The recent ratification of the Kyoto Protocol and the heavy penalties imposed on the European firms not reducing their Greenhouse Gas emissions, make the Carbon Market a real asset for Latin America. In this context, Brazil appears as one of the biggest producers of Certified Emissions Reductions, mostly because of its potential to generate electricity power from renewable sources. Unfortunately, the real attractivity of this business is still unknown in the Brazilian Electric Sector, mainly because of the difficulties in estimating the future production level of the emission reductions and because of the existence of some managerial flexibilities that usually are note recognized in this market. In this context, the main objective of this work is to develop a methodology to evaluate the incremental payoff of the carbon market on electricity generation projects of interconnected hydrothermal systems, such as the Brazilian System. The methodologies ACM0002 [1] and AMS-I.D [2], both approved by the Kyoto Protocol Executive Board, will be used to determine the baseline of these projects. Besides that, considering that the carbon price is a random variable, the Real Option Approach will be used to evaluate the embedded managerial flexibilities on this business. The considered real option may be evaluate by using the binomial tree, least square Monte Carlo and the Grant, Vora & Weeks methods. Both the Geometric Brownian Motion and the Jump Diffusion processes will be used to model the price of the emission reductions.