A lot of energy is required for drying the sewage sludge produced during the wastewater treatment process in China; however, on the other hand, the thermal energy in flue gas from power plants is usually wasted as it discharges into the atmosphere. In this study, a new technique for sludge drying is introduced. The key component of the new technique is equipment of a two-stage drying and granulation that utilizes thermal energy contained in the flue gas from power plants and extends sludge contact time with flue gas during the constant-rate evaporation stage. The primary results of the implementation in the Kangshun sludge treatment plant (daily treatment capacity of 100 tons of wet sludge) show that the new drying technique is very effective economically and environmentally. The water content in the sludge was reduced from 78% to less than 30%. The resulted sludge could be used either to co-incinerate with coal in a circulating fluidized bed or to mix with clay to make better bricks. Besides the saving in the direct heating cost in the sludge drying processes by 80%, the saving in fossil fuel consumption due to reuse of the dried sludge is also significant. As a result of the implementation of the new technique in a sludge treatment plant at the scale of the Kangshun plant, about 16,440 tons of CO2 emission could also be reduced every year.