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Because of the global warming impact of hydro fluorocarbons, the uses of natural refrigerants in automotive and HVAC industries have received worldwide attention. CO 2 is the most promising refrigerant in these industries, especially the transcritical CO 2 refrigeration cycle. The objective of this work is to identify the main factors that affect two-stage compression transcritical CO 2 system efficiency. A second law of thermodynamic analysis on the entire twostage CO 2 cycle is conducted so that the exergy destruction of each system component can be deduced and ranked, allowing future efforts to focus on improving the components that have the highest potential for advancement. The inter-stage pressure is used as a variable parameter in the analysis study. The second law efficiency, coefficient of cooling performance and total exergy destruction of the system variations with the inter-stage pressure are presented graphically. It was concluded that there is an optimum inter-stage pressure that maximizes both first law and second law efficiencies.