India’s Hydrogen Purchase Obligation for Fertilisers: Phase-Wise Targets, Who Is Covered, and the Enforcement Architecture
India is developing a Hydrogen Purchase Obligation (HPO) framework under the National Green Hydrogen Mission. The proposed mandate aims to force fertiliser plants to source rising percentages of their hydrogen feedstock from green sources. The SIGHT programme creates the supply. The HPO creates the demand. Together, these policies are intended to become India’s core mechanism for hydrogen decarbonisation. Here is how the obligation is taking shape.
Key Takeaways
- The Hydrogen Purchase Obligation (HPO) is a proposed regulatory mandate under the Ministry of New and Renewable Energy’s National Green Hydrogen Mission. It will require covered entities — primarily fertiliser plants and petroleum refineries — to source a defined and rising percentage of their total hydrogen consumption from green hydrogen produced through water electrolysis.
- The fertiliser sector is a primary target for the HPO because fertiliser plants are India’s single largest industrial hydrogen consumers alongside refineries, collectively using approximately 3 million tonnes of hydrogen per year for ammonia synthesis. Converting even a small percentage of this demand to green hydrogen creates meaningful commercial volumes for early-stage producers and justifies electrolyser manufacturing scale-up.
- Industry discussions suggest the HPO Phase 1 targets may specify green hydrogen as a percentage of total hydrogen consumed. A highly anticipated trajectory model points to roughly 0.5 to 1 percent of total consumption in the initial years, potentially rising toward 5 percent by FY2027-28. At a sector consumption of ~3 MMT/year, a 1 percent target represents 30,000 tonnes of green hydrogen demand per year — a significant commercial anchor.
- The SIGHT (Strategic Interventions for Green Hydrogen Transition) programme is the active, demand-side counterpart to the proposed HPO. It provides production-linked incentives to green hydrogen producers to reduce costs toward commercial competitiveness. SIGHT Phase 1 supports electrolyser manufacturing and green hydrogen production (with a maximum cap of Rs 50/kg in Year 1, falling to Rs 40/kg in Year 2 and Rs 30/kg in Year 3). This incentive closes a substantial portion of the gap between green hydrogen and the grey hydrogen equivalent.
- The final verification architecture for the HPO remains undefined. It is expected that fertiliser plants will need to document their green hydrogen procurement through a chain-of-custody certificate from the producer. Whether this verification falls under MNRE-designated agencies, BEE-accredited ACVAs (similar to the CCTS), or independent auditors remains a key regulatory decision. Furthermore, whether the market will eventually support “book-and-claim” certificates or require strict physical delivery is still being debated.
The Hydrogen Purchase Obligation is the demand-creation instrument within the National Green Hydrogen Mission’s twin-pillar strategy of building supply (through SIGHT) and creating mandatory demand. Without the HPO, the early green hydrogen market would depend entirely on voluntary procurement decisions by industrial buyers — which history suggests would lack the scale needed to drive down electrolyser costs. The HPO’s mandatory demand aims to create a base load of commercial green hydrogen offtake that makes producer investment bankable.
The fertiliser sector’s selection as the primary HPO target reflects its structural characteristics. Fertiliser plants are massive, concentrated, well-documented hydrogen consumers. Crucially, they are also entering the Carbon Credit Trading Scheme (CCTS) compliance framework. For domestic urea producers, green hydrogen procurement reduces the Scope 1 GEI of the ammonia synthesis step, potentially generating CCC surplus over the GEI baseline. (Note: While European CBAM applies to ammonia and some specialty fertilisers, India consumes the vast majority of its bulk urea domestically, meaning CBAM is not the primary driver for the Indian urea transition—subsidy and domestic CCTS pressures are).
The phase-wise HPO target structure
India’s Hydrogen Purchase Obligation — Fertiliser Sector Scenarios
| Scenario Compliance Year | Modelled HPO Target (% of H₂ consumption) | Implied Green H₂ Volume (at 3 MMT sector total) | Green H₂ Cost Premium (assuming Rs 200/kg gap) | Regulatory Benefit |
|---|---|---|---|---|
| Year 1 (Initial) | ~0.5–1.0% | 15,000–30,000 t/yr | ~Rs 300–600 cr additional cost across sector | Modest Scope 1 CCTS reduction |
| Year 2 | ~2.5–3.0% | 75,000–90,000 t/yr | ~Rs 1,500–1,800 cr | Measurable CCTS CCC generation |
| Year 3 | ~5.0% | 150,000 t/yr | ~Rs 3,000 cr across the sector | 5% of ammonia from green H₂ → meaningful CCTS outperformance |
| Phase 2 (Projected) | ~10–15% | 300,000–450,000 t/yr | ~Rs 6,000–9,000 cr (declining as H₂ costs fall) | Significant CCTS Scope 1 reduction |
The table above models the HPO’s fundamental structural tension: in the initial phases, the compliance cost of meeting even a modest HPO target (the additional cost of green over grey hydrogen) is real — scaling toward Rs 3,000 crore per year across the fertiliser sector at a 5% blend. But this cost is borne by fertiliser companies that are themselves selling subsidised products at government-mandated prices and receiving reimbursements from the Department of Fertilisers.
