Budget 2025: A green hydrogen push likely for polluting sectors

The ministry of new and renewable energy has sent the proposal to offer incentives for the adoption and procurement of green hydrogen to the finance ministry, said one of the persons quote above. 

"Incentives for adoption of green hydrogen and CCUS (carbon capture, utilization and storage) are expected to be mentioned in the budget…The adoption of both green hydrogen and CCUS is key for the energy transition goals. It is felt that fiscal support would be required to increase their capacity addition and usage," the person added.

Under the ₹19,700 crore National Green Hydrogen Mission (NGHM), the government currently offers supply-side support. This includes ₹17,490 crore for the production of green hydrogen and electrolyzers under the Strategic Interventions for Green Hydrogen Transition (SIGHT) scheme. 

Transitioning to large-scale use of hydrogen fuel could enhance India’s geopolitical heft and improve energy security. India aims to produce 5 million tonnes of green hydrogen by 2030.

The country plans to leverage its vast land area along with low solar and wind tariffs to produce low-cost green hydrogen and ammonia for export.

"Through the incentives, the government would look at encouraging these polluting businesses to move towards green hydrogen and turn cleaner, rather than forcing them for the transition. New technologies for transition should also be viable," said the second person in the know of the developments.

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CCUS involves capturing carbon dioxide from polluting industries which is transported by rail, road or pipelines, and stored in underground oil fields or deep saline aquifers. This can be used in industries such as urea, food, methanol, building materials and polymers, thereby lowering carbon emissions.

With the domestic demand for green hydrogen yet to pick up, which is making producer companies slow down their production plans, the government is looking at boosting demand through incentives such as subsidies.

The subsidy for green hydrogen production, which is capped at $0.66 per kg in the first year and tapers down to $0.4 per kg by the third year, is insufficient for almost all sectors. The subsidy offered in the second tranche of the SIGHT scheme continues these rates for green hydrogen production in addition to offering an analogous subsidy for green ammonia production, noted report by Council on Energy, Environment and Water (CEEW).

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A report by in July last year said although the current incentives granted by the NGHM to provide viability gap funding for green hydrogen production and indigenize electrolyzer manufacturing are intended to be catalytic, on a standalone basis, they would fall short of bridging the gap between green hydrogen production costs and the necessary breakeven costs.

“Furthermore, the production-linked incentives (PLI) scheme for electrolyser manufacturing with an allocation of approximately $560 million and an average incentive of $39.5 per kW, can only support around half of the electrolyser capacity needed to achieve India’s 2030 green hydrogen goals," the report said.

CCUS is still in the nascent stage in the country, and the government may provide incentives for its adoption by these hard-to-abate sectors. In August last year, NITI Aayog member V.K. Saraswat said that the Centre is working on a national mission that will provide financial incentives to promote CCUS to help the country achieve its ambitious net-zero goals.

CCUS are expected to play an important role in decarbonizing the industrial sector, which is hard to electrify and hard to abate, due to the use of fossil fuels. Given India’s present reliance on coal for meeting over 70% of its electricity needs, CCUS would play a key role in decarbonizing the country's power sector.

"Even with the expected growth in renewable energy capacities, coal-based power will continue to meet more than 50% of electricity demand in India in the foreseeable future. As the largest emitter of CO2, CCUS of the power sector is essential for meaningful decarbonization and ensuring energy security in India," according to a NITI Aayog report.

Queries mailed to the union ministries of new & renewable energy and finance remained unanswered till press time.

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