It broadly retains the changes introduced in the second draft, including a flatter weight-adjustment curve than the original September 2025 proposal, reducing the compliance advantage for heavier SUVs while easing targets for lighter vehicles.
The story so far: The Centre on Thursday (July 17, 2026) released the third draft of the Corporate Average Fuel Efficiency (CAFE)-III norms for passenger vehicles, proposing to recognise ethanol, compressed biogas (CBG) and other biofuels in compliance calculations by allowing manufacturers specified reductions in declared tailpipe carbon dioxide emissions.What does the latest draft CAFE-3 propose?The draft, open for stakeholder comments until August 6, comes after a year-long tussle between manufacturers of small and large cars over the compliance formula.It broadly retains the changes introduced in the second draft, including a flatter weight-adjustment curve than the original September 2025 proposal, reducing the compliance advantage for heavier SUVs while easing targets for lighter vehicles. Overall fleet-wide emission targets have also been relaxed by around 21% compared with the original proposal.Manufacturers will be required to progressively improve the fuel efficiency of their fleets, with the target tightening from 3.996 litres per 100 km (94.76 gCO₂/km) in 2027-28 to 3.327 litres per 100 km (78.90 gCO₂/km) by 2031-32. Compliance will be assessed over two blocks—an initial three-year period followed by a two-year period—instead of annually.The draft introduces Carbon Neutrality Factors (CNFs), allowing specified reductions in declared CO₂ emissions for vehicles running on ethanol, flex-fuel ethanol, CBG and other biofuels before compliance is assessed. It also proposes compliance incentives for approved fuel-saving technologies and continues to offer super credits for electric, plug-in hybrid, strong hybrid and flex-fuel vehicles.Manufacturers exceeding their targets will earn tradable compliance credits, while those falling short can purchase credits from other manufacturers or the Bureau of Energy Efficiency (BEE) to meet their obligations.What has changed?The latest draft leaves most of the April proposal unchanged, suggesting the government has broadly stuck to the compromise it arrived at after months of intense negotiations between manufacturers of small cars and larger SUVs. The April version had largely defused the industry’s biggest point of contention by replacing the earlier, steeper weight-adjustment curve with a flatter one and softening the compliance regime.The weight-adjustment curve was flattened, changing the way emission targets vary with vehicle weight. Instead of a uniform slope of 0.002 proposed for all five years, the latest draft proposes a slope of 0.00158 in the first year, gradually reducing to 0.00131 in the fifth year.The draft also removes a distinct relaxation of 3 grams while calculating CO2 emissions for small cars weighing less than 909 kg, and powered by sub-1200 cc that sharpened the divide among automakers has also been removed.It also introduced mechanisms such as carbon credit trading and pooling, allowing manufacturers that outperform their emission targets to sell credits to those that fall short. The shift marked a move away from the polarising “small car versus big car” debate towards improving the overall emissions performance of a manufacturer’s fleet.Why were there differences between various automakers?One of the most contentious issues in the CAFE-III discussions was 3 g CO₂/km benefit for smaller cars for meeting emission targets. Tata Motors was among the strongest opponents, arguing there was “absolutely no justification” for offering concessions to small cars, particularly when manufacturers of larger vehicles were investing heavily in electrification to meet future norms. “Incorrect facts and narratives are being pushed in a very irresponsible manner by the makers of so
Representative image. | For the first time, the draft proposes special recognition for ethanol and other biofuels while assessing manufacturers’ compliance by allowing them to claim lower than actual tailpipe emissions.What has been the impact of ethanol blending? Industry stakeholders have until August 6 to respond to the latest draft. The proposed CAFE norms have sharply divided the automobile industry, with manufacturers of smaller and larger vehicles taking opposing positions and competing proposals emerging over how the regulations should be framed.Under the proposed norms, manufacturers will be required to progressively improve the fuel efficiency of their fleets. The target fuel consumption is proposed to be tightened from 3.996 litres per 100 km (94.76 gCO₂/km) in 2027-28 to 3.327 litres per 100 km (78.90 gCO₂/km) by 2031-32.Insular incentive: On ethanol-blended fuel and the Indian consumer“The phased tightening of the targets will provide OEMs with a clear and predictable regulatory pathway, enabling them to progressively develop and deploy more fuel-efficient vehicle models,” a government source said.Unlike the current framework, compliance will be assessed over two blocks rather than annually - an initial three-year period followed by a second block of two years.A key feature of the draft is the introduction of Carbon Neutrality Factors (CNFs), which recognise the lower lifecycle carbon footprint of renewable fuels such as ethanol, compressed biogas (CBG) and other biofuels. Under the proposal, manufacturers will be allowed to reduce the declared tailpipe carbon dioxide emissions of their vehicles before compliance is assessed. For the current level of ethanol blending, a reduction of eight percentage points has been proposed, while the reduction for CBG and other biofuels will depend on the prevailing blending levels, said sources.The draft also proposes additional incentives for manufacturers adopting fuel-saving technologies. They can claim compliance benefits of up to 9 gCO₂/km, subject to a maximum benefit of 1 gCO₂/km for each approved technology.It also recommends super credits for 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) while calculating fleet average fuel consumption, thereby encouraging the adoption of cleaner vehicle technologies.Official sources explained that manufacturers who achieve performance better than their prescribed targets shall earn compliance credits, which may be carried forward within the prescribed compliance blocks. Published - July 16, 2026 02:24 pm IST
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