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Context

The Union Budget 2026-27 prioritizes "Green Growth" with ambitious intent but cautious financial allocation, aiming to transition India towards a net-zero, "carbon-light" economy through pilot projects.

Key Allocations for Climate and Green Energy

The budget outlines specific financial commitments and policy support for key green sectors, designed to initiate decarbonization in critical areas of the economy.

What is Carbon Capture (CCUS)?

Carbon Capture, Utilisation, and Storage (CCUS) is a suite of technologies designed to prevent large amounts of Carbon Dioxide from being released into the atmosphere. 

It is considered a critical tool for meeting global "Net Zero" targets, especially for industries that are hard to decarbonize. 

Strategic Importance of Carbon Capture (CCUS)

The outlay for CCUS is driven by two critical factors: protecting India's export competitiveness and addressing emissions from industries that cannot be easily electrified.

Countering the CBAM Threat: The European Union’s Carbon Border Adjustment Mechanism (CBAM), fully effective from 2026, will impose a tax on carbon-intensive imports like steel and aluminum.

• The EU is a major market, accounting for nearly 27% of India’s exports of iron, steel, and aluminum products. (Source: GTRI Report)
• Without decarbonization, Indian exports will face high tariffs, making them uncompetitive. Thus, CCUS is a trade defense mechanism.

Decarbonizing Hard-to-Abate Sectors: Industries such as cement and steel, which need extremely high temperatures and have process emissions, currently rely on CCUS as the most viable technology to manage these emissions

Hurdles in Nuclear and Green Hydrogen

Despite policy support, these two critical sectors face "intent vs. execution" gaps that hinder their growth.

Nuclear Energy: The Capital and Liability Trap

High Cost: Nuclear power projects are extremely capital-intensive and have long gestation periods of 10-15 years.

Legal Barriers: The Civil Liability for Nuclear Damage Act, 2010, imposes strict and unlimited liability on suppliers for accidents, which has discouraged foreign private companies from investing and transferring technology to India.

Green Hydrogen: The Cost-Viability Gap

Cost Challenge

Green Hydrogen produced via electrolysis costs around $4-$5 per kg, which is higher than Grey Hydrogen (from natural gas) at $1.5 per kg. (Source: NITI Aayog Report)

Weak Demand

National Green Hydrogen Mission's 5 MMT 2030 goal is ambitious, but meeting demand is difficult without stronger viability gap funding (VGF) or mandatory consumption for key sectors like oil refining and fertilizers.

Challenges in India's Climate Budgeting

Inadequate Scale of Finance

India needs an estimated $10.1 trillion to achieve Net Zero target by 2070 (Source: CEEW-CEF Report). Current budget allocations, while significant, are a fraction of the required investment.

Dependency on Private Capital

Private sector investment in green technology is challenged by the high "Green Premium" and interest rates, necessitating robust de-risking mechanisms from the government.

Implementation Federalism

Success of central climate action schemes in areas like electricity, transport, and agriculture, which are state subjects, relies heavily on the financial health and implementation capacity of state-level bodies such as DISCOMs and Pollution Control Boards.

Way Forward

Mandating Green Public Procurement: Create assured domestic demand by mandating the use of "Green Steel" and "Green Cement" in all government infrastructure projects.

De-risking Private Investment: Move beyond grants to instruments like Blended Finance, where public funds are used to provide guarantees or first-loss cover, thereby attracting private capital for high-risk green projects.

Standardizing Green Taxonomy: Introduce a clear, legally-backed classification system for what qualifies as a "green" investment. This will prevent greenwashing and attract global Environment, Social, and Governance (ESG) funds.

Lessons from Global Best Practices

United States (Inflation Reduction Act - IRA)

The US provides a direct, production-linked tax credit of up to $85 per tonne of CO2 captured. This predictable incentive gives long-term certainty to investors, encouraging large-scale private investment.

Norway (Longship Project)

Norway is developing a full-scale CCUS value chain. The key lesson for India is the "Hub and Cluster" model, where multiple industrial emitters in a zone share common CO2 transport and storage infrastructure, reducing costs for individual companies.

Conclusion

The Budget 2026-27 acknowledges essential decarbonization technologies, but requires substantial funding and targeted implementation to achieve economic and trade-related decarbonization targets.

Source: THEHINDU