Clean Development Mechanism (CDM) is defined as one of the “flexibility” mechanisms that allows entities based in Developed Countries (Annex I Parties) to develop emission-reducing projects in Developing Countries (non-Annex I Parties), and generate tradable carbon credits corresponding to the volume of carbon emission reductions achieved by those projects. CDM projects have been developed in several parts of the world across the sectoral economies, including renewable energy, with reportedly varying degrees of success and failures. In the renewable energy segment, CDM has been successfully deployed in Micro-Hydel power projects to mitigate and offset green-house gas emissions into the environment. The experiences of different implementing states are vastly different in past decade. CDM applications in Micro-Hydel projects have been quite notable to generate hydro-power and mitigate emissions in the state. This paper takes a holistic review about the current status in the performance of CDM projects in India, with special reference to Himachal Pradesh, particularly in the context of Small (Micro)-Hydel projects with a very high renewable energy potential. The achievements as well as strategy of implementation of Small-Hydel projects in Himachal Pradesh is discussed in the light of selected case studies of CDM projects that are at various stages of formulation, designing and implementation. Guidelines for CDM project designing and the potential for carbon markets for the hydro-power in the context of Himachal Pradesh is discussed. Some of the shortcomings in implementation of Micro-Hydel CDM project in the State are also discussed and highlighted in the paper. The paper has also examined the status of implementation and the quality of projects in the form of illustrative case studies in terms of their ability for energy extraction, creating energy trading opportunities, and stakeholder participation in sharing the project benefits during the lifetime as well as the beyond the life-time of the projects.