Corporate Average Fuel Efficiency

The study by Nomura researchers calls for reform of India’s Corporate Average Fuel Efficiency (CAFE) norms, particularly to better protect small cars.

Key Highlights of the Study:

1. India’s CAFE Norms:

• Introduced by the Bureau of Energy Efficiency (BEE) in 2017, CAFE norms were designed to regulate fuel consumption and CO₂ emissions from passenger vehicles under 3,500 kg.

• The norms aim to reduce oil imports, cut air pollution, and promote cleaner vehicles like EVs, CNG cars, and hybrids.

• Tighter norms were enforced starting 2022-23:

  • Fuel consumption ≤ 4.78 liters per 100 km

  • CO₂ emissions ≤ 113 grams per km

2. Issue with India’s Current Framework:

India's CAFE norms follow a linear weight-based approach, meaning:

• Heavier vehicles are allowed higher absolute CO₂ emissions, making it easier for large SUVs and premium cars to comply.

• Smaller cars, which are already more fuel-efficient and emit less CO₂, face stricter targets.

  • Example: A large SUV emitting 130g/km CO₂ can comply with norms, while a small car emitting just 100g/km CO₂ could fail.

This creates a structural bias where heavier vehicles (which generally emit more CO₂) meet the standards easily, while lighter, more efficient cars (which emit less CO₂) struggle to meet the stricter targets.

3. The Impact on Small Car Manufacturers:

• Small cars are a major part of the Indian market, and companies like Maruti Suzuki have been lobbying for relaxed emission norms for this segment.

• The penalty for small cars discourages manufacturers from pursuing lightweighting (making cars lighter to reduce emissions) — a key strategy for decarbonization.

  • As the emissions targets get stricter for smaller vehicles, automakers find it harder to innovate, and may opt for producing larger vehicles, which have more relaxed targets.

4. Global Best Practices:

The study points out that major global markets have adopted more flexible emission standards for small cars, recognizing their environmental and social value. Here’s how other regions approach this:

• United States:

  • Piecewise linear approach based on vehicle footprint: For vehicles below a certain size, fuel economy targets are fixed, meaning smaller cars don’t face progressively stricter norms as they get lighter.

• China:

  • Similar to the US, China uses a system where for cars below a certain curb weight, fuel consumption targets become constant, preventing overly strict regulations on small vehicles.

• South Korea:

  • Like China, small cars have constant fuel economy targets, and bonus credits (5–7g/km) are given to manufacturers based on the sales ratio of small cars in their portfolio.

• Japan:

  • Japan employs a non-linear approach to ensure small, lightweight cars are not penalized with disproportionately higher CO₂ targets.

• European Union:

  • The EU uses a negative slope (-0.0144), where larger cars face tighter CO₂ limits, while smaller cars benefit from relaxed targets. This policy actively promotes the use of smaller, more efficient cars.

5. The Case for Reforming India’s CAFE Norms:

• Nomura researchers are advocating for India to align its CAFE system with global best practices, offering protection for small, fuel-efficient cars.

• They argue that by incorporating protection mechanisms, India can:

  • Promote innovation in lightweighting and efficiency improvements.

  • Ensure that small cars remain a key part of India’s transition to cleaner vehicles.

  • Encourage manufacturers to continue making small, efficient cars, rather than pushing them toward heavier, less fuel-efficient models.

Why Reform is Crucial:

1. Environmental Impact:
   Small cars are generally more fuel-efficient and have lower CO₂ emissions. Stricter norms on them could discourage efforts to make them even more efficient, potentially leading to higher emissions overall.

2. Economic Factors:
   Small cars are essential to the Indian market due to their affordability and ability to cater to a larger segment of the population. By penalizing them, the government might inadvertently hurt the affordable car market, reducing options for lower-income groups.

3. Global Competitiveness:
   Aligning India’s standards with global practices would allow the Indian automotive industry to remain competitive in the global market. It would also incentivize manufacturers to innovate while meeting international standards for emissions and fuel efficiency.

4. Encouraging Decarbonization:
   Lightweighting, a key decarbonization strategy, is discouraged under the current system. Reforming India’s CAFE framework to better reward lightweighting would push manufacturers toward creating even more efficient vehicles.

Conclusion :

The study calls for a reform of India’s CAFE norms to provide regulatory protection for small cars. This would ensure that small, lightweight vehicles are not unfairly penalized for their size while encouraging the continued development of fuel-efficient, low-emission vehicles. Such reforms could support India’s goals of reducing emissions, improving air quality, and decreasing oil imports.