Government Mulls CAFE Credit Trading, 5-Year Compliance Assessment for Carmakers

The Centre is considering a proposal to introduce a credit trading system under the Corporate Average Fuel Efficiency (CAFE II) norms, according to a Mint report citing a draft notification issued by the Ministry of Power on May 19, 2026.  

The proposal would allow passenger vehicle manufacturers that exceed fuel-efficiency targets to sell surplus compliance credits to companies that fail to meet the prescribed limits. The notification is still in the draft stage and has not been finalised. 

5-Year Compliance Window 

The proposed framework applies to the FY23-FY27 compliance period. Instead of assessing manufacturers only on annual performance, the draft allows compliance to be measured over the entire five-year cycle.  

Companies would be able to offset a shortfall in one financial year with better performance in another, provided the overall fleet emissions remain within the prescribed limits during the assessment period. 

Each manufacturer would maintain a credit-debit passbook recording its annual compliance status. A positive balance would indicate emissions below the target, while a negative balance would reflect a shortfall against the prescribed limit. 

Trading and Purchase of Credits 

Manufacturers with surplus credits would be allowed to carry them forward, use them against future compliance requirements, or sell them to other automakers with deficits.  

The draft also permits manufacturers to purchase credits directly from the Bureau of Energy Efficiency (BEE) at ₹2,500 for every gram of carbon dioxide per kilometre of emission deficit.  

The rate would effectively place an upper limit on the price of credits traded between manufacturers. 

Penalties for Unresolved Deficits 

Companies that remain non-compliant after the assessment period could face a base penalty of ₹10 lakh. In addition, they may be required to pay between ₹25,000 and ₹50,000 for every vehicle sold that does not comply with the prescribed standards. 

According to the Mint report, Tata Motors Passenger Vehicles exceeded its CAFE targets by 10% in FY23, 20% in FY24, 20% in FY25, and 25% in FY26.  

Maruti Suzuki reported exceeding its targets by 2% in FY23, 5% in FY24 and 8% in FY25. FY26 data for Maruti Suzuki has not yet been released. 

Existing Framework 

India introduced CAFE norms in 2015. The first phase covered FY18 to FY22, while CAFE II is applicable from FY23 to FY27. The proposed CAFE III norms, covering FY28 to FY32, are also awaiting notification.  

If approved, the credit trading mechanism would become part of the current CAFE II compliance framework. 

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Conclusion 

The proposed credit trading mechanism is currently under consultation and has not been notified. If approved, it would become part of the CAFE II framework governing passenger vehicle fuel-efficiency compliance for FY23-FY27.  

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