Tata Motors Passenger Vehicles has urged the government to revise proposed changes to India's Corporate Average Fuel Efficiency (CAFE) rules, saying the draft framework could weaken the compliance system if the Bureau of Energy Efficiency (BEE) is allowed to sell carbon credits directly to automakers.
According to sources, the automaker has written a letter to the Ministry of Power. In the letter, the company said it supports the government's plan to introduce a credit-debit mechanism under the CAFE regime but called for changes to ensure the system remains credible and encourages genuine improvements in fuel efficiency.
The draft proposes that manufacturers failing to meet fuel efficiency targets can buy compliance credits from BEE at a fixed price of Rs 2,500 per gram of CO2 per kilometre.
Tata Motors said this would create a conflict because BEE would act as regulator, market administrator, price setter and seller of credits at the same time.
"A credit market can command confidence only if the regulator remains visibly neutral," the company said, adding that BEE should verify, record and administer credits but should not participate in the market as a seller. “Credits should represent actual, measurable and verified overcompliance, and should not be created administratively in unlimited quantities merely upon payment.”
Instead, Tata Motors proposed that BEE facilitate trading between manufacturers that generate surplus credits by exceeding emission targets and those that fall short. It said this mechanism would allow market-based price discovery while rewarding companies that invest in cleaner technologies.
The automaker also said compliance credits should only come from verified over-performance by manufacturers and should not be created simply through payment to the regulator.
Credits not backed by actual reductions in fuel consumption or emissions would dilute the environmental value of the system, it said.
Tata Motors further argued that the proposed Rs 2,500 credit price is lower than the statutory penalty for non-compliance under the Energy Conservation Act, which it estimated at about Rs 5,000 per gram of CO2 per kilometre.
This, it said, could make buying credits cheaper than investing in technologies needed to meet fuel efficiency norms.
"If the cost of improving products or technologies exceeds the proposed credit price, manufacturers may choose to buy credits instead of complying," the company said, adding that such an outcome would weaken the purpose of the CAFE framework.
The company recommended that manufacturers first be allowed to purchase credits generated by over-compliant automakers. If no such credits are available, any remaining shortfall should attract the statutory penalty rather than be settled through regulator-issued credits.
Tata Motors also asked the government to allow unused compliance credits earned through verified over-compliance to be carried forward into future CAFE compliance periods, saying this would encourage manufacturers to exceed targets instead of merely meeting them.
The Ministry of Power, in consultation with the Bureau of Energy Efficiency (BEE), issued a new draft amendment notification for the Corporate Average Fuel Efficiency (CAFE) Phase II norms recently. The ministry has sought stakeholder comments on proposed amendments to the notification.