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CAFE-III fuel efficiency norms
What it is
Corporate Average Fuel Economy norms cap a manufacturer's fleet-average CO2 per km rather than regulating each model. CAFE-II, effective 2022, set 113 g/km against 130 g/km under CAFE-I
Draft CAFE-III was circulated on 16 Jul 2026 for M1 passenger vehicles from FY2027-28 to FY2031-32, with a market-based compliance-credit mechanism priced at Rs 2,500 per credit rising annually, and an exemption below 1,000 vehicles a year
Impact on industries
- Fleet-average rather than per-model regulation lets a manufacturer offset a large petrol SUV with EVs and hybrids, so it rewards portfolio strategy rather than banning products
- Creates a compliance-credit market, so manufacturers ahead of target can monetise the gap and laggards can buy time
- Directly penalises the SUV-isation the industry has profited from, since heavier vehicles carry higher fleet CO2
- Small petrol cars are the contested point, and the draft is still open to comment so targets and credit price may change