Corporate Average Fuel Efficiency (CAFE) Norms in India: Nomura's Report

CAFE norms are back in focus as the stricter CAFE-III regulations are set to roll out from April 2027. Nomura’s recent report says that India’s weight-based system unfairly burdens small cars while easing limits on heavier ones.

• Important for Prelims & Current Affairs
• Relevant for GS Paper 3 (Environment and Ecology).
• Essay topics related to Science and Technology.
• Linked to India’s climate commitments under the Paris Agreement.

CAFE (Corporate Average Fuel Efficiency) norms are fuel efficiency standards introduced by the Indian government to reduce fuel consumption and carbon dioxide (CO₂) emissions from passenger vehicles. Established by the Bureau of Energy Efficiency (BEE), under the Ministry of Power, and enforced in collaboration with the Ministry of Road Transport and Highways.

These norms were introduced in 2017 to regulate automobile manufacturers to maintain a specified average fuel economy across their fleet. 

Key features include: 

• Apply to passenger vehicles weighing less than 3,500 kg.
• Cover petrol, diesel, LPG, CNG, hybrid, and electric vehicles.
• Implemented in phases with increasingly stringent targets.
• Based on fleet-wide averages, not individual models.

The primary objectives of CAFE norms include:

• Reducing oil dependency: Decreasing India's reliance on crude oil imports.
• Cutting air pollution: Lowering carbon dioxide emissions from transportation.
• Promoting clean vehicles: Encouraging adoption of EVs, hybrids, and CNG vehicles.
• Improving fuel efficiency: Making vehicles consume less fuel per kilometer.
• Supporting climate goals: Contributing to India's commitment to reduce CO2 emissions by 45% by 2030.

CAFE norms in India have been introduced in phases, with each stage setting stricter CO₂ emission targets for vehicles. Here are the key phases of CAFE norms in India:

CAFE norms aim to cut emissions and improve fuel efficiency, but Nomura highlights design flaws. To address these, it offers key recommendations for making the system fairer and more effective.

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Nomura is a leading global financial services group based in Japan, with a strong presence in economic research and consulting. On July 4, 2025, Nomura released a report highlighting flaws in India’s weight-based CAFE norms and calling for more balanced, globally aligned reforms.

• Replace the linear weight formula with a piece-wise or footprint-based curve to stop penalizing lightweight cars.
• End the paradox where 100 g/km small cars fail while 130 g/km SUVs pass current norms.
• Align with global best practices following the U.S. and Chinese models for weight-based regulations.
• Consider a negative slope approach, such as Europe's (-0.0144), where heavier vehicles face stricter absolute CO₂ limits.
• Promote light-weighting as a legitimate decarbonization strategy rather than penalizing it.

As a result, according to the report, the current framework does not adequately reward lightweighting, especially for already light, entry-level cars.

Under India’s current CAFE framework, emission targets are linked to vehicle weight. This means that heavier vehicles, like large SUVs, are allowed higher CO₂ limits—up to 130g/km—while lighter, more fuel-efficient small cars emitting just 100g/km must meet stricter targets.

The Problem with Weight-Based Targeting:

• Light vehicles face disproportionately stringent targets.
• Heavy vehicles get easier compliance standards.
• Small cars are penalized despite being more fuel-efficient.
• The system discourages lightweight vehicle manufacturing.

Major automotive markets like the US, China, Japan, and Europe use footprint-based or piecewise linear models for fuel efficiency standards. These models help protect small cars from overly strict targets, acknowledging their environmental benefits and socioeconomic importance.

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While both CAFE and BS6 norms aim to reduce vehicle emissions, they target different aspects of pollution control:

Both norms work together to create a comprehensive emission reduction strategy. While BS6 ensures cleaner exhaust for immediate air quality benefits, CAFE drives long-term fuel efficiency and climate goals.

CAFE norms play a crucial role in shaping India’s sustainable future by actively reducing emissions, saving fuel, and driving technological innovation, especially as the number of vehicles on Indian roads continues to rise each year.

• Reducing Pollution: CAFE norms set strict CO₂ emission limits, helping bring down harmful vehicular emissions.
• Improving Health & Environment: By lowering emissions, CAFE norms directly benefit public health and help fight climate change by reducing India’s share of global greenhouse gases.
• Reducing Oil Imports: Higher fuel efficiency means vehicles use less fuel, helping India cut reliance on expensive crude oil imports and improving national energy security.
• Encouraging EVs & Green Technology: The norms incentivize manufacturers to invest in electric vehicles (EVs), hybrids, and advanced technology, accelerating the shift toward cleaner mobility options.
• Supporting Economic Growth: Streamlined fuel standards encourage investment in green technology and EVs, spurring job creation and industry growth

Adopting and strengthening CAFE norms is vital for India to balance rapid urbanization, meet climate commitments, and create a cleaner, healthier future for all.

Strengthening CAFE norms with a fair and future-ready approach can unlock cleaner technologies, promote inclusive mobility, and position India as a global leader in sustainable transportation. The road ahead must balance ambition with equity, driving progress without leaving anyone behind.

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