Among the G20 countries, China is the only country to experience an increase in electricity generation from coal-fired thermal power plants from 2019 to 2020. This study aims to develop an analytical framework combining metafrontier data envelopment analysis with the logarithmic mean Divisia index for a detailed decomposition analysis of ‘mass-based’ energy-related CO₂ reduction potential through efficiency improvements in coal-fired thermal power plants in China. The results show that inefficiency in power generation can be largely attributed to differences in the location of power plants and the production scale. Moreover, the impact of regional heterogeneity on the changes in power generation efficiency is more notable for the small–medium power plants in the northeast region than the large power plants in the western region in China. However, when focusing on the mass-based CO₂ reduction potential associated with the regional heterogeneity, its positive effects in the western region for the large power plants are 6.2 times larger than that in the northeast region for the small–medium power plants. These results imply that an analysis that focuses only on the efficiency score would ignore the production scale of coal-fired thermal power plants and thus would fail to properly evaluate the environmental impacts associated with efficiency changes.