CAFE III Norms: How India's Emissions Standards Differ from International Ones, and Why it Matters

The draft Corporate Average Fuel Efficiency (CAFE) III norms employ a linear weight-based methodology that diverges significantly from graduated frameworks used in other leading automotive manufacturing countries globally, where compact, lightweight vehicles benefit from more lenient emission requirements. The draft of CAFE III standards, by the Bureau of Energy Efficiency (BEE), scheduled for implementation in 2027-28, has reignited debate -- not for its ambitions, but for what are being called critical omissions in its design. According to a report by the Indian division of Nomura Research Institute, Japan's top economic research and consultancy firm, India's fuel efficiency policy framework "burdens small cars with excessively strict CO₂ targets relative to their environmental impact".

The implications extend beyond regulatory technicalities. In a budget-conscious market like India, small vehicles represent the primary pathway to four-wheeled mobility for millions of first-time buyers. Yet, the proposed framework stands apart from international practice, creating compliance burdens that are likely to make prices in the most affordable car segment rise by ₹50,000-₹80,000.

This places India as an outlier amongst established automotive economies. A comparison of global fuel efficiency frameworks suggests a consistent pattern: major auto manufacturing nations structure their regulations to "protect small car segments", recognising their role in providing accessible, affordable mobility and delivering lower emissions.

"Across the major automotive markets, small cars are afforded benefits under their country’s respective fuel economy and emissions norms. These benefits are formulated (through a piece-wise linear target line or parabola curve) in the calculation of carmaker’s emission targets. 

"Japan’s passenger car fuel economy standard is a weight-based CO₂ intensity framework that caps allowable CO2 emissions (g/km) according to vehicle kerb weight. Under the 2020–2030 regime, compliance is evaluated using the JC08 test cycle, expressed as discrete, stepwise limits assigned to defined weight categories," Ashim Sharma, Senior Partner at Nomura Research Institute, told ACKO Drive while explaining how the draft CAFE III norms in India differ from major car markets globally.

"India’s draft CAFE III norms significantly tighten fuel-efficiency and CO₂ targets, cutting fleet-average consumption by 19 per cent between 2027 and 2032. The move brings India closer to global benchmarks, though it still trails the EU and China. While the policy supports cleaner vehicles and electrification, proposed relief for small petrol cars has split OEMs. Compliance will raise costs, especially for price-sensitive segments," Abhik Mukherjee, Automotive Analyst at Counterpoint Research told ACKO Drive.

Unlike premium automotive manufacturers that can absorb technology costs across higher margins, small car specialists operate on razor-thin profit margins, leaving limited room for expensive powertrain upgrades.

"Small-car makers can make only minor fuel-efficiency gains over the next 18–24 months through engine tuning and planning. Real compliance typically comes in 3–5 years with new or updated models using hybrid technology. While this raises vehicle costs, spreading investments across high volumes, using local suppliers, and adding hybrids or EVs is the most practical way to meet the rules without hurting affordability or safety. However, in India, while policies are announced early, ground-level implementation often takes time," Mukherjee added.

Some countries such as South Korea and the US, which favour simpler regulatory structures, have avoided India's approach.

"USA and South Korea have a flat compliance line rather than tightening slope for small cars. Technological solutions have been manifold such as engine downsizing, light-weighting, alternate fuels, aerodynamic improvements, etc.," Sharma further explained.