Punjab is considering a new incentive framework for compressed biogas (CBG), including road tax exemptions for eligible CNG and CBG vehicles and financial assistance of up to ₹6 crore per project for qualifying CBG plants.
The measures are outlined in the draft Punjab State Policy for Compressed Biogas (CBG), 2026, which aims to increase the use of paddy straw, agricultural residues, cattle dung and biodegradable municipal waste for clean fuel production while attracting investment into the state’s CBG sector.
The policy is still in draft form. The Punjab government has invited comments and suggestions from stakeholders before the proposal is finalised and placed before the state cabinet.
Proposed road tax exemptions for CNG and CBG vehicles
Under the draft policy, eligible four-wheelers would receive a 50% road tax exemption for the validity period of their registration certificates.
Private and government buses would be eligible for a 100% exemption during the first year, while three-wheelers, cabs and commercial goods carriers would receive a 100% exemption for the first three years.
The proposed benefit would apply only to new vehicles registered in Punjab after the policy’s notification date. Vehicles retrofitted with CNG kits would not qualify.
The registration certificate would also need to list either CNG/CBG or petrol/CNG/CBG as the vehicle’s fuel type.
If implemented, the measure would link vehicle taxation incentives with the adoption of compressed gaseous fuels, while limiting the proposed benefit to newly registered vehicles.
CBG projects could receive up to ₹6 crore
The draft policy also proposes state financial assistance (SFA) for CBG production capacity at ₹60 lakh per tonne per day (TPD) of installed capacity.
Assistance for projects with lower or intermediate capacity would be calculated on a pro-rata basis, subject to a maximum of ₹6 crore per project.
For CBG projects using agricultural residues, the proposed eligibility criteria require at least 70% paddy straw in the feedstock mix. The remaining 30% could comprise other biodegradable materials, including cattle dung and Napier grass.
The requirement places paddy straw at the centre of the proposed policy, aligning CBG production with Punjab’s wider challenge of finding productive uses for agricultural residues.
Separate feedstock criteria for municipal waste projects
The draft policy proposes different feedstock requirements for CBG projects based on municipal solid waste.
Such projects would need to use at least 80% segregated organic municipal solid waste, with the remaining 20% comprising other biodegradable waste. The permitted materials include cattle dung, paddy straw, Napier grass and wet waste.
The proposed financial incentive would remain available for five years from the date of policy notification.
New, under-construction and upcoming CBG projects seeking the financial assistance would also be required to achieve commercial operation within their scheduled commercial operation date (SCOD), according to the draft.
CBG projects included in Punjab’s priority sectors
The proposed CBG incentives would operate alongside benefits available under the Punjab Industrial and Business Development Policy, 2026.
That policy identifies the processing of agro and biomass waste into energy, bioenergy or other usable forms as a priority sector. Eligible CBG units would therefore be able to access incentives and benefits available to qualifying projects under the wider industrial policy.
The combination of project-level financial assistance and broader industrial incentives is intended to improve the investment environment for CBG development in Punjab.
Government seeks stakeholder feedback
Punjab Energy Development Agency (PEDA) chief executive officer Abhijeet Kaplish said the proposed policy would provide incentives intended to improve the viability of CBG projects while increasing the use of paddy straw and other biodegradable waste for clean fuel production.
The state government has already conducted an open house seeking feedback from the public, industrialists, CBG developers, investors and other stakeholders. The draft will be revised following the consultation process before being finalised and presented to the cabinet of ministers.
Bioenergy Business Analysis
The proposed Punjab CBG policy combines two elements of market support: incentives for CBG production and tax relief for vehicles capable of using CNG and CBG. For project developers, the proposed ₹60 lakh/TPD assistance, capped at ₹6 crore, could improve the financing framework for eligible plants, while the feedstock thresholds are designed to ensure that agricultural and biodegradable waste remains central to project eligibility.
The paddy-straw requirement is particularly relevant to Punjab, where converting agricultural residue into CBG could create an alternative utilisation pathway for biomass. However, the commercial impact of the policy will depend on its final provisions, the availability and logistics of eligible feedstock, project execution against SCOD requirements and the outcome of the ongoing stakeholder consultation. The measures remain proposals until the policy is finalised and approved.
