The role of the environment is an important issue in the policy-making and hence, the accurate assessment of the environmental conditions is vital. In this paper, an environmental efficiency index is developed for the OECD countries using non-parametric techniques. The approach adopted is based on the assumption that there is just one production process behind the production of both goods and pollution emissions. The index derived in this work measures the extent of the required output sacrifice, due to the transformation of the production process, from one where all outputs are strongly disposable to the one which is characterized by weak disposability of pollutants. Using this index, we first conduct cross-section comparisons on the state of each country's production process in its treatment of pollution emissions. We then trace each country's modification of their production processes overtime. The results indicate that if the disposability for CO2 emissions were strictly restricted as the result of an environmental regulation, the total value of output loss to the OECD countries as a whole would correspond to 3.7, 4.8 and 3.5% of the total OECD GDP for 1980, 1985 and 1990, respectively. © 2000 Academic Press.