We develop a conservative, second order accurate fully implicit discretization in two dimensions of the Navier-Stokes NS and Cahn-Hilliard CH system that has an associated discrete energy functional. This system provides a diffuse-interface description of binary fluid flows with compressible or incompressible flow components [44,4]. In this work, we focus on the case of flows containing two immiscible, incompressible and density-matched components. The scheme, however, has a straightforward extension to multi-component systems. To efficiently solve the discrete system at the implicit time-level, we develop a nonlinear multigrid method to solve the CH equation which is then coupled to a projection method that is used to solve the NS equation. We analyze and prove convergence of the scheme in the absence of flow. We demonstrate convergence of our scheme numerically in both the presence and absence of flow and perform simulations of phase separation via spinodal decomposition. We examine the separate effects of surface tension and external flow on the decomposition. We find surface tension driven flow alone increases coalescence rates through the retraction of interfaces. When there is an external shear flow, the evolution