New efficiency norms: What will change for OEMs, small cars & SUVs

Why in the News

India’s car efficiency rules have moved from a proposed extra 3 g/km allowance for petrol cars weighing up to 909 kg to a single fleet-wide formula in which vehicle weight sets every carmaker’s target. The final Corporate Average Fuel Economy (CAFE)-III framework, notified on 29 September, also gives electric vehicles the biggest compliance benefit.

What are the CAFE-III norms?

1. What they are: CAFE norms cap the average fuel consumption across all cars a company sells, not each model, like a class average rather than each student’s score.
2. Coverage: They apply to M1 category passenger vehicles, cars seating up to eight passengers besides the driver, manufactured or imported for sale in India.
3. Period: The norms run for five financial years, from April 2027 to March 2032.
4. Weight-based target: A maker’s permitted fuel consumption depends on the weighted average unladen weight (sales-weighted empty weight) of its vehicles. A heavier, SUV-led fleet gets a higher limit than a small-car fleet.
5. The takeaway: Carmakers must now manage the efficiency of their entire portfolio rather than individual models.

Why did the small-car concession go?

1. Contested carve-out: Small cars became one of the most contentious points in drafting, since India’s market depends on compact, light petrol cars. A September 2025 draft proposed the extra allowance.
2. Market concentration: Maruti Suzuki has an outsized presence in small cars. Rival carmakers argued the carve-out would disproportionately benefit a segment dominated by the largest carmaker.
3. Changed weight formula: The reference weight, the baseline from which each fleet’s target is adjusted, rose from 1,170 kg in earlier versions to 1,229 kg. The weight adjustment is also flatter.
4. No separate category: The final framework creates no separate category for the lightest cars. Their weight advantage is built into the broader fleet formula instead.

What routes to compliance do carmakers get, and how has industry responded?

1. Electric vehicle credit: Battery-electric and range-extended electric vehicles get a volume derogation factor of 3, so each counts as three vehicles when fleet performance is calculated.
2. Carbon Neutrality Factor: This credit rewards makers for ethanol-blended petrol, biofuels and compressed biogas (CBG). It gives a route to compliance beyond efficiency gains and electrification.
3. Industry welcome: Maruti Suzuki called it a comprehensive regulation built on scientific data and inter-ministerial consultation, recognising multiple powertrains and fuels.
4. Predictable roadmap: Hyundai Motor India said the 3+2 year compliance block structure allows long-term product and technology planning.

Challenges

1. Diluted real gains: Counting each electric vehicle three times lets a maker sell more fuel-hungry cars and still meet its average.
2. Fuel credit verification: Credits for ethanol and CBG assume cleaner fuel is actually used, which carmakers do not control.
3. Lab versus road gap: Fuel consumption is certified on test cycles, which often understate real-world use.
4. Softer SUV targets: A weight-based formula gives heavier fleets a higher allowance, so a shift to SUVs eases the target.

Way Forward

1. Taper the multiplier: The Ministry of Power should lower the derogation factor as electric vehicle sales rise.
2. On-road checks: Testing agencies should add real-world fuel checks to certification.
3. Public compliance data: The Ministry of Power should publish each carmaker’s fleet performance every year.
4. Audited fuel credits: Carbon Neutrality Factor credits should be tied to verified fuel supply data from oil marketing companies.

Conclusion

CAFE-III ties every carmaker’s target to the weight of what it sells, which removed the case for a separate small-car carve-out. The first compliance block will show whether electric vehicle and clean fuel credits cut real fuel use or only soften the average.

Matching Previous Year Question

“[2020] Which one of the following statements best describes the term ‘Social Cost of Carbon’? It is a measure, in monetary value, of the (a) long-term damage done by a tonne of CO2, emissions in a given year. (b) requirement of fossil fuels for a country to provide goods and services to its citizens, (c) efforts put in by a climate refugee to adapt to live in a new place. (d) contribution of an individual person to the carbon footprint on the planet Earth. Answer: (a)”