Interest in oxy-fuel combustion as one of the leading carbon capture technologies has grown significantly in the past two decades. Experimental studies have shown higher CO concentration in oxy-fuel diffusion flames than in traditional air-fuel flames of both gaseous and solid fuels. The higher CO concentration changes the flame profiles, and it may have impacts on pollutants formation. This article presents a numerical study regarding the chemical effects of CO2 on CO formation in the flame region, and their modeling approaches in CFD simulations. Equilibrium calculation confirms higher CO concentration associated with fuel-rich stoichiometry in CO2 diluted combustion environment. One-dimensional counter-flow diffusion flame simulation using detailed reaction mechanisms reveals that the reaction H + CO2 reversible arrow OH + CO enhances CO formation in the presence of high CO2 concentration, leading to a significantly higher CO concentration under oxy-fuel combustion conditions. High CO2 concentration also impacts the reaction OH+H-2 reversible arrow H+H2O via OH radical and results in lower H-2 and higher H2O concentrations in the flame profile. Computational fluid dynamics (CFD) simulations of a swirling diffusion flame under air-fired and oxy-fuel conditions were conducted using the eddy dissipation model and the eddy dissipation concept model with quasi-global and global kinetic mechanisms. Results show that reasonable CO predictions can only be obtained using finite-rate approach with appropriate mechanisms considering the CO2 chemical effects. The Westbrook-Dryer two-step mechanism consistently underestimates the CO concentrations. In contrast, the Westbrook-Dryer multiple-step mechanism captures the chemical effects of CO2, and improves the predictions.