What the Draft CAFE-III Norms Mean for India’s Passenger Vehicle Industry: TERI Analysis

The Bureau of Energy Efficiency (BEE), Ministry of Power, has released the draft notification for the third phase of India's Corporate Average Fuel Economy (CAFE-III) norms for passenger vehicles, proposing a more stringent yet flexible regulatory framework from FY 2027–28 onwards. To help journalists quickly understand the proposed changes, TERI has prepared a Media Brief (Ready Reckoner) highlighting the key regulatory provisions, major departures from earlier CAFE phases, and their likely implications for vehicle manufacturers and India's transition towards cleaner mobility. The analysis notes that while the draft norms significantly tighten fleet-average CO2 emission targets over the implementation period, they also introduce greater compliance flexibility through mechanisms such as compliance credits, voluntary pooling and a buyout framework. TERI’s assessment also identifies areas where the draft notification could be further strengthened during the public consultation process to maximize innovation, transparency and environmental outcomes. Ready Reckoner Draft CAFE-III Norms for Passenger Vehicles and TERI’s Analysis The Ministry of Power (MoP) released the draft notification on July 16, 2026 for the next phase of India’s Corporate Average Fuel Economy (CAFE) norms, applicable to M1 category vehicles from Financial Year (FY) 2027-28 onwards. The latest draft notification introduces several changes that make the regulation more flexible, including the rationale of providing ease of doing business by introducing flexible compliance mechanisms, and a gradual transition towards WLTP. In this ready reckoner, TERI analyses the key impacts and implications on regulatory compliance related to the latest draft notification issued by Bureau of Energy Efficiency (BEE), MoP on CAFE-III. This document covers the actual annual corporate fleet emissions (gCO2/km), super-credits, year-wise stringency for various categories of vehicle, credit-debit mechanism, and comparison of the latest draft notification vis-à-vis previous phases of CAFE. The latest draft introduces market-based compliance framework, i.e. Original Equipment Manufacturers (OEMs) exceeding their prescribed fleet-average...