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The clean development mechanism (CDM) could play an important role in the power generation sector of developing countries and emerging economies by providing additional revenue to support the diffusion of renewable energy sources (RES). This paper investigates the contribution of the CDM to deployment of renewable electricity projects in China and India, and highlights the main potentialities and limitations of this mechanism for their support. The outcome of our analysis shows many differences and similarities in the way and scale of CDM projects for renewable electricity generation have been implemented in the two countries. In both cases, the CDM has made a contribution to greening investments in the power generation sector, which is still largely dominated by subcritical coal-fuelled power plants. Nonetheless, some major problems still remain and they are mainly related to the distribution of projects across different technologies and to the environmental integrity of the mechanism. In view of the likely revision of the CDM in the post-Kyoto period, we find that the differentiation of the credit generation rate of different project categories could bring some level of improvement without significantly altering the current system functionality. [ABSTRACT FROM AUTHOR]

China is the second largest emitter of greenhouse gases (GHG) in the world, with potentially about two thirds of total Certified Emission Reductions (CERs) for Asia on the world carbon market (Gruetter, 2002). Since 68% of its primary energy is from coal, China's average energy intensity is 7.5 times higher than the EU and 4.3 times higher than the US (EU, 2003). Therefore, introducing advanced clean technologies and management to China represents opportunities for Annex I countries to obtain low-cost CERs through CDM projects, and access to one of the largest potential energy conservation markets in the world. CDM can provide a win-win solution for both China and Annex I countries, and the Chinese government considers that the introduction of CDM projects can bring advanced energy technologies and foreign investment to China, thereby helping China's sustainable economy and generating CERs. As energy efficiency is generally low and carbon intensity is high in both China's energy supply and demand sectors, numerous options exist for cost-effective energy conservation and GHG mitigation with CDM. This paper reviews current Chinese policies and administrative and institutional settings for CDM cooperation, and discusses existing policy, institutional and other barriers in the energy market by drawing on observations and experience from previous initiatives such as Cleaner Production and energy efficiency. Some options to remove these barriers are addressed. In order to make CDM projects feasible, China's government needs to promote awareness, streamline administrative systems, and be more active in building a competitive edge in the world carbon market. [ABSTRACT FROM AUTHOR]