Mexico is not reaching its full potential to capture benefits from clean development mechanism (CDM) projects because of its limited market for independent power producers (IPPs) and the barriers imposed on these entities by the state-run electric utility that controls most of the country's generation and transmission. This state-run entity has pursued CDM revenues only in isolated cases where international financial assistance was given because it is bound by law to pursue the least-cost generation option for its customers. Recent changes in Mexican legislation that provide incentives for renewable energy development could open the marketplace for these types of projects. (C) 2008 Elsevier Ltd. All rights reserved.