New CAFE-3 Draft Norms Retain Benefits For Hybrids; Incentives For Small Cars, Flex Fuel Vehicles Proposed

The Bureau of Energy Efficiency has issued new draft norms for the upcoming new Corporate Average Fuel Efficiency 3 (CAFE 3) regulations set to come into effect from 2027. The draft proposes new incentives for small cars, CNG vehicles, and flex-fuel vehicles, while also proposing the continuation of incentives for strong hybrid vehicles. The latest proposal also drops the mention of Hydrogen fuel cell electric vehicles (FCEVs), which originally found a mention in the 2024 draft.

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Small petrol cars weighing under 909 kg unladen to get CO2 g/km computation benefits

Starting with hybrids, while the original draft from 2024 had suggested a reduction in incentives for CO2 calculations, the new draft retains the existing incentives under the CAFE 2 norms. While the original 2024 draft document proposed reducing the volume derogation factor on PHEVs from 2.5 to 2 and on strong hybrids from 2 to 1.2, the new draft norms maintains the levels from CAFE 2. The new draft also calls for further segregation for strong hybrids, with flex-fuel powered strong hybrids falling in the same category as PHEVs.

Furthermore, a new category for flex fuel vehicles has been created with a volume derogation factor of 1.5.

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Strong hybrids to get CO2 set-off in line with current CAFE 2 regulations; flex fuel strong hybrids to also get carbon neutrality factor benefits.

A volume derogation factor is essentially a regulatory adjustment that allows for increased allowance for CO2 computation under the CAFE guidelines.

Additionally, the new draft also calls for the implementation of a carbon neutrality factor on certain vehicle categories. The carbon neutrality factor is essentially a discount on the manufacturer-declared CO2 levels of a motor vehicle. Petrol cars running on E20 to E30 grade petrol will get an up to eight per cent set-off while CNG vehicles will be offered a set-off of up to five per cent. Flex fuel vehicles - including flex-fuel powered strong hybrids, will attract a carbon neutrality factor of 22.3 per cent on CO2 tailpipe emissions.

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Flex fuel vehicles to get the highest benefits under the proposed Carbon Neutrality Factor.

Furthermore, small petrol cars will be allowed ‘a further reduction of 3.0 g CO2/km’, subject to a cap of 9.0 g CO2/km, in their manufacturer-declared CO2 performance for CAFE computation. The document defines these as vehicles measuring under 4000 mm in length, having an engine capacity not exceeding 1,200 cc and having an unladed weight of up to 909 kg. This should be beneficial, particularly in the budget end of the mass market segments.

The document also states that from 2026, manufacturers will be required to compute g CO2/km of each vehicle based on the Mixed Indian Driving Cycle (MIDC) and Worldwide Harmonized Light Vehicles Test Procedure (WLTP)testing procedures. Manufacturers will also be required to report Fuel Consumption in litres per 100 km. The document also details the computation matrices for the varying calculations required.