The growth of China's industry has been seriously depending on energy and environment. This paper attempts to apply the directional distance function and the Luenberger productivity index to measure the environmental efficiency, environmental total factor productivity, and its components at the level of subindustry in China over the period from 1999 to 2009 while considering energy consumption and emission of pollutants. This paper also empirically examines the determinants of efficiency and productivity change. The major findings are as follows. Firstly, the main sources of environmental inefficiency of China's industry are the inefficiency of gross industrial output value, the excessive energy consumption, and pollutant emissions. Secondly, the highest growth rate of environmental total factor productivity among the three industrial categories is manufacturing, followed by mining, and production and supply of electricity, gas, and water. Thirdly, foreign direct investment, capital-labor ratio, ownership structure, energy consumption structure, and environmental regulation have varying degrees of effects on the environmental efficiency and environmental total factor productivity.
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