The role of biofuel has become critical in energy transformation, with increased international action to address climate change and to provide sustainable energy sources. Derived from organic materials like crops, crop residues and waste products, biofuels are a sustainable energy source compared to fossil fuels, particularly for transport.

For Nepal, a country dependent on imported fossil fuels, biofuel is not only an environmental need but also an economic one. As per the information from the Trade and Export Promotion Centre, during the fiscal year 2023-24, Nepal imported petroleum products worth around Rs354 billion, representing close to 19 percent of the country’s total national imports, a drop from Rs397 billion in 2022-23. This dependence needs to be reduced as a national priority, considering the economic and environmental risks associated with the continuous use of imported fossil fuels. It is time for the government of Nepal to establish a robust biofuel industry as a priority, leveraging international collaboration like the Global Biofuel Alliance (GBA) to push this transition and realise a sustainable energy future.

Biofuel in Nepal

Nepal’s dependence on fossil fuels is a heavy strain on the nation’s foreign exchange reserves and exposes the economy to the volatility of oil price shocks on the international market. A domestic biofuel industry can be a game-changer in a nation with precarious national energy security. As per the Climate Transparency Report 2020, Nepal’s vehicle fleet keeps increasing and continues to be petroleum product dependent, with around 99 percent of vehicles being fossil fuel-powered. At that point, electric vehicles comprised only around 1 percent of the national fleet.

While Nepal is slowly investing in transport electrification, biofuels are a more accessible and scalable option, particularly in rural mobility and heavy transport sectors where electric options are still limited. Encouraging both electrification and biofuel uptake in parallel can decrease fuel imports, facilitate energy diversification, and create a more sustainable and inclusive future for all Nepalis. By lowering dependence on foreign fuel, biofuels have the potential to improve national energy security, stabilise the economy and insulate it from the volatility of oil price shocks in the global market.

The environmental advantage of biofuels is realistic. Nepal is obligated under the Paris Agreement to reduce its greenhouse gas (GHG) emissions. The transport sector, a high emitter of the nation’s carbon footprint, is a clear intervention point. Adding biofuels to its energy mix can drastically reduce emissions, aiding Nepal’s attempt to undo the effects of climate change on its fragile environment.

Social and economic benefits

Besides environmental benefits, the social and economic advantages of biofuels are significant, particularly for rural development. It is estimated that nearly 12 percent of Nepal’s total land area, or approximately 3.16 million hectares, is impacted by land degradation, as per a study published in the Multidisciplinary Digital Publishing Institute (MDPI) in 2019. This presents a huge potential for the restoration of underutilised land using sustainable methods like biofuel crop production, which can be used to address both rural economic needs and energy requirements.

The production of biofuel feedstock such as corn, sugarcane, jatropha, cassava and other non-food crops can be a sustainable economic opportunity for Nepal’s agrarian economy. These crops would create employment opportunities and additional income for rural farmers, reducing poverty and promoting rural development.

In Brazil, biofuel has become a key driver of the economy, stimulating rural development, energy security and jobs. India’s runaway growth of ethanol production, driven by robust government policy and investment, has also established the economic feasibility of biofuels. According to a joint roadmap by NITI Aayog and the Ministry of Petroleum & Natural Gas (2021), India reached a 12 percent ethanol blending in petrol by April 2023, increasing to 18 percent in early 2025. It is estimated that achieving a 20 percent blend (E20) by 2025-26 can bring the country’s fossil fuel import bill down by around $4 billion annually. Nepal can potentially replicate these successes by developing its biofuel industry.

The Global Biofuel Alliance

The Global Biofuel Alliance (GBA), initiated at the G20 Summit in 2023, is a great chance for Nepal to accelerate its biofuel agenda. The GBA foresees embracing global collaboration to expand the use and production of sustainable biofuels. The 24 countries’ membership and 12 international organisations give it a platform for exchanging best practices, access to technical assistance and capacity building in biofuel technologies.

The organisation provides access to international know-how, cutting-edge biofuel technology, and international cooperation opportunities that would enable Nepal to overcome the challenges of establishing a biofuel sector. These include gaining access to a sustainable feedstock supply, developing infrastructure and breaking through technological and regulatory challenges. Through GBA membership, Nepal could drive its shift towards a sustainable energy economy by accessing the experiences and innovations of its members.

Priorities and challenges

Despite the clear advantages, several challenges must be addressed to unlock the full potential of biofuels in Nepal. One key challenge is having a stable and sustainable feedstock supply. Nepal’s agrarian economy must balance food and biofuel crop production. Biofuel production can compete with food production and thus enhance food security threats. This challenge requires informed feedstock selection and crop cultivation practices, giving preference to non-food crops and agricultural residues.

The second challenge concerns the need for massive investment in infrastructure, such as production units, marketing networks and research and development. Building a biofuel industry requires substantial financial and technical investment, which can be mobilised through tax incentives, low-interest loans, public-private partnerships and foreign assistance.

Nepal must offer an enabling regulatory environment supporting biofuel investment and sustainable production practices. This involves establishing clear blending mandates, providing financial incentives and establishing sustainability standards. Nepal can implement a modest blending requirement of E5 (5 percent) by 2028 and gradually increase it proportionately to national production or align with regional benchmarks.

With sound policies, international support and commitment to sustainability, Nepal can be the regional biofuel leader and reap the environmental, social and economic benefits of biofuels. The time to act is now, and the path forward is clear. Nepal must make that step to build a robust, sustainable and energy-secure future for its people. Lastly, ongoing public awareness and coordination among agriculture, energy and transport ministries will be essential to make biofuel projects socially inclusive and economically sustainable.