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Incremental change: On Corporate Average Fuel Efficiency-III
In mid-April 2026, India’s automakers reportedly agreed to a revised CAFE-III target proposed by the Bureau of Energy Efficiency. The plan reduces CO2 targets but introduces flexible compliance pathways, including credits and three-year averaging, raising questions about the pace of electrification and decarbonisation.
Why It Matters
The policy shapes emissions reductions, energy security, and the auto industry’s investment decisions as India seeks cleaner transport without delaying electrification.
Timeline
5 Events
Critics warn of weak signaling and slow electrification
April 24, 2026
Some observers argue that the flexible design, including credits and three-year averaging, may weaken the regulatory signal and reduce the urgency to shift to electric mobility, potentially undermining emissions reductions, energy security, and macroeconomic stability amid fossil fuel volatility.
Compliance design features of CAFE-III
April 24, 2026
The framework introduces several compliance pathways: credits for higher ethanol blending (from E20 to E85-compatible vehicles) and for incremental efficiency technologies such as start-stop systems, regenerative braking, and tyre pressure monitoring systems. It also includes super-credits where certain technologies count multiple times toward compliance, along with credit banking and trading, and assesses compliance over three-year blocks rather than annually.
CAFE-III targets and cycle window
April 24, 2026
The headline target under CAFE-III aims for 77 g CO2 per km by 2031-32, down from about 113 g/km under CAFE-II. The new cycle is proposed to run from April 2027 to March 2032.
Mid-April 2026: automakers agree to a new target proposed by BEE
April 15, 2026
News in mid-April 2026 reported that India’s automakers unanimously agreed to a new fuel efficiency and emissions reduction target proposed by the Bureau of Energy Efficiency (BEE).
Late last year controversy over CAFE-II carve-out for small cars
December 2025
A controversy emerged over an earlier CAFE-II proposal that effectively created a carve-out for small cars, a segment representing about 14-15% of passenger vehicle sales, which critics argued slowed the shift to cleaner fuels and technologies. Differences within the industry, notably involving Maruti Suzuki and other manufacturers, fueled the dispute.