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The Clean Development Mechanism ( CDM ) is an arrangement under the Kyoto Protocol allowing industrialized countries with a greenhouse gas reduction commitment (called Annex I countries) to invest in projects that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries. A crucial feature of an approved CDM carbon project is that it has to establish that the planned reductions would not occur without the additional incentive provided by emission reductions credits, a concept well known as "additionality".

The CDM allows net global greenhouse gas emissions to be reduced at a much lower global cost by financing emissions reduction projects in developing countries where costs are lower than in the industrialized countries.

The CDM is supervised by the CDM Executive Board (CDM EB) and is under the guidance of the Conference of the Parties (COP/MOP) of the United Nations Framework Convention on Climate Change (UNFCCC).

India is a Developing country and is a signatory to the Kyoto Protocol. Hence CERs generated from Indian projects are eligible for trading with Annex I countries.