What’s new in the draft CAFE-III standards? | Explained
The story so far: The agency on Thursday (July 17, 2026) issued a third draft of the Corporate Average Fuel Efficiency (CAFE)-III standards for passenger vehicles, which proposes to recognize ethanol, compressed biogas (CBG) and other biofuels in compliance calculations by allowing manufacturers to make specified reductions in declared tailpipe carbon dioxide emissions.
What does the latest CAFE-3 proposal suggest?
The draft, which is open for stakeholder comments until August 6, comes after a year of wrangling between small and large carmakers to adhere to the formula.
It basically retains the changes introduced in the second draft, including a flatter weight adjustment curve than the original September 2025 draft, which reduces the compliance benefit for heavier SUVs while relaxing targets for lighter vehicles. The overall emissions targets for the entire fleet have also been reduced by around 21% compared to the original proposal.
Manufacturers will need to gradually improve the fuel efficiency of their fleets, aiming to tighten from 3,996 liters per 100 km (94.76 gCO₂/km) in 2027–28 to 3,327 liters per 100 km (78.90 gCO₂/km) by 2031–32. Compliance will be assessed in two blocks – an initial three-year period followed by a two-year period – instead of annually.
Also read | What is 100% Ethanol Blending?
The proposal introduces carbon neutrality factors (CNFs) that allow specified reductions in declared CO₂ emissions for ethanol, flex-fuel ethanol, CBG and other biofuels vehicles prior to compliance assessment. It also proposes compliance incentives for approved fuel-saving technologies and continues to offer super credits for electric, plug-in hybrid, hybrid and flex-fuel vehicles.
Producers who exceed their targets will receive tradable compliance credits, while those who fall short can buy credits from other producers or the Office for Energy Efficiency (BEE) to meet their obligations.
Also read | Keep increasing spending on road infrastructure, set policies to support electrification
The five-year CAFE III standards will be in effect through 2031-32.
what changed
The latest proposal leaves much of April’s proposal unchanged, suggesting the government has largely stuck to a compromise reached after months of intense negotiations between small car and larger SUV makers. April’s release largely dispelled the industry’s biggest sticking point by replacing the earlier steeper weight adjustment curve with a flatter one and relaxing the compliance regime.
The weight adjustment curve has been flattened, changing the way emissions targets change with vehicle weight. Instead of the uniform slope of 0.002 proposed for all five years, the latest proposal proposes a slope of 0.00158 in the first year, gradually decreasing to 0.00131 in the fifth year.
The proposal also removes a distinct relaxation of 3 grams in the calculation of CO2 emissions for small cars weighing less than 909 kg and powered by an engine under 1200 cc, which had widened the gap between car manufacturers.
It also introduced mechanisms such as trading and pooling of carbon credits, which allow producers who exceed their emissions targets to sell credits to those who fall short. The shift marked a shift away from the polarizing “small car versus big car” debate towards improving the overall emissions performance of a manufacturer’s fleet.
Why were there differences between different car manufacturers?
One of the most contentious issues in the CAFE-III discussions was the benefit of 3 g CO₂/km for smaller cars in meeting emissions targets. Tata Motors was among the strongest opponents, arguing that there was “absolutely no justification” for offering concessions to small cars, especially as larger vehicle makers are investing heavily in electrification to meet future norms.
Also read | Alleviating Concerns: On India and Ethanol Fuel
However, Maruti Suzuki dismissed the criticism. “Wrong facts and narratives are being pushed in a very irresponsible manner by the manufacturers of some big gas guzzlers to divert attention from their own big gas guzzlers,” said Rahul Bharti, Senior Director (Corporate Affairs). He argued that differentiation based on weight or size in fuel economy regulations is common worldwide, citing Europe, the United States, China, Japan and South Korea as examples of smaller vehicles receiving relatively less stringent targets.
Another contentious issue was the weight-based compliance formula in the earlier proposal, which several manufacturers argued gave disproportionate concessions to heavier vehicles. Under CAFE, a manufacturer’s emissions target is determined by the average weight of its vehicle fleet. Industry players argued that the proposed slope of the formula became increasingly mild as vehicle weight increased, giving larger vehicles an undue advantage in compliance.
Published – 17 Jul 2026 10:26 IST