In this work the effects of nutrient availability and light conditions on CO2 utilization and lipid production in Micractinium pusillum KMC8 is reported. The study investigated the ideal nitrogen concentrations for growth and nitrogen utilization in a 15% CO2 environment. Logistic and Gompertz models were employed to analyze the kinetics of KMC8 cell growth. Compared to 17.6 mmol L−1 control nitrogen, which generated 1.6 g L−1 growth, doubling and quadrupling nitrogen concentrations boosted biomass growth by 12.5% and 28.78%. At 8.6 mmol L−1 nitrogen, the growth decreased but lipid productivity increased to 18.62 mg L−1 day−1. At 70.6 mmol L−1 nitrogen, elevated nitrogen levels maintained an alkaline pH above 7 and enhanced CO2 mitigation, achieving 2.27% CO2 utilization efficiency. Nitrogen shows a positive correlation with higher rates of carbon and nitrogen fixation. The investigation extends to find out the influence of phosphorus and light conditions on microalgae. Increasing light intensity incrementally from 150 to 1200 μmol m−2 s−1 with more phosphorus increased biomass productivity by 85% (255 mg L-1 day−1) and lipid productivity by 2.5-fold (84.76 mg L-1 day−1), with 3.3% CO2 utilization efficiency compared to directly using 1200 μmol m−2 s−1. This study suggests a water recycling-fed batch cycle with gradual light feeding, which results in high CO2 fixation (1.1 g L−1 day−1), 7% CO2 utilization, and significant biomass and lipid productivity (577.23 and 150 mg L−1 day−1). This approach promotes lipid synthesis, maintains carbon fixation, and minimizes biomass loss, thus supporting sustainable bioenergy development in a circular bio-economy framework.