Diesel fuel (DF) is a significant power supply in agricultural, industrial, and transportation applications. Establishing sustainable and renewable fuel substitutes for diesel has become increasingly common due to the rising expense of petroleum resources and the pollution rate crises. A biodiesel-DF mixture in a dual-fuel (DuF) diesel engine (DE) can bring favorable environmental results. In the present study, three rates of ethanol (0, 2, and 4%), two rates of biodiesel (0 and 5%), and four rates of water (0, 0.3, 0.6, and 0.9%) were blended with DF. All these samples were considered pilot fuel (PF) in the DuF combustion process with an 80% natural gas (NG) replacement percentage. The combustion process was investigated from engine emissions and performance, power cost, and life cycle assessment (LCA) to obtain a sustainable fuel formulation. As a result, water, ethanol, and the combination of water-ethanol and NG can enhance the DE’s performance by rising the inside pressure of the cylinder. The presence of oxygen content in ethanol can improve the combustion process by pushing the combustion towards complete combustion. The optimum engine performance point at full load was obtained with a fuel sample containing 1.57% biodiesel, 4.38% ethanol, 1.1% water, and 80% NG. In optimum condition, the brake power (BP) was 24.16 kW, and the brake-specific fuel consumption (BSFC) was 60.64 g/kWh. This fuel sample produces 0.46, 364.08, 1.66, and 1088.29 g/kWh of BSCO, BSCO2, BSNOx, and BSO2, respectively. At this point, the energy production cost was $0.783/kWh. The environmental impacts of the combustion process at optimal fuel formulation were 0.34249, 1.00 E + 02 , 1.53 E + 00 , and 1.94 E − 06 , respectively, for ecosystem quality (EQ) (PDF ∗ m2 ∗ yr), resources (R) (MJ primary), climate change (CCh) (kg CO2 eq), and human health (HH) (DALY). Accordingly, the best fuel combination was selected to be NG+B1.5E4.3W1.1.
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