The Department of Energy has published a draft Corporate Average Fuel Economy (CAFE)-III standard, which proposes stricter fuel economy standards for passenger vehicles starting April 1, 2027. The draft is out for public comment and will replace the existing CAFE-II standards, which are expected to remain in effect until March 31, 2027.The proposed regulations will apply to M1 category passenger vehicles manufactured or imported for sale in India between fiscal years 2027-28 and 2031-32. This category includes passenger vehicles with up to eight seats, excluding the driver’s seat. Interested parties and citizens can submit their proposals and feedback 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 economy targets over five years. The draft proposes to reduce the target from 3.996 liters per 100 km (94.76 gCOâ‚‚/km) in FY 2027-28 to 3.3273 liters per 100 km (78.90 gCOâ‚‚/km) by FY 2031-32. According to the government, this phased approach aims to provide vehicle manufacturers with a clear roadmap for developing and introducing more fuel-efficient models.Compliance with the new norms will be assessed in two stages. The first block of compliance covers an initial period of three years, followed by a second block of two years. The government believes this structure will allow OEMs to gradually adapt to stricter efficiency requirements.The draft also proposes to recognize the carbon neutrality of alternative fuels for the first time. If implemented, ethanol, biofuels and compressed biogas (CBG) will receive certain reductions in declared tailpipe carbon dioxide emissions before compliance is assessed. For current ethanol blends, a carbon neutrality factor (CNF) of 8 percent is proposed, while reductions for CBG and other biofuels will depend on prevailing blending levels.Another key provision 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.
