Draft CAFE-3 Norms Eases Emission Targets For Auto Industry, Relief To Small Cars

The updated draft of the third-phase Corporate Average Fuel Consumption, or CAFE-3, norms appears to strike a middle path. In the latest draft, the emission curve has been eased, but the framework still moves toward tighter fleet efficiency from 1 April 2027. The Bureau of Energy Efficiency on April 8 has released a revised draft that keeps the weight-linked structure in place and rejects industry demands for a flat target, even as it relaxes limits across vehicle categories.

What has changed in the latest draft?

The biggest adjustment is in the slope of the compliance curve. Reporting from the updated draft shows the slope has been reduced to 0.00158 for 2027-28, compared with 0.002 in the September 2025 version, while the reference vehicle weight has been raised to 1,229 kg from 1,170 kg. 

The baseline consumption constant has also been increased. In practical terms, that means manufacturers are allowed a little more emissions for the same vehicle weight than before, even though the overall direction of travel remains stricter over time. The revised pathway is not a one-year fix either. The draft lays out a gradual tightening through FY32, while the norms will apply to M1-category passenger vehicles and become effective from April 1 next year. 

The policy also keeps annual improvement as the central compliance principle, with credits available to help offset penalties.

Small cars gain relative relief

One of the more closely watched changes concerns small cars. Earlier drafts had proposed a specific concession for ultra-light petrol cars — defined by parameters such as unladen mass up to 909 kg, engine capacity up to 1,200 cc and length under 4,000 mm — including an additional 3 g/km benefit. That explicit relief has now been dropped.

Even so, smaller cars still appear to benefit more than heavier vehicles because the curve has been flattened. The revised formula gives smaller cars more breathing room than the earlier draft, while the latest draft effectively offers a 11-13 g/km advantage to small cars and a tighter target for larger vehicles. So the concession has changed shape rather than disappeared entirely.

Hybrid, Cleaner-Tech Incentives Recalibrated

The revised draft continues to reward cleaner powertrains, but the incentive structure is more restrained than before. According to Moneycontrol’s review of the latest draft, battery electric vehicles and range-extender hybrids retain a 3.0 multiplier, while plug-in hybrids and flex-fuel strong hybrids get 2.5. Strong hybrids and flex-fuel vehicles receive lower multipliers than in the earlier proposal, which suggests the government is still encouraging alternatives, but with less generous crediting than before.
 

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That matters because the new framework may push automakers to rely less on accounting relief and more on genuine efficiency gains. The revised draft also keeps the logic of super credits and carbon-neutrality factors, which means EVs, hybrids, CNG and flex-fuel models remain part of the compliance toolkit. But the balance has clearly shifted away from broad exemptions and toward measured incentives.

What it means for automakers?

For carmakers, the draft sends a familiar but sharpened message: improve fleet efficiency every year, or pay for it later. Heavier SUV-led portfolios may still have some built-in advantage under the weight-linked formula, but that edge is shrinking. Smaller-car makers, meanwhile, lose a direct carve-out while still benefiting from a flatter curve. The result is a more nuanced policy, one that appears designed to nudge product planning toward lighter cars, hybrids and EVs without giving any segment a blanket pass.