Centre Proposes Credit Trading for Passenger Vehicle Makers Under CAFE Norms

The Ministry of Power has proposed introducing a credit trading mechanism under the country's Corporate Average Fuel Efficiency (CAFE) norms, which will let passenger vehicle (PV) manufacturers trade surplus compliance credits and purchase credits from the Bureau of Energy Efficiency (BEE) to meet fuel-efficiency targets. The new proposal forms part of draft amendments to the CAFE regulations issued under the Energy Conservation Act. 

The Centre has invited public comments on the draft notification within 14 days of its publication.

The Ministry of Power said the proposed amendments are aimed at improving regulatory certainty while creating a transparent compliance mechanism for the automotive industry.

The proposed changes introduce a formal framework for accounting and managing compliance credits and debits, including passbooks, pooling arrangements and compliance assessments.

The CAFE norms, which came into force in FY23, require vehicle manufacturers to hit prescribed fleet-average fuel-efficiency standards to reduce fuel consumption and carbon dioxide emissions.

Under the proposed framework, OEMs whose fleet-average fuel consumption is better than the prescribed target would earn compliance credits. Those failing to meet it would accumulate debit balances.

The credits could be carried forward for future compliance, transferred to other manufacturers through voluntary pooling arrangements or used to offset future obligations.

Manufacturers with debit balances would also be allowed to purchase compliance credits from the Bureau of Energy Efficiency at ₹2,500 per gram of carbon dioxide per kilometre for each reporting period between FY23 and FY27.

According to the ministry, this buyout mechanism would offer manufacturers a compliance option at a cost lower than the statutory penalties prescribed under the Energy Conservation Act.

The draft amendments require auto manufacturers to maintain a credit and debit passbook recording credits earned, transferred, utilised and carried forward across compliance periods.

The explanatory note accompanying the draft further noted that the amendments are aimed at operationalising compliance provisions already included in the existing CAFE framework, including voluntary pooling arrangements, for which detailed implementation processes had not previously been specified.

It added that the framework is intended to reward manufacturers that exceed prescribed fuel-efficiency standards, while preserving the broader objectives of the CAFE programme to improve fuel economy and reduce carbon emissions from passenger vehicles.