Waste generation from non-biodegradable plastic-grocery bags (PGB) has raised concerns in recent years due to their massive production and consumption. The other pressing issues include the depletion of fossil fuels, rising prices, and environmental pollution from compression ignition (CI) engines. In the context of reducing emissions from CI engines, emulsified fuel is becoming increasingly popular. Given the above two flaws and the potential of emulsification, this study looks into the prospects of PGB-derived oil-water-diesel emulsions for CI engine application. Three emulsions were prepared at varying diesel percentages. The average water droplet size ranged between 215.4 and 397.4 nm, with more than 93 % stability after 75 days. The lower heating value of the emulsions increased the brake-specific fuel consumption (BSFC). However, the neat BSFC of all the blends was lower than diesel. All the emulsion blends also decreased the nitrogen oxide and smoke emission simultaneously; additionally, the heat sink effect also reduced the exhaust gas temperature. The blend with 10 % diesel incorporation exhibited the lowest increment in carbon monoxide and unburnt hydrocarbon emissions w.r.t diesel. Additionally, it has also the highest exergy efficiency and sustainability index and the lowest specific exergy cost for shaft work amongst the emulsion blends.