Introduction

India’s energy policy is entering a decisive transition phase as it approaches FY27. The backdrop is defined by three structural realities: rapidly expanding electricity demand, the continued necessity of energy security, and persistent decarbonization challenges in heavy industries such as steel and cement.

In the 2026–27 Union Budget, the government announced that approximately INR 20,000 crore, equivalent to roughly USD 2.2 billion, will be allocated over the next five years to carbon capture, utilization and storage technologies. This decision extends beyond discussions about the power mix and directly addresses emissions from high emitting industrial sectors such as steel and cement. At the same time, renewable energy capacity expansion will continue, while coal fired power is expected to remain central to ensuring supply stability.

India is therefore managing economic growth, supply security, and emissions reduction simultaneously. This article examines the overall policy structure and its implications for corporate climate strategy.

Overview of India’s Energy Policy Framework

The policy measures ahead of FY27 can be summarized as follows:

• Continued expansion of renewable energy capacity, particularly solar and wind
• Allocation of approximately USD 2.2 billion (around INR 20,000 crore) in the 2026–27 budget to support CCUS deployment

Rising electricity demand and the near term role of coal fired generation form the structural context within which these policies are implemented, but they are not new standalone policy packages in themselves.

1. Continued Expansion of Renewable Energy

Through FY27, large scale additions of solar and wind capacity are expected. Renewable energy deployment remains a policy priority and is positioned as a central pillar of long term power sector transformation.

Although installed capacity is projected to grow substantially, the share of renewables in actual electricity generation may not immediately rise at the same pace. Rapid demand growth and grid management constraints influence how quickly generation based shares change. This distinction explains why short term emissions dynamics may differ from long term structural trends.

2. Promotion of CCUS in Heavy Industry

The 2026–27 Union Budget allocates approximately INR 20,000 crore over five years to support carbon capture, utilization and storage technologies. Target sectors include steel, cement, oil refining, and chemicals, industries where emissions reductions are particularly difficult to achieve.

The objective of this budget allocation is to accelerate the commercialization of CCUS in heavy industry. In sectors where emissions arise directly from production processes, shifting electricity supply to renewables alone cannot sufficiently reduce total emissions. The policy signals a commitment to deploy technological solutions that directly address emissions generated during manufacturing.

What CCUS Is and Why It Matters

Carbon capture, utilization and storage refers to technologies that capture carbon dioxide from industrial facilities or power plants and either store it underground or reuse it as a resource. The process typically involves separating CO2 from exhaust gases, transporting it through pipelines or other infrastructure, and injecting it into geological formations for long term storage. In some cases, captured CO2 can be used as a feedstock for chemicals or synthetic fuels.

The relevance of CCUS lies in its ability to address emissions that originate from industrial production itself. In industries such as steel and cement, carbon dioxide is released not only from energy use but also from chemical reactions intrinsic to manufacturing. Replacing electricity with renewable sources does not eliminate these process related emissions. CCUS therefore represents a direct technological response to emissions that are otherwise difficult to reduce.

The recent budget allocation is interpreted as an effort to accelerate commercial scale deployment of CCUS in heavy industry. Beyond environmental objectives, the measure also carries industrial policy implications. Lowering emissions intensity in key export sectors may help maintain competitiveness in an environment of tightening global carbon regulations.

Industrial Policy Implications of CCUS Investment

A distinctive feature of the recent budget decision is the explicit financial support for moving CCUS from demonstration projects toward commercial scale application. Heavy industries such as steel and cement form the backbone of India’s industrial base and are deeply integrated into global trade.

Reducing emissions intensity in these sectors could mitigate future exposure to carbon related trade measures and regulatory tightening. However, technological deployment also involves capital expenditures and operating costs. These costs may be reflected in product prices, creating adjustment pressures along supply chains.

The policy therefore combines climate objectives with industrial competitiveness considerations. It signals a structured approach to managing emissions without undermining growth in core sectors.

Conclusion

India’s policy direction toward FY27 combines renewable energy expansion with targeted CCUS investment while maintaining supply stability. In the context of rapid demand growth, the government is attempting to advance energy security and emissions reduction at the same time.

For companies, the key is to distinguish between short term and longer term dynamics. Renewable capacity is expanding, but coal is expected to remain significant in the near term, meaning emissions intensity is likely to decline gradually rather than abruptly. In heavy industry, public support for CCUS suggests that reductions in emissions intensity will also unfold over time.

Businesses pursuing growth in India should therefore recalibrate electricity procurement and supplier strategies with this timeline in mind. Decisions that integrate both expansion opportunities and decarbonization pressures will shape long term competitiveness.

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