What is still being fought over in the BEE draft — super-credit policy stability, mass-curve fairness, WLTP cycle data validation, pooling provisions, and the enforcement question that hangs over the entire credit market.
The 3.0× BEV multiplier in CAFE-III is the single most generous super-credit in any major automotive market today. It is also the single biggest piece of policy risk in the OEM strategy book. If BEE haircuts the multiplier mid-block, the credit market re-prices overnight and capex decisions that looked rational under 3.0× can become stranded.
| Jurisdiction | BEV super-credit trajectory |
|---|---|
| India CAFE-III (draft) | 3.0× FY28-FY32 (uniform, draft) |
| European Union | Reg 2019/631: 2.0× in 2020 → 1.67× 2021 → 1.33× 2022 → 1.0× from 2023, capped at 7.5 g CO2/km per-OEM cumulative over 2020-2022 |
| United States | Never above 2.0× (in some compliance flexibilities; not a fleet-wide multiplier) |
| China NEV mandate | Separate dual-credit system; effective multiplier 2-5× depending on range and efficiency |
Why the haircut risk matters
OEMs investing in BEV platforms today are pricing in 3.0× super-credit value to justify the per-unit capex. If BEE moves to a phase-out trajectory (e.g. 3.0→2.0→1.0 over FY28-FY30), Tata's ~₹15K Cr nominal surplus value collapses and Maruti's SHEV-anchored hedge becomes much more valuable. Part 6 models both scenarios in full.
EV-heavy OEMs (Tata, MG-JSW) are publicly lobbying for the 3.0× multiplier to be locked for the full block. SHEV-heavy OEMs (Toyota, Maruti partially) want the 2.0× SHEV multiplier preserved through final notification — an earlier consultation draft had reduced it to 1.6× before the September 2025 published draft brought it back to 2.0×. Both pushes will be visible in the notification expected H2 CY2026.
The mass curve adjusts each OEM's target up or down based on weighted-average unladen mass W. The September 2025 BEE draft uses constants a = 0.002 (flat across all 5 years) and b = 1,170 kg. Per The Hindu (25 Feb 2026), a revised draft circulated to industry switches to a variable slope — 0.00153 in Year 1 declining to 0.00128 in Year 5 — which tightens permissible emissions for heavier vehicles while giving small cars some relief. The arithmetic effect is visible at the extremes.
| Fleet curb weight | Effective target | Equivalent to |
|---|---|---|
| 1,000 kg (Maruti) | ~87.6 g/km | Tightest target in the industry |
| 1,300 kg (Tata) | ~88.1 g/km | Mid-market norm |
| 1,700 kg (Mahindra) | ~88.7 g/km | SUV-heavy norm |
| 2,000 kg (Mercedes) | ~89.2 g/km | Premium-import norm |
A 2× difference in fleet weight produces a ~1.6 g/km difference in target. Small carmakers argue the slope should be steeper to reflect that lighter vehicles are inherently more efficient per kg. Premium importers argue the slope should be flatter still — or replaced with a footprint-based system — on the basis that the heaviest cars carry the most safety equipment and absolute efficiency is a poor proxy for societal harm.
Why this is a real fight
Maruti's lobby framing is that the curve unfairly penalises Indian small-car manufacturing, which is the country's industrial employment base. The counter-argument is that small cars are more important precisely because of their volume share and should face proportional CO2 standards. There is no obvious right answer; the political reality is that Maruti's position carries considerable weight in Delhi.
Want to model your position under a phase-out vs flat 3.0× scenario?
See both scenarios →ARAI AIS:175 is published. But per-model WLTP CO2 values for the existing Indian fleet are not officially certified yet. Every model variant needs a fresh ARAI test cycle under WLTP before its CAFE-III baseline number is locked. Without that data, OEMs cannot project their compliance positions with confidence, and BEE cannot run the credit market with a clean ledger.
The Society of Indian Automobile Manufacturers (SIAM) and several small-carmaker representatives have publicly asked for a 12-18 month deferral on the WLTP transition specifically to allow validation. BEE's position has been that the data can be gathered in parallel and locked closer to 1 April 2027. Whichever way this goes determines whether FY28 is a real compliance year or a learning year masquerading as one.
The OEM-side data problem
For OEMs running TerraNova for CAFE, the platform currently uses the MIDC×1.18 conversion as a working estimate. The day official AIS:175-certified WLTP numbers land, every fleet-level projection re-baselines. The shift will be material at the variant level even if the fleet aggregate is close.
The EU allows OEM groups to pool their CAFE deficits across legal entities. Volkswagen Group pools VW, Audi, Skoda, SEAT and others; Stellantis pools its multiple brands. The pooling provision is what keeps premium European OEMs alive under tightening targets — they offset their high-emitting flagships with the low-emitting volume models in the same group.
Correction to earlier industry chatter: the 25 September 2025 BEE draft does permit pooling. Section 7 of the draft text states: "manufacturers (not more than 3) of said motor vehicles may decide to conclude a pool. A pool shall be considered as 'one manufacturer' for the purpose of compliance with Annual Average Fuel Consumption Standard." A nominated pool manager is the contact point and bears responsibility for any penalty. The cap at three is the design constraint that matters.
