India Budget 2026: Policy Signals and the CCTS Investment Case

Constructive directionality without cost-reduction mechanisms limits impact. Why CCTS + financial incentives matter.

By Abhishek Das • February 4, 2026 • 7 min read

Carbon capture, utilisation, and storage is relevant for cement, steel, aluminium, refining, and other hard-to-abate sectors. The appeal is obvious: it lets manufacturers continue processes as-is while capturing and sequestering CO₂. But the reality is unforgiving: CCUS is orders of magnitude more expensive than alternative decarbonisation pathways.

According to a recent CEEW study, CCUS costs EUR 50-150/tonne CO₂ captured, depending on technology maturity and deployment context. (Source: CEEW, Decarbonisation Technology Cost Analysis) Compare this to:

• •Renewable electricity: EUR 20-40/tonne CO₂ avoided (via grid decarbonisation)
• •Fuel switching: EUR 15-50/tonne (biogas, biomass for energy)
• •Efficiency improvements: EUR 10-40/tonne (waste heat recovery, kiln upgrades)

For CCUS to be investment-grade, governments must provide per-tonne incentives that lower the effective cost of capture. The US 45Q tax credit offers up to USD 180/tonne CO₂ captured and utilised — making projects economically viable. (Source: US IRS, Section 45Q; Government of Canada, CCUS Investment Tax Credit) Canada's ITC (Investment Tax Credit) offers 30% capital cost write-off for CCUS infrastructure. India has announced CCUS allocations in Budget 2026, but without comparable per-tonne incentives, the gap between policy announcement and actual investment remains wide.

Additional hurdle: CCUS requires transport infrastructure (pipelines or trucking) and storage sites. These are long-lead, capital-heavy assets with regulatory complexity. Budget allocations are welcome, but implementation timelines stretch into the late 2020s. For manufacturers making investment decisions in 2026, CCUS remains speculative.

Key Insight: CCUS costs EUR 50-150/tonne CO₂. Without per-tonne incentives matching US 45Q or Canada ITC, projects remain uneconomic despite budget allocations.

Budget 2026 provides duty relief on biogas and clean fuel imports. This is positive — it lowers delivered cost and improves the economics of fuel switching from coal to biomass, biogas, or hydrogen. The logic is sound: make clean fuels cheaper relative to fossil fuels, and adoption follows.

However, fuel switching economics are driven by multiple factors beyond tariffs. Feedstock availability, aggregation logistics, transport distance from supply to manufacturer, and boiler/furnace compatibility all matter. In many regions, biogas is constrained by feedstock supply — India's agricultural waste streams are already competing uses (animal feed, soil amendment, traditional energy). Importing biogas from overseas increases cost and logistical complexity.

Duty relief helps, but it must be paired with infrastructure investment. Long-term incentive programs (multi-year subsidies or contracts-for-difference) would anchor demand and encourage supply-chain development. Without that, duty relief alone may not move the needle significantly on adoption.

Similarly, renewable electricity targets are constructive, but the pace of grid decarbonisation remains a bottleneck. Cement, steel, and aluminium manufacturers need not just renewable energy availability — they need predictable, affordable long-term contracts. The budget acknowledges the need but does not yet provide mechanisms (renewable energy procurement mandates, power purchase agreements with fixed pricing) that would lock in manufacturer commitment.

Key Insight: Duty relief is helpful but insufficient. Fuel switching and renewable energy adoption require long-term demand commitment (contracts-for-difference) and infrastructure investment, not just cost reduction on tariffs.

Budget 2026 includes support for India's Carbon Credit Trading Scheme (CCTS). For foundational context on how CCTS works, read our comprehensive CCTS guide. The CCTS is not a subsidy scheme — it is a regulation that adds carbon cost to financial books. (Source: BEE, CCTS Framework & GEI Notifications) Manufacturers subject to the CCTS must surrender allowances if they exceed their GEI (Greenhouse Gas Equivalent Intensity), or sell credits if they perform below GEI.

