Environmental efficiency and abatement cost of China's industrial sectors based on a three-stage data envelopment analysis

China has gained the reputation of “global factory” due to its phenomenal industrial growth over the past decades. At the same time, its industrial energy consumption has resulted in serious environmental problems. Accordingly, there is an urgent and critical need to reduce industrial carbon emissions at a minimum cost without hampering the country's economic development. The dual targets for carbon emission intensity and amount from the 12th Five-Year (2011-2015) Plan make it necessary to investigate the environmental efficiency and reduction costs of different sectors. This study employs a three-stage data envelopment analysis model based on a directional distance function approach with radial and non-radial slacks of desirable and undesirable outputs considered to measure the environmental efficiency and marginal CO2 emission abatement costs of China's 37 two-digit industries during 2005-2014. Based on the environmental efficiency and abatement cost of the industrial sectors, we reached the following conclusions. First, the adjusted estimates differ significantly from the results that do not consider the influence of environmental factors, and it is essential to consider the heterogeneity of industries in proposing emission reduction strategies. In addition, the stimuli for the smelting and pressing of metal industries result in cost reduction and the supervision on the top nine emitters and the Equipment Manufacturing Industries should be strengthened. Finally, the industrial sectors with large abatement potential are classified into short-term and long-term key target industries according to the emission abatement cost analyses.