Powering a New Kazakhstan: The Shift Beyond Fossil Fuels

Kazakhstan, once heavily dependent on fossil fuels, is now shifting towards green energy to diversify its economy. Reliance on non-renewable resources, once a major driver of economic growth and a contributor to GDP,  now leaves the country vulnerable to global shocks. Kazakhstan is situated in Central Asia between the Caspian Sea, Russia, and China, making it a strategic crossroads between Asia and Europe. Its unique geology creates ideal conditions to produce vast reserves of fossil fuels. It contains 30 billion barrels of crude oil, 33.6 billion tons of coal reserves, and four trillion cubic feet of gas. Due to the abundance of these natural resources, fossil fuels drove most of the economy since the Soviet Era, accounting for 21 percent of GDP and around 70 percent of total exports. Additionally, much of Kazakhstan’s energy became dependent on these non-renewable sources, as seen in 2024, when 85 percent of Kazakhstan's energy output came from coal and gas. This stems from Soviet-era infrastructure designed for fossil fuel extraction, which continues to shape energy policies. Additionally, the country’s harsh winters further reinforce dependency, as it is an efficient and cost-effective energy source for continuous high-rate heating. For these reasons, using fossil fuels has remained a common and familiar process until now.

In recent years, Kazakhstan has shifted toward alternative energy sources. Price fluctuations in response to global conflicts make fossil fuels an unreliable source for GDP growth. Economic slowdowns caused by the 2008 global financial crisis, a crash in global oil prices in 2014, the COVID-19 pandemic, and domestic political changes starting in 2022 made the country’s growth prospects less predictable. These challenges have made clear the limitations of relying solely on these commodities to maintain stability and drive growth. Kazakhstan’s government is fiscally reliant on fossil fuels as well. Fossil fuel production and taxes fund 30 percent of the government’s revenue, and much of it is produced through state-owned enterprises. Any slowdowns that affect production or demand for these commodities not only reduce growth, but also directly affect the government’s ability to fund itself and the country. Furthermore, as global decarbonization increases, it poses a great threat to Kazakhstan’s economic stability, with fossil fuels comprising the majority of the country's exports. The predicted continuous decline in demand in the coming decades incentivizes Kazakhstan to look toward alternative sectors to sustain its growth.

Geopolitically, Kazakhstan is closely tied to Russia because of the Caspian Pipeline Consortium (CPC), which originates in a Kazakh oil field and handles 90 percent of its oil exports — where the physical infrastructure belongs to Russia. The CPC is the main pathway for Kazakh oil to reach international trade markets. Any disruption to the pipeline poses a major threat to Kazakhstan’s export industry and, amid ongoing Russia-Ukraine tensions, could trigger Russia to halt oil flow. These risks highlight the urgent need for structural changes and reforms to diversify Kazakhstan’s economy, helping it stabilize against shocks, reduce vulnerability, and support strong fiscal growth. 

  As the climate crisis deepens and demand for fossil fuels continues to decline, the Kazakh government and international investors have agreed that the country’s economic landscape needs change. Spearheaded largely by the Kazakh government, the Law on Support of the Use of Renewable Energy Sources was adopted in 2009 to establish a legal framework for green energy. It guaranteed buyers, fixed prices, land access, and tax breaks to make the transition viable. Later, in 2014, the law was amended to include the ‘Feed-in Tariff’ program, which provided land for renewable energy sources as well as tax relief and grants. This program made the shift from non-renewable energy to green energy less of a financial risk, a concern that had long deterred transition. It made return on investment predictable, so investors felt comfortable supporting the sector

Additionally, the government has loosened its grip on national industries in order to increase competitiveness. In 2018, the Kazakhstan Electricity and Power Market Operator introduced an auction system in which companies may bid on projects for the lowest price. Examples of projects include wind, solar, biomass, and hydropower. Rather than the government setting a price, this market-driven competition enables greater innovation and lowers costs. It creates jobs in new sectors, expands the skilled workforce, and reduces dependency on fossil fuels. Beyond this, it has attracted foreign investors from China, the United Arab Emirates, France, and Germany, bringing in more capital into Kazakhstan and reducing currency risk. As of 2026, Kazakhstan has 169 operating renewable energy facilities. Renewable energy produced at these facilities accounts for 7 percent of the country’s electricity production, a 70 percent increase since 2022. 

Although the state heavily relies on fossil fuels as its main export, Kazakhstan has diversified by transitioning to green energy by expanding technology, AI, and manufacturing. Growth in various sectors has increased economic activity and types of exports. One indicator of this diversification is the Herfindahl-Hirschman Index (HHI), an indicator of trade concentration measured on a scale of 0-1. The closer the value is to 0, the more diversified exports are. For Kazakhstan, the HHI has decreased from .40 in 2010  to .08 in 2023. The transition remains steady and will take several decades. As it stands now, the shift to alternative energy sources is still in the early stages, and currently fossil fuels remain significant to the country’s economy. Kazakhstan must now build on the momentum from the early stages to support long-term economic growth and stability.