Proposed Credit Trading Mechanism under CAFE Norms

The Power Ministry has introduced a proposal for a credit trading mechanism under the nation's Corporate Average Fuel Efficiency (CAFE) norms. This initiative aims to allow passenger vehicle manufacturers to trade surplus compliance credits and purchase credits from the Bureau of Energy Efficiency (BEE) to meet fuel-efficiency targets.

Key Features of the Proposal

• Draft Amendments: Issued under the Energy Conservation Act, these amendments propose a formal framework for: 
  • Credit and debit accounting
  • Passbooks
  • Pooling arrangements
  • Compliance assessment
• Applicability: The CAFE norms have been in force since FY23, requiring manufacturers to meet a fleet-average fuel-efficiency standard to reduce fuel consumption and carbon dioxide emissions. 
• Compliance Credits:
  • Manufacturers outperforming fuel consumption targets earn compliance credits.
  • Those below the target accumulate debits.
  • Credits can be carried forward, transferred through pooling arrangements, or used for future compliance.
• Credit Purchase: Manufacturers can offset debit balances by purchasing credits from the BEE at ₹2,500 per gram of CO₂ per kilometre for each reporting period from FY23 to FY27. 
• Passbook Requirement: Manufacturers need to maintain a credit and debit passbook recording credits earned, used, transferred, and carried forward across compliance periods. 

Objectives and Benefits

• To operationalize compliance provisions within the existing CAFE framework, especially for pooling arrangements.
• To improve regulatory certainty and establish a transparent compliance mechanism.
• To incentivize manufacturers that exceed fuel-efficiency standards.
• To provide a cost-effective compliance route compared to the statutory penalty under the Energy Conservation Act.