<p>Enhancing total factor energy efficiency (TFEE) is an important strategy for effectively reducing carbon emissions and achieving carbon neutrality. However, there is a lack of studies that quantitatively analyze the threshold effects of TFEE on carbon emissions and carbon neutrality. This study investigates the impact of total factor energy efficiency (TFEE) on carbon emission levels and carbon neutrality, utilizing panel data from 252 prefecture-level cities in China from 2006 to 2019. Using a variety of econometric models, including fixed-effects regression and threshold analysis, we find that TFEE has a significant negative effect on both carbon emission levels and carbon neutrality. Specifically, in medium-sized cities, TFEE shows a stronger impact on reducing carbon emission levels and promoting carbon neutrality compared to large or small cities. Moreover, threshold analysis reveals that the effect of TFEE on carbon emission levels and carbon neutrality varies significantly at different levels of energy consumption. As energy consumption increases, the impact of TFEE on carbon emission levels diminishes, while the relationship with carbon neutrality follows a U-shaped pattern, initially inhibiting and later promoting carbon neutrality. These findings suggest that improving TFEE is a viable strategy for reducing carbon emission levels and achieving carbon neutrality, especially in cities with moderate energy consumption. These findings highlight significant policy implications, particularly for medium-sized cities, where targeted energy efficiency improvements can significantly contribute to carbon neutrality goals.</p>