This paper describes work aimed at developing an underwater power system and an environmental control EGR system based on the recycle and closed-cycle operations of conventional diesel engines. Particular emphasis is placed on one of the key problems associated with the recycling some of carbon dioxide in closed-cycle diesel engine (CCDE). A quasi-dimensional model has been developed to investigate the effects of different intake compositions on engine performances. The paper also introduces the development of instrumentaion for measurement and control combustion conditions in CCDE. With the objective of improving fuel ignitability and reducing the ignition delay, the paper experimentally investigates the effects of heated fuel on fuel injection characteristics, engine performance and exhaust emissions in DI and IDI diesel engines. Experimental and computational results show that it is possible to counter the adverse effect of a high carbon dioxide concentration in intake gas on engine performance by preheating the diesel fuel.