Government Proposes Removing Manufacturer Cap In CAFE Pooling To Increase Compliance Flexibility

Government Proposes Removing Manufacturer Cap In CAFE Pooling To Increase Compliance Flexibility

The Indian government is considering revisions to the upcoming Corporate Average Fuel Efficiency (CAFE) Phase 3 regulations that would make it easier for car manufacturers to meet fuel-efficiency requirements through pooling arrangements. A key proposed change removes the earlier limit on the number of companies that can form a compliance pool.

Under the pooling mechanism, multiple manufacturers can combine their fleet fuel-consumption figures and be evaluated as a single entity for regulatory purposes. Earlier draft rules issued in September 2025 permitted pooling by up to three manufacturers. A revised proposal circulated in January 2026 instead specifies a minimum of two companies but does not impose any upper limit, effectively allowing larger alliances.

Pooling Could Help Balance High And Low Efficiency Portfolios

If implemented, the change would allow manufacturers with less efficient vehicle line-ups to partner with companies whose fleets have lower emissions. Compliance would then be calculated on the combined fleet average rather than on individual company performance.

The flexibility may be significant for the industry, particularly after several manufacturers collectively faced penalties running into thousands of crores for failing to meet earlier fuel-efficiency targets.

Revised Rules On Penalty Responsibility

The proposal also modifies how penalties would be handled inside a pool. Previous draft provisions placed payment responsibility primarily on the nominated pool manager. The updated wording shifts the manager’s role toward ensuring that each participating manufacturer settles its respective share of any penalty.

Draft pooling guidelines indicate that while the manager would initially handle compliance submissions, all members would remain legally accountable through a joint liability declaration under the Energy Conservation Act. This means enforcement action could extend to every participating company if targets are missed.

Administrative Process And Pooling Conditions

Manufacturers would be allowed to form a pool at different stages of the compliance cycle, including during adjudication before penalties are finalised. However, each company would be restricted to participation in only one pool per compliance period, which must run for at least one year aligned with the reporting cycle.

Pooling arrangements would need to be formally registered with the Bureau of Energy Efficiency, and the pool manager would be required to submit an annual compliance statement within 90 days after the financial year ends, with a limited extension window available.

Timeline For CAFE 3 And Ongoing Industry Debate

The proposed CAFE 3 norms are scheduled to apply from April 2027 through March 2032 and will cover passenger vehicles in the M1 category, including hatchbacks, sedans, SUVs and MPVs below 3500 kg gross weight.

Unlike the current CAFE 2 regime that uses a broad fleet-average CO₂ target, the upcoming framework proposes a mass-linked formula that sets different efficiency targets depending on the average weight of each manufacturer’s vehicle portfolio, with progressively stricter limits over time.

Earlier discussions around giving additional compliance relief to certain small, lightweight petrol cars triggered differing views within the industry. Some manufacturers supported concessions aimed at protecting entry-level small cars, while others argued such provisions could create competitive imbalance. Sources indicate the regulator may drop this special relaxation in the final notification.

The proposed revisions remain under consideration and have not yet been formally notified.