Global environmental regulation such as limits on CO2 emissions will change the energy cost as well as energy mix, and it will eventually affect the potential economic growth and future energy demand. The rise of energy price from the environmental regulation will encourage the efficiency increase of energy use, fuel switching and the substitution between the energy and the other factors of production like labour and capital. Such situations can be successfully simulated through an energy-economy model which permits two-way interaction between energy and economy. An analysis on the role of nuclear energy system for meeting the global environmental constraint like CO2 emission regulation, has been performed through an energy-economy interaction model EFOM-MACRO-KOREA. In case carbon taxation which is a widely discussed policy measure for CO2 abatement should be introduced, the role of nuclear energy in the domestic sustainable energy system as well as the economic impacts has been assessed. For the analysis, various scenarios in tax rate have been considered. Levying carbon tax will decrease future economic growth, and the decrease will be bigger in case that there are some restrictions on nuclear installation. It is shown that nuclear energy system will play an important role in Korean sustainable development up to 2040 in most cases. (C) 1997 Published by Elsevier Science Ltd.