~ 6 minutes read time

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Here’s a number we cannot ignore – heavy vehicles make up just 4% of all vehicles on Indian roads, yet they are responsible for nearly 60% of transport-related emissions. That one number alone shows why the newly announced Fuel Efficiency norms – Corporate Average Fuel Efficiency (CAFE) norms, by Bureau of Energy Efficiency (BEE) are so critical. 

First introduced in 2017, these were originally just fuel efficiency norms requiring all BS-VI heavy-duty vehicles (HDVs) (HDVs are vehicles above 12 tonnes) to meet minimum fuel efficiency levels based on their model’s requirement  when tested at 40 km/h and 60 km/h. These were known as Minimum Energy Performance Standards (MEPS). 

Building on this, BEE is now planning to tighten the regime further and is moving into the second stage. A new draft released on 28 July 2025 proposes taking fuel efficiency norms into Phase 2, where in model specific fuel efficiency norms will be replaced by CAFE norms. The proposed implementation window is from 2027 to 2032. 

What really makes Phase 2 stand out is also the introduction of Super Credits—a mechanism designed to reward cleaner zero-emission vehicles. 

Before diving into these details of proposed Phase 2, let’s step back and understand the basics: what exactly are CAFE norms? 

CAFE norms is a type of fuel-efficiency norm levied on manufacturers of all vehicles like cars, buses, and trucks. Under this, they have to improve the efficiency of the entire fleet they manufacture by a certain percentage by improving the engines of the vehicles. Instead of judging each model separately for fuel efficiency, regulators look at the average efficiency of an entire fleet produced by a manufacturer. This means that instead of judging each model separately, regulators look at the average efficiency of an entire fleet produced by a manufacturer.   

What is proposed now in Phase 2 for fuel efficiency of HDVs?

1. Shift from per-vehicle Minimum Energy Performance (MEP) to fleet-wide CAFE standard: Previously, every type /mode of vehicle had different efficiency requirement. But the new proposal says, efficiency targets need to be met on an average across all models sold by the manufacturer cumulatively.  
2. Stricter target: OEMs will now have to ensure 30% fleet-wide improvement in fuel efficiency compared to 2022–23 levels. Earlier fuel efficiency varied by models.  
3. Scope expanded: Covers light, medium, and heavy duty vehicles, across all fuels and not just diesel which was the case until now. Previously, it covered only medium and heavy-duty vehicles. 
4. Super-credits introduced: under this concept, for every Hydrogen and EV vehicle sold, the manufacturer gets a certain number of credits, which are considered equivalent to fuel efficient vehicles sold. For instance:
   
   • Sale of One Fuel Cell Electric Vehicles (FCEVs) also known as Hydrogen vehicles = ×4 Credits  
     Each of these four credits will be considered as selling 4 fuel-efficient buses while calculating fleet-average compliance. 
     
   • Sale of One Battery Electric Vehicles (BEVs): ×3credits- ×2 credits (diminishing multiplier over the years) 
     This means that if OEM sells 1 BEV bus initially, it will get 3 credits, which will be initially counted as selling 3 fuel efficient vehicles, and later as 2 fuel efficient vehicles giving bonus weightage to accelerate electrification in the early years. 

This gives bonus credit for each clean bus (EV or hydrogen) sold, making it easier for OEMs to meet compliance targets. For operators like the various state transport undertakings, this will eventually translate into more availability and choice of zero-emission buses in the market. For BEE, it ensures that fuel efficiency norms also linked to electrification. 

Why are these norms important in the context of India’s buses and trucks? 

1. Targets all types of trucks and buses: All types of fuels be it t diesel or CNG will be covered under the new norms. 
2. Cuts CO2 emission: Though these two categories of vehicles have a small share, they have a big impact on emissions. That is, though they are only ~4% of all vehicles they contribute nearly 60% of transport CO₂ emissions. 
3. Fuel = biggest operating cost: STUs and private operators spend 50–60% of their budgets on fuel. Improving efficiency directly reduces costs. 
4. Energy security: Cutting diesel and CNG use reduces oil imports, saving national resources and reducing exposure to global fuel price shocks. 

