India's Draft CAFE-III Norms 2026: Stricter Fuel Efficiency and CO2 Targets for Automakers

India's Ministry of Power and the Bureau of Energy Efficiency released the Draft Corporate Average Fuel Economy-III (CAFE-III) norms in July 2026. These rules require automakers to meet tighter fleet-average fuel efficiency and CO2 emission targets, dropping to 3.996 liters per 100 km (94.76 gCO2/km) by FY2031-32. The norms apply to all vehicles sold annually, not individual models, and are set to take effect on April 1, 2027. The CAFE-III norms build on earlier phases: CAFE-I started in FY2017-18 and CAFE-II in FY2022-23. The new phase aims to reduce greenhouse gas emissions, improve air quality, and cut oil imports by pushing automakers toward cleaner vehicles. The public and industry consultation period is open now, with formal implementation scheduled through FY2031-32. For carbon markets and climate policy watchers, CAFE-III is a key regulatory signal. It creates a compliance obligation for automakers, which could drive demand for carbon credits or efficiency technologies. The tightening targets also align with India's broader climate goals, though the actual impact will depend on enforcement and how automakers adjust their fleets.