with around 15% battery electric vehicles," said the letter to the power ministry.

However, based on the latest draft released on Thursday, BEE has not yielded any relaxation to the carmakers and has doubled down on its approach to reducing emissions.

Why can't companies ignore the norms?

So far, no company has been penalized for violating emissions norms due to regulatory confusion about how to enforce them.

The government delayed releasing a key emissions compliance report that showed eight automakers, including Hyundai Motor India, Kia India, and Mahindra and Mahindra, failed to meet the CAFE-II norms in 2022-23, Mint reported on 22 October 2024.

None of these companies was penalized.

In August, the government released a draft proposal that would give BEE enforcement powers to penalize companies for not meeting CAFE norms.

The case will be judged by the adjudicating officer of the State Electricity Regulatory Commission, where the manufacturer’s head office is located.

Experts lauded the move, suggesting that the government is tightening the screws around the industry even as firms believe the norms are too aggressive.

“The new proposal clarifies the entire process of how the penalty will be imposed. Due to confusion over the penalty imposition process, no original equipment manufacturer (OEM) has ever been penalized for violating norms," said Amit Bhatt, India managing director at think tank International Council on Clean Transportation.

“With Cafe 3 and 4 norms coming soon, this is a signal that the government is serious about ensuring compliance with Cafe norms."