New Delhi: After months of toil, the auto industry has got a reprieve with the latest draft of Corporate Average Fuel Efficiency (CAFE 3) norms, which encourages the use of new technologies starting from April 2027 and aims for major reforms. CAFEs are government-mandated norms to reduce fuel consumption and carbon dioxide across a carmaker’s portfolio of vehicles.

Under CAFE 3, to achieve the goals, carmakers will be given higher credits for vehicles with greater fuel efficiency, in addition to “super credits” for producing EV, hybrid or flex fuel (petrol or ethanol) vehicles. Additionally, the use of 12-specified energy efficient technologies – such as start-stop systems, six-speed or higher transmissions, tire pressure monitoring systems or high-efficiency AC systems – can earn rebates for the carmaker, the draft circulated on Wednesday said. Car manufacturers can purchase credits from other car manufacturers “subject to compliance with mutually agreed terms and conditions.” Unlike the earlier two versions of CAFE, which allowed companies to target efficiency over a five-year period, the third version proposes a three-year block period, followed by a two-year phase-in. Auto companies may miss the annual target, but they will have to meet it at the overall level, record of which will have to be maintained in the passbook. Based on the draft, the efficiency score is targeted to be reduced from 113.5 at the end of 2026-27, the final year of CAFE 2, to 94.8 in 2027-28, when CAFE 3 begins, and to 78.9 in the terminal year (2031-32). The Bureau of Energy Efficiency (BEE), which has circulated the latest draft, has projected that by 2031-32, CNG vehicles will be the largest part of the vehicle mix, with a share of 35% by 2031-32, while 24% is projected in the current financial year. During this period, the share of petrol is expected to decrease from 50% to 30.7%. Similarly, part of electric vehicle According to a presentation given to the Cabinet Secretary on Wednesday, the share is expected to grow from 4.5% to 11% with strong hybrids accounting for 12% of vehicles by 2031-32. The revised draft proposes exemptions for smaller cars than previously planned, but the credits offered for hybrid and flex fuel vehicles have been tightened. This is widely seen as a balancing act by the government. Furthermore, it attempts to reduce penalties for violations. Automakers said the revised framework strikes a balance between India’s decarbonization goals and the industry’s transition challenges, while offering greater flexibility through credit trading, carry-forward provisions and soft penalty mechanisms. “This framework supports the government’s green goals while ensuring a practical transition path for manufacturers,” an industry executive said.