Auto Inc gives thumbs up to 2027 CAFE III norms deadline as govt stands firm

The proposal further flattens the emission curve, eases penalty norms and allows carbon credit trading and pooling among OEMs.

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It’s a wrap. The industry has given an unequivocal nod to the latest version of the Corporate Average Fuel Efficiency (CAFE) norms in a meeting of all stakeholders on Thursday, after the government indicated it won’t budge on the April 1, 2027 deadline for implementation. The latest proposal by the Bureau of Energy Efficiency (BEE), which has seemingly bridged the divide between small carmakers and those OEMs which sell bigger vehicles, is being seen as a more flexible proposition. It has flattened the emission curve even more compared to the proposal made a few months back, proposed lenient penalty norms for OEMs which fail to meet the emission criteria and also spoke of carbon credit trading and pooling among vehicle manufacturers.Most importantly, the latest draft of BEE, has shifted the focus away from the small versus large car debate, towards overall fleet emissions. One of the stakeholders told ETAuto that the meeting was cordial and most OEMs also appeared prepared for the April 1, 2027 implementation despite previous pleas of deferring this deadline.

This person also said that the government pushed for faster adoption of alternate fuel vehicles – all technologies which do not use fossil fuels – while pointing to the oil crisis due to the ongoing US-Israel-Iran war and rising crude prices. The five-year CAFE III norms will be valid till 2031-32.

Another industry executive said the meeting was likely the final stakeholder consultation and now the industry will be awaiting a final notification. This person also said that the government has remained steadfast on the April 1, 2027 deadline for implementation of the new CAFE norms.

Compared to the initial draft which BEE released in September 2025, the emission slope has now been made flatterIndustry executive

What changed

Since the emission slope has been flattened in the latest draft, total emission targets could be higher for OEMs which sell heavier vehicles while for cars which are below the industry average weight of 1,229 kg, targets will be easier. The fleet wide emission targets have been relaxed by about 21 per cent compared to the initial proposal which was shared in September last year.“Compared to the initial draft which BEE released in September 2025, the emission slope has now been made flatter, which means that against the initial 0.002 value for all five years of CAFE III, the new proposal is 0.00158 for year one and then reducing annually to reach 0.00131 in the fifth year. BEE’s logic is that the adjustment in the emission slope reduces the CO2 emission target allowance for heavier vehicles, forcing faster adoption of hybrids/EVs, while also providing relief to manufacturers of smaller, lighter cars,” an industry executive had said earlier.Another executive had said that the latest BEE draft offers “good” benefits for lighter vehicles, “much more than 3g per litre given in the earlier proposal” by flattening the slope instead of offering any special treatment.

Battery EVs have been allowed the maximum super credits at three, showing government’s “unequivocal” support to these vehicles which have zero tailpipe emissionsIndustry executives

Battery electrics win

Another important correction in the latest BEE draft is about super credits allowed for vehicles based on their fuel. Super credits are a form of regulatory adjustment allowing an OEM to count the sale of one low-emission vehicle as multiple vehicles in fleet-average carbon dioxide emission calculation, making it easier for the OEM to meet overall emission targets.

One of the industry executives quoted earlier said that battery EVs have been allowed the maximum super credits at three, showing government’s “unequivocal” support to these vehicles which have zero tailpipe emissions. The super credits for strong hybrids have been reduced to 1.6 from two proposed earlier. Range Extender Electric Vehicles (REEVs) remain at three super credits.

Pooling allowed

The latest BEE draft also specifies the pooling mechanism. This allows OEMs to trade credits in case one falls short of the target for CO2 emissions, thus allowing OEMs with extra credits to benefit.

Also, there is provision for OEMs to buy credits from the BEE itself. The price per g CO2/km of such credits shall be as prescribed for each reporting period: FY28 at ₹2,500; FY29 at ₹3,000; FY30 at ₹3,500; FY31 at ₹4,000 and FY32 at ₹4,500. Of course, penalties have also been prescribed if an OEM fails to meet the annual emission fleet wide target.

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