Centre Issues Revised CAFE-III Draft; Ethanol And Biofuel Vehicles Get Compliance Benefits

The Indian Government has come out with a revised version of the Corporate Average Fuel Efficiency (CAFE)-III regulations for public consultation, proposing a fuel-efficient roadmap for passenger vehicles from 1 April 2027.

A notable addition in the latest draft is the treatment of ethanol and other biofuel-powered vehicles. For the first time, these vehicles have been given a separate place in the compliance framework, allowing manufacturers to account for their lower lifecycle emissions while meeting regulatory targets.

Comments and suggestions on the draft have been invited until 6 August. The proposal comes at a time when automakers remain divided over several aspects of the upcoming fuel-efficiency norms, with different segments of the industry favouring different approaches.

Fuel Efficiency Targets To Tighten Over Five Years

The draft lays out a phased reduction in fleet fuel consumption requirements for passenger vehicle manufacturers.

The proposed benchmark is 3.996 litres per 100 km (94.76 gCO₂/km) for 2027-28, which would gradually decline to 3.327 litres per 100 km (78.90 gCO₂/km) by 2031-32.

Officials said the gradual tightening is intended to give manufacturers enough time to improve vehicle technology and introduce more fuel-efficient models across their product portfolios.

Compliance Window To Change

The government has also proposed a different compliance structure under CAFE-III.

Instead of reviewing performance every year, manufacturers would be assessed across two compliance periods—the first covering three years and the second spanning two years. The proposed system is expected to provide companies with greater operational flexibility while keeping long-term efficiency targets intact.

Biofuel Vehicles Get Carbon Credit Advantage

Among the biggest changes is the introduction of Carbon Neutrality Factors (CNFs) for renewable fuels.

The proposal allows manufacturers to consider lower carbon dioxide emissions for vehicles running on ethanol, compressed biogas (CBG) and certain other biofuels when calculating compliance.

For vehicles using the current level of ethanol blending, manufacturers can claim an 8% reduction in reported CO₂ emissions. Similar benefits for CBG and other biofuels will vary according to their respective blending levels.

The proposal is designed to recognise the lower lifecycle emissions associated with renewable fuels.

Additional Incentives For Cleaner Vehicles

The draft also proposes incentives for manufacturers that introduce fuel-saving technologies.

Automakers may claim compliance benefits of up to 9 gCO₂/km, with the benefit restricted to 1 gCO₂/km for each approved technology.

In addition, Battery Electric Vehicles (BEVs), Range-Extended Electric Vehicles (REEVs), Plug-in Hybrid Electric Vehicles (PHEVs), Strong Hybrid Electric Vehicles (SHEVs) and Flex-Fuel Vehicles (FFVs) will continue to receive super credits while calculating fleet-average fuel consumption.

Manufacturers that exceed their prescribed fuel-efficiency targets will also earn compliance credits, which can be carried forward and used within the applicable compliance period under the proposed CAFE-III framework.

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