When Indian Public Money funds Foreign Decarbonisation

A cautionary note on PLI, green hydrogen subsidies, ISTS waivers, and missing safeguards

India has embarked on an ambitious green hydrogen journey. Through the National Green Hydrogen Mission, the government is deploying large public resources via production-linked incentives (SIGHT), viability gap funding, concessional land, and policy support to accelerate green hydrogen and green ammonia.

In principle, this is sound industrial policy. Early-stage technologies need scale, certainty, and risk-sharing. But in practice, a troubling pattern is emerging: Indian taxpayers and Indian electricity consumers are subsidising green hydrogen and green ammonia that will be exported to meet foreign climate targets—without adequate safeguards to protect Indian public interest.

This is not an ideological argument. It is a question of who pays, who benefits, and who decides. When the public bears the cost, the public must get first claim.

A.     Why green hydrogen or Green Ammonia are energy- inefficient and costly

Green hydrogen is fundamentally an electricity-intensive product, not a primary energy source. In current projects, renewable electricity typically accounts for about 65–75% of the levelized cost of green hydrogen, with electrolysers, balance-of-plant, compression, storage, and logistics making up the rest. Electrolysers convert electricity to hydrogen at only 65–70% efficiency (LHV basis), meaning roughly one-third of the input energy is lost at the first step itself. The hydrogen then needs to be compressed, liquefied, or converted to a carrier such as ammonia, which consumes an additional 10–30% of the original energy, followed by further losses during transport, storage, and final conversion back to usable energy, typically at 40–60% efficiency depending on the end use. The combined effect is that a large volume of renewable electricity is consumed to deliver a relatively small amount of usable energy at the end, making green hydrogen highly sensitive to renewable power costs and system losses. As long as renewable electricity remains scarce and needed for direct electrification within India, diverting it into an energy-inefficient export vector carries a clear opportunity cost.

Green hydrogen is not an energy source; it is an energy inefficient, expensive energy vector or carrier.
Its role is justified only where direct electrification is impossible—not as a general-purpose decarbonisation pathway, and certainly not as a subsidised export product.

Green ammonia, on the other hand, is used primarily as a hydrogen carrier, not because it is an efficient fuel, but because it solves some of hydrogen’s hardest practical problems—storage, transport, and long-distance trade. Ammonia has a much higher volumetric energy density than compressed hydrogen, can be stored as a liquid at moderate pressure or refrigeration, and benefits from a well-established global shipping and handling infrastructure built around the fertiliser industry. However, these advantages come at a significant efficiency cost. Converting green hydrogen into ammonia typically incurs 20–30% energy losses, and if the ammonia is later cracked back into hydrogen, a further 15–25% loss is added, before final conversion to useful energy at 40–60% efficiency. Even when ammonia is used directly as a fuel (for co-firing, shipping, or power generation), overall conversion efficiencies remain modest. End-to-end, only 20–30% of the original renewable electricity used to produce the hydrogen is typically delivered as usable energy. Green ammonia therefore makes sense mainly for long-distance transport, seasonal storage, or hard-to-electrify uses, not because it is efficient, but because it is logistically feasible where direct electrification or local hydrogen use is impractical.

B.     What exactly is happening?

Several Indian companies that have received—or are eligible to receive—government incentives for green hydrogen and green ammonia are simultaneously signing long-term export offtake agreements with foreign buyers in Europe and Japan.

The structure is simple:

• Taxpayer-funded subsidies reduce production risk and capital cost.

• Ratepayer-funded grid concessions (ISTS Waiver) lower delivered energy cost.

• Export contracts lock in foreign demand.

• Domestic Indian users remain largely unserved.

In effect, India is socialising early-stage risk while privatising export rents—using two different public wallets.

The overlooked subsidy: ISTS waiver (paid by electricity consumers)

Much of the debate focuses on PLI and budgetary support. Far less attention is paid to the Inter-State Transmission System (ISTS) charge waiver granted to renewable energy and green hydrogen projects.

This distinction is critical.

C.    Why ISTS waiver matters

• ISTS assets are not funded by the Union budget.

• They are funded through PoC charges recovered from electricity consumers across India.

• Every waiver granted to one user raises the burden on all other users.

In other words:

ISTS waivers are not taxpayer subsidies — they are ratepayer cross-subsidies.

When green hydrogen or green ammonia projects enjoy ISTS waivers and export their output, Indian electricity consumers are directly underwriting foreign decarbonisation, even if they never consume a single kilogram of green hydrogen.

This cost is invisible in the budget, but very real in tariffs.

D.   Why this is structurally problematic

1. Electricity consumers pay without representation

Indian households, MSMEs, and domestic industry fund the grid, bear RE integration costs, pay balancing and ancillary charges,

yet have no claim on the subsidized green molecules moving through that grid.

