Can Budget 2026 Make Carbon Capture Bankable For Startups?

India’s cleantech startup ecosystem is set to receive a fillip from the measures announced by finance minister Nirmala Sitharaman in her Union Budget 2026 speech.

For starters, an outlay of INR 20,000 Cr over the next five years paves the way for a new scheme that focusses on the adoption of carbon capture, utilisation and storage (CCUS).

Besides, the Budget also extended basic customs duty (BCD) exemptions on capital goods used for manufacturing lithium-ion cells and critical mineral processing, along with introducing new BCD exemptions for the import of sodium antimonate used in the manufacturing of solar glass. 

This is expected to improve the margins of capital-intensive cleantech startups that rely on imports for certain manufacturing operations by reducing their overall tax burden. 

“Aligning with the roadmap launched in December 2025, CCUS technologies at scale will achieve higher readiness levels in end-use applications across five industrial sectors, including power, steel, cement, refineries and chemicals,” Sitharaman said during her ninth Budget speech on Sunday. 

The government has set a target of capturing 750 Mn tonnes of carbon dioxide (CO2) by 2050 from hard-to-abate sectors.

These sectors — primarily steel, cement, chemicals, aluminium, shipping, and aviation — are industries where reducing greenhouse gas emissions is challenging due to high-energy demands, process-specific CO2 emissions and higher costs.

While CCUS is seen as a critical tool for decarbonising hard-to-abate sectors, high capture and transport costs, policy uncertainty and lack of infrastructure have limited large-scale deployment so far.

The CCUS/CCS roadmap, laid out by the Department of Technology on December 2, 2025, bids to overcome the regulatory barriers that have slowed the adoption of carbon capture projects and build a more commercially viable CCUS market over the long term. It aims to achieve net zero emission by 2070 by investing heavily in research and development for this technology. 

To balance climate goals with fiscal priorities, the DST’s roadmap proposed a public-private-partnership model, supported initially by targeted government funding and international climate finance until viable business models emerge. 

The plan of action follows a phased approach-starting with pilot and demonstration projects, capital grants, operational subsidies, carbon market development and inclusion of CCUS in national climate planning. This will be followed by scaling up industrial hubs, shared CO2 infrastructure and a clear legal framework for storage liability.

Over the long term, the roadmap focuses on reducing capture costs through R&D, building a dedicated CCUS workforce, and positioning India as a regional CO2 storage and innovation hub.

Unlocking Cleantech Opportunities 

CCUS technologies in India have historically faced a high-cost barrier that has limited private investment. As per carbon credits-focussed startup Varaha’s cofounder Madhur Jain, the Budget outlay will help bridge the gap between lab-scale prototypes and industrial deployment. As per him, the push effectively provides a safety net for startups to scale their tech.

Besides, the push to adopt CCUS will unlock massive opportunities for cleantech and sustainability startups to develop indigenous carbon-scrubbing technologies, while attracting specialised ESG funding from global backers. 

“By explicitly backing CCUS, the Union Budget turns industrial decarbonisation into a startup opportunity by de-risking deeptech innovation for founders and crowding in long-term capital from investors,” Green Frontier Capital’s managing partner Sandiip Bhammer said. 

Although Indian startups have long explored solutions to reduce emissions emitted by the aforementioned critical industries, high costs and limited market access have kept many initiatives confined to the R&D stage. 

According to Vishesh Rajaram, founding partner at deeptech-focussed VC firm Speciale Invest, the finance minister’s announcements mark a shift that could make CCUS commercially viable rather than just an R&D exercise.

As per him, Indian cleantech startups stand to gain from the large-scale adoption of CCUS include those working on carbon capture technologies, carbon utilisation from heavy industries like chemicals, fuels and construction, CO2 transport, storage and management, and digital platforms undertaking measurement, reporting and verification of carbon capture, and storage. 

The focus on CCUS also unlocks new opportunities for entrepreneurs to build deep-science, IP-led companies, with long-term global relevance, by building indigenous technologies that can be scaled both domestically across industrial customers and exported to other emerging economies. 

What Changes For Existing Players?

Another highlight of the budget for the cleantech sector was the wave of tax cuts that businesses importing building materials can now enjoy. 

As per Greenfrontier Capital’s Bhammer, the tax cuts will catalyse innovation in domestic clean manufacturing, which will translate to a meaningful opportunity to scale climate-positive infrastructure through long-term capital and effective public-private collaboration.

Despite the heavy capex required for startups to function and scale in the green economy, the VC ecosystem has been bullish on the cleantech ecosystem. According to Inc42’s latest Annual Indian Startup Trends Report 2025, the sector has raised $8.8 Bn between 2014 to 2025 and is growing at a CAGR of 15%.

Meanwhile, removing import duty on lithium-ion cells for both electric vehicle (EV) and battery energy storage system (BESS) manufacturers will reduce the overall cost of production, aiding the unit economics of companies and ultimately encouraging large scale deployment and adoption. 

Similarly, exemptions on importing capital goods used for processing critical minerals will help secure the upstream supply chain for Indian hardware startups. 

The Missing Pieces

Despite the positive signals for the green economy in the Budget, industry stakeholders told Inc42 that some key areas were still missed by the government.

For instance, despite a push for CCUS, there is no clear direction on carbon pricing and the domestic carbon credit trading system, which has been in the pipeline for years. Experts also flagged that the Budget failed to specify any strategy or incentives for industrial decarbonisation.

Green financing initiatives were also missing from the Budget. As per Bhammar, India needs a financing of INR 30,000 Cr to INR 40,000 Cr annually via specialised schemes and incentives to achieve its net zero commitments by 2070.

The sentiment was echoed by Varaha’s Jain, who said that the Budget largely missed out on direct allocations for critical areas such as climate adaptation and environmental protection (such as air pollution control and biodiversity).

While the intent behind the measures has been widely welcomed, the real test will lie in how effectively these initiatives are translated into on-ground execution.