Electrification of the Transportation Sector in Nepal: Economic Potential and Fiscal Challenges

Transport sector is central to Nepal’s economic and energy systems but is also a major source of fiscal and environmental vulnerability. The sector facilitates over 90% of the movement of passengers and goods but remains overwhelmingly dependent on imported petroleum products, which accounts for nearly one-fifth of the national import bill. The Third Nationally Determined Contribution (NDC 3.0) represents a strategic policy shift towards electrification of transport sector, leveraging Nepal’s surplus hydropower to reduce fossil-fuel dependence and promote low-carbon growth. Using IFPRI’s dynamic Computable General Equilibrium (CGE) model calibrated to the 2022 Nepal’s Social Accounting Matrix, two scenarios were simulated: a Business-as-Usual path and an Electric Vehicle (EV) transition aligned with NDC 3.0 targets. Results show that successful electrification could make Nepal’s economy 1.4% larger by 2035, generating about 10,000 jobs, and lifting around 9,000 people out of poverty. However, fiscal analysis reveals substantial revenue and foreign-exchange pressures, with EV imports in FY 2023/24 alone leading to a revenue shortfall of NPR 15.59 billion due to lower import tariffs and a forex burden of NPR 17.07 billion. The findings highlight that while electrification of transport sector can drive sustainable growth and resilience, its economic promise depends on coherent fiscal reform and policy coordination to prevent revenue erosion and ensure a just, inclusive transition.

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