This paper examines the interfuel/technological substitution and electricity demand effects of carbon tax on electric utility planning and CO2 emissions from the power sector. It also compares the magnitude of these effects in cases with and without restrictions on generation technologies. A major finding of the study is that low carbon tax may not be effective to reduce CO, emissions through interfuel and technological substitution in power generation regardless of the technological restrictions. Furthermore, with technological and resource availability constraints, the interfuel and technological substitution possibilities would be exhausted beyond a certain tax rate and the level of CO, mitigation due to carbon tax would mainly depend upon the demand-side response.