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The fiscal year 2026-2027 budget represents a watershed moment in the industrial history of the Indian subcontinent. For decades, India’s growth narrative has been inextricably linked to heavy industries—steel, cement, power, and refining—which serve as the bedrock of infrastructure but also the primary engine of carbon emissions. The Union Budget 2026-27 has fundamentally altered this trajectory by introducing a high-value fiscal instrument aimed at decoupling growth from emissions: a ₹20,000 crore (~USD 2.4 billion) outlay for Carbon Capture, Utilisation, and Storage (CCUS). This is no longer just research funding; it is a down payment on India’s industrial longevity.
The Union Budget 2026-27 defines the CCUS allocation as a cornerstone of the “Research, Development and Innovation Roadmap for CCUS”. This roadmap outlines a phased strategy, starting with an initial allocation of 500 crore INR for the fiscal year 2026-27, specifically channeled through the Ministry of Power to initiate large-scale pilots. The funding is designed to support the transition from Technology Readiness Level (TRL) 4-5 (laboratory and pilot) to TRL 8-9 (commercial operation in industrial settings)
To understand the significance of the 2026 budgetary intervention, one must first appreciate the structural rigidity of India’s emissions profile. Unlike developed economies that can achieve significant decarbonization through the electrification of transport and light industry, India’s emissions are heavily concentrated in sectors where electrification is either technically unfeasible or economically prohibitive.
The distribution of the 20,000 crore INR is expected to follow a multi-pronged mechanism involving Direct Capital Grants, Operational Subsidies, Viability Gap Funding (VGF) and to close any gaps impacting new trade agreements with EU and other countries. For hard-to-abate sectors like cement, where emissions are inherent to the chemical process of calcination (contributing to 57% of sectoral emissions), the budget will support the National CCUS Mission’s goal of capturing up to 2,000 tonnes of CO2 per day.
Status of CCUS in India
Prior to 2026, CCUS activity was limited to small-scale pilots and feasibility studies. However, the last 12-18 months have seen a surge in “steel-in-the-ground” projects. The landscape is dominated by Public Sector Undertakings (PSUs), which have taken the lead in de-risking the technology for the private sector. The operationalization of the ONGC Gandhar project is the most significant milestone to date. By successfully injecting 100 tonnes per day, ONGC has proven the geological feasibility of storage in Indian reservoirs. This addresses a primary concern of investors: the fear that Indian geology might be unsuitable for permanent sequestration. The project serves as the anchor for the proposed Gujarat CCUS Hub, which aims to aggregate emissions from the Koyali refinery and nearby chemical plants for collective storage. Similarly in the private sector, Tata Steel has integrated CCUS into its core decarbonization strategy. The company is actively exploring “Blue Hydrogen” (coal gasification integrated with CCS) as a transitional technology. JSW Steel announced ₹15,000 crore investment plans for decarbonization initiatives.
The “Hard-to-Abate” Paradox
The central challenge for Indian policymakers isn’t just about energy consumption; it is about chemistry. The industries essential to the vision of a Viksit Bharat (Developed India)—specifically steel and cement—face a unique “hard-to-abate” paradox.
Consider the cement sector. Nearly 60% of its emissions are not from burning fuel, but from calcination—the chemical breakdown of limestone into clinker. This process releases carbon dioxide as an unavoidable byproduct, a stoichiometric reality that no amount of solar or wind power can fix. As highlighted in the NITI Aayog’s recent decarbonization roadmap (December 2025), Carbon Capture, Utilisation, and Storage (CCUS) is the only technology capable of handling these process emissions. The roadmap estimates that to meet net-zero targets, CCUS must shoulder at least half of the abatement burden in this sector.
Similar logic applies to steel. India’s production is heavily reliant on the Blast Furnace-Basic Oxygen Furnace (BF-BOF) route, using coal not just for heat, but as a chemical agent to strip oxygen from iron ore. While hydrogen-based alternatives exist, abandoning the country’s young fleet of blast furnaces would be economically disastrous. CCUS provides a vital retrofit option, allowing these assets to remain operational while stripping out their carbon intensity.
The Energy Security Imperative
India’s energy security is structurally tied to coal, a reality that differentiates its CCUS strategy from the West. With the world’s third-largest reserves and a thermal fleet averaging just 12 years in age (compared to over 40 years in the US and Europe), India faces a massive “lock-in” risk. Prematurely retiring these plants would strand trillions in assets and destabilize the grid.
However, Indian coal presents a specific engineering hurdle: high ash content (30-45%). The resulting flue gas is laden with particulates that can clog membranes and degrade the chemical solvents used in standard Western capture technologies. Consequently, the DST roadmap prioritizes the development of “impurity-tolerant” solvents and second-generation capture methods designed specifically for these harsh conditions. The ₹20,000 crore budget allocation bridges the critical “valley of death,” moving these indigenous solutions from lab validation (TRL 4) to industrial pilots (TRL 7).
