Govt. Notifies CAFE-3 Norms; 3x BEV Credits, No Small Car Benefits

(Team-BHP.com) New CAFE III Rules Give EVs 3x Credit, Allow Credit Trading. Final fuel-efficiency rules effective April 2027 tighten fleet targets through FY32, retain the highest super-credit for EVs, reward alternative fuels and allow manufacturers to trade compliance credits.

> Battery electric vehicles and range-extended electric vehicles will receive the highest super-credit multiplier of 3.0, while plug-in hybrids and flex-fuel strong hybrids get 2.5. Strong hybrids receive a multiplier of 1.6 and flex-fuel ethanol vehicles 1.1

> The government has identified 12 technologies, including start-stop systems, tyre-pressure monitoring systems, regenerative braking, six-speed or higher transmissions, efficient 12V or 48V alternators, 12V/48V motor-generators, LED exterior lighting, advanced glazing, electric water pumps, high-efficiency air-conditioning systems, solar-reflective paint and PWM-controlled radiator fans.

> That creates another route for ICE-heavy manufacturers to reduce their calculated fleet consumption and could also drive additional demand for suppliers of mild-hybrid systems, electronics, thermal management, glazing, lighting and transmission technologies.

> The five-year CAFE III period will be split into two compliance blocks. The first covers three years from FY28 to FY30, while the second covers FY31 and FY32.

> Credits and debits will be assessed annually and can be carried forward within the relevant compliance block. Any unused credits remaining at the end of a block will lapse.

> Small-volume manufacturers with annual eligible vehicle volumes below 1,000 units are exempt from meeting the specific CAFE target, although they will still have to report their average fuel-consumption performance.

> Manufacturers will have to declare the CO2 performance of models sold from April 1, 2027, under both the existing Modified Indian Driving Cycle and WLTP.

> The conversion factor needed to translate the corporate CAFE target from MIDC to WLTP will be notified separately by the Ministry of Power in consultation with BEE, based on data reported by the designated testing agencies.

That leaves an important part of the implementation framework still to be finalised even though the five-year compliance regime itself has now been notified. READ MORE

CNG, Ethanol Also Get Compliance Benefits

The final rules also give carmakers another route through what the government calls a Carbon Neutrality Factor. Vehicles running on E20 or higher notified ethanol-petrol blends, including strong hybrids and plug-in hybrids, receive an 8% carbon-neutrality factor on tailpipe CO2.

Flex-fuel ethanol vehicles receive 22.3%, while CNG vehicles get 5% or the notified CBG blending percentage, whichever is higher. Diesel vehicles will receive a benefit linked to the actual biofuel blending level notified by the petroleum ministry.

The provision broadens the compliance pathways beyond electrification and could be particularly relevant for manufacturers with significant CNG exposure or plans for flex-fuel vehicles.

It also reflects the government's broader multi-fuel approach towards reducing oil consumption and transport emissions rather than relying exclusively on battery electric vehicles.

Carmakers Can Trade Compliance Credits

One of the bigger structural changes under CAFE III is the formalisation of a credit-and-debit system that allows compliance performance to carry financial value.

Manufacturers whose actual fleet fuel consumption is better than their prescribed target will generate credits. Companies that exceed their permitted fuel-consumption level will accumulate debits. These will be maintained in a manufacturer-specific compliance "passbook".

The regulation allows manufacturers to exchange or trade credits with other automakers on mutually agreed terms, giving companies that outperform their targets the possibility of transferring surplus credits to those falling short.

This effectively adds a market-based mechanism to what has traditionally been an engineering and product-planning regulation.

Manufacturers will also be allowed to offset outstanding debit balances by buying credits from the Bureau of Energy Efficiency. The prescribed buyout price rises through the CAFE III period, starting at ₹2,500 per g CO2/km in FY28, increasing to ₹3,000 in FY29, ₹3,500 in FY30, ₹4,000 in FY31 and ₹4,500 in FY32.

The escalating price implies that relying on purchased credits becomes progressively more expensive, increasing the incentive for companies to improve their underlying fleet performance.

The credit mechanism had already appeared in the revised July draft, which allowed manufacturers to carry forward credits, trade them with other OEMs or purchase credits from BEE. READ MORE