Anand Shrivastava, Ankit Bhandari & Mudassir – [2026] 183 taxmann.com 502 (Article)
In the past decade, India’s approach to clean energy transition has been shaped by a simple but compelling logic to prioritize renewable energy capacity deployment at scale over resolution of systemic challenges, with the intent that increasing capacity will force their resolution with time. Solar parks and wind corridors became the primary indicators of India’s ambition for clean energy transition. At the same time, discussions on structural issues such as grid stability, industrial emissions, and intermittency management were largely deferred. Nevertheless, the Union Budget 2026 suggests that the Government is beginning to re-evaluate this approach. By explicitly elevating energy storage, Carbon Capture, Utilisation and Storage (“CCUS”), and allied emerging technologies, the Budget signals a pragmatic shift away from a narrow renewables deployment centric framework towards a more integrated and cohesive energy transition strategy.
This recalibration is significant because India’s energy challenges have evolved. The main concern is no longer the pace of clean power deployment alone. As renewable penetration increases, the focus has moved to system integration ensuring reliability, managing peak demand, and addressing emissions from energy-intensive industries. The Budget 2026 reflects a growing policy awareness that decarbonisation is not driven by brute technology, but by a coordinated ecosystem that must balance environmental objectives along with structured growth and development.
1. From Installed Capacity to System Performance
One of the most significant aspects in the Budget is promotion of energy storage as a strategic priority. Through customs duty exemptions for battery energy storage systems, the Government has implicitly acknowledged their central role to renewable capacity enhancement, which without storage are not ideally placed for ensuring system stability. This represents a departure from earlier Budgets, where storage was treated largely as a pilot intervention rather than essential infrastructure.
By reducing costs for grid-scale storage and associated supply chains, the Budget seeks to address a persistent mismatch between renewable generation patterns and electricity demand. However, this transition remains only partially realised. While fiscal incentives are meaningful, public investment in transmission expansion and grid modernisation has not kept pace with the scale of integration required. Without faster upgrades to grid infrastructure, storage risks remaining under-deployed, limiting its potential as a system-wide enabler.
2. CCUS Gains Policy Legitimacy
The significant development in Budget 2026 is the recognition of CCUS. Dedicated, multi-year funding has brought CCUS firmly into India’s mainstream climate policy discourse for the first time. This inclusion is not simply about technology adoption; it reflects a strategic reassessment of how India intends to decarbonise while continuing to industrialise.
India’s emissions profile is heavily influenced by sectors such as steel, cement, refining, and chemicals, where renewable substitution and electrification offer only partial solutions in the short to medium term. CCUS provides a pathway to mitigate emissions from these industries without dismantling productive capacity that supports employment, exports, and economic resilience. The inclusion of CCUS signals a more dynamic climate strategy, one that recognises the limits of a renewables-only transition for an industrialising economy. Further, this also aligns India more closely with global decarbonisation pathways.
That said, the gap between ambition and readiness remains wide. India lacks a comprehensive regulatory framework governing carbon storage, long-term liability, and monitoring. CCUS projects are capital-intensive and difficult to commercialise without strong market signals, such as carbon pricing or long-term offtake mechanisms. While the budget establishes policy intent, its success will depend on regulatory clarity and implementation at the administrative level.
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