Revised CAFE-3 draft tightens norms, may hit small car makers

NEW DELHI: Manufacturers of small cars may face greater regulatory challenges if the revised draft of CAFE-3, which proposes to improve vehicle fuel efficiency and reduce carbon emissions, is implemented.

The latest proposed modifications will support bigger vehicles, particularly electric and hybrid electric ones, people involved in the deliberations have said.With the Corporate Average Fuel Efficiency (CAFE) issue remaining unresolved due to a tussle among car makers, the PM’s Office has intervened in the matter and roped in petroleum and heavy industries ministries in addition to road transport and power ministries to finalise the norms.

This is the third draft of CAFE-3 in the past two years.CAFE refers to govt-regulated standards that mandate a minimum average fuel efficiency and maximum CO2 emission level for the entire fleet of vehicles sold by a car maker. Instead of checking individual models, it measures the weighted average of all cars produced by a manufacturer.

As per the latest draft of CAFE-3, which has not been released yet, Bureau of Energy Efficiency (BEE) has proposed to do away with derogation (extra allowance) or relief for small car makers.

It has introduced a Range-Extended Electric Vehicle (REEV), which would have the same Volume Derogation Factor (VDF) of 3 as for electric cars. VDF is a targetted govt measure to push the sale of less polluting vehicles like EVs, REEVs and hybrids.People aware of the latest changes said the removal of derogation for small cars is expected to raise the prices of entry-level petrol cars. They added that REEV has been introduced keeping in mind the current low penetration of EV charging infrastructure, range anxiety among buyers and uncertainty of battery life.There is debate over REEVs being treated on a par with EVs considering that unlike EVs, these vehicles have tailpipe emissions when the engine is running.People aware of the proposed policy said that as car makers would be discouraged from manufacturing small cars that meet the regulatory norms relating to CAFE, the gap in migration of people from two-wheelers to cars may increase.Going by the draft norm, new cars under the proposed CAFE-3 regime would increase costs by around 10% as car makers would have to add more fuel-saving technologies to meet the new standards or face penalties, industry executives said.