Abstract Taking the materials balance principle into account, this study presents a new CO2 emission efficiency measure that is constructed by a data envelopment analysis framework, and uses the model to estimate the CO2 emission efficiency, the potential emission reduction, and cost/carbon tradeoffs in China’s industrial sector for the period of 1997~2012. The main findings are as follows. The emission and cost efficiencies are both quite low at a national average level while they vary dramatically among provinces. Secondly, on average, the potential reduction in CO2 emissions and cost for the China’s industrial sector are promising. Since the cost and emission efficient operations cannot be achieved within current market condition, there are commonly tradeoffs between cost and emission. Although taxes on the worstpolluting energy source and/or subsidies on the leastpolluting energy source can be designed to change market condition, by which the cost and emission efficient operations can be achieved simultaneously, they are economically infeasible because of huge extra cost. Finally, instead of being emission efficient, it is more reasonable and realistic for China’s industrial sector to be cost efficient which can also results in a large reduction of emissions and does not need a drastic change in energy mix.
2015, Vol. 12 
