This study analyzes the impact of an electricity grid interconnection between Korea and Japan oil their energy systems. Both countries seriously consider energy security as the most important policy issue because of it lack of domestic energy resources. In addition, public concern for the environment is recently rising LIP in response to the global warming. Electricity grid interconnection has strong potential to cope with such complicated problems cost-effectively. We have developed the interconnection model, which includes the electricity grid interconnection between the electricity sectors of Korea and Japan, considering both technological and economic efficiency. The result of the study reveals the significant cost-effectiveness of the interconnection, in particular, under stringent condition Such its nuclear phase-out in Japan and CO, emission target in Korea and Japan. In the case that Japan's nuclear power plants will be phased out, the interconnection attains further cost reduction of constructing substitutive thermal power plants. On the other hand, when Korea and Japan set a joint CO2 emission target, it achieves the emission target more efficiently than they reduce the emission individually. (c) 2004 Elsevier Ltd. All rights reserved.