This paper estimates the environmental efficiency of Indian cement industry within a joint production framework of both desirable & undesirable output using Data Envelopment Analysis. Shows that this industry, if subjected to environmental regulation, has potential of expanding desirable output & reducing the undesirable one from the given inputs. However regulation has a potential cost in terms of lower feasible expansion of desirable output as compared to unregulated scenario.

Coal combustion, for the production of cement, generates considerable amount of environmentally detrimental carbon dioxide as an undesirable by-product. Thus, this paper aims
at measuring environmental efficiency within a joint production framework of both desirable and undesirable output using Data Envelopment Analysis. Carbon dioxide is considered as an input in
one context and as an undesirable output in the other with the environmental efficiency being defined accordingly. Using 3 digit sate level data from the Annual Survey of Industries for the years 2000-01 through 2004-05, the proposed models are applied to estimate environmental efficiency of Indian cement industry. Empirical results show that Indian cement industry, if faced with environmental regulation, has the potential to expand desirable output and contract undesirable output with the given inputs. However, regulation has a potential cost in terms of
lower feasible expansion of desirable output as compared to unregulated scenario.