The Ministry of Power on Thursday circulated the Draft Corporate Average Fuel Economy 2027 Norms (CAFE-III) for stakeholder consultation, proposing a stricter fuel efficiency standard for M1 category passenger vehicles manufactured or imported for sale in India during 2027-28 to 2031-32.According to the draft, the proposed CAFE-III norms will apply to M1 category passenger vehicles manufactured or imported for sale in India during the period 2027-28 to 2031-32, replacing the existing CAFE-II norms, which are likely to come to an end on March 31, 2027. The compliance will be assessed over two blocks, comprising an initial block of three years, followed by a second block of two years.Under the draft, the fuel consumption targets will become more stringent, reducing from 3.996 litres/100 km (94.76 gCO₂/km) in 2027–28 to 3.3273 litres/100 km (78.90 gCO₂/km) in 2031–32. The phased tightening of the targets will provide OEMs sufficient time, enabling them to develop and deploy more fuel-efficient vehicle models.For the first time, Carbon Neutrality Factors (CNFs) are proposed to recognise the carbon-neutrality of ethanol, bio-fuel and Compressed Bio-Gas (CBG) by permitting specified reductions in declared tailpipe carbon dioxide emissions before compliance assessment. An eight per cent CNF has been proposed for the current level of ethanol blending, while reductions for Compressed Bio-Gas (CBG) and bio-fuels will be linked to prevailing blending levels.The draft also proposes technology incentives, allowing manufacturers to claim compliance benefits of up to nine gCO₂/km for approved fuel-saving technologies, with a maximum benefit of one gCO₂/km per technology.To promote adoption of cleaner vehicle technologies, volume derogation (super credits) will be available for Battery Electric Vehicles (BEVs), Range-Extended Electric Vehicles (REEVs), Plug-in Hybrid Electric Vehicles (PHEVs), Strong Hybrid Electric Vehicles (SHEVs), and Flex-Fuel Vehicles (FFVs) while calculating fleet-average fuel consumption.Another proposed framework is credit and debit mechanism, similar to recently circulated draft amendment to CAFÉ-II norms. Manufacturers achieving performance better than their prescribed targets shall earn compliance credits, which may be carried forward within the prescribed compliance blocks. Those falling short may meet their obligations through carry-forward provisions, voluntary pooling arrangements with other manufacturers, or by purchasing compliance credits from the BEE.Compliance credits will be denominated in units of one gCO₂/km. The draft proposes an initial buy-out price of Rs 2,500 per credit, with an annual rise of Rs 500 per credit. Credits unutilised at the end of the compliance block will lapse.OEMs failing to comply will be liable for penalties under the provisions of the Energy Conservation Act. However, manufacturers with annual sales of less than 1,000 passenger vehicles will continue to be exempt from the proposed norms.The Ministry of Power has invited comments and suggestions from stakeholders and the public on the draft norms. Feedback may be submitted to the Under Secretary (Energy Conservation), Ministry of Power, or through email by August 6, 2026.