The clean development mechanism (CDM) of the Kyoto Protocol provides Annex-I countries with an incentive to invest in emission reduction projects in non-Annex-I countries to achieve a reduction in carbon dioxide (CO2) emissions at lowest cost that also promotes sustainable development in the host country. Small hydro power (SHP) projects could be of interest under the CDM because they directly displace greenhouse gas emissions while contributing to sustainable rural development, if developed correctly. An attempt has been made to estimate the CDM potential of SHP projects in India. The preliminary estimates indicate that, there is a vast theoretical potential of CO2 mitigation by the use of SHP projects in India. On the basis of available literature, the gross potential of SHP projects is more than 15GW. The annual CER potential of technically feasible SHP projects in India could theoretically reach 24 million tons. Under more realistic assumptions about diffusion of SHP projects based on past experiences with the government-run programmes, annual CER volumes by 2012 could reach 7-20 and 13-24 million by 2021). CDM could help to achieve the maximum utilization potential of SHP projects more rapidly as compared with the current diffusion trend if supportive policies are introduced. (c) 2008 Elsevier Ltd. All rights reserved.