What the 3-OEM cap means in practice
Skoda-VW India + Audi India + a third European premium (BMW or Mercedes) can pool into a single compliance position. That largely solves the premium-importer deficit problem on paper. But it does not allow open-ended industry-wide pooling — a single "compliance trust" structure absorbing the whole market is explicitly blocked. The cap also limits how much Tata (a likely surplus seller) can stabilise its credit revenue by pooling with deficit OEMs.
The pooling sensitivity
How aggressively OEMs actually form pools determines whether ~₹1,000-1,500 Cr of premium-importer demand stays in the OTC credit market or vanishes into intra-pool netting. Watch for early pool announcements once the standard is notified.
Until early 2026 the open question was whether enforcement would happen at all. As of 30 March 2026, ₹2,728 Cr in CAFE-II fines have been levied on nine OEMs covering FY23-FY25, per the Ministry of Power's presentation to the PMO. The figure was recalculated down from an earlier ~₹7,800 Cr estimate using a flat ₹37.5 lakh per OEM as the standard charge for the April-December FY23 partial period. Mahindra publicly denied a reported penalty in November 2024; the March 2026 confirmation supersedes that denial. Enforcement is no longer hypothetical.
But the open variable for CAFE-III is the intensity of enforcement, not its existence. If the recalculation pattern holds — headline fines collapsing to ~35% of the gross schedule via methodology adjustments — then the effective demand floor in the credit market sits well below the gross EC Act Section 26 schedule. A net buyer that prices in continued recalculation can defer credit purchases. A net seller may end up holding scrip with a thinner buyer base than the headline penalty schedule implies.
| Enforcement scenario | Credit market clearing |
|---|---|
| Strict enforcement — penalty schedule applied | Market clears at BEE ceiling (₹4,500/g-unit) in undersupply; floor in oversupply — full ~₹12-30K Cr OTC market value |
| Selective enforcement — major OEMs only | Market still clears but at discount to ceiling; ~50-70% of headline value realised |
| Recalculated / discounted enforcement (CAFE-II March 2026 pattern) | Credit market clears at ~35-50% of nominal value as methodology adjustments reduce headline schedule; Tata's ~₹15K Cr surplus becomes ~₹5-8K Cr realised |
The credibility problem
BEE's posture suggests it wants enforcement. MoRTH's posture suggests it does not. The Energy Conservation (Amendment) Act 2022 gave BEE the credit-market authority (Section 14AA) AND the penalty schedule (amended Section 26) in the same statute — but Ministry of Power runs BEE, while MoRTH handles vehicle-level enforcement. The agencies sit in different ministries with different political constituencies. This is the central credibility question.
TerraNova Switch
Toggle the enforcement-intensity lever in TerraNova to see how each of the four issues moves your OEM's position in real time.
Explore TerraNova for CAFE →The notification expected in H2 CY2026 is being shaped by competing pushes.
| Lobby | What they want |
|---|---|
| Small-car carmakers (Maruti, Hyundai-Kia low end) | Curve relief, slower step-down, longer transition |
| EV-heavy OEMs (Tata, MG-JSW) | Super-credit preserved at 3.0× for the full block, no pooling (which would dilute their seller position) |
| Premium importers (Mercedes, BMW, VW, Audi) | Pooling permitted but cap raised above 3 OEMs (or sub-pooling within an OEM group); flatter mass curve at higher W; more generous off-cycle stack |
| SHEV-heavy (Toyota, Maruti partially) | 2.0× SHEV multiplier preserved in final notification (was restored from 1.6× in an earlier consultation draft) |
| BEE (Ministry of Power) | Encourage BEV adoption, generate revenue from direct sell-leg, maintain credibility under the EC Act mandate |
| MoRTH (Transport Ministry) | Reduce oil import bill, avoid penalty-heavy enforcement that creates political backlash, keep India's PV industry globally competitive |
Plus a structural question that sits outside the OEM lobby: CCTS-CAFE cross-market fungibility. India's industrial Carbon Credit Trading Scheme runs at ~₹1,850 per tonne CO2e. CAFE g-units convert to roughly ₹165,000 per tonne — ~90× richer per tonne of CO2. There is currently no policy on whether OEMs in industrial-group settings (Tata Steel feeding Tata Motors; Birla feeding Hindalco potentially) can net positions across markets. Climate Decode's position is that some bounded fungibility would improve overall market integrity.
What to watch for in the notification
The single most consequential paragraph in the H2 CY2026 notification will be the super-credit schedule. If BEE locks 3.0× flat for the block, base-case oversupply holds. If it phases down EU-style, the EU phase-out scenario activates. Everything else in the OEM strategy book hangs off that one paragraph.
Part 5 quantifies per-OEM cost exposure across the FY28-FY32 block — penalty potential, capex requirements, the PLI / FAME / GST incentive stack that offsets it, and the per-unit value of the average BEV at today's prices.
Part 2 — CAFE-III Mechanics · Part 3 — OEM Landscape · Part 6 — The Credit Market Modelled
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.