Carbon efficiency in China: Should we be concerned about the shadow economy and urbanization?

Reducing carbon emissions is critical to achieving a carbon‐neutral world according to the Glasgow Climate Pact, but production, and thus carbon emissions, must continue to meet the needs of the world's growing population. Minimizing carbon emissions per production, that is, increasing carbon efficiency is one way to support the Sustainable Development Goals. Therefore, studying the determinants of carbon efficiency for China, the largest global polluter, is important for zero carbon goals. To this end, this study examines the effects of the shadow economy, globalization, trade openness and urbanization on carbon efficiency using novel dynamic autoregressive‐distributed lag simulations for China during 1990–2018. The empirical results illustrate that (i) the environmental Kuznets curve (EKC) hypothesis is not valid; (ii) Shadow economy, trade openness and urbanization reduce carbon efficiency and (iii) Globalization enhances carbon efficiency. Based on these results, it is suggested that the Chinese government should combat the shadow economy to increase carbon efficiency, regulate unplanned and polluting urbanization in a green manner, reduce carbon intensity in foreign trade, and benefit from environmental technologies provided by globalization.