New Delhi ,October 1, 2026: India’s Ministry of Power has officially notified the third phase of Corporate Average Fuel Economy (CAFE III)standards for M1 passenger vehicles, covering the five-year block from April 1, 2027, to March 31, 2032. The mandate demands a cumulative 16.7% improvement in fleet-wide fuel efficiency, turning carbon accounting into an executive-level balance-sheet variable. Rather than testing tailpipes in isolation, CAFE evaluates the sales-weighted fuel consumption of an automaker’s entire delivery sheet. Under CAFE III, the regulatory math leaves little room for fossil-fuel reliance.
Industry Speaks
Mr. Shailesh Chandra, MD & CEO, Tata Motors Passenger Vehicles Ltd. “The CAFE III framework is an important step in advancing India’s journey towards cleaner and more sustainable mobility. We welcome the Government’s consultative approach in developing a framework that combines ambitious fuel efficiency targets with market-based compliance mechanisms. Importantly, the continued recognition of zero-emission technologies reinforces the critical role of electrification in achieving India’s long-term decarbonisation objectives. The clarity and predictability provided by the framework will enable the industry to plan investments, accelerate innovation and offer customers an increasingly compelling range of cleaner mobility solutions. At Tata Motors, we remain committed to leading this transition through sustained investments in electric mobility and other technologies that can meaningfully reduce emissions.”
Mr. Ranjan Nayak, CEO, JSW Motors.“The much-awaited Corporate Average Fuel Efficiency (CAFÉ) norms introduce a progressive and forward-looking framework that recognises India’s mobility transition towards greener and cleaner technologies, something required to reduce the dependence on imported fossil fuels that place a significant burden on the country’s foreign exchange resources.
The CAFÉ 3 norms, which have been notified by the government, recognise that the road to electrification will be a multi-powertrain journey, with batteries acting as the bedrock of this green transition. The government’s decision to support a range of clean and increasingly efficient technologies – including battery electric vehicles (BEVs), range-extended electric vehicles (REEVs) and plug-in hybrid electric vehicles (PHEVs) – will help accelerate fuel efficiency, drive technology adoption and increasingly de-carbonise passenger vehicles in the country.
JSW Motors particularly welcomes the higher volume derogation factor of 3.0 for BEVs and REEVs, followed by 2.5 for PHEVs/eligible strong hybrids. This appropriately recognises the greater contribution of battery-led technologies while allowing other electrified powertrains to play a role in the transition. Equally encouraging is the provision for pooling and trading of compliance credits. Creating a mechanism through which manufacturers can exchange credits provides flexibility in meeting the CAFE targets, while creating an economic incentive for companies that invest in cleaner and more efficient green technologies.
India has set itself an ambitious vision of achieving net-zero emissions by 2070. As Prime Minister Narendra Modi has articulated, this is a long-term national journey that will require sustained technological innovation and collective action. A policy framework that encourages cleaner, more efficient and increasingly electrified mobility is an important step towards that zero-carbon ambition. JSW Motors and the auto industry look forward to working closely with the government to make this transition faster, deeper and more sustainable.”
Mr. Shenu Agarwal, President, Society of Indian Automobile Manufacturers (SIAM). “Automobile industry appreciates and welcomes the release of CAFÉ III Notification for Passenger Vehicles by Government of India from 1st April 2027 onwards. CAFÉ III regulation lays down a structured roadmap with aggressive annual targets for next 5-years for the Auto industry along with a market-based compliance mechanism. This will not only ensure reduction of overall fuel consumption from new Passenger Vehicle fleet but also provide an opportunity to the industry to work on various technology pathways providing multiple choices to the consumers. The CAFÉ III regulation framework provides clear predictability which will enable the Auto industry to plan investments and accelerate innovation, thereby, playing an important role in the country’s journey towards Viksit Bharat in 2047. We are thankful to Government of India for detailed and transparent consultative approach in framing this critical and forward-looking regulation after undertaking an objective and balanced assessment of various clean technology options.”
