So far, the cumulative capacity of renewable energy systems such as bagasse cogeneration in India is far below their theoretical potential despite government subsidy programmes. One of the major barriers is the high investment cost of these systems. The Clean Development Mechanism (CDM) provides industrialized countries with an incentive to invest in emission reduction projects in developing countries to achieve a reduction in CO2 emissions at lowest cost that also promotes sustainable development in the host country. Bagasse cogeneration projects could be of interest under the CDM because they directly displace greenhouse gas emissions while contributing to sustainable rural development. This study assesses the maximum theoretical as well as the realistically achievable CDM potential of bagasse cogeneration in India. Our estimates indicate that there is a vast theoretical potential of CO2 mitigation by the use of bagasse for power generation through cogeneration process in India. The preliminary results indicate that the annual gross potential availability of bagasse in India is more than 67 million tonnes (MT). The potential of electricity generation through bagasse cogeneration in India is estimated to be around 34TWh i.e. about 5575MW in terms of the plant capacity. The annual CER potential of bagasse cogeneration in India could theoretically reach 28 MT. Under more realistic assumptions about diffusion of bagasse cogeneration based on past experiences with the government-run programmes, annual CER volumes by 2012 could reach 20 26 million. The projections based on the past diffusion trend indicate that in India, even with highly favorable assumptions, the dissemination of bagasse cogeneration for power generation is not likely to reach its maximum estimated potential in another 20 years. CDM could help to achieve the maximum utilization potential more rapidly as compared to the current diffusion trend if supportive policies are introduced. (C) 2007 Elsevier Ltd. All rights reserved.