Economy is of importance for everyone but the growing environmental destruction and disparity between the rich and poor demands adoption of cleaner and better path so as to secure the future resources and achieve sustainable development with better social inclusion. On this regard, the term “green economy” came into light. The Asian Center for Environment Management and Sustainable Development (AEMS) then explored the “green economy” concept in Nepal through a regional workshop on May 2012 with participants from Bangladesh, Bhutan, India, Canada, UK and Nepal. Consequently, the hydropower sector of Nepal was recognized as one of the most feasible and potential sector for green economy. Therefore, various case studies of hydropower projects, interaction programs and interviews with relevant personnel were carried out for this study to analyze the scope of hydropower in achieving the three important attributes of green economy, namely—resource efficiency, low carbon and social inclusion. Nepal is rich in water resources; it is therefore possible to use our abundant water resource in an efficient manner. Likewise, the end product of hydropower is clean energy though carbon emission is involved during the construction. It shows the potential to replace considerable amount of carbon emission from biomass based energy resources. Similarly, hydropower project exhibits positive implication on the local society besides making electricity available to the whole nation. The locals also get floating shares and royalty benefits to develop the project affected area. However, the affected areas now have minimal share in royalty. Besides, this study also addresses the issues of policy implication and challenges. All the relevant issues of hydropower as studied reveal that there are required provisions at place in Nepal for hydropower sector to fit perfectly in green economy concept, if only, the prevalent issues are handled efficiently and effectively by the relevant sectors.