2. Exported output carries embedded grid subsidies

When subsidized green hydrogen is exported, it carries taxpayer-funded production incentives, and ratepayer-funded transmission concessions.

The carbon benefit accrues abroad. The system cost remains at home.

3. Double socialization of risk

This is a rare case where:

• capital risk is socialized via fiscal incentives, and

• operational cost is socialised via tariff mechanisms,

while commercial upside is fully privatised and externalised.

E.    The Winners

The following companies have been awarded SIGHT/PLI incentives and are active in green hydrogen/green ammonia projects, and in some cases have either export collaborations in progress or MoUs (global partnerships), though specific export contracts may not be fully public yet:

SIGHT / PLI-supported companies with export linkages (India)

F.     The core policy failure: absence of safeguards

The issue is not exports. Exports are legitimate.
  The issue is exports without conditions, despite heavy public support.

India’s green hydrogen framework currently lacks:

• ❌ Domestic supply obligation (DSO)

• ❌ Export-linked claw-back of incentives

• ❌ Sunset clauses tied to domestic market creation

• ❌ Priority allocation for fertilizers, steel, refining

• ❌ Ring-fencing of ISTS waivers for domestic consumption

As a result, public support behaves like an open-ended entitlement, not a strategic instrument.

G.      Why “learning curve” arguments fall short

The standard defense is that exports will help India scale up green hydrogen production and move rapidly down the cost curve. That claim, however, ignores a basic economic constraint. Learning is non-rival, but output is rival. While cost reductions from learning can, in theory, benefit everyone, the physical output of subsidized plants cannot. If capacity created with public support is contractually locked into export offtake agreements for 15–20 years, Indian consumers and industries cannot access that output even after costs fall. By the time domestic demand for green hydrogen begins to mature, the capacity enabled by today’s subsidies is already spoken for, leaving India with the cost of early risk-taking but without assured access to the resulting benefits.

H.    This is not unprecedented — and not unavoidable

India has faced similar dilemmas before:

• gas allocation versus LNG exports,

• mineral royalties,

Green hydrogen risks repeating the same mistake.

I. Additional Issues ( as per Mr.Mansa Nouni, Former Adviser, MNRE)

(a) India already imports a large volume of ammonia for fertilisers and chemicals. Exporting green molecules or their carriers is effectively an export of renewable electricity and desalinated water—both of which are scarce domestic resources. These are urgently required at home for decarbonising the Indian economy and for meeting potable water needs in water-stressed regions, including coastal areas.

(b) Energy security remains incomplete if refineries and fertiliser plants continue to rely on imported fossil fuels to produce grey hydrogen. A credible pathway exists to blend grey and green hydrogen domestically, provided policies mandate green hydrogen use by industry and create assured, long-term offtake. Without such mandates, domestic demand will remain weak and strategic dependence unchanged.

(c) In the absence of a clear additionality framework for green hydrogen, existing renewable capacity—along with associated energy storage—may be diverted to hydrogen production. This would crowd out green electricity needed for other industrial and economic activities, undermining broader decarbonisation objectives rather than advancing them.

J.    What a balanced policy would look like

India does not need to abandon exports. It needs guardrails.

At a minimum, future incentive frameworks should include:

1. Domestic supply obligation (phased, enforceable)

2. Time-bound ISTS waivers, linked to domestic offtake

3. Export levy or incentive claw-back once Indian demand activates

4. Priority access for fertilizer, steel, and refining

5. Transparent disclosure of ₹/kg public support embedded in exports
     (taxpayer + ratepayer)

These are not radical ideas. They are basic public finance discipline.

K. What happens to India's carbon Sovereignty

A further, often overlooked dimension is Article 6 of the Paris Agreement, which governs how emission reductions are counted when mitigation outcomes are traded across borders. Under Article 6, if green hydrogen or green ammonia produced in India is exported and used by another country to meet its climate targets, the associated emission reduction is transferred to the importing country through a “corresponding adjustment.” In simple terms, India cannot count that reduction toward its own NDC. This creates a striking asymmetry: India supplies the land, water, renewable electricity, grid capacity, and public subsidies, but the carbon benefit appears on a foreign balance sheet. Unless export contracts explicitly reserve carbon claims for India or limit corresponding adjustments, publicly supported green hydrogen exports effectively finance foreign decarbonisation while leaving India’s own climate ledger unchanged. 

The bottom line

Public subsidies—whether funded by taxpayers or electricity consumers—are not free money. They are collective investments.

When those investments primarily serve foreign climate compliance while Indian consumers and industries wait in line, policy credibility erodes.

Industrial policy must first serve domestic transition.
  Exports should be the dividend, —not the destination.

If this imbalance is not corrected now, it will resurface later as:

• tariff pressure,

• fiscal scrutiny,

• and political backlash.

Design errors are cheapest to fix before capacity, contracts, and corridors are locked in.