This study performed an assessment on the beneficial of the Clean Development Mechanism (CDM) application on waste treatment system in a local palm oil industry in Malaysia. Life cycle assessment (LCA) was conducted to assess the environmental impacts of the greenhouse gas (GHG) reduction from the CDM application. Calculations on the emission reduction used the methodology based on AM002 (Avoided Wastewater and On-site Energy Use Emissions in the Industrial Sector) Version 4 published by United Nations Framework Convention on Climate Change (UNFCC). The results from the studies showed that the introduction of CDM in the palm oil mill through conversion of the captured biogas from palm oil mill effluent (POME) treatment into power generation were able to reduce approximate 0.12 tonnes CO2 equivalent concentration (tCO2e) emission and 30 kW x hr power generation per 1 tonne of fresh fruit bunch processed. Thus, the application of CDM methodology on palm oil mill wastewater treatment was able to reduce up to 1/4 of the overall environment impact generated in palm oil mill.