What does 30% better fuel efficiency mean for buses? 

Impacts & Benefits for Buses at large 

1. Medium-duty buses (M2): These are the 7-9 meter long buses. Making them fuel efficient will require, moderate-high effort which may drive OEMs to withdraw inefficient models. 
2. City-transit buses (M3): These are the regular 12m buses and used widely across major cities. Since making them fuel efficient would be challenge two outcomes are possible: 
3. OEMs would strongly prefer electrification to meet targets over, achieving 30% efficiency. Hence, manufacturers of these will need both efficiency upgrades + partial electrification to comply. 
4. ~30% reduction in emissions and air pollution in urban areas. 
5. Affordability: Fuel efficiency + electrification make bus services less vulnerable to fossil fuel price shocks. 

National-scale impact

On an avg. 80,000 new ICE buses registered every year. If these norms apply on all 80,000 of them, the benefits are massive: 

• Fuel savings: ~42 crore litres of diesel + 11 crore kg of CNG saved annually. 
• Cost savings: ~₹50,000 crore per year across operators. 
• Emission reduction: ~13.4 lakh tonnes CO₂ avoided annually. 

Why should State Transport Undertakings and bus operators support? 

• Direct cost savings: Each bus saves ₹6–7 lakh/year. For large fleets, this is hundreds of crores. 
• Cleaner fleets: Major reduction in CO₂, NOx, and PM → healthier cities, as buses contribute around 40% total emissions in passenger vehicle category.  

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Written and researched by Aditya Rane S- Senior Associate, Transport Systems and Electric Mobility
Edited by Donita Jose, Senior Associate, Communications

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Read time- 6 minutes

Chennai is on the brink of a clean mobility revolution. The Tamil Nadu Chief Minister, MK Stalin inaugurated over 120 electric buses on June 30—marking the city’s first major deployment of zero-emission buses. This will be the first time that the city bus operator- Metropolitan Transport Corporation (MTC) will operate e-buses! These 120 e-buses, all being non-AC, have been rolled out as part of a larger plan to electrify the fleet, with total of 625 buses expected to be introduced later this year in Phase 1. In Phase 2, which is slated for next year, another 600 are expected, taking the total to 1250 e-buses.

For a metropolis that moves lakhs of people daily, this is not just a fleet upgrade, it is a powerful signal that Tamil Nadu is serious about decarbonising transport and building climate-resilient cities. 

Transport: A Key Lever in Tamil Nadu’s Climate Action 

One of the key reasons why this move to go electric is a milestone for the state, is that transport is one of the growing contributors to greenhouse gases in rapidly urbanising state of Tamil Nadu. As per data from the recent report Tamil Nadu’s Greenhouse Gas Inventory and Pathways for Net-Zero Transition, GHG emissions from the transport sector in Tamil Nadu almost tripled between 2005 and 2019, from 10 million tonnes of carbon dioxide equivalent (MtCO2Eq) to 27 MtCO2Eq. The report also found that the share of transport sector emissions in the overall emissions has grown from 12% to 19% in the same period.  

The situation is likely to have not improved post 2019 as well, as data from the official Vahan dashboard shows that EV adoption is still in the nascent stages in Tamil Nadu.  

This slow uptake makes electrifying state-operated public transport fleets an important and high-leverage opportunity. With direct control over these fleets, the government has led by example. This one move has also enabled the broader EV ecosystem, including charging infrastructure, maintenance networks, and local manufacturing, to scale up! 

How things will pan out from July onwards

MTC currently operates 3420 buses in the Chennai Metropolitan Region. As per estimates from other Indian cities, each bus running on diesel, emits tail pipe carbon emissions to the tune of 755 gm CO2 per kilometre. While public buses still generate lower emissions per passenger-kilometre compared to private vehicles like cars and two-wheelers, the absolute emissions from diesel buses remain detrimental to the environment, especially considering the daily operations of thousands of kilometres. 

As per MTC’s current plans, the incoming e-buses will be introduced in phases. Initially these e-buses will be new additions to the fleet and will not be replacing the diesel buses. This will help in expanding the service of MTC to more parts of the city.  

