The Clean Development Mechanism (CDM) so far has failed to mobilize a substantial amount of energy efficiency projects; less than 4% of credits come from this category. This is due to the fact that only few methodologies for setting of baselines and monitoring project emissions have been approved by the CDM Executive Board (EB). While energy efficiency methodologies have the highest share of methodology submissions, they also suffer from the highest rejection rate. Just 25% of energy efficiency methodology submissions have been approved or consolidated. The applicability of those methodologies is typically narrow and the requirements for monitoring are heavy. Industrial efficiency improvements (e.g. waste heat recovery) are covered relatively well, whereas there are glaring gaps with regards to electricity generation and transmission as well as transport. Demand-side management in households and commercial buildings so far has not been covered either. The EB has not been willing to accept empirical models and performance benchmarks as a basis for baseline emission determination. We see some inconsistencies in decision-making of the Methodology Panel (MP)/ EB particularly with respect to the underlying baseline approach, treatment of rebound effects and endogenous energy efficiency improvement, and additionality assessment of programmatic CDM. A key challenge for energy efficiency projects is determination of additionality; attempts to focus on the barrier analysis only have been rejected by the MP/ EB. A new challenge comes up in the context of programmatic CDM which could give a boost to demand-side activities if the rules are less cumbersome than those for single projects. Here, the application of the additionality test again becomes crucial.