The government has approved a new legal framework to allow the blending of domestically produced ethanol in petrol.
A cabinet meeting earlier this week endorsed the Order on the Use of Ethanol Blended in Petrol, 2026, formally permitting the Nepal Oil Corporation (NOC) to mix ethanol with imported petrol before distribution. As per the new legal framework, NOC can mix up to 10 percent ethanol in petrol.
NOC currently imports fully refined petrol from India. Officials say blending locally produced ethanol into imported petrol will help lower the import bill, reduce emissions, and create demand for domestic raw materials, particularly from sugar and agro-based industries.
Although the law allows NOC to mix up to 10 percent ethanol, NOC officials say they may begin with two percent and then move to four percent, six percent and eventually 10 percent.
Under the approved framework, NOC will procure ethanol from Nepali producers and blend it with imported petrol before selling it in the domestic market. The petroleum monopolist has assured that ethanol blending will not compromise fuel quality.
Ethanol blending has become a common policy tool globally to reduce dependence on fossil fuels. Brazil currently blends about 27 percent ethanol in petrol and has decided to allow up to 30 percent. The United States uses a standard 10 percent blend, while the European Union permits up to 10 percent. Neighboring India has already achieved its target of 20 percent ethanol blending and is already in discussion to move beyond that.
Ethanol is primarily produced by sugar mills in Nepal. It can also be produced from crops like maize, wheat and cassava. Domestic sugar mills have expressed commitment to supply around 50,000 liters of ethanol per day to NOC.
Consumption figures, however, highlight the supply gap. According to last fiscal year’s data, Nepal imported 746.4m liters of petrol, translating to an average daily consumption of about 2.04m liters. Blending 10 percent ethanol would require roughly 200,000 liters per day. At current production levels of around 50,000 liters daily, only about 2.5 percent blending is feasible. Conservative estimates suggest that Nepal has the potential to produce around 100 kiloliters of ethanol daily.
Nepal first deliberated the idea of blending ethanol in petrol in the early 2000s. In 2003, the Ministry of Industry, Commerce and Supplies directed NOC to blend bio-ethanol in petrol. The NOC even installed blending equipment at its Amlekhgunj depot. However, that initiative stalled due to the absence of a pricing mechanism and purchase agreements with producers.
Ethanol, or ethyl alcohol, is a biofuel derived from biomass such as sugarcane and maize. As an oxygenate, it promotes more complete combustion, leading to smoother engine performance and lower tailpipe emissions. Studies show ethanol blends can cut carbon monoxide emissions by up to 37 percent and significantly reduce hydrocarbons and particulate matter. Ethanol also offers substantial greenhouse gas reductions compared to pure petrol.
Beyond environmental gains, officials say the decision will support domestic agriculture and agro-processing industries, create jobs and align Nepal with regional and global fuel-transition trends. The pace of blending, however, will ultimately depend on scaling up domestic ethanol production and establishing viable commercial arrangements between producers and the state-owned oil monopoly.
Nepal imported petrol worth Rs 64.12bn in 2024/25. Officials estimate that a 10 percent reduction in petrol imports through ethanol blending could save more than Rs 6bn annually at current prices.
