Good News For Sugar Industry

Can Also Improve India’s Position on Climate Commitments

The exclusion of the entire biogas value while calculating excise duty on biogas-blended CNG is the most concrete, balance-sheet-level intervention in Union Budget 2026–27 for the sugar-linked bioenergy sector. Unlike earlier support mechanisms that relied on administered pricing or viability gap funding, this measure directly corrects a long-standing tax distortion that penalised Bio-CBG despite its environmental benefits. By removing excise duty on the biogenic component of blended CNG, the government has fundamentally altered the economics of green gas without creating a new subsidy burden.

Historically, Bio-CBG faced an inherent disadvantage because excise duty was levied on the entire blended product, effectively taxing renewable biogas at the same rate as fossil natural gas. This resulted in double penalisation: Bio-CBG carried higher production costs due to feedstock handling, digestion, upgrading and compression, while also suffering from unfavourable taxation. The budget’s decision eliminates this inequity and aligns taxation with climate logic only the fossil carbon portion is taxed, while renewable carbon is exempt. This shift sends a strong signal that green molecules will not be fiscally punished for displacing fossil fuels.

For sugar mills producing Bio-CBG from press mud, spent wash and other mill residues, this measure has immediate and measurable impact. Net realisation per kilogram of Bio-CBG improves without any change in offtake price, directly strengthening operating margins. Improved margins translate into better debt-service coverage ratios, lower refinancing risk, and greater comfort for lenders. In practical terms, several Bio-CBG projects that were marginally viable on paper now move into bankable territory, especially in the 5–10 TPD capacity range commonly suited to cooperative sugar mills.

strengthens the SATAT ecosystem

This excise exclusion also significantly strengthens the SATAT ecosystem. Oil Marketing Companies (OMCs), which have faced challenges in scaling Bio-CBG procurement due to pricing rigidity and supply uncertainty, now benefit from a cleaner cost structure. With tax friction removed, Bio-CBG becomes more competitive against fossil CNG at the retail and city-gas distribution level. Over time, this will encourage higher blending ratios, long-term offtake commitments, and greater willingness by OMCs and CGD operators to invest in Bio-CBG logistics and dispensing infrastructure.

From a policy design standpoint, the importance of this measure lies in its non-subsidy nature. Instead of increasing budgetary outlays or guaranteeing higher purchase prices, the government has chosen to improve Bio-CBG competitiveness through rational taxation. This approach is fiscally sustainable and scalable, making it far more durable than time-bound incentives. It also aligns with India’s broader objective of internalising environmental benefits into market pricing rather than compensating for them through grants.

Strategically, this correction elevates Bio-CBG from a “policy-driven green fuel” to a commercially credible energy carrier. For the sugar industry, this is transformative. Press mud and spent wash, once considered disposal challenges, are now reliable revenue-generating feedstocks with improved price certainty. This strengthens the circular economy within sugar complexes—waste to energy, digestate to bio-fertiliser, and stable income streams independent of sugar price cycles.

In the medium to long term, this measure also improves India’s negotiating position on climate commitments. By structurally incentivising biogenic gas through taxation rather than subsidies, India demonstrates a market-aligned approach to decarbonisation. For integrated sugar-ethanol-Bio-CBG plants, this creates a robust platform for future linkages with carbon markets, ESG-linked finance, and international climate finance instruments.

In essence, the excise duty exclusion on biogas-blended CNG is not merely a fiscal concession; it is a structural reform. It corrects a fundamental economic imbalance, de-risks Bio-CBG investments, strengthens sugar-mill-based circular bioenergy models, and accelerates the transition of green gas from niche to mainstream. Among all budget measures, this single intervention delivers the most direct and lasting impact on the financial sustainability of Bio-CBG projects linked to the sugar industry.

(Writer Dilip Patil is a Co-Chairperson of Indian Federation of Green Energy and rtd MD of Samarth Sugar)