Tata Motors Passenger Vehicles (TMPV) has proposed several changes to the Centre’s draft amendments to the Corporate Average Fuel Efficiency (CAFE-II) regulations, while expressing support for the introduction of a compliance credit mechanism. The company has urged the Ministry of Power to refine the proposed framework to ensure transparency, preserve market credibility and continue encouraging improvements in vehicle fuel efficiency.
According to a letter sent to Power Secretary Pankaj Agrawal on July 14, Tata Motors said a credit-debit mechanism could help manufacturers meet fuel-efficiency targets in a structured manner, provided it is designed to reward genuine over-compliance and maintain confidence in the regulatory system.
The draft amendments, circulated earlier this month by the Ministry of Power for stakeholder feedback, propose a system under which manufacturers exceeding their fleet-average fuel-efficiency targets would earn compliance credits, while those falling short would accumulate debits. Companies would be allowed to trade these credits among themselves, while the draft also proposes that manufacturers could purchase credits directly from the Bureau of Energy Efficiency (BEE) at a fixed rate to offset compliance shortfalls.
One of Tata Motors’ primary recommendations is that BEE should remain an independent regulator rather than participating as a seller of compliance credits. The company argued that BEE’s role should be limited to administering the framework, verifying compliance and maintaining manufacturers’ credit records. According to Tata Motors, allowing the regulator to simultaneously oversee the market while also selling credits could raise concerns about neutrality and influence price discovery.
The company also stated that compliance credits should only be issued against verified improvements in fuel-efficiency performance. It argued that credits created solely through financial transactions, without corresponding emission reductions, would not carry the same environmental value as credits generated through actual over-compliance.
Another concern raised by Tata Motors relates to the proposed pricing of credits sold by BEE. Under the draft framework, manufacturers could purchase credits from the regulator at Rs. 2500 per g CO₂/km to settle debit balances. Tata Motors noted that this amount is lower than the statutory consequence for non-compliance under the Energy Conservation Act, which it estimated at around Rs. 5000 per g CO₂/km. According to the company, such a structure could reduce the incentive for manufacturers to invest in improving fuel efficiency if purchasing credits proves to be a less expensive alternative.
To address this, Tata Motors has suggested that manufacturers with compliance shortfalls should first procure credits generated by automakers that have exceeded their CAFE-II targets through market-based transactions. Only after such credits are exhausted should the statutory penalties continue to apply for any remaining deficit.
The company has also recommended allowing unused compliance credits to be carried forward into future compliance periods. Under the current draft proposal, credits earned during the FY2023-FY2027 compliance cycle would expire at the end of the block if they remain unused.
The proposed amendments are currently under consultation, with the Ministry of Power seeking comments from passenger vehicle manufacturers, industry bodies and other stakeholders before finalising the revised CAFE-II framework.
