A case study was conducted in Beijing to identify municipal sewage sludge (SS) management systems appropriate for a sound material-cycle society. The environmental and economic impacts of four realistic SS-handling scenarios were investigated: stabilization by thermal drying, increased inclusion of SS in cement manufacture, and using either dried or carbonized SS as substitute fuel for coal-fired power generation plants. The results showed that the current sludge management system had the lowest operating cost but higher greenhouse gas (GHG) emissions and a low recycling rate. The case with the use of carbonized SS reused in coal-fired power plants had higher energy consumption and almost the same GHG emissions as the current system. On the other hand, the case including more SS in cement manufacture had the same level of energy consumption with much lower GHG emissions. The case with the use of dried SS in coal-fired power plants also resulted in lower energy consumption and lower GHG emissions than at present. Furthermore, sensitivity analysis showed that drying SS with surplus heat from cement plants used less energy and emitted less GHG compared to the other two drying methods.