Circular economy efficiency improvements contribute to achieving Net-Zero: Empirical evidence from China

Abstract

In response to the pressing challenges of climate change and resource scarcity, the circular economy (CE) has gained recognition as a vital strategy for reducing carbon emissions while sustaining economic growth. Despite its potential existing studies often lack clarity in measuring Circular Economy Efficiency (CEE) and in elucidating the mechanisms by which CE drives carbon reduction and contributes to Net-Zero. This study employs the Epsilon-Based Measure (EBM) to assess CEE and uses a two-way fixed effects model to evaluate its impact on carbon emission reduction across 285 Chinese cities from 2010 to 2020. Our findings indicate that improvements in the CE significantly reduce both carbon emissions and carbon intensity. Notably, the CE effectively reduces emissions in cities in eastern and western China, whereas central cities experience an increase in emissions, reflecting spatial disparities in CE practices. The mechanism analysis identifies green technology innovation, production structure rationalisation, and reduced resource dependence as critical pathways driving these reductions. The robustness checks confirm that the results are consistent and reliable. These findings underscore the importance of enhancing the CE to decrease carbon emission and emphasise the need for targeted CE strategies tailored to the specific characteristics of urban areas to effectively decarbonise cities and support Net-Zero.