A fundamental feature of India’s CAFE standards is that carbon emissions (and fuel consumption) targets are set based on vehicle weight, with heavier vehicles such as SUVs allowing higher maximum emissions per km (i.e. a more lenient target) compared to those for smaller vehicles. | Photo credit: KRISHNAN VV
Let’s look specifically at the revisions to the Corporate Average Fuel Economy Standards (CAFE) for passenger cars proposed by the Bureau of Energy Efficiency for the period 2027-2032. CAFE specifies an average CO2 emissions per kilometer for all vehicles sold by a car manufacturer. Given certain assumptions, a carbon standard is equivalent to a fuel economy standard and vice versa. Phase I of CAFE lasted from 2017 to 2022. Phase II, in effect through 2027, lowered the cap on average CO₂ emissions per km and introduced additional credits for electric and hybrid vehicles to encourage adoption. The proposed Phase III standards for
Even lower average emissions per km are required between 2027 and 2032. Currently, these standards apply to passenger vehicles with a gross vehicle weight (GVW) of less than 3,500 kilograms, although similar standards are being considered for commercial trucks and buses.
A fundamental feature of India’s CAFE standards, which is also their weakness, is that targets for carbon emissions (and fuel consumption) are set based on vehicle weight, with heavier vehicles such as SUVs allowing higher maximum emissions per km (i.e. a more lenient target) compared to those for smaller vehicles. This means that companies that sell heavier vehicles (such as Tata and Mahindra) may find it cheaper to meet their targets compared to carmakers that mainly sell smaller cars (such as Maruti), because fuel economy becomes more difficult as cars become more efficient.
Heavy influence
Simply put, heavier cars have more lower hanging fruit to increase fuel economy. Therefore, smaller cars may experience a greater proportional increase in costs compared to heavier cars. Although CAFE standards are not the main reason for the Indian car market’s shift towards large cars and SUVs
In recent years, weight-based targets can inadvertently make larger cars relatively more attractive. With SUVs and major manufacturers already marketing their cars as safer because they are heavier, standards targeting small cars will help strengthen their position and further reduce demand for smaller, more efficient cars. Of course, because heavier cars and SUVs are more expensive, weight-based standards for passenger cars are also socially unjust.
A second feature of CAFE that was introduced in Phase II and will be maintained at the same level in Phase III is called super credits. Supercredits allow sales of alternative fuel vehicles, such as pure battery EVs, hybrid EVs or flex-fuel (ethanol) vehicles, to be counted as if multiple units had been sold. A super credit of 3 for pure battery EVs means that each EV sold is treated as three EVs sold for compliance purposes. This reduces the number of actual alternative and clean vehicles that need to be sold to achieve a certain fuel consumption or emissions standard, counteracting the objective of increasing demand for alternative technologies. The simplest explanation for super credits is that they exist to reduce the cost of compliance with a given standard and make the standards more palatable to automakers. Generous super credits also reduce the incentive to innovate and become more competitive.
Regulatory recording
Interestingly, both weight-based standards and a form of supercredit appear in fuel economy standards in the US, China and the EU. This could mean that these features have advantages, or that the car manufacturers in those countries are as powerful as in India. The degree of truth in both is an empirical question. Suffice it to say, the more relaxed the emissions (or fuel economy) standards and the super credits are, the stronger the evidence that the auto industry is in control of the regulations. Unfortunately, the proposed level of super credits, which should be set at three by 2027, seems somewhat generous.
In any case, the proposed standards do not justify this number. BEE’s decision to once again solicit public comments on the current revised version, which are slightly stricter compared to the original standards it put forward in 2024, is welcome. However, in the opinion of this author, who submitted a public comment to BEE in 2024 on the earlier version calling for stricter standards, the proposed super credits seem super generous.
The reason for this is that lithium batteries and EVs are almost mature and battery prices have fallen more than tenfold over the past decade to below $100 per kWh internationally today. Moreover, EVs are also already supported with various forms of subsidies, such as lower VAT, income tax rebates, road tax and charging equipment, and preferential electricity rates, etc., which are not the point here.
But it does raise the question of why, despite all this, electric cars remain more expensive than what the cost of batteries suggests the difference in initial costs should be. The auto industry may prefer to blame the cost of the technology, as that is a way to convince policymakers to continue subsidizing it. But is that really the case? And if this is the state of affairs after a decade of subsidies and no mandates, isn’t there a need for stronger standards instead of weak regulation plus generous super credits?
If doing more of the same and expecting a different outcome is stupidity, isn’t this what finding new ways to soften the impact of electric vehicles on combustion engine vehicles amounts to? Our policymakers are certainly capable of holding powerful interest groups to higher standards if they muster the political will.
A broader perspective on energy efficiency
Speaking of broader policy frameworks and perspectives, there are many ways to increase energy efficiency and savings, such as making energy more expensive through further taxation; rewarding voluntary efficiency improvements (e.g. purchasing certain types of vehicles or using cleaner modes of transport such as public transport); mandating efficiency improvements (e.g. through minimum fuel economy standards) or requiring disclosure of information (e.g. fuel economy labels); and encouraging voluntary action through education, information provision and by fostering a sense of civic duty.
Each of these has its benefits and costs. Taxation can increase inflation and is politically unpopular; rewarding people with subsidies burdens public finances; mandating efficiency draws fierce opposition from companies that need reconciliation (the car lobby in India is quite powerful); walking, cycling and public transport are seen as slow, inconvenient and can even be unhealthy or unsafe given Indian traffic patterns; information on labels and stickers can be inaccurate or mentally difficult to process, and last but not least, voluntary actions or charity can rarely deliver the magnitude of change needed when the situation is serious.
This is not to say that energy efficiency is difficult or ineffective, but that we should pursue energy
efficiency using more than one means and not depending on a single policy. At the same time, the overall policy landscape must be as easy to navigate as possible, providing certainty and clarity to companies while minimizing arbitrary carve-outs to advance specific interests. These arguments also apply to the conservation and efficiency of water use, land use or other scarce resources, but we will focus here on energy efficiency in transportation.
In this regard, a potential weakness of fuel economy standards is that they do little to encourage people to use public transport. They reduce the marginal cost of driving, which can lead to an uptick in vehicle use, congestion and pollution. Yet this may be the least inefficient policy after pollution and congestion taxes.
The writer is faculty, UCLA Institute of the Environment and Sustainability
Published on December 6, 2025
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