With increasing worldwide awareness of the serious environmental problems due to fossil fuel consumption, efforts are being made to develop energy-efficient and environmental friendly systems by utilization of non-polluting renewable energy sources, such as solar energy, industrial waste heat, geothermal water etc. Ground Source Heat Pump systems (also referred to as GSHP, earth energy systems and Geo-Exchange systems) have received considerable attention in recent decades as an alternative energy source and it could play a significant role in reducing the consumption of centrally produced electricity, thus leading to a reduction in CO2 emissions. In the present work a research is carried out to identify the operating parameters that will give rise to higher COP and less CO2 emission. In order to achieve this goal, a theoretical model based on conservation of mass and energy has been developed for performance analysis of GSHP. Four important operating parameters including compressor inlet temperature, outlet temperature of condenser, space temperature and ambient temperature have been identified as the characteristic operating parameters with three level variations. Calculations have been carried out using R502 refrigerant. In order to identify the optimum operating conditions for the GSHP, Taguchi optimization technique has been employed using L-9 orthogonal array. The conditions of larger the better for COP and lower the better for CO2 emission have been considered. A computer program for thermodynamic calculations has been developed to run nine test runs and the results have been analyzed for the optimum conditions using Signal to Noise ratio and ANOVA. Results indicate that the condenser outlet temperature provides significant contribution for maximizing COP and minimizing CO2 emission.