New fuel efficiency proposal for automakers signals an EV future for India

Indicating a clear intent to support low- and zero-emission technologies, the Bureau of Energy Efficiency (BEE) has proposed incentives for carmakers to produce more battery EVs to avail higher fuel efficiency credits, even as EV sales volumes are stagnating.

On the other hand, BEE has proposed changes to the corporate average fuel economy (CAFE-III) standards to relax the timeline for reducing carbon dioxide emissions, reflecting an ongoing dialogue between regulators and the auto industry.

CAFE III standards, earlier proposed from 2027-2030, would now be in effect till 2032, as per BEE’s latest proposal circulated among testing agencies, original equipment manufacturers, and the ministries of roads, heavy industries, and power. Mint has reviewed a copy of the proposal.

Mint reported earlier this month that BEE had taken a hard line about imposing stringent, Europe-like CO2 emission targets on automakers. 

“The proposed extension of CAFE-III standards until 2032, instead of 2030 as was discussed earlier, provides the industry with much-needed breathing room to adapt to these ambitious targets," said a senior executive with a leading passenger vehicle manufacturer, speaking on condition of anonymity as discussions on the matter are ongoing.

Smoother transition, but a few sticking points

The initial proposal to end CAFE III standards by 2030 was met with significant resistance from the auto industry, which argued that the strict CO2 emission-reduction targets were overly ambitious.

One of the key changes in BEE’s proposal is to extend the compliance period from a three-year block to a five-year block for achieving a CO2 emissions target of 70 g/km, from 2032-2037. This is intended to give auto manufacturers more flexibility and time to develop and integrate new technologies to meet these targets.

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Additionally, BEE in its latest proposal states that until 2027, emissions will continue to be measured based on the Modified Indian Driving Cycle (MIDC) instead of the Worldwide Harmonized Light Vehicles Test Procedure (WLTP) cycle. 

The MIDC cycle, which is considered less stringent than the WLTP cycle, is a standardised driving test to measure fuel consumption and emissions of vehicles. The WLTP cycle is a globally harmonised procedure known to be more rigorous, reflecting real-world driving conditions more accurately.

“Maintaining the MIDC cycles until 2027 is a pragmatic decision," an official from a government-affiliated testing agency said, not wanting to be named. “The WLTP cycles, while more reflective of real-world conditions, would have imposed additional testing burdens on manufacturers during this critical transition period."

The extended timeline and the continuation of the MIDC cycle are seen as measures to ease the industry’s burden and encourage a smoother transition towards lower emissions, but there are other sticking points. 

The consultations have thus far involved automakers and will now be broadened to include other stakeholders, ensuring a comprehensive and inclusive decision-making process.

Under the proposed CAFE standards, the volume load factor, which influences the crediting mechanism for different types of vehicles, will see significant adjustments. This factor is crucial as it dictates how much credit auto manufacturers receive for producing certain types of vehicles, impacting their production strategies.

Battery EVs, ethanol in focus

For hydrogen fuel cell electric vehicles, the existing ‘super credit’ factor of 3 will be increased to 5 in both CAFE III and CAFE IV, according to the proposal. Battery electric vehicles (BEVs) will see an increase in their super credit factor from 3 to 4, indicating a clear governmental intent to support zero-emission technologies like hydrogen fuel cells and BEVs. 

On the contrary, plug-in hybrids see their super credit factor decrease from 2.5 to 2 in CAFE III and further to 1.5 in CAFE IV in the proposal. Strong hybrids will face an even steeper decline, with their factor reducing from 2 to 1.2 in CAFE III and to 1 in CAFE IV. To be sure, strong hybrid technologies are seeing rising popularity in India and globally, even as EV volumes are stagnating.

The super credit factor is a multiplier which gives extra credit to manufacturers for producing low or zero-emission vehicles.

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“These adjustments in volume load factors are a clear signal that the government wants to prioritise zero-emission technologies over transitional technologies," another auto industry executive said. 

“By increasing the super credit factors for hydrogen fuel cells and BEVs, the government is incentivising (original equipment manufacturers) to accelerate the development and deployment of these advanced technologies," he added. “But this might come at the exclusion of other, more practical intermediary technologies like hybrids which customers seem to have a clear preference for."

Additionally, the proposal introduces a new CO2 reducing technology derogation factor for ethanol. This factor will be set at 0.95 under both CAFE III and CAFE IV. This inclusion points to the government’s intent to promote ethanol as a viable alternative fuel, in tandem with its self-sufficiency goals.

“While these are still proposals and subject to further consultations and refinements, they provide a clear indication of the policy direction and the expectations being set for the industry," said the second executive quoted above.