The Ministry of Power has released the draft Corporate Average Fuel Economy (CAFE)-III norms, proposing stricter fuel-efficiency standards for passenger vehicles from April 1, 2027. The draft has been put out for public consultation and will replace the existing CAFE-II norms, which are expected to remain in force until March 31, 2027.The proposed regulations will apply to M1 category passenger vehicles manufactured or imported for sale in India between FY2027-28 and FY2031-32. This category includes passenger vehicles with up to eight seats, excluding the driver’s seat. Stakeholders and members of the public can submit their suggestions and feedback to the Ministry of Power until August 6, 2026.One of the biggest changes under the proposed CAFE-III framework is the gradual tightening of fuel consumption targets over five years. The draft proposes reducing the target from 3.996 litres per 100 km (94.76 gCO₂/km) in FY2027-28 to 3.3273 litres per 100 km (78.90 gCO₂/km) by FY2031-32. According to the government, this phased approach is intended to give vehicle manufacturers a clear roadmap to develop and introduce more fuel-efficient models.Compliance under the new norms will be assessed in two phases. The first compliance block will cover an initial period of three years, followed by a second block of two years. The government believes this structure will allow OEMs to gradually adapt to the stricter efficiency requirements.The draft also proposes recognising the carbon neutrality of alternative fuels for the first time. If implemented, ethanol, bio-fuels and compressed bio-gas (CBG) will receive specified reductions in declared tailpipe carbon dioxide emissions before compliance is assessed. For current ethanol blends, an 8 per cent Carbon Neutrality Factor (CNF) has been proposed, while the reduction for CBG and other bio-fuels will depend on the prevailing blending levels.Another key provision is the incentive for fuel-saving technologies. Manufacturers will be allowed to claim compliance benefits of up to 9 gCO₂/km for approved technologies, although the benefit will be capped at 1 gCO₂/km per technology.