The subsidy mechanism question that the HPO framework must answer. Under India’s current fertiliser subsidy framework, the government pays fertiliser companies the difference between their production cost (including feedstock cost) and the Maximum Retail Price charged to farmers. If a fertiliser company replaces a portion of its grey hydrogen with green hydrogen under the HPO mandate, its blended feedstock cost rises. Specifically, a 5% HPO blend—assuming a Rs 200/kg premium for green hydrogen—increases the production cost of urea by approximately Rs 1,000 to Rs 1,250 per tonne. If this incremental feedstock cost is formally recognised in the subsidy calculation, the government absorbs the HPO compliance cost. If it is not recognised — if the subsidy formula strictly uses grey hydrogen reference prices — the fertiliser company bears a significant penalty for compliance. Resolving this will determine how aggressively fertiliser companies pursue HPO targets.
The SIGHT-HPO linkage: how supply and demand connect
The SIGHT programme’s Phase 1 allocation covers two components: electrolyser manufacturing PLI support and a green hydrogen production incentive (capped at Rs 50/kg in Year 1, Rs 40/kg in Year 2, and Rs 30/kg in Year 3 for qualifying green hydrogen production). The production incentive is disbursed directly to green hydrogen producers — reducing the effective cost they need to charge industrial buyers to maintain economic viability.
A green hydrogen producer that registers under SIGHT, installs renewable-powered electrolysis capacity, produces certified green hydrogen, and sells to a fertiliser plant can claim the SIGHT production incentive. The fertiliser plant pays the SIGHT-subsidised price rather than the full production cost. At current green hydrogen production estimates of approximately Rs 340 to 420/kg, a Rs 50/kg SIGHT incentive brings the effective price to the fertiliser plant to approximately Rs 290 to 370/kg — significantly closer to commercial parity with grey hydrogen (which typically costs ~Rs 150-250/kg depending on global LNG spot prices).
Which fertiliser companies are most exposed to HPO non-compliance risk. When the HPO mandate is officially enforced, companies most exposed will be those without existing green hydrogen supply contracts or internal investments in electrolyser capacity. These include highly gas-dependent plants like Chambal Fertilisers (which has relied entirely on efficiency improvements for CCTS rather than announcing green ammonia supply), RCF, and GSFC. Companies attempting to position themselves favorably include those that have already initiated green hydrogen off-take pilots or SIGHT-backed commercial MoUs, such as IFFCO. However, an MoU does not equal a secure physical supply, meaning execution risk remains high across the sector.
Frequently Asked Questions
What exactly counts as “green hydrogen” under India’s framework?
Under the MNRE’s National Green Hydrogen Mission standard (notified in August 2023), green hydrogen is defined as hydrogen produced through water electrolysis (or biomass) with a lifecycle emission intensity of no more than 2 kg CO₂e per kg of H₂. Unlike strict European frameworks (like the EU Delegated Act) that require punishing 36-month additionality and temporal correlation, India’s standard is more flexible, allowing the banking of renewable energy for up to 30 days. As long as the electricity is sourced from verified renewables and the plant operates within the 2 kg CO₂e/kg threshold, the hydrogen qualifies.
Will fertiliser companies be able to buy HPO compliance certificates instead of physically procuring green hydrogen?
The exact market design for HPO compliance is still being debated. Currently, standard industrial obligations often require physical procurement. However, industry stakeholders are advocating for a market design that may eventually allow “book-and-claim” certificates or hydrogen attributes, similar to the REC market. Until a final HPO notification is published detailing the exact chain-of-custody rules, whether compliance will require strict physical delivery or allow financial instrument trading remains speculative.
Does HPO compliance reduce a fertiliser company’s CCTS GEI?
Yes — to the extent that the HPO requires substituting green hydrogen for natural gas-based hydrogen in ammonia synthesis, the Scope 1 GHG emission from the ammonia synthesis step falls proportionally. Natural gas SMR (steam methane reforming) produces approximately 9 to 11 kg CO₂ per kg of H₂ as a direct process emission. Green hydrogen electrolysis produces near-zero direct CO₂. Substituting 5 percent of the hydrogen feedstock with green hydrogen reduces the ammonia synthesis Scope 1 emission by approximately 5 percent of the SMR CO₂ contribution — a measurable improvement in the total plant GEI under plant-boundary accounting.
Sources
- MNRE — National Green Hydrogen Mission — Green Hydrogen Standard and SIGHT Guidelines
- Ministry of Chemicals and Fertilisers — Fertiliser subsidy framework — production cost and MRP mechanism
- Department of Fertilisers — Urea nutrient-based subsidy policy and green hydrogen procurement treatment
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