What the CCTS does accomplish:

• •Makes emissions a recurring financial liability, changing investment calculus
• •Creates a carbon price signal that ranks abatement options by cost-effectiveness
• •Rewards early movers with sellable credits, incentivising decarbonisation
• •Generates revenue (from credit auctions and fines) that can be recycled into abatement investments

What the CCTS does NOT do:

• •Lower the cost of abatement technologies (that is on government and industry)
• •Coordinate infrastructure (CCUS pipelines, biogas supply, renewable procurement networks)
• •Provide capital subsidies for technology deployment
• •Reduce capital-intensity of transition (CCUS, EAF steel, green hydrogen still require huge upfront spend)

The CCTS is a powerful tool for setting incentives, but only if the carbon price is credible and expected to persist. A carbon price of INR 500/tonne (roughly USD 6/tonne or EUR 5.5/tonne) sends a weak signal compared to CBAM (EUR 80-90/tonne) or mature carbon markets (USD 50-100/tonne). (Source: Climate Decode, India CCTS Market Outlook) Manufacturers will ignore a weak carbon price signal and continue business-as-usual investments.

Key Insight: CCTS adds carbon cost to financial books but does not build infrastructure or reduce technology costs. It works only when the carbon price is visible, credible, and expected to persist.

Budget 2026 is directionally correct. CCUS, clean fuels, renewable energy, and CCTS are all part of India's decarbonisation pathway. However, the transition from policy signal to investable capital project requires several additional pieces:

• •Targeted incentive programs: Beyond duty relief and budget allocations, India needs investment incentives comparable to US 45Q or Canada ITC. These could take the form of per-tonne subsidies for CCUS, accelerated depreciation for green infrastructure, or production tax credits for low-carbon steel, cement, or aluminium. Without these, capital-heavy decarbonisation pathways remain speculative.
• •Visible carbon price: For the CCTS to shape investment decisions, the carbon price must be announced upfront and credible. Manufacturers need to see a multi-year price trajectory. A price floor (minimum bid price in auctions) would ensure volatility does not undermine the investment signal.
• •Demand coordination: The government should anchor demand for low-carbon goods through procurement mandates and preferential pricing in government contracts. This creates a stable market for green steel, cement, and aluminium — reducing technology risk for manufacturers.
• •International alignment: As CBAM and other carbon border mechanisms expand globally, India's carbon policy must support equivalence recognition. This requires transparent pricing, verifiable emissions reductions, and MRV alignment with international standards.

The bottom line: Budget 2026 acknowledges the right technologies, aligning with India's Paris Agreement commitments. It must now translate that acknowledgment into actionable economics. CCTS reinforces but cannot substitute for targeted incentive programs and visible carbon price signals. Manufacturers making capital allocation decisions in 2026 need confidence that the policy framework is durable, the economics are real, and the market will reward investment.

Key Insight: CCTS can justify investment in high-CAPEX abatement only when combined with programs that materially lower unit abatement costs — as seen under US 45Q and Canada's CCUS ITC.

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About the Author

Abhishek Das Co-founder, Climate Decode Co-founder of Climate Decode, with 8+ years of experience across carbon markets, pricing analytics, and policy interpretation spanning compliance and voluntary systems. His work sits at the intersection of regulated carbon markets and long-term decarbonisation strategy, translating complex market and policy signals into decision-grade insight. He has worked extensively across the global Voluntary Carbon Market and key compliance systems including the EU ETS, UK ETS, and WCI, covering carbon pricing and valuation, supply–demand analysis, offset project assessment, and financial modelling. At Climate Decode, Abhishek leads the analytics layer underpinning TerraNova and Canopy, developing India-specific carbon price scenarios, CCTS compliance pathways, and forward-looking decarbonisation roadmaps that integrate regulatory trajectory, market risk, and long-term capital planning. Speak to Abhishek → LinkedIn →

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