About CAFE III
The Tightening Baseline
Annual compliance is determined by a weight-based equation pegged to a new reference vehicle mass (b) of 1,229 kg:
{Fuel Target (L/100 km)} = a x (W – 1,229) + c
Where W is the automaker’s sales-weighted unladen mass. Both the slope multiplier (a) and baseline fuel target (c) contract across the cycle:
| Financial Year | Multiplier (a) | Benchmark (c) | Equivalent Fleet CO₂Cap | BEE Deficit Buyout |
| FY 2027–28 | 0.00158 | 3.9960 L/100 km | ~94.8 g/km | ₹2,500 / g CO₂/km |
| FY 2028–29 | 0.00152 | 3.8600 L/100 km | ~91.5 g/km | ₹3,000 / g CO₂/km |
| FY 2029–30 | 0.00148 | 3.7585 L/100 km | ~89.1 g/km | ₹3,500 / g CO₂/km |
| FY 2030–31 | 0.00139 | 3.5313 L/100 km | ~83.7 g/km | ₹4,000 / g CO₂/km |
| FY 2031–32 | 0.00131 | 3.3273 L/100 km | ~78.9 g/km | ₹4,500 / g CO₂/km |
(Data source: Ministry of Power Gazette Notification)
Two notable policy choices reshape vehicle economics:
- No Small-Car Concession: The previously debated 3 g/km flat relief for petrol cars under 909 kg was dropped.Lightweight entry-level hatchbacks must meet their targets on true thermal and powertrain efficiency alone.
- Flattened Mass Slope: The weight multiplier drops from 0.00158 to 0.00131. Carmakers with SUV-heavy portfolios gain diminishing regulatory headroom for heavier curb weights, forcing mass reduction and electrification onto larger platforms.
The 3x Multiplier: EVs as a Fleet Umbrella
To accelerate zero-emission adoption, CAFE III grants Volume Derogation Factors (Super Credits):
- Battery Electric (BEVs) & Range-Extender EVs (REEVs): 3.0x
- Plug-in Hybrids (PHEVs) & Flex-Fuel Strong Hybrids: 2.5x
- Strong Hybrids (SHEVs): 1.6x
- Flex-Fuel Vehicles (FFVs): 1.1x
While electric vehicles are assessed at an equivalent petrol factor (0.1028 X L/100 km per kWh}, roughly 36.6 g CO₂/km for an average EV), counting every unit threefold dilutes high-emission combustion sales aggressively. A legacy carmaker delivering 100 EVs alongside 1,000 petrol cars pulls its reported average down by over 8 g/km compared to flat counting, turning EV volume into an operational insurance policy.
Transitional Buffers: Biofuels and 12 Eco-Innovations
For models bridging the transition, carmakers can apply two key deductions:
- Carbon Neutrality Discounts: E20-compatible petrol and hybrid powertrains receive an automatic 8% discount off certified tailpipe CO₂. CNG models receive a minimum 5% discount (or the notified CBG blending rate), while flex-fuel ethanol engines claim a 22.3% deduction.
- Eco-Tech Credits: Automakers can claim 1.0 g CO₂/km for each verified real-world fuel-saving component fitted—such as idle start-stop, TPMS, LED exterior lighting, 6+ gearboxes, 48V micro-hybrids, high-efficiency AC compressors, and solar glass—up to a ceiling of 9.0 g CO₂/km per vehicle.
The Carbon Marketplace: Passbooks, Trades, and Buyouts
Compliance is tracked via a digital ledger managed by the Bureau of Energy Efficiency (BEE) across two enforcement blocks: Block 1 (FY28–FY30) and Block 2 (FY31–FY32). Surpluses can be banked within a block or traded. Every year from October 1 to October 31, an inter-OEM trading window opens. Pure-EV and surplus manufacturers can monetize extra credits directly to lagging competitors. Unsettled deficits must be cleared through direct BEE buyouts, escalating from ₹2,500 to ₹4,500 per g CO₂/km. For high-volume manufacturers missing fleet caps by even 2 g/km, buyout liabilities will quickly run into tens of crores.
By removing exemptions and formalizing carbon trades, CAFE III makes one principle clear: profitable combustion engines can stay on Indian roads only if balanced by sufficient electric and hybrid volume on the factory floor.
