The majority of clean development mechanism (CDM) projects are confined to a few countries. For many developing nations, entry into the carbon market, either through CDM or others, has been difficult. Thus, rationalizing CDM projects and the carbon market as a tool for sustainable development is often questioned. Many developing countries, such as Nepal, lack a quantification of CO2 reduction potential and an assessment of bottlenecks necessary for the carbon market. In this context, this paper assesses the potential emission reductions from major sectors of Nepal and the accompanying bottlenecks of the carbon market. The analyses provide indications of the type and scale of the carbon mitigation opportunities in key sectors such as waste management, biogas utilization, promotion of electric vehicles, rice cultivation, bio-energy utilization, brick making, hydropower development and a few others. These might be helpful to decision-makers in Nepal as well as to the process of re-orienting CDM and other carbon markets to better understand the bottlenecks of developing countries.