By doing so, MTC will nudge more people to choose public transport over personnel vehicles. This shift will help bring down not just tail-pipe emissions from private vehicles but also ease the everyday issue of traffic congestion. After all, a single bus that carries about 50 passengers can replace nearly 30 cars on the road. What’s more, buses take up less than 2% of the total road length, but serve over 30–40% of all urban commuters. So, every new bus added to the fleet doesn’t just clean up the air—it also frees up road space, making the city move better and breathe easier. 

Additionally, MTC is exploring retrofitting older diesel buses with Compressed Natural Gas (CNG) technology. This parallel move will further lower tailpipe emissions from the remaining conventional fleet, ensuring that even non-electric buses contribute to a cleaner urban environment. 

In subsequent phases, these electric buses will begin replacing ageing diesel buses, leading to a gradual but sustained reduction in the carbon emission intensity of Chennai’s public transport system. This strategy balances both immediate service expansion and long-term decarbonisation.  

Funding Support	Electric Buses
KfW	500
World Bank- GCC based buses for MTC	625
World Bank- GCC based buses for MTC	600
KfW Phase 3	750
KfW Phase 4	650
KfW Phase 5	100

From Policy to Practice: Tamil Nadu Walks the Talk

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Written by Donita Jose, Senior Associate, Communications, with inputs from Sooraj EM, Deputy Manager, Transport Systems and Electric Mobility

Edited by Aangi Shah, Senior Associate, Communications

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Read time- 10 minutes

As cleaning up India’s air becomes more crucial than ever, is the lack of strong policies to electrify buses a critical piece missing in the puzzle? Being the world’s second-largest automotive market in both vehicle production and consumption (OICA, 2024), India’s transition to electric mobility is pivotal for achieving its climate targets. Most critically, buses will play a crucial role in reducing carbon emissions by 1 billion tonnes by 2030 and reaching net zero by 2070. 

But why are buses so critical to India’s story of reducing footprint? Road transport contributes over 10% of India’s total CO₂ emissions, with heavy-duty vehicles (HDVs) like buses and trucks accounting for nearly 40% of transport emissions despite representing only 2% of the vehicle fleet (ICCT, 2021). This disproportionate footprint highlights the urgent need to prioritise the decarbonisation of buses and trucks. Despite this, the current pace of electrification remains slow. 
 
In FY2024-25, only 3% of total bus sales in India were electric, with just 3,400 e-buses sold compared to over 1 lakh Internal Combustion Engine (ICE) buses. This is starkly insufficient against India’s commitment under the EV30@30 campaign, which targets 40% of all new bus sales to be electric by 2030. This is barely five years from now. 

Projections by ITDP India under the business-as-usual scenario estimated that India will only achieve 11% e-bus sales by 2030, far below the target of 40% under the EV30@30 initiative for buses. At this rate, only around 10,000 e-buses would be produced annually by 2030, whereas achieving the 40% target necessitates scaling production to 40,000 units per year—a four fold increase. Compounding this challenge is the limited manufacturing capacity of Indian e-Bus Original Equipment Manufacturers (OEMs), which collectively produce just 3,000 units per year as of 2025. Bridging this gap requires a paradigm shift—one that moves beyond demand-side incentives to a comprehensive policy framework anchored in Zero Emission Vehicle (ZEV) mandates. 

What are ZEV Mandates?

A Zero Emission Vehicle (ZEV) mandate is a regulatory policy that requires automakers to sell a certain percentage of zero-emission vehicles — such as battery electric vehicles (BEVs), hydrogen fuel cell vehicles (FCEVs), or plug-in hybrid electric vehicles (PHEVs) — each year relative to their total sales. 

In many regions, ZEV mandates are also extended to fleet operators, requiring them to procure a defined percentage of zero-emission vehicles within their fleet procurement cycles. 

Manufacturers that fail to meet these quotas must purchase credits from compliant companies or face penalties. ZEV mandates are designed to accelerate the transition away from internal combustion engine (ICE) vehicles and help countries meet their climate and clean air goals. 

How ZEV Mandates Helped EU and China

India’s EV penetration rate currently stands at 12.9%, driven largely by three-wheelers leading at 53.3% of sales, the adoption of larger vehicles such as buses and heavy-duty trucks has been considerably slower. 
 
