<p>Existing research on the impact of economic agglomeration on carbon emission efficiency has yielded inconsistent results. This study is among the first to use a spatial stochastic frontier analysis model that addresses both spatial effects and endogeneity to examine the impact of economic agglomeration on carbon emission efficiency using a panel dataset of Chinese cities. The findings indicate that an increase in economic agglomeration facilitates the reduction of carbon emissions and enhances carbon emission efficiency, aligning with sustainable development policies. Further counterfactual analysis suggests that targeted agglomeration policies yield diminishing marginal environmental returns. Specifically, increasing economic agglomeration in less agglomerated, low-density cities unlocks massive carbon emission reduction potential strictly through efficiency enhancements. Based on this analysis, it is recommended that policymakers in China avoid one-size-fits-all approaches and instead take targeted measures, such as eliminating rigid administrative barriers like the hukou registration system to build unified large markets, to prioritize population concentration in less agglomerated, low-density areas, thereby unlocking disproportionately large carbon emission efficiency dividends.</p>