How Central Asia Is Pioneering a Scalable Solution for Energy Reform

Across the world, many governments face a common set of challenges: how to reduce greenhouse gas emissions, attract investment, and improve energy service delivery while implementing difficult reforms.

In Central Asia, Uzbekistan and the Kyrgyz Republic are testing an approach that seeks to address all three issues at once. By combining policy reform, technical support, and results-based carbon finance, the two countries are pioneering a model that rewards measurable results and could offer lessons for other countries facing similar challenges.

Why Reform Matters

Reliable electricity underpins economic activity, from manufacturing and retail to health care and education. In Uzbekistan, businesses report that more reliable electricity has helped them expand operations and invest in new equipment.

"Ten years ago, we relied on generators. Today electricity is reliable enough for us to expand our operations, invest in new equipment, and create new jobs," says Adham Anorov, the owner of a building supplies company in the country's Samarkand region that now operates a laser cutter for sheet metal.

But maintaining and expanding energy infrastructure requires utilities to have the resources needed to operate, maintain, and modernize their systems. In addition, saving energy is far more cost-effective and should be pursued alongside generation expansion.

For decades, many countries have kept energy prices below cost-recovery levels to shield consumers from higher bills. While well-intentioned, these policies can encourage overconsumption of energy use, strain public finances, and leave utilities without sufficient resources to invest in better services. Reforming energy subsidies can help address these challenges, but such reforms are often politically and socially complex.

Testing a New Model

Instead of funding individual projects, the Innovative Carbon Resource Application for Energy Transition (iCRAFT) program in Uzbekistan ties financing directly to policy reforms that improve energy efficiency across the entire sector. Launched in 2023, iCRAFT became the World Bank's first policy crediting program globally.

Funded by the World Bank's Transformative Carbon Asset Facility (TCAF), the program incentivizes energy subsidy reforms that result in lower energy consumption and greenhouse gas emissions, as well as government measures to protect vulnerable households from tariff increases. Uzbekistan receives payments when associated emissions reductions are measured, reported, and verified by an independent third party.

The program also supports the development of technical systems, methodologies, and human capacity needed to monitor results and participate in international carbon markets.

From Pilot to Proof of Concept

Three years after its launch, iCRAFT is demonstrating that the model can work in practice.

Uzbekistan initiated an ambitious energy subsidy reform in 2022. Over 2022-2024, electricity and natural gas prices were increased by 119% and 90%, respectively. Adjusted for inflation, this represented real increases of 71% and 46%. As a result, the country became the first in the world to receive a World Bank payment for emissions reductions generated through tariff increase. Supported by the payments from iCRAFT, Uzbekistan has established an independent energy regulator, set up a robust communication plan for tariff reforms, as well as implemented mechanisms to collect citizen feedback on reforms and measures to support vulnerable households.

Since then, the country has received a total of $20 million in climate and carbon finance payments linked to verified results, while preparations are underway for its first international carbon market transaction. Uzbekistan reduced an estimated 23.7 million tons of greenhouse gas emissions between 2022 and 2024 through reforms supported by the program, equivalent to removing about 5.2 million passenger vehicles from roads for one year.

With these promising early results, attention is now turning to whether this model can be replicated and scaled elsewhere.

The Kyrgyz Republic Takes the Next Step

On June 9, 2026, the World Bank approved up to $50 million for the Innovative Finance for Resilient and Sustainable Energy Transition Project (iFIRST) in the Kyrgyz Republic.

Building on lessons from Uzbekistan, iFIRST will support energy sector reforms aimed at encouraging more efficient use of electricity while helping the country develop the systems needed to access international carbon markets. As in Uzbekistan, payments will be linked to independently verified emissions reductions. The project also incorporates lessons learned from the evolving implementation of Article 6 of the Paris Agreement, which governs international carbon market transactions.

The Kyrgyz Republic faces challenges familiar to many countries. Electricity demand is growing, while low tariffs have historically limited the resources available for maintenance, modernization, and investment. The government is gradually moving tariffs closer to cost-recovery levels while maintaining targeted support for vulnerable households.

The stakes are tangible for people, businesses, and service providers.

"If the power went off during an operation, or when a pregnant woman is undergoing an ultrasound, or doing lab tests-imagine how you'd feel as a mother?" says Makhabat Alieva, founder and director of Mercy Med, a private medical clinic in Bishkek. "That's why if we have any interruptions in electricity, then the quality of our service drops significantly. Our equipment stops working, lab tests get delayed, and patients start to queue."

Looking Beyond Central Asia

The iCRAFT and iFIRST programs are demonstrating how combining policy reforms, technical support from international partners, and innovative financing may offer a promising pathway for addressing complex development challenges at scale.

As countries search for practical ways to strengthen energy sectors, mobilize investment, and improve service delivery, the lessons emerging from Central Asia may prove relevant far beyond the region.