Four-scenario framework for the CAFE 2027 OTC credit market - what each scenario assumes, what moves the market, and which variables OEM treasury teams actually need to track.
Each year, BEE's passbook ledger computes every OEM's position: target, effective fleet average, surplus or deficit. Surplus OEMs hold credits denominated in g-units - one g-unit equals one gramme of CO2/km of avoided emissions across one unit of sales. Deficit OEMs need to either close the gap operationally, buy credits OTC from surplus OEMs, buy from BEE's direct sell-leg, or pay the EC Act Section 26 penalty.
The OTC market is peer-to-peer with the BEE passbook as ledger. Per industry coverage of the planned market design - the sell-leg is now codified in the 16 July 2026 CAFE 2027 draft as an escalating BEE buyout (FY28 ₹2,500 rising to FY32 ₹4,500 per g CO2/km), which confirms the band modelled here - the BEE direct sell-leg acts as a soft price band: an effective floor at ₹2,500/g-unit (the price at which BEE will sell credits to anyone who wants them) and an effective ceiling at ₹4,500/g-unit (the price above which credits become uncompetitive against direct purchase from BEE).
Two markets in one
The CAFE-III market is structurally two markets stacked: the OEM-to-OEM OTC market (where the real volume should clear) and the BEE direct sell-leg (the market-maker mechanism). The OTC price moves within the escalating buyout schedule (₹2,500 FY28 to ₹4,500 FY32) based on supply-demand. The BEE leg is the backstop when the OTC market does not clear.
The market does not clear at a single point - it clears across a band based on the S/D ratio. The clearing-price function is piecewise linear:
floor + (ceiling − floor) × (1 − (S/D − 0.85) / 0.65)The interpolation logic produces a clearing price that smoothly transitions across the band. A market at S/D 1.2 clears at ~₹3,400/g-unit. A market at S/D 0.9 clears at ~₹4,350/g-unit.
The 5-year value of the OTC credit market depends on four variables: super-credit policy stability, BEV ramp delivery, pooling adoption, and enforcement intensity. Different combinations of these produce qualitatively different markets.
The single most consequential variable
Super-credit policy stability is the variable to track. A move from 3.0× flat to an EU-style phase-out shifts the 5-year market value by roughly 2.5× on our model - and the spread across all four scenarios is roughly an order of magnitude. For a treasury team deciding whether to bank credits or sell them at the floor, this is the daily watch.
Want a sensitivity slider across all four scenarios for your OEM?
See it in TerraNova →Credit supply in the OTC market is driven by OEMs whose fleet-average position sits below the year-by-year Standard - either because of a heavy BEV mix, a strong SHEV anchor, or because their fleet is mass-curve-favourable at high W.
Under an EU-style super-credit phase-out, total industry supply falls materially because every BEV in every supply-side OEM's fleet generates less denominator inflation. Tata loses the most in absolute terms; smaller pure-EV players lose proportionally.
Credit demand comes from OEMs whose fleet-average position sits above the year-by-year Standard and who can't close the gap fast enough through their own decarb levers. Demand is more diversified than supply: large-volume OEMs with thin BEV mixes drive absolute exposure; premium importers drive concentrated ceiling-adjacent demand.
The 5-year credit-market view in this article is a Climate Decode forecast model. It is not in the BEE draft. The model combines what the BEE Sept 2025 draft actually says about the Standard formula, super-credits, penalty schedule and pooling with our assumptions about OEM-level BEV ramps and policy enforcement intensity - and produces an OTC clearing-price forecast. Here's what feeds it, what it does, and what comes out.
For each scenario (Base, EU phase-out, Downside, Upside), the model produces: 5-year OTC market value in ₹ Cr, the supply / demand ratio, the implied clearing price, the share of supply that ends up banked vs realised, and the unmet-demand penalty exposure. Every output is traceable back to which input drives it.
Where the model is fragile
The single biggest fragility is the super-credit haircut question (covered in Part 4). If BEE moves toward an EU-style phase-out of the 3.0× BEV multiplier, the model output shifts from the Base scenario to the EU phase-out scenario - a roughly 2.5× change in 5-year market value. This is the assumption to revisit when the final notification lands.
Want to Run Your Own Scenarios?
TerraNova for CAFE lets you set the BEV ramp, enforcement, pooling, and super-credit assumptions for your OEM's position and re-clears the credit market live.
Book a walkthrough →Five variables move the clearing price more than anything else. Three of them are policy (super-credit schedule, pooling provisions, enforcement intensity); two are operational (BEV ramp delivery, WLTP cycle baseline). Modelling these as levers in TerraNova for CAFE produces the per-OEM scenario engine.
Part 7 covers TerraNova for CAFE - the workspace that combines onboarding, dashboard across regimes, decarb-lever planning under super-credits, Compliance Manager projections, and the 5-year market-watch view.
Part 2 - CAFE-III Mechanics · Part 5 - Cost Exposure · Part 7 - TerraNova for CAFE
Primary regulatory sources and verified analysis cited above.
From per-OEM cost exposure to the 5-year credit-market view, Climate Decode helps Indian passenger-vehicle OEMs sequence the CAFE-III response with finance-grade clarity.
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