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Palm oil has the important advantage of productivity compared to other vegetable oils such as rapeseed oil and soybean oil. However, the cold flow performance of palm oil methyl ester (PME) is poorer than other vegetable oil based biodiesel fuels. Previous research by the authors has shown that ethanol blending into PME improves the cold flow performance and considerably reduces smoke emission. The reduced smoke may be expected to allow an expansion in the EGR limit and lead to reduced NOx. This paper experimentally analyses the influence of EGR on smoke and NOx emissions from the diesel combustion with PME/ethanol blended fuel. The mechanisms in the smoke reduction are also analyzed.