Currently, electric buses account for only 3% of total new bus sales in India, despite the country being the world’s second-largest bus market with annual sales averaging over 1 lakh units. In comparison, China introduced its New Energy Vehicle (NEV) mandate in 2017. Within just six years of cumulative efforts, the mandate has led China to achieve a stock of over 6,70,000 e-buses on its roads as of 2024. The share of electric buses in new sales in China became over 20% by 2023 (Source: IEA Global EV Outlook 2023). Meanwhile, the European Union (EU) has also progressed steadily, with 8% of electric buses in new sales in 2023, amounting to around 12,000 e-buses. In contrast, India lags significantly behind these global leaders, with only 10,500 e-buses on the road as of 2025, despite ambitious national targets. This highlights the urgent need for India to shift from a demand-side incentive approach to a supply-side mandate framework like the ZEV and Zero-Emission Buses (ZEB) mandates adopted internationally. 

Globally, ZEV mandates have proven effective in accelerating EV adoption in: 

• China: The New Energy Vehicle (NEV) mandate introduced in 2017 resulted in a 90% compound annual growth rate (CAGR) for EV sales, making China the largest EV market with over 670,000 electric buses. 
• EU: The EU’s fleet CO₂ regulations have spurred a significant shift toward zero-emission buses, with 36% of new city bus sales being electric in 2023. 
• California: The state’s ZEV mandate has led to 7.8% of new vehicle sales being zero-emission, supported by credit trading mechanisms to ensure compliance. 

Why E-Bus Adoption is Slow in India Despite Several Incentives 

1. State Road Transport Undertaking (STU) Centric Policies and Incentives: The existing policy framework for e-buses heavily prioritises STUs, which account for only 8% of the total bus fleet in India. Meanwhile, the private sector, operating a staggering 92% of the buses, remains largely neglected.  
   
2. The Private Sector Missed the Electrification Bus: The private sector faces multiple challenges that hinder its participation in the e-bus transition. High upfront cost of e-buses, combined with inadequate financial incentives, makes e-buses prohibitively expensive for private operators who are managing nearly 21.50 lakh buses in India. (Vahan Dashboard, MoRTH Road Transport Book). Furthermore, the lack of robust charging infrastructure exacerbates operational inefficiencies and range anxiety, i.e how far the vehicle will go in a single charge. Despite accounting for 86% of total bus purchases annually, private operators are largely excluded from policies and incentives, leaving them reluctant to make large-scale investments in e-bus adoption.  
   
3. Delay in E-Bus Delivery: OEMs struggle to scale e-bus production due to fragmented and uncertain demand from STUs, which dominate the e-bus market with large but ad hoc orders. In the ICE bus market, OEMs have a sustained demand from private bus operators, which has enabled them to scale their production. For example, 95,000 new diesel and CNG buses were added to the roads last year alone. Due to this, unlike the ICE bus market, where large orders of 1,000 buses are typically delivered within six months and annual production reaches 10,000–15,000 units per manufacturer, e-bus orders of the same scale often take over a year or even two years to fulfill, with production capacities limited to just 500–600 units annually. This monopsony market, where there is only one buyer for a product or service, but many sellers, is heavily reliant on government procurement, restricts Original Equipment Manufacturers (OEMs) from diversifying their customer base or achieving economies of scale, thereby contributing to delivery delays.  
   
4. Overburden of responsibilities on OEMs: Most e-buses in India procured by STUs are being brought in under the Gross Cost Contract (GCC) model. In this model, OEMs not only manufacture but also act as operators for e-buses, as traditional private bus operators lack the capacity to procure and supply e-buses on GCC to STUs due to financial constraints. While this model has been instrumental in the past, launching the e-bus market for STUs, it is not sustainable in the long term for OEMs. The dual role burdens OEMs with operational responsibilities that require significant upfront capital, and operational expertise, including staff management, which many manufacturers lack. As a result, scaling production? Sales? Operations? under the GCC model remains a significant challenge for OEMs. 
   
5. Targets Without Mandates: Although national and state-level policies have established electrification targets for STUs, these targets are not supported by robust mandates or a clear roadmap for implementation. The lack of enforcement mechanisms leads to inconsistent adoption and undermines the efficacy of these policies. Without mandatory guidelines for both public and private operators, the transition to e-buses remains fragmented and slow. 

Need for Supply-Side Mandates in India

To meet its EV30@30 and net-zero targets, India must explore alternative measures beyond demand-side incentives to boost manufacturing. While initiatives like FAME-I, FAME-II, State schemes, and PM E-Bus Sewa have spurred initial growth, they are insufficient alone. Without a shift toward supply-side mandates, such as Zero Emission Vehicle (ZEV) mandates, the country risks falling short of its goals.  These mandates would compel manufacturers to scale up production significantly, addressing the current gap in manufacturing capacity and ensuring a steady supply of electric buses to meet the ambitious targets. They can ensure that clean mobility is no longer voluntary or incentive-dependent, but a legal and scalable requirement. 
According to the Economics of Energy Innovation and System Transition (EEIST) assessment, which evaluated the effectiveness of various policy instruments across four regions worldwide, mandates consistently emerged as the most effective tool for driving the transition to electric vehicles (EVs). According to the report: 

1. Mandates ensure a shift to zero-emission technology, leaving nothing to chance. They compel manufacturers to produce a certain percentage of zero-emission vehicles, thereby guaranteeing a steady supply of EVs in the market.  
    
   This approach is crucial for India, where the current manufacturing capacity of electric buses is significantly below the required levels to meet the EV30@30 targets. Sales must increase by atleast four times. 
   
2. Subsidies and taxes, when used without the support of regulations or mandates, are relatively ineffective due to limited consumer awareness and access.  
    
   While financial incentives like FAME-I, FAME-II, State schemes, and PM E-Bus Sewa have spurred initial growth, they are insufficient alone to meet India’s ambitious electrification goals. These incentives often fail to create a sustained market demand for EVs, as they do not address the supply-side constraints. 
   
3. Regulations are generally more cost-effective than financial incentives for driving the transition to electric vehicles. By setting clear targets and compliance requirements, mandates provide a predictable and stable policy environment that encourages investment in EV manufacturing and infrastructure. This regulatory certainty is essential for scaling up production and achieving the necessary economies of scale. 

Supply-side mandates, such as Zero Emission Vehicle (ZEV) mandates, will be crucial in bridging the gap in manufacturing capacity and ensuring a steady supply of electric buses. These mandates will compel manufacturers to significantly scale up production, addressing the current shortfall and ensuring that India remains on track to meet its electrification goals. 

Key Takeaways: 

• Subsidies and tax benefits provide only limited progress, as seen in the US, Europe, and India where EV deployment remains low without regulatory backing. 

• Regulations and supply-side policies drive higher adoption, particularly in China and Europe, where emission limits and industry obligations accelerate electrification. 

• ZEV mandates are the single most effective policy tool, ensuring that EV adoption continues consistently and at scale across all major regions. 

• India lags significantly in EV adoption under its current policy structure, reinforcing the need for legally binding mandates to drive large-scale transformation. 

Driving Toward a Sustainable Future 

India’s journey toward zero-emission transportation represents not just an environmental imperative but a transformative opportunity for the nation’s mobility sector. By adopting comprehensive Zero Emission Vehicle (ZEV) mandates, the country can overcome long-standing challenges such as limited private sector participation, insufficient manufacturing capacity, and fragmented policy frameworks. Learning from global leaders like China, the EU, and California, India has the potential to scale up electric vehicle adoption across high-impact segments like buses and trucks. 

Supply-side ZEV mandates, combined with prioritising local manufacturing, targeting commercial fleets, and fostering market-driven compliance, will enable India to achieve its ambitious EV30@30 and net-zero targets. With the right policies and collaborative efforts, India can lead the way in creating a cleaner, greener, and more equitable future for mobility.  

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Written by Aditya Rane S- Senior Associate, Transport Systems and Electric Mobility
With inputs from Vaishali Singh, Programme Manager, Transport Systems and Electric Mobility
Edited by Donita Jose, Senior Associate, Communications