Unlike in Europe, where CCUS is often tolerated as a transitional necessity, in India, it is a tool for energy sovereignty. By including the power sector in this fiscal outlay, the government is signaling a clear intent: to decarbonize the coal economy rather than dismantle it.
This sectoral segmentation is crucial. By explicitly naming these industries, the government signals that the funding is intended for “point-source capture”- installing capture units directly on the smokestacks of large industrial facilities—rather than more speculative technologies like Direct Air Capture (DAC), which dominates some Western funding discussions and are more expensive than “at source” capturing.
While the budget documents do not explicitly detail the disbursement mechanics for every rupee, the recurring reference to “Viability Gap Funding” (VGF) in the context of infrastructure and green energy projects (such as the ₹1,000 crore for Battery Energy Storage Systems) strongly suggests a similar model for CCUS. We have identified some venues where the funding can make its way focusing on early movers.
Venues for Budget allocation
Apart from venues dedicated to industrial clusters, the CCUS budget should focus on other key initiatives which can deliver long term value.
A primary venue for the allocated budget is the facilitation of Joint Industry Projects (JIPs). These collaborative frameworks are essential because the CCUS value chain is notoriously complex, involving multiple stakeholders from emitters to transport operators and storage providers. Joint ventures like the one led by Wood PLC demonstrate how shared investment can solve technical bottlenecks that single entities are reluctant to fund. In the Indian context, this funding would likely be directed toward public-private partnership (PPP) models involving the Department of Science and Technology (DST) and major private industrial players. These partnerships enable the creation of “CCU testbeds” in real industrial environments, which are necessary to validate thermodynamic models under the specific flue gas conditions found in Indian industries.
Development of the Liquid (LCO2) Value Chain- To address the geographical mismatch between carbon point sources and suitable geological storage reservoirs, India must invest in a Liquid CO2 value chain. This infrastructure enables the collection of CO2s from various industrial clusters and its transport to deep underground aquifers or offshore reservoirs like those in the Krishna-Godavari or Cambay basins. Norway’s ‘Northern Lights’ project offers a working template. By operating as an open-access utility that ships liquefied CO2 from various industrial sites to offshore storage, it demonstrates how a ‘hub-and-spoke’ model can distribute infrastructure costs and allow inland emitters to access storage solutions.
International Collaboration- Crucially, this domestic effort is bolstered by strategic international partnerships. The 5th India-Australia Energy Dialogue (October 2025) has become a vital forum for technical exchange, particularly regarding the geological realities of sequestration. Australia’s experience with the Gorgon project—which has injected over 11 million tonnes of CO2 since 2019 but faced significant pressure management challenges—offers invaluable “lessons learned” for India’s own repository development.
Simultaneously, collaborations with Japan, South Korea, and Saudi Arabia are opening new avenues for “Blue Ammonia,” a critical input for decarbonizing India’s agriculture. Following the landmark shipment of low-carbon ammonia from SABIC to IFFCO in May 2023, these partnerships are now scaling up. Under the “Japan-India Clean Energy Partnership,” Japanese expertise is actively driving feasibility studies for ammonia co-firing in Gujarat’s thermal plants, effectively turning international diplomacy into domestic decarbonization.
Agriculture and Indirect Carbon Abatement- The 20,000 crore INR budget allocation is designed to overlap with broader agricultural strategies to address “indirect contributors” to the carbon footprint. While 40% of India’s emissions are distributed (agriculture, transport), the CCUS mission formalizes a carbon market that allows farmers to participate through sustainable practices where farmers can earn carbon credits by adopting agroforestry, improving soil carbon storage, and reducing methane in paddy fields. By incentivizing the use of CCUS-derived “Green Urea” and blue ammonia, the strategy addresses the indirect emissions of the agriculture sector. These products ensure that the foundational inputs of the Indian economy are decarbonized at the manufacturing stage, preventing carbon intensive “leakage” into the food supply chain.
Economic Logic of VGF in CCUS
CCUS projects suffer from a “green premium” dilemma. The cost of capturing carbon from a cement plant might range from $50 to $100 per tonne of CO2. However, the market price for cement is highly sensitive in a developing economy like India. Manufacturers cannot pass this entire cost to consumers without destroying demand.
The VGF Solution effectively steps in to pay a portion of the Capital Expenditure (CAPEX) required to build the capture facility and the transport pipeline. This reduces the amortized cost of capture for the private player, bringing the “green premium” down to a manageable level that can be absorbed by the market or offset by small price premiums on “green products.”
This approach contrasts with the Operating Expenditure (OPEX) support seen in the United States (via 45Q tax credits), which pays per tonne of CO2 stored. The Indian model prioritizes overcoming the initial barrier to entry—the massive upfront cost of steel and technology installation.
Beyond the direct cash outlay, the budget introduces indirect fiscal levers that improve the viability of CCUS projects such as customs duty rationalisation in which exemptions for capital goods are required for critical mineral processing and other high-tech manufacturing sectors. Given that advanced amine solvents and ceramic membranes for carbon capture are often imported, these exemptions serve to lower the landed cost of CCUS technology
India-EU Geopolitical Nexus: CCUS as Trade Defense
The India-EU Free Trade Agreement (FTA) signed in January 2026 is causal, not coincidental for dedicated CCUS budget in FY 2026 union budget. Perhaps the most sophisticated driver of this ₹20,000 crore allocation is not domestic energy policy, but external trade defenses, specifically against the European Union’s Carbon Border Adjustment Mechanism (CBAM). With the India-EU Free Trade Agreement signed in January 2026, the definitive phase of CBAM has transformed from a distant threat into an immediate balance-sheet liability.
The economic logic is stark. If Indian exporters pay no carbon price at home while European permits trade at €100 per tonne, the difference is levied as a tax at the EU border. For energy-intensive commodities like steel, this could manifest as a crippling 20-30% tariff, eroding the competitive advantage of Indian exports overnight.
In this context, the budget acts as a strategic shield. By subsidizing the capital costs of CCUS installation, the Indian government effectively lowers the embedded carbon content of domestic steel and cement. A lower carbon footprint translates directly to a lower tax bill in Europe. It is a calculated geopolitical maneuver: rather than allowing Indian companies to bleed capital in European taxes, the government is investing that capital into domestic technology assets. This allows major players like Tata Steel and JSW not only to retain market share but to target premium buyers—such as European automakers Volvo and Mercedes—who are already paying a “green premium” for low-carbon materials.
Geological Advantage
While global discourse focuses on the economics of capture, India possesses a geological trump card: the Deccan Traps. Unlike the North Sea or Texas, where CO2 is stored as a pressurized fluid in saline aquifers (requiring perpetual monitoring against leakage), India’s basalt formations offer the superior safety profile of mineralization. When CO2 is injected into these magnesium-rich rocks, it reacts chemically to form stable minerals like calcite. Effectively, the gas turns into stone. This geological endowment offers India a unique opportunity to bypass the ‘NIMBY’ (Not in My Backyard) protests that plague storage projects in Europe, as the risk of long-term leakage is geochemically eliminated.
When CO2 mixed with water is injected into basalt, it reacts chemically with the magnesium and calcium-rich rock to form stable carbonate minerals (calcite, magnesite). Effectively, CO2 turns into stone over a period of months to years, eliminating the risk of long-term leakage.
Risks and Challenges
Despite optimism, significant challenges remain that budget alone cannot solve.
- Infrastructure Lock-in: Investing heavily in CCUS for coal plants risks locking India into a fossil-fuel trajectory for another 30-40 years. If renewable energy costs continue to plummet, these CCUS-fitted coal plants might still become “stranded assets” simply because they are too expensive to operate compared to solar+storage.
- Transport Cost vs. Cost of Capture: Even with VGF, the operational cost (energy penalty) of running a capture unit is high. It can consume 20-30% of a power plant’s output. Who pays for this efficiency loss? The regulatory framework for passing this cost to electricity consumers is not yet clear. While the VGF covers the capture units (CAPEX), the transport of CO2 is an OPEX heavy game. In the absence of a shared pipeline network (common carrier), trucking CO2 is economically unviable for anything above 50km. The budget’s silence of operating subsidies for transport remains a gap for smaller emitters.
- Pipeline Right-of-Way: Building CO2 pipelines across densely populated Indian states involves significant land acquisition challenges, like those faced by natural gas pipelines. The budget does not explicitly address land acquisition reforms. Unlike natural gas pipelines which have established acts for land acquisition, CO2 is often classified as a ‘waste’ rather than a ‘commodity’ in current legal frameworks. The budget implies support, but without a dedicated ‘CO2 Pipeline Act’, gaining Right-of-Way through agricultural land will be the single largest delay factor for the Gujarat and Eastern clusters.”
Conclusion
The 2026-27 Union Budget’s allocation of ₹20,000 crore for CCUS is a definitive statement of intent and commitment that positions CCUS as a pillar of India’s industrial decarbonization and energy security strategy. By targeting hard-to-abate sectors, the government is ensuring that India’s economic growth remains compatible with its long-term climate targets. Internally, it enables a circular carbon economy by linking production-end capture with user-end infrastructure applications. Externally, it serves as a critical compliance mechanism for international trade agreements and a platform for high-tech collaboration with Asian and Middle Eastern partners, ensuring India remains a competitive global hub for low-carbon manufacturing.
These pieces are being published as they have been received – they have not been edited/fact-checked by ThePrint.