The Ministry of Power has released the draft Corporate Average Fuel Economy (CAFE)-III rules, which propose stricter fuel-efficiency standards for passenger vehicles from April 1, 2027. The draft has been released for public consultation and will replace the current CAFE-II rules, which are expected to remain in force until March 31, 2027.The proposed regulations will apply to category M1 passenger vehicles manufactured or imported for sale in India between FY2027-28 and FY2031-32. This category includes passenger cars 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 liters per 100 km (94.76 gCO₂/km) in FY2027-28 to 3.3273 liters per 100 km (78.90 gCO₂/km) in FY2031-32. According to the government, this phased approach is intended to provide vehicle manufacturers with a clear roadmap to develop and introduce more fuel-efficient models.Compliance under the new criteria 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 that this structure will allow OEMs to gradually adapt to stricter efficiency requirements.The draft also proposes to recognize 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 being assessed for compliance. For current ethanol blends, an 8 percent Carbon Neutrality Factor (CNF) is proposed, while reductions in CBG and other bio-fuels will depend on the previous blend level.Another important provision is the incentive for fuel-saving technologies. Manufacturers are allowed to claim compliance benefits of up to 9 gCO₂/km for approved technologies, although the benefit is capped at 1 gCO₂/km per technology.