The Ministry of Power has notified the Corporate Average Fuel Economy (CAFE) norms for M1 category passenger vehicles for the period from April 1, 2027 to March 31, 2032. The notification was issued on September 29, 2026, following consultation with the Bureau of Energy Efficiency (BEE).

Under the framework, each manufacturer will have an annual average fuel consumption target based on the weighted average unladen mass of the vehicles it manufactures or imports for sale in India. The target will be calculated using a prescribed formula, with different parameters for each financial year from FY2027-28 to FY2031-32.

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Targets To Become More Stringent Over The Period

The notification sets the constant multiplier used in calculating the fuel consumption standard at 0.00158 in FY2027-28, reducing to 0.00131 by FY2031-32. The fixed constant 'c' also changes from 3.9960 litre/100 km in FY2027-28 to 3.3273 litre/100 km in FY2031-32.

The actual fuel consumption of a manufacturer's fleet will be calculated as a weighted average of the vehicles sold or imported during the financial year. The framework covers petrol, diesel, LPG, CNG and electric vehicles, with electricity consumption converted into petrol-equivalent terms for the calculation.

EVs And Hybrids Get Super-Credit Factors

The CAFE III framework provides volume derogation factors, or super credits, for certain vehicle technologies. Battery electric vehicles and range-extended electric vehicles have a factor of 3.0, while plug-in hybrid electric vehicles and strong hybrids using flex-fuel ethanol have a factor of 2.5. Strong hybrid vehicles have a factor of 1.6, while flex-fuel ethanol vehicles have a factor of 1.1.

The notification also provides carbon-neutrality factors for different fuel types. E20 or higher ethanol-blended petrol vehicles get an 8% factor, flex-fuel ethanol vehicles get 22.3%, while CNG vehicles receive a 5% factor or the notified CBG blending percentage, whichever is higher.

Fuel-Saving Technologies Included

Manufacturers can claim a reduction in calculated fuel consumption for specified technologies. The list includes start-stop systems, tyre-pressure monitoring systems, regenerative braking, six-speed or higher transmissions, efficient alternators, 12V/48V motor-generators, exterior LED lighting, advanced glazing, electric water pumps, high-efficiency air-conditioning systems, solar-reflective paint and PWM-controlled radiator fans.

The notification allows a reduction of 1.0 gram CO₂/km for each eligible technology, subject to an overall limit of 9.0 gram CO₂/km. For the first compliance block, manufacturers can use self-declaration for these technologies, while claims in the second block will need validated test results based on testing procedures specified by the Ministry of Road Transport and Highways.

CAFE III Introduces Two Compliance Blocks

The CAFE III period will be divided into two compliance blocks. The first block will cover FY2027-28 to FY2029-30, while the second will cover FY2030-31 and FY2031-32. Manufacturers will receive credits when their average fuel consumption is below the applicable target and debits when it exceeds the target. These will be recorded in a manufacturer-specific compliance account, or passbook. Credits can be carried forward within the respective compliance block.

Credit Trading And Buyout Permitted

The notification allows manufacturers to exchange or trade CAFE credits with other manufacturers. Manufacturers can also offset debit balances by purchasing credits from the Bureau of Energy Efficiency. The prescribed credit buyout price will increase each financial year, starting at Rs 2,500 per gram CO₂/km in FY2027-28 and reaching Rs 4,500 per gram CO₂/km in FY2031-32. The trading window for credit exchange or buyout will remain open for 30 days, from October 1 to October 31 of each assessment year.

MIDC And WLTP Reporting

Manufacturers will have to declare the CO₂ performance of each model under both the Modified Indian Driving Cycle (MIDC) and Worldwide Harmonized Light Vehicles Test Procedure (WLTP) for models sold from April 1, 2027. The conversion factor between MIDC and WLTP targets will be notified separately by the Ministry of Power in consultation with the BEE.

Tarun Garg, MD & CEO, Hyundai Motor India Limited, said, “The final notification of CAFE-III norms is a positive step by the Government towards advancing sustainable mobility in India and presents a clear long-term roadmap for the auto industry. Hyundai Motor India Limited (HMIL) remains committed to complying with all applicable regulatory norms and meeting current and future CAFE requirements. The norms provide a clear and predictable regulatory roadmap through a 3+2 year compliance block structure, enabling manufacturers to undertake long-term product and technology planning with greater certainty. The framework adopts a technology-neutral approach recognizing multiple pathways to improve fleet efficiency including electrification, alternative fuels and advanced fuel-saving technologies. The provisions for credit trading, pooling and flexible compliance mechanisms offer manufacturers greater flexibility while promoting innovation, investment and competitiveness in India's transition towards sustainable mobility. HMIL has already committed to a green portfolio share of 50% plus over the next 4 to 5 years comprising of cleaner technologies like EVs, Hybrids, CNGs etc.”

Elctrik Speaks

CAFE III sets out a manufacturer-level system in which fleet fuel consumption is assessed against annual targets. The framework does not rely on a single vehicle technology; it includes provisions for electric vehicles, hybrids, ethanol, CNG and fuel-saving technologies.

The rules also establish mechanisms for manufacturers to manage compliance through credits, debits, pooling and credit purchases. The notification will take effect from April 1, 2027 and will cease to have effect after March 31, 2032.

CAFE III normsCAFE 3 normsCAFE norms 2027