TL;DR
India's revised CAFE-3 standards are set to tighten fuel efficiency norms, likely increasing prices for small petrol cars due to the removal of derogation, while promoting REEVs alongside EVs.
Manufacturers of small cars in India may face increased regulatory hurdles with the proposed implementation of the revised Corporate Average Fuel Efficiency (CAFE-3) standards. These new norms aim to enhance vehicle fuel efficiency and significantly reduce carbon emissions, with a particular focus on supporting larger vehicles, especially electric and hybrid electric models.
A key modification in the latest draft of CAFE-3, which is yet to be officially released, is the Bureau of Energy Efficiency's (BEE) proposal to eliminate the derogation or extra allowance previously granted to small car manufacturers. This removal is expected to lead to a rise in prices for entry-level petrol cars, as manufacturers will need to integrate more advanced fuel-saving technologies to meet the stricter standards or incur penalties.
Conversely, the revised draft introduces Range-Extended Electric Vehicles (REEVs) with a Volume Derogation Factor (VDF) of 3, equivalent to pure electric cars. This move aims to promote less polluting vehicles, addressing concerns such as low EV charging infrastructure penetration, range anxiety, and battery life uncertainty among buyers. However, the equal treatment of REEVs and EVs is a point of debate, given that REEVs still produce tailpipe emissions when their internal combustion engine is active.
