Demand Side Management (DSM) is the planning and implementation of strategies intended to encourage electricity consumers to reduce energy demand, improve energy efficiency, shift time of usage and promote the use of renewable energy based distributed generation system. It is a close socio- economic link between the utility and consumer for mutually benefiting to both. The research undertaken rivets on the potential use of DSM strategies to regulate electrical energy demand and mitigate carbon emissions in Oman. The main objective of this research is to examine the DSM based activities and policy options which could achieve significant reduction in electricity demand at the distribution network connected to the residential sector. It is revealed that temperature is the major environmental factor while use of air- conditioner units and practice of subsidised tariffs are epic centres of lavish electricity consumption at residential sector in Oman. This study applies a scenario based approach to identify viable energy efficiency and load reduction methods. The technical analysis comprises of bottom-up approach considering operational, behavioural and environmental factors to simulate the hourly load profile. Household load patterns are developed to identify and implement a range of DSM technological activities. An analytical model is set up to control the household load with minimal compromise of end-user satisfaction. Obtained results show that application of DSM strategies could contribute the substantial reduction in peak load and total energy demand. Studies carried out on renewable energy based hybrid power system manifest the viability and cost effectiveness of distributed generation to mitigate carbon emissions and peak load demand. The results of technical analysis are used to explicate the essential policy priorities underpinning the sustainable development of energy sector and mitigate the environmental issues. This comprehensive study provides the base to recommend the incentive based DSM programmes, smart metering, legal frame work for energy efficiency standards and labelling, investment subsidies to encourage renewable energy and legislation for distributed generation. The research has explored the benefits of DSM programmes along with barriers and challenges to implement the appropriate policies.