Technical efficiency of automobiles – A nonparametric approach incorporating carbon dioxide emissions

•We analyze the efficiency of cars sold in Germany using nonparametric methods.•We include carbon dioxide emissions in our analysis with directional distance functions.•Cars with natural gas engines are inefficient even if CO2 emissions are accounted for. We conduct an empirical analysis of the technical efficiency of cars sold 2010 in Germany. The analysis is performed using traditional data envelopment analysis (DEA) as well as directional distance functions (DDF). The approach of DDF allows incorporating the reduction of carbon dioxide emissions as an environmental goal in the efficiency analysis. A frontier separation approach is used to gain deeper insight for diesel and gasoline cars. Natural gas driven cars and sport utility vehicles are also treated as different groups. The results show that the efficiency measurement is statistically yet not economically significantly influenced by the incorporation of carbon dioxide emissions. Moreover, we find that natural gas driven cars are highly inefficient even if the reduction of emissions is accounted for in the analysis.