The Central Government has released a draft of new Corporate Average Fuel Economy standards for passenger vehicles. These new rules will come into effect from 1 April, 2027.
The main objective of this policy is to increase the fuel efficiency or mileage of cars and protect the environment from pollution. This could make ethanol, hybrid and EV cars cheaper and more polluting petrol and diesel cars more expensive.
Why they could become cheaper
- In the new policy, the government will give ‘super credits’ to companies for selling EV and hybrid cars. If a company sells one electric car, it will be counted as equivalent to 3 cars on paper. One hybrid car will be counted as equivalent to 1.6 cars.
- This will make it easier for companies to meet their pollution reduction targets. In such a scenario, companies may sell these cars at attractive prices or with offers so that they sell more.
Why they could become expensive:
- High-polluting cars (i.e., low mileage cars) will become a problem for companies. If a company’s average car pollution exceeds the set limit, it will incur losses.
- To cover these losses, companies will have to purchase credits from other companies or the government, which will cost between ₹2,500 to ₹4,500 per gram of carbon dioxide.
- Companies will not bear the burden of this heavy penalty from their own pockets, but will recover it from customers by increasing the prices of high-polluting cars.
- These changes will transform the entire strategy of auto companies. They will launch more environment-friendly technology models. Petrol and diesel models will be left behind.
There will also be benefits on purchasing E85 and E100 ethanol cars
What will be the impact on E85, E100 cars?
Flex fuel cars, meaning petrol cars that run on 85%-100% ethanol. These will get a discount of 22.3%. If a company sells one flex fuel car, it will be counted as equivalent to 1.1 on paper.
How will E20 petrol cars be affected?
In the new policy, if you buy an E20 car, the government will consider the emissions (CO2) from that car as 8% less in the company’s account. This means they will be helpful in achieving pollution targets.
Will E20 cars be cheaper or more expensive?
New fuel-saving technologies in cars (such as tire pressure monitoring, LED lights, better gearbox) will be mandatory. Initial prices may increase.
Will there be any impact on old cars?
No. This rule will only be applied to new cars (M1 category) manufactured or imported from abroad after April 1, 2027.
Will the gear system of cars also change?
The policy promotes gearboxes with 6-speed or more, as they save up to 5% fuel.
Will mileage be measured differently?
Yes, India will now move from the old MIDC system to the global standard WLTP, which is closer to real mileage.
What does the companies’ ‘passbook’ mean?
Every company will have an account, which will be called a ‘passbook’. It will contain a complete record of their good performance (credit) or poor performance (debit).
Can ‘credits’ be bought and sold?
Yes, the policy has a ‘pooling’ option, companies selling more clean cars can sell savings to other companies.
Who will the new rules not apply to?
Companies that sell less than 1,000 cars per year will be exempted from this.
What is the ultimate goal of this policy?
The government’s objective is to reduce India’s dependence on oil imports, increase energy security, and achieve the net-zero emissions target by 2070.
Can diesel cars be discontinued?
The new policy does not mention discontinuing diesel cars, but it makes them a ‘loss-making deal’ for companies. Diesel does not get fixed exemptions like petrol.
It is considered a higher fuel consumer. To avoid penalties, companies may increase prices of diesel cars, which could impact sales.
