Govt may drop special carve-out for small cars under CAFE 3 norms

The proposed weight-based relaxations in the draft CAFE 3 notification have split the industry.

• BEE may scrap special exemption for sub-909kg cars in final CAFE-III norms.
• Regulator to adjust emission formula, easing compliance for lighter cars.
• CAFE-III norms start April 2027, using weight-based targets instead of fixed limits.

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The Bureau of Energy Efficiency (BEE) is considering scrapping the special dispensation proposed for small cars weighing less than 909kg in the final notification of the Corporate Average Fuel Efficiency Phase 3 (CAFE-III) norms, according to a report by Business Standard. The relaxation had been introduced in the September 2025 draft of the regulations.

Instead of a separate exemption, the regulator is now looking at recalibrating the core formula used to determine automakers' fleet-average carbon dioxide emission targets. The revised approach is expected to offer relatively easier compliance for vehicles below 1,229kg, while tightening requirements for heavier models.

The rethink follows strong opposition from several automakers to the proposed carve-out, which allowed an additional 3g/km reduction for cars weighing under 909kg. The disagreement escalated to senior levels of government after JSW MG Motor, Tata Motors and Kia approached the Prime Minister's Office (PMO) in December, arguing that the provision would disproportionately favour a 'single carmaker' with nearly 95% share of the sub-909kg segment.

According to a BEE official, the final notification is likely to feature a modified equation compared with the September 2025 draft. The changes could translate into incremental relief of around 4.51g/km to 5.31g/km per year for a 909kg car between FY28 and FY32. "In this way, we have tried to take care of each stakeholder's viewpoint on the matter," the Business Standard report quoted the official as saying.

CAFE-III norms are scheduled to take effect from April 1, 2027, and will remain in force until March 31, 2032. Under the September 2025 draft, vehicles with an unladen mass of up to 909kg, engine displacement of up to 1,200cc and length capped at 4,000mm qualified for special treatment in fleet-average calculations. These models were allowed a 3g/km reduction in manufacturer-declared carbon dioxide (CO2) emissions, subject to an overall cap of 9g/km per model for each compliance period.

At present, CAFE-II mandates that original equipment manufacturers (OEMs) achieve an average fleet CO2 emission level of about 113g/km. The draft CAFE-III framework moved away from a single fixed limit and introduced a weight-linked annual fuel-consumption formula, resulting in stricter and differentiated targets based on the average mass of an automaker's portfolio. A prior draft released in June 2024 had proposed a uniform cap of 91.7g/km, but this was later dropped.

The proposed weight-based relaxations have split the industry. Automakers such as Tata Motors, JSW MG Motor, Mahindra, Hyundai and Kia have opposed special concessions, contending that they skew competition. On the other hand, Maruti Suzuki, Toyota, Honda and Renault have backed the case for differentiated treatment for smaller and lighter vehicles.

Maruti Suzuki has argued that structured relaxations for small cars under CAFE-III are neither arbitrary nor unusual. On December 1, the company said that more than 90% of the global automobile market follows differentiated fuel-efficiency regimes for smaller and lighter vehicles.

It also cited international precedents, noting that China offers relaxations for cars weighing up to about 1,090kg, Europe below 1,115kg, and Korea at around 1,100kg. Japan, the company said, follows a continuous weight-based curve, while the United States adopts a footprint-based system of roughly 41 square feet.