CAFE 2027 Draft Norms Introduced for M1 Passenger Vehicles in India

The India Ministry of Power has released a draft notification proposing the new Corporate Average Fuel Economy framework, known as CAFE 2027, for M1 category passenger vehicles. Issued on July 16 under the Energy Conservation Act, 2001, the proposed regulations are scheduled to take effect from 1 April 2027 and remain open for public objections and suggestions for 21 days. The framework continues to measure fleet performance using gasoline-equivalent litres per 100 km on the Modified Indian Driving Cycle (MIDC), while introducing year-specific constants applicable from FY 2027–28 through FY 2031–32.

Fleet Performance Calculation Under CAFE 2027

Under the proposed framework, manufacturers' fleet performance will be determined using type-approval CO₂ emission values converted into gasoline-equivalent fuel consumption through fixed conversion factors. The calculation also considers approved fuel-saving technologies, although the total benefit remains subject to a specified cap. In addition, carbon-neutrality adjustment factors are provided for ethanol blends, flex-fuel vehicles, CNG, CBG and diesel biofuel blending, allowing eligible vehicles to receive appropriate compliance treatment while maintaining the overall fleet-based regulatory approach.

Credit, Debit and Compliance Mechanism

Manufacturers achieving fuel economy performance better than their assigned targets will receive compliance credits measured in grams of CO₂ per kilometre, while manufacturers exceeding permitted limits will accumulate debits using the same metric. These credits and debits will be maintained in a compliance passbook. Credits may be carried forward within three-year compliance blocks beginning in FY 2027–28 and two-year blocks starting from FY 2030–31. Any unused credits remaining after the applicable compliance period will automatically expire.

Credit Trading and Buyout Provisions

The proposal introduces credit pooling between manufacturers, enabling eligible companies to trade compliance credits. It also establishes a credit buyout mechanism through the Bureau of Energy Efficiency. Buyout rates are proposed at INR 2,500, INR 3,000, INR 3,500, INR 4,000 and INR 4,500 per gram CO₂/km for FY 2028 through FY 2032 respectively. These provisions are intended to provide manufacturers with additional compliance flexibility while supporting overall fleet fuel efficiency objectives.

Recognised Technologies and Vehicle Incentives

The draft specifies gasoline-equivalent fuel consumption formulas covering gasoline, diesel, LPG, CNG and electricity. It also recognises several fuel-saving technologies including start-stop systems, tyre-pressure monitoring, regenerative braking, higher-gear transmissions, efficient alternators or motor-generators, exterior LED lighting, advanced glazing, solar-reflective paint and PWM-controlled radiator fans. Additionally, volume-based super-credit factors are proposed for battery electric vehicles, range-extended electric vehicles, plug-in hybrid vehicles, strong hybrid vehicles and flex-fuel vehicles.

Reporting Requirements for Manufacturers

Manufacturers will be required to report both MIDC and WLTP CO₂ emission values along with annual state-wise vehicle sales data beginning on 1 April 2026. These reporting obligations are intended to strengthen regulatory oversight while ensuring consistent monitoring of compliance across the passenger vehicle sector. The dual reporting framework also supports comparison between testing methodologies and provides regulators with broader performance data for compliance verification.

Compliance Assessment and Exemptions

Compliance will be evaluated every year, while financial penalties will be calculated at the conclusion of each compliance block using a prescribed formula that converts accumulated debits into a gasoline-equivalent fuel consumption shortfall. Revenue generated through penalties and BEE credit buyouts will be transferred to the Central Energy Conservation Fund, with 90% distributed among states according to vehicle sales and the remaining 10% retained by the Central Government. The Ministry of Road Transport and Highways will oversee testing and reporting under the Central Motor Vehicles Rules, while manufacturers producing fewer than 1,000 vehicles annually will remain exempt from specific fleet targets. The Ministry of Power also retains the authority to revise the CAFE 2027 framework whenever necessary.

Key CAFE 2027 Draft Provisions

Frequently Asked Questions

What is the CAFE 2027 Draft Norms proposal for passenger vehicles?
The CAFE 2027 Draft Norms introduce a proposed Corporate Average Fuel Economy framework for M1 passenger vehicles in India beginning on 1 April 2027. The proposal establishes fleet fuel economy targets, introduces compliance credits and debits, allows credit trading and BEE buyouts, recognises approved fuel-saving technologies, requires MIDC and WLTP reporting, and defines annual compliance assessments together with exemptions for small-volume manufacturers under the Energy Conservation Act, 2001.