The CAFE 3 Norms: Balancing Fuel Efficiency and Industry Concerns

The Introduction of CAFE 3 Norms

India is preparing to introduce the third phase of Corporate Average Fuel Efficiency (CAFE 3) norms from FY28 to FY32. These norms are aimed at enhancing fuel efficiency and lowering carbon emissions from passenger vehicles. However, the new weight-based structure has led to a split within the auto industry, particularly between manufacturers of smaller cars and those focusing on heavier SUVs.

Understanding CAFE Norms

CAFE norms are designed to regulate the average fuel consumption and CO₂ emissions across a manufacturer's vehicle fleet. The shift involves moving from the current Modified Indian Driving Cycle (MIDC) to the Worldwide Harmonised Light Vehicles Test Procedure (WLTP), a system adopted by the European Union in 2018. India's approach follows a weight-based formula that becomes progressively strict each year.

The CAFE 3 Formula

The upcoming CAFE 3 introduces a new weight-based efficiency formula: 0.002 × (W - 1170) + c. Here, 'W' represents the average fleet weight, 1,170 kg is a fixed constant for weight, 0.002 is a fixed constant multiplier, and 'c' is a constant that decreases annually from FY28 to FY32, making the norms stricter over time.

Industry Division Over Weight-Based Formula

One of the main points of contention is the impact of the weight-based formula. Smaller cars have to undergo steeper efficiency improvements compared to larger vehicles. For instance, a 740 kg car must become 48% more efficient by FY32, while a 2,500 kg SUV only requires a 25% improvement, despite its higher absolute emissions. This places a heavier regulatory burden on smaller, budget-friendly cars.

Concerns of Small-Car Manufacturers

• Disproportionate Impact: Small cars, operating on low margins, struggle to absorb the costs associated with hybrid systems, electrification, and lightweighting technologies.
• Consumer Pricing: Stricter norms may increase the cost of entry-level cars, potentially discouraging first-time buyers and shrinking the affordable car segment.
• Original Intent of CAFE: Companies like Maruti Suzuki argue that CAFE was intended to drive improvements in larger vehicles rather than penalize smaller ones.

Support for CAFE 3

Conversely, some carmakers like Tata Motors express confidence in meeting the norms and reject the weight-based definition of small cars as arbitrary, potentially compromising safety standards. Others, including Mahindra and Tata, oppose higher exemptions for lighter cars.

Global Comparison and Challenges

Globally, many countries, such as the US, China, Japan, and South Korea, offer relaxed standards for smaller cars. In contrast, Europe implements stricter norms overall but affords smaller cars more lenient CO₂ targets. India’s system is the reverse, creating a regulatory imbalance.

Technical Issues and Challenges

• "Brick in the Boot" Concern: Some manufacturers might artificially increase vehicle weight to fit into more relaxed efficiency bands, potentially leading to the production of larger, heavier cars that reduce affordability and increase emissions.
• Relaxation for Small Cars: The debate continues over the 3 g CO₂/km relaxation for small cars, with differing opinions among manufacturers.
• Shift to WLTP: Although WLTP offers more realistic fuel economy figures, some manufacturers face challenges and request delays in compliance.

Path Forward

To address these challenges, a review of the weight-based approach is necessary. Aligning with global best practices, offering technology-neutral incentives, and gradually phasing in WLTP can help. Additionally, targeting absolute emissions reductions and providing policy support for small cars are crucial for maintaining affordability and achieving India's climate goals.

Conclusion

The proposed CAFE 3 norms represent a significant step towards low-carbon mobility in India. However, their weight-based structure places undue pressure on small cars, risking market distortions and undermining affordability for new buyers. A balanced recalibration is essential to ensure environmental integrity while safeguarding the small-car segment in India's long-term climate and mobility objectives.