MoRTH May Bat for Biofuel Vehicles in CAFE 3 Norms Input to BEE

July 24, 2025

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by Subhash Narayan,Manas Pimpalkhare (Mint/MSN) Amid an ongoing tussle over emission norms in the world’s third-largest auto sector, the ministry of road transport and highways (MoRTH) is likely to ask the Bureau of Energy Efficiency (BEE) to provide incentives to vehicles running on biofuels such as ethanol as well as flex fuels, according to two people aware of the development.

Corporate Average Fuel Efficiency or CAFE-3 norms are a cap on the average carbon dioxide emissions of a carmaker’s entire fleet, and are currently set at 113 grams per kilometre.

MoRTH is likely to push for 'biogenic derogation' to be included in the third iteration of the norms, to be enforced from April 2027 at a lower cap of 91.7 g/km. Biogenic derogation refers to concessions given to emissions from flex fuels, ethanol, methanol, and other alternative biofuels.

“We are examining attaching differential weights to vehicles based on different fuel combinations including electric, bio fuels and also on domestic content under the Cafe 3 norms proposed” said the first person quoted above.

Under current CAFE 2 norms, carmakers get benefits for selling cleaner technologies such as hybrid vehicles, electric vehicles, and hydrogen fuel cell vehicles, but vehicles running on biofuels have not been incentivized yet.

MoRTH’s push for biofuels is likely to provide manufacturers another option to reduce carbon emissions on Indian roads, with the penetration of electric and hybrid vehicles remaining low in most parts of the country.

“The plan will help address the concerns of the auto industry that keeping emission down with just one alternative fuel option by way of electric vehicles would be difficult as penetration of these vehicles still remains low. Now companies could push for attaining Cafe 3 norms by widening the fuel option for the vehicles,” said the person mentioned above.

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CAFE norms follow a ‘super credit’ system, wherein concessions are given for using cleaner forms of technology on the road. For instance, under current norms, the sale of an electric car is counted as three sales, while that of a fossil fuel car is counted as a single sale. This form factor multiple helps carmakers keep total fleet emissions low, as the average fuel efficiency is the total fleet emissions per sale.

A publicly available BEE invite for stakeholder consultations in June 2024 noted that the sale of one strong hybrid car would be counted as two, that of a plug-in hybrid car would be 2.5, and electric and hydrogen fuel cell cars would be counted as three.

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Auto industry body Society of Indian Automobile Manufacturers (Siam) proposed in December 2024 the inclusion of a ‘biogenic factor’ in CAFE 3 norms.

“SIAM has proposed that CO2 produced from the combustion of biofuels should be classified as "green CO2" and therefore treated as zero, being biogenic CO2. This means that if a car runs on some blend of biofuel and petrol, the CO2 emissions from the biofuel component should be subtracted from the total tailpipe CO2 emissions for the purpose of CAFÉ calculation,” the letter dated 23 December 2024 said.

Siam proposed to subtract 14.3% of a vehicle’s tailpipe emissions if it was running on E20 flex fuel. E20 is a blend of ethanol (20%) and gasoline (80%).

Indian carmakers are gearing up for the flex fuel shift.

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Flex fuel vehicles are equipped with internal combustion engines that can operate on more than one fuel. They are primarily meant to run on ethanol and methanol or a blend of biofuels and on conventional fuels such as petrol or diesel. These engines can also run on various levels of ethanol blended in conventional fuels - typically from typically from E20 (20% ethanol) up to E100—without needing significant modifications in performance. READ MORE

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Don't run small cars off the road: Why India’s emission rules hurt the cars we actually need (Economic Times/MSN
CAFE-3 norms could drive India’s small cars off the road (Policy Circle)

Excerpt from Economic Times/MSN: Corporate Average Fuel Efficiency (CAFE) norms are back in focus - this time for what they leave out. The proposed CAFE 3, set for 2027-28, aims to cut passenger vehicle CO₂ emissions to 91-95 g/km from around 113 g/km under CAFE 2. But concerns are rising that stricter fleet averages could hurt small, fuel-efficient cars while favouring pricier models with electrified variants, undermining affordability and mass mobility.

India's CAFE framework is based on older European models, which tightens CO₂ emission targets as the weight of the car decreases. This means larger, heavier vehicles - despite consuming more fuel and emitting more CO₂ - are given relaxed targets, while smaller and more fuel-efficient cars are saddled with disproportionately tighter targets.

This is in sharp contrast to how the rest of the world operates:

US, China and South Korea follow a piecewise linear model, in which the line becomes horizontal for smaller, lightweight cars.

Japan adopts a quadratic curve, which softens at the lower-weight range.

Europe has corrected its mistake and now has a negative slope for the CAFE line, which means CO₂ targets for heavier, bigger cars are tighter than those for lighter, smaller ones. These regulatory structures are rooted in practicality, equity and environmental logic.

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It is not just about regulations but also about recognising the role small cars play in national development. Historically, in the journey of most nations transforming from developing to developed status, small cars have driven mass motorisation, expanded access to jobs and catalysed industrial growth. They offer a cleaner, safer and more inclusive form of mobility. Lightweight, fuel-efficient and less taxing on urban infrastructure, small cars have served not just individuals but the economy.

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Unfortunately, India appears to be abandoning this path. Entry-level car sales have declined by 77% in the past eight years due to a combination of high taxation, rising insurance and compliance costs, and increasingly stringent regulations. With the proposed CAFE norms applying harsher targets to small cars, this segment risks further erosion. This is a systemic failure to safeguard equitable access to safe personal transport. We can think of modernising small cars, but we should never kill them.

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India must adopt a regulatory and fiscal approach that recognises small cars as a distinct category - with lower taxation and easier compliance norms. If the regulatory burden continues to rise, we risk shutting out the majority of Indians from the mobility ladder.

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The objective of CAFE is to reduce fuel consumption and CO₂ emissions. But failing to protect vehicles that do both is not just ironic - it is environmentally and scientifically counterproductive. ... The writer is former president, Society of Indian Automobile Manufacturers (Siam) READ MORE

Excerpt from Policy Circle: In December 2024, the government submitted a consensus draft on CAFÉ-3 after industry-wide feedback. But that position is now under reconsideration, after a major manufacturer requested concessions for vehicles under 1,000 kg.

Such recalibration, though well-intentioned, could tilt the competitive landscape. If exemptions are granted selectively, it could impose disproportionate costs on companies focused on heavier vehicles while creating unintended loopholes for others.

Mathematically, granting leniency to small cars raises the industry’s average permissible CO₂ emissions. That would effectively dilute the stringency of CAFÉ-3 and allow some firms to retain targets close to the older, less demanding CAFE-2 levels—inviting charges of unfair advantage.

What’s driving small car decline

To be fair, regulatory costs are not the only reason for the fall in small car sales. Consumer preferences are shifting. Buyers today value space, higher driving position, and digital features—all more readily available in compact SUVs than in traditional hatchbacks. But rising prices due to regulatory burdens have undoubtedly accelerated the decline.

There remains, however, significant support for protecting small cars. Not just from industry groups, but also from researchers and analysts.

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Rethinking the regulatory approach

A recent study by Nomura Research recommends that India reform its CAFE norms to align more closely with global best practices. Major auto markets such as the US, EU, China, Japan, and South Korea follow flexible frameworks that recognise the role of small, efficient vehicles. In contrast, India’s linear structure lacks this nuance. These countries adopt credit-based systems, technology multipliers, or dedicated protection for light vehicles—tools that balance environmental goals with market realities.

India could adapt such mechanisms to offer regulatory relief to fuel-efficient small cars without diluting its broader climate targets. After all, incentivising smaller vehicles also serves national energy goals, given India’s 85% reliance on imported oil.

This is no longer just an environmental debate—it is a question of socioeconomic access. As the government presses ahead with its green agenda, it must guard against creating a car market that serves only the affluent. READ MORE