Ethyl alcohol, also known as ethanol, is a biofuel obtained primarily from biomass materials, including sugarcane and maize and starch-bearing agricultural products. It is a volatile colorless liquid that serves as an environmentally-friendly fossil fuel substitute since it releases fewer pollutants during use. The mixture of bioethanol and gasoline produces biofuel that both lowers greenhouse gas emissions and decreases national dependence on petroleum products. It is used in varying proportions in different countries, such as E10 (10 percent ethanol, 90 percent gasoline) and E20 (20 percent ethanol, 80 percent gasoline). Moreover, ethanol serves as a vital component in manufacturing alcoholic drinks and pharmaceutical medicines, as well as industrial solvents, sanitisers and disinfectants. The demand for ethanol is increasing globally as countries transition toward sustainable energy solutions. With Nepal’s reliance on imported fuels and its agricultural potential, ethanol production presents an opportunity for economic growth and energy security.
Historical background
The idea of blending bioethanol in petroleum products started in 2003 when the Ministry of Industry, Commerce and Supplies (MoICS) ordered the mixing of bioethanol in gasoline. Even blending equipment was installed at the Nepal Oil Corporation's Amlekhgunj depot. However, the initiative stalled because there was no pricing mechanism or purchase agreement in place. In the meantime, plans to extract bioethanol from jatropha largely failed despite the fiscal year 2009-10 budget seeking to promote jatropha farming for biodiesel production.
While the 13th plan (2013-14 to 2015-16) pledged to formulate necessary policies for biofuel production, the Rural Energy Policy of 2006 strongly emphasised identifying possible biofuel production locations. Initiatives to incorporate bioethanol into petroleum products were announced in the Policy and Programs for the 2014-15 fiscal year, and the following year, private sector involvement was encouraged. Despite these legislative frameworks, no noticeable advancements have been achieved.
Recent initiatives
In 2024, a new wave of momentum appeared for the local production of bioethanol in Nepal. Minister for Industry, Commerce and Supply, Damodar Bhandari, made a significant announcement on the bioethanol blending strategy on 9 Sept 2024. The rules governing the blending of bioethanol and petroleum products are already in place and this action is anticipated to generate domestic jobs and significantly cut daily petroleum usage. Setting purchase prices from producers is one of the tactics that the NOC has been entrusted with creating for bioethanol production and marketing. One major bottleneck has been the delay in setting these prices, although new guidelines are meant to speed up the procedure.
Advantages galore
It is estimated that Nepal has the potential to produce 100 kiloliters of bioethanol every day. The country produces around 3m tons of sugarcane annually and other relevant biomass resources, such as maize, in large quantities for bioethanol production. Hence, the establishment of bioethanol plants would allow for the stabilization of sugarcane prices, minimization of post-harvest losses with more sustainable marketing strategies, thereby providing relief to farmers. Local bioethanol production would accrue economic advantages in the long run. The production of bioethanol in Nepal would, therefore, reduce the dependence on imports, saving millions of rupees each year.
Bioethanol production would also generate thousands of jobs in rural sectors, thus fostering economic development and curbing migration to urban centers. Costs of bioethanol could be reduced to Rs 80–90 per litre if produced in Nepal, therefore relieving consumers with cheaper fuel. It will also contribute toward Nepal’s commitment to curbing climate change by erasing CO2 emissions and paving the way for cleaner energy alternatives.
Besides, there is a reasonably good prospect for Nepal to export ethanol to neighbouring countries, especially India, where the bioethanol market is now booming, and an increasing number of states are announcing purchase prices for bioethanol for blending with gasoline. The establishment of ethanol plants does entail investment in infrastructure, research and policy formation, but these gains outweigh the costs by far in the long run.
Nepal relies heavily on petroleum products from abroad to meet its energy requirements. According to the Department of Customs, approximately 306,229 kiloliters of petrol worth Rs 26.45bn was imported during the first half of the fiscal year 2023-2024, compared to 281,970 kiloliters worth Rs 28.55bn in the same period this fiscal year. This growing dependence on petrol significantly strains Nepal’s foreign exchange reserves and increases trade deficits. Bioethanol blending in petroleum products will help Nepal save billions of rupees by reducing petrol imports. If the nation uses a 10 percent ethanol blend (E10) in petrol, Nepal can reduce the import of gasoline by 10 percent, resulting in enormous economic gains. With 306,229 kiloliters of existing imports, blending the ethanol would save around 30,622 kiloliters of petrol, amounting to a financial saving of around Rs 2.64bn.
Blending bioethanol with petrol in Nepal can significantly reduce CO₂ emissions and fuel imports and bring economic gains. One liter of petrol generates 2.3 kg of CO₂ approximately, and thus Nepal's annual consumption of 306,229 kiloliters of petrol generates approximately 704,326 metric tons of CO₂ emissions.
With a 10 percent ethanol blend (E10), petrol imports can be reduced by 30,622 kiloliters, reducing CO₂ emissions by 70,432 metric tons annually. This transition would also enhance air quality, reduce fossil fuel reliance and assist in meeting Nepal’s climate goals. Moving to domestic ethanol production aligns with a circular economy using sugarcane, maize and agricultural waste and creating value-added byproducts like animal feed and organic fertilizers. Further, this industry would create thousands of jobs in agriculture, ethanol manufacturing, transport and research, assisting rural farmers and enhancing Nepal’s economy. With ethanol blending policies, Nepal can save billions of dollars in fuel import costs, reduce pollution and develop a green, self-reliant energy sector.
Global trends in blending
Bioethanol blending policies vary significantly across countries, reflecting each nation's goals for energy security, environmental sustainability and agricultural development. The government adopted an aggressive blending policy in Brazil, a world leader in bioethanol production. The Proálcool Program that began during the 1970s formed the foundation for the E100 (pure bioethanol) flex-fuel cars widely utilized today. E27 is already mandated in gasoline today with the intention of increasing this even more. Success in Brazil is partly due to its massive sugarcane output, which is highly well-adapted for bioethanol manufacturing. In the US, bioethanol blending is regulated by the Renewable Fuel Standard (RFS), which mandates increasing bioethanol blending into gasoline over time. The most commonly available blend is E10, with E15 and E85 available for flexible-fuel vehicles. The US has a highly developed corn bioethanol sector, though controversy remains about environmental effects and food versus fuel. In the EU, Germany and France, for example, employ various ratios of bioethanol blending that prefer to range between E5 and E10 to meet climatic aspirations and mitigate greenhouse gas emissions.
The European Union Renewable Energy Directive (RED II) seeks to promote renewable energy consumption in biofuels with specific requirements for using bioethanol in the transport sector. Moreover, India has set the ambitious target of blending 20 percent bioethanol (E20) by 2025, mainly founded on utilizing its resource-intensive sugarcane sector. The government has supported bioethanol production through better procurement prices for sugar mills, incentivizing the addition of bioethanol plants. These different bioethanol blending policies put the growing global acceptance of bioethanol as a core solution to reducing greenhouse gas emissions, promoting energy independence and encouraging local economies through agricultural and industrial growth.
Challenges and the path ahead
Although there are obvious merits, there are still no specialized bioethanol production plants in Nepal. Uncertain government policies and incentives toward bioethanol production are not a good motivator for private investments. Also, a steady supply of raw materials is needed for bioethanol production to initiate. At the same time, the agricultural sector of Nepal faces challenges such as varied crop yields, the absence of irrigation facilities and dependence on imported chemical fertilizers. These factors create uncertainty when considering bioethanol production investments.
One of the most important factors is that a blending policy is mandatory for bioethanol. The Nepal Oil Corporation (NOC) has been testing the blending of bioethanol later into fuel, but large-scale implementation has thus far not happened due to physical constraints, policy hurdles and the unwillingness of fuel dealers to accept blended fuels. The most important fuel source in Nepal's distribution network comes from India, which already has a blending policy. Without encouraging policy enforcement and significant investments in infrastructure capabilities for bioethanol distribution, Nepal will continue to depend on imported bioethanol instead of promoting its domestic production. Furthermore, there is no dedicated infrastructure in Nepal for the storage and transport of bioethanol. Unlike fossil fuels, bioethanol is very combustible and quickly absorbs moisture, indicating the need for dedicated storage tanks and pipelines. Therefore, blending bioethanol in Nepal is a grand but not yet completed plan.
To reap the benefits of bioethanol production, the government should consider initiatives to attract investment, build infrastructure and implement policies for bioethanol blending. The government should extend support for bioethanol production projects by providing subsidies and tax incentives to ensure investors a reasonable return. Working with the private sector, farmers and research institutions would help develop a sustainable bioethanol production ecosystem. If Nepal were to set up production facilities for bioethanol successfully, it could ultimately gain the benefits of lowering its fuel import bill, providing jobs, increasing farmers' incomes and providing energy security. Furthermore, the production of bioethanol is also in line with Nepal's commitment to carbon emission reductions and promoting cleaner forms of energy. Therefore, with strong policy support, it seems feasible for Nepal to establish a flourishing bioethanol sector that will be environmentally sustainable and drive economic growth.
