Power Ministry proposes credit trading under CAFE norms for automakers
The Ministry of Power has issued a draft notification proposing amendments to India’s Corporate Average Fuel Efficiency (CAFE) norms, introducing a credit-based compliance mechanism for passenger vehicle manufacturers. The draft, published in the Gazette of India, invites objections and suggestions from stakeholders within 14 days.
The proposed amendments seek to operationalise provisions that have remained unspecified since the CAFE framework was first notified in April 2015 and subsequently amended in December 2021.
Credit-based compliance framework
The draft introduces a formal credit-and-debit accounting mechanism under which manufacturers exceeding their prescribed fleet-average fuel consumption targets will earn “Credits”, while those falling short will accumulate “Debits”. Both will be measured in grams of COâ‚‚ per kilometre (g COâ‚‚/km).
Manufacturers will be allowed to trade credits among themselves on mutually agreed terms, bank credits within the five-year compliance block covering FY 2022-23 to FY 2026-27, and purchase credits directly from the Bureau of Energy Efficiency (BEE) at a fixed price of Rs 2,500 per g COâ‚‚/km for each reporting period. Any unused credits remaining at the end of the compliance block will lapse.
Compliance and penalties
Compliance with CAFE norms will continue to be assessed annually, while penalties will be determined at the end of the five-year compliance period.
Manufacturers will have until September 30, 2027, to offset accumulated debits through credit trading or purchases from BEE. The designated agency will be required to submit the final compliance passbooks to BEE by October 31, 2027.
Any non-compliance will be calculated using the prescribed formula and will attract penalties under Sections 26, 27 and 28 of the Energy Conservation Act, 2001.
The draft also proposes that all penalties collected and proceeds from credit purchases be credited to the Central Energy Conservation Fund. Of the total amount, 90% will be transferred to state governments based on their share of vehicle sales during the compliance period, while the remaining 10% will be retained by the Central Government.
Implementation and rationale
The CAFE norms, administered by the Ministry of Power in consultation with BEE, require passenger vehicle manufacturers to meet fleet-average fuel consumption standards based on the sales-weighted average of all vehicles sold. The framework is technology-neutral, allowing compliance through improved internal combustion engine vehicles, hybrid vehicles, electric vehicles, CNG vehicles or a combination of technologies.
According to the explanatory note accompanying the draft notification, the existing framework provides no incentive for manufacturers that exceed the prescribed targets while penalising those that fail to comply. The proposed credit mechanism aims to reward over-achievement and provide greater flexibility as manufacturers transition to cleaner vehicle technologies.
Under the proposed framework, the Ministry of Road Transport and Highways will continue to oversee testing methodologies, reporting requirements and conformity of production under the Central Motor Vehicle Rules, 1989. Manufacturers will also be required to submit state-wise vehicle sales data along with their annual compliance reports.
The draft notification has been issued under clauses (a), (b) and (c) of Section 14 read with Section 18 of the Energy Conservation